<PAGE>
As filed with the Securities and Exchange Commission on August , 1999
1933 Act File No.333-82195
1940 Act File No. 811-09421
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Form N-2
(Check appropriate box or boxes)
----------------
[_]REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X]Pre-Effective Amendment No. 1
[_]Post-Effective Amendment No.
and
[_]REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X]Amendment No. 1 ----------------
SAL Trust Preferred Fund I
Exact Name of Registrant as Specified in Declaration of Trust
----------------
1901 Sixth Avenue North, Suite 2100
Birmingham, Alabama 35203
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
(205) 252-5900
Registrant's Telephone Number, including Area Code
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801, County of Newcastle
Name and Address (Number, Street, City, State, Zip Code) of Agent for Service
----------------
Copies of Communications to:
Thomas S. Harman
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
----------------
If any of the securities being registered on this form are offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act
of 1933, other than securities offered in connection with a dividend
reinvestment plan, check the following box. [_]
It is proposed that this filing will become effective (check appropriate
box)
[X] when declared effective pursuant to Section 8(c)
----------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Proposed
Proposed Maximum
Amount Maximum Aggregate Amount of
Title of Securities Being Offering Price Offering Registration
Being Registered Registered Per Unit Price(1) Fee(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares, No Par Value... 946,000 Shares $25.00 $23,650,000 $6,574.70
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Previously paid.
----------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such dates as the Commission, acting pursuant to said Section
8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
SAL TRUST PREFERRED FUND I
----------------
CROSS REFERENCE SHEET
Part A--Prospectus
<TABLE>
<CAPTION>
Items in Part A of Form N-2 Location in Prospectus
--------------------------- ----------------------
<S> <C> <C>
Item 1. Outside Front Cover............................. Cover Page
Item 2. Cover Pages; Other Offering Information......... Cover Page
Item 3. Fee Table and Synopsis.......................... Prospectus Summary; Summary of
Fund Expenses
Item 4. Financial Highlights............................ Not Applicable
Item 5. Plan of Distribution............................ Cover Page; Prospectus Summary;
Underwriting
Item 6. Selling Shareholders............................ Not Applicable
Item 7. Use of Proceeds................................. Prospectus Summary; Use of
Proceeds; The Fund's Investments
Item 8. General Description of the Registrant........... Prospectus Summary; The Fund; The
Fund's Investments; Fund Shares
Item 9. Management...................................... Prospectus Summary; Management of
the Fund; Fund Custodian
Item 10. Capital Stock, Long-Term Debt, and Other
Securities..................................... Fund Shares; Tax Matters
Item 11. Defaults and Arrears on Senior Securities....... Not Applicable
Item 12. Legal Proceedings............................... Not Applicable
Item 13. Table of Contents of the Statement of Additional
Information.................................... Back Cover
Part B
<CAPTION>
Location in Statement of
Items required by Part B of Form N-2 Additional Information
------------------------------------ ------------------------
<S> <C> <C>
Item 14. Cover Page...................................... Cover Page
Item 15. Table of Contents............................... Back Cover
Item 16. General Information and History................. Not Applicable
Item 17. Investment Objectives and Policies.............. Not Applicable
Item 18. Management...................................... Management of the Fund
Item 19. Control Persons and Principal Holders of
Securities..................................... Not Applicable
Item 20. Investment Advisory and Other Services.......... Management of the Fund
Item 21. Brokerage Allocation and Other Practices........ Not Applicable
Item 22. Tax Status...................................... Additional Tax Discussion
Item 23. Financial Statements............................ Balance Sheets of the Fund
</TABLE>
Part C--Other Information
Items 24-33 have been answered in Part C of this Registration Statement
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
, 1999
PROSPECTUS
SAL TRUST PREFERRED FUND I
860,000 Shares of Beneficial Interest
Investment Objective. The Fund is a newly organized, closed-end,
nondiversified management investment company. The Fund's investment objective
is to seek a high level of current income. The Fund cannot assure you that it
will achieve its investment objective.
You should carefully read the "Risk Factors" beginning on page 6 of the
Prospectus and "Additional Risk Factors" beginning on page S-2 of the Statement
of Additional Information, before you make your investment decision.
Shares. The Fund intends to offer shares of beneficial interest that
represent an undivided interest in the assets of the Fund. See "Fund Shares."
Portfolio Contents. The Fund intends to invest substantially all of its
assets in Cumulative Trust Preferred Securities issued in approximately equal
amounts by three statutory trusts, controlled respectively, by three bank
holding companies. The assets of each statutory trust consist solely of
subordinated debentures and payments thereunder. See "The Fund's Investments."
No Prior History. Because the Fund is newly organized, its shares have no
history of public trading.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation
to the contrary is a criminal offense.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Price to Sales Proceeds to
Public Load(1) the Fund(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................ $25.00 None $25.00
- --------------------------------------------------------------------------------
Total(3)................................. $21,500,000.00 None $21,500,000.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) The bank holding companies will pay the Underwriters 5% of the Per Share
Price to Public in connection with the sale of shares offered hereby
($1,075,000). The Fund has granted the Underwriters an option, exercisable
for 30 days from the date of this Prospectus, to purchase up to 86,000
additional shares to cover over-allotments, if any. To the extent that such
option is exercised in full, the bank holding companies will pay the
Underwriters $1,182,500. See "Underwriting."
(2) Provided Fund expenses do not exceed specified limits. If expenses do
exceed such limits, proceeds to the Fund will decrease accordingly. See
"Use of Proceeds" and "Underwriting."
(3) To the extent the over-allotment option is exercised in full, the Total
Price to Public will be $23,650,000 and, assuming Fund expenses do not
exceed the limitations set forth in footnote (2) above, the Total Proceeds
to the Fund will be $23,650,000. See "Underwriting."
The Underwriters are offering the shares as they receive them and retain the
right to reject any order in whole or in part. The Fund expects to deliver
shares to the Underwriters in book-entry form on or about 1999.
-----------
STERNE AGEE & LEACH, INC.
The date of this Prospectus is , 1999
<PAGE>
(CONTINUED FROM THE COVER PAGE)
This Prospectus contains important information about the Fund. You should
read the Prospectus before deciding whether to invest and retain it for future
reference. A Statement of Additional Information, dated , containing
additional information about the Fund, has been filed with the Securities and
Exchange Commission and is hereby incorporated by reference in its entirety
into this Prospectus and is attached to this Prospectus.
No public market for the shares currently exists. The Fund intends to list
the shares on the American Stock Exchange ("AMEX"). The trading or "ticker"
symbol of the shares is expected to be "PBA".
THE SHARES OF CLOSED-END INVESTMENT COMPANIES, SUCH AS THE FUND, FREQUENTLY
TRADE AT A DISCOUNT TO THEIR NET ASSET VALUES. INVESTORS IN THIS OFFERING
SHOULD NOTE THAT THE SHARES MAY LIKEWISE TRADE AT A DISCOUNT TO NET ASSET
VALUE. THIS RISK MAY BE GREATER FOR INVESTORS WHO SELL THEIR SHARES IN A
RELATIVELY SHORT PERIOD AFTER COMPLETION OF THE PUBLIC OFFERING.
THE FUND'S SHARES DO NOT REPRESENT A DEPOSIT OR OBLIGATION OF, AND ARE NOT
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITARY INSTITUTION,
AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENTAL AGENCY.
<PAGE>
PROSPECTUS SUMMARY This is only a summary. You should review the more
detailed information contained in the Prospectus and in the Statement of
Additional Information.
- --------------------------------------------------------------------------------
The Fund................... SAL Trust Preferred Fund I (the "Fund") is
a newly organized, closed-end,
nondiversified management investment
company. See "The Fund."
The Offering............... The Fund is offering 860,000 shares of
beneficial interest at $25.00 per share
("Fund Shares") through several
underwriters (the "Underwriters"). You must
purchase at least 50 Fund Shares. The Fund
Shares will be sold in the initial public
offering (the "Offering") without any sales
load or underwriting discounts payable by
investors or the Fund.
Investment Objective....... The Fund's investment objective is to seek
a high level of current income. The Fund is
designed primarily for long-term investors,
and you should not view the Fund as a
vehicle for trading purposes. There can be
no assurance that the Fund will attain its
investment objective. See "The Fund's
Investments."
Special Considerations..... The Fund will invest all of the net
proceeds of this Offering in Cumulative
Trust Preferred Securities ("Preferred
Securities"). The Preferred Securities are
issued by three community bank trust
entities organized as statutory trusts
under the laws of the state of Connecticut
("Bank Trusts"), each of which is
established by a community bank holding
company ("Bank Holding Company").
Use of Proceeds............ The net proceeds of the Offering of the
Fund Shares will be approximately
$21,500,000. The costs of the organization
of the Fund and the Offering of the Fund
Shares will be paid by the three Bank
Holding Companies, provided Fund expenses
do not exceed specified limits. If expenses
do exceed such limits, proceeds to the Fund
will decrease accordingly. See "Use of
Proceeds." The Fund will use all of the net
proceeds of the Offering to purchase
Preferred Securities from each Bank Trust.
Each Bank Trust will then purchase junior
subordinated debentures (the "Subordinated
Debentures") issued by its respective Bank
Holding Company of an equal dollar amount
to the Preferred Securities. Each Bank
Holding Company will, in turn, use the
proceeds from the sale of the Subordinated
Debentures to finance additional expansion,
repay existing debt and for such other
general corporate purposes as the Bank
Holding Company may determine appropriate.
Investment Manager......... Sterne Agee Asset Management, Inc. will
serve as the Fund's investment manager (the
"Manager"). The Manager will receive an
annual fee, payable on a quarterly basis,
in a maximum amount equal to .10% of the
Fund's net asset value as calculated each
quarter (including assets attributable to
any Fund Shares that may be outstanding
liquidation amount). See "Management of the
Fund."
i
<PAGE>
Distributions.............. The Fund seeks to pay a dividend yield
("Dividend Yield") on the Fund Shares at a
fixed rate of % of the liquidation amount
of the Fund Shares. The Fund expects to pay
distributions quarterly in arrears at an
annual rate equivalent to the Dividend
Yield. See "Distributions."
Listing.................... The Fund intends to list the Fund Shares on
the AMEX. The trading or "ticker" symbol of
the Fund Shares is expected to be "PBA."
See "Fund Shares."
Fund Custodian............. The Trust Company of Sterne Agee & Leach,
Inc. will serve as Custodian of the Fund.
See "Fund Custodian."
Risk Factors............... You should carefully consider the risks in
connection with this Offering set forth
under "Risk Factors," in particular the
risk that the Preferred Securities may be
redeemed by one or more of the Bank Holding
Companies five years from the date of
issuance (or upon the earlier occurrence of
certain events) and the risk that one or
more of the Bank Holding Companies may, at
any time, or from time to time, defer
payment of distributions on their Preferred
Securities for a period of up to 20
consecutive quarters, during which period
you may be required to include your portion
of the deferred payments in your taxable
income.
ii
<PAGE>
SUMMARY OF FUND EXPENSES
The following table is intended to assist you in understanding the various
costs and expenses that you, as an investor in the Fund, will bear directly or
indirectly.
<TABLE>
<S> <C>
Shareholder Transaction Expenses
Sales Load (as a percentage of offering price)........................ None+
Annual Expenses (as a Percentage of Net Assets Attributable to Fund
Shares)
Management Fees....................................................... 0%++
Other Expenses (after reimbursement).................................. 0%++
Total Annual Expenses................................................. 0%++
</TABLE>
- --------
+ The Bank Holding Companies will pay the underwriters 5% of the Per Share
Price to Public in connection with the initial sale of the Fund Shares
offered hereby ($1,075,000, or $1,182,500 if the over-allotment option is
exercised in full). See "Underwriting". You may pay brokerage charges if you
purchase or sell Fund Shares on the AMEX or other trading market.
++ The Bank Holding Companies will pay, on a pro rata basis, all of the Fund's
annual operating expenses, as well as any expenses associated with the
initial public offering of the Fund Shares up to an aggregate maximum of
$185,000 per annum which amount will increase annually in accordance with
increases in the Consumer Price Index (CPI). Any expenses in excess of
$185,000 as adjusted by the CPI will be borne by the Fund. The Fund does not
expect that the annual expenses will exceed $185,000 as adjusted by the CPI.
Each Bank Holding Company's obligation to pay such expenses continues so
long as its corresponding Preferred Securities are held by the Fund. Absent
this obligation of the Bank Holding Companies, Management Fees, Other
Expenses and Total Annual Expenses would be .10%, .67% and .77%,
respectively. Other Expenses are based on estimated amounts for the current
fiscal year. See "Management of the Fund--Investment Manager" and "Net Asset
Value" for a discussion of the Bank Holding Companies' obligation to pay the
Management fees.
EXAMPLE
The following example illustrates the expenses that you would pay on a $1,000
investment in the Fund, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C>
$0 $ 0 $ 0 $ 0
</TABLE>
- --------
The example should not be considered a representation of future expenses. The
example assumes that the fees will continue to be borne by the Bank Holding
Companies, and thus will remain unchanged over 10 years. Further, the Fund's
actual rate of return may be greater or less than the hypothetical 5% return
shown in the example. AS A RESULT, THIS EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE EXPENSES. ALTHOUGH THE FUND DOES NOT ANTICIPATE ANY
INCREASE IN EXPENSES, THE FUND'S ACTUAL EXPENSES OVER TIME MAY BE MORE THAN
THOSE SHOWN.
1
<PAGE>
THE FUND
The Fund is a newly organized, closed-end, nondiversified management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund was organized as a statutory business trust
on June 24, 1999, pursuant to a Declaration of Trust governed by the laws of
the State of Delaware (the "Declaration"). As a newly organized entity, the
Fund has no operating history. The Fund's principal office is located at 1901
Sixth Avenue North, Suite 2100, Birmingham, Alabama 35203, and its telephone
number is (205) 252-5900. The Fund intends to hold annual meetings of
shareholders so long as the Fund Shares are listed on the AMEX, or another
securities exchange or NASDAQ, and such meetings are required as a condition
to such listing.
ADDITIONAL INFORMATION
The Prospectus and the Statement of Additional Information do not contain
all of the information set forth in the Registration Statement that the Fund
has filed with the SEC. The complete Registration Statement may be obtained
from the SEC's website (http://www.sec.gov) or from the SEC by mail upon
payment of the fee prescribed by its rules and regulations (for information
call 1-800-SEC-0330).
USE OF PROCEEDS
The net proceeds of the Offering of the Fund Shares will be approximately
$21,500,000 ($23,650,000 if the over-allotment option is exercised in full).
The costs of the organization of the Fund and the Offering of the Fund Shares
will be paid by the three Bank Holding Companies, provided Fund expenses do
not exceed specified limits. If expenses do exceed such limits, proceeds to
the Fund will decrease accordingly. See "Underwriting" below. Simultaneously
with the closing of the Offering, the Fund will use all of the net proceeds of
the Offering to purchase and hold Preferred Securities from each Bank Trust.
Each Bank Trust will then purchase Subordinated Debentures issued by its
respective Bank Holding Company. Each Bank Holding Company will, in turn, use
the net proceeds from the sale of the Subordinated Debentures to finance
additional expansion, repay existing debt, repurchase its own securities
and/or for such other general corporate purposes as the Bank Holding Company
may determine appropriate.
THE FUND'S INVESTMENTS
Investment Objective
The Fund's investment objective is to provide a high level of current income
by investing all of its assets in Preferred Securities issued by three Bank
Trusts, each of which is established by a Bank Holding Company to operate, in
effect, as a finance subsidiary of the Bank Holding Company. The Fund seeks to
pay a Dividend Yield on the Fund Shares at a fixed rate of % of the
liquidation amount of the Fund Shares. However, in the event that the Fund's
expenses exceed $185,000 per annum as adjusted by the CPI, such additional
expenses will be borne by the Fund and will negatively affect the Dividend
Yield. The Fund will pay distributions quarterly in arrears at an annual rate
equivalent to the Dividend Yield. Distributions on the Fund Shares will be
funded by the distributions that the Fund receives from the Preferred
Securities.
Preferred Securities and Bank Trusts
The Preferred Securities are issued by three Bank Trusts, organized as
statutory trusts under the laws of the State of Connecticut and established by
their respective Bank Holding Companies. These Bank Holding Companies are
FirstBancorp, Inc. (Naples, Florida), the holding company for Gulf Coast
National Bank and First National Bank of the Florida Keys; First Southern
Bancorp, Inc. (Boca Raton, Florida), the holding company for First Southern
Bank; and Central Community Corporation (Temple, Texas), the holding company
for First State Bank Central Texas. A brief summary description of each of
these Bank Holding Companies and their respective banks (the
2
<PAGE>
"Banks") may be found below in the section entitled "The Bank Holding
Companies." The Preferred Securities are subject to mandatory redemption upon
repayment of the Subordinated Debentures at their maturity or upon their
earlier redemption. See "Subordinated Debentures" below.
Each Bank Trust effectively acts as a financing subsidiary for its
respective Bank Holding Company. The Bank Trusts' activities will generally be
limited to: (i) issuing the Preferred Securities to the Fund; (ii) issuing
common securities to the Bank Holding Companies; (iii) investing the gross
proceeds of the sale of the Common and Preferred Securities in the
Subordinated Debentures; and (iv) engaging in only those other activities
necessary, advisable, or incidental thereto. The Subordinated Debentures will
be the only assets of each Bank Trust, and income payments on the Subordinated
Debentures will be the only revenue of the Trust. The Subordinated Debentures
will be issued by the Bank Holding Companies pursuant to the Indenture (as
amended and supplemented from time to time, the "Indenture") between each Bank
Holding Company and its respective Bank Trust and State Street Bank and Trust
Company as the Indenture Trustee.
The Preferred Securities will not be assigned a credit quality rating by any
nationally recognized securities rating organization ("NRSRO") such as
Standard & Poor's Corporation or Moody's Investors Service.
Subordinated Debentures
The Subordinated Debentures will mature 30 years from their date of
issuance. Each Bank Holding Company reserves the right to redeem their
Subordinated Debentures, in whole or in part, at any time, commencing on that
date which is five years from their date of issuance, or earlier if certain
events occur as described in the Statement of Additional Information under
"Additional Description of the Subordinated Debentures--Special Event
Prepayment." The redemption price is equal to 100% of the principal amount of
the Subordinated Debentures plus accrued and unpaid interest.
Interest on the Subordinated Debentures is payable quarterly in arrears at
an annual rate equal to the Dividend Yield on the Preferred Securities. If an
Event of Default (as defined in the Statement of Additional Information)
occurs under the Subordinated Debentures, or during the time that interest is
deferred under the Subordinated Debentures, no distributions will be declared,
paid or reserved on each Bank Holding Company's obligations or stock ranking
junior to or on a parity with the Subordinated Debentures. Each Bank Holding
Company has the right at any time, or from time to time, to defer interest
payments on the Subordinated Debentures for up to 20 consecutive quarters,
provided that no deferral can extend beyond the stated maturity of the
Subordinated Debentures. During any such period, interest on the Subordinated
Debentures and distributions on the Preferred Securities will not be paid but
will continue to accrue and compound quarterly and will likely result in
taxable income without any corresponding cash flow during such period. Each
Bank Holding Company also has the option at any time to replace its Preferred
Securities held by the Fund with the Subordinated Debentures.
The Subordinated Debentures will not be assigned a credit quality rating by
any NRSRO.
The Guarantee
Each Bank Holding Company will make, through a Preferred Securities
guarantee, a limited and subordinated guarantee (the "Guarantee"), of the
Preferred Securities issued by its respective Bank Trust in which the Fund
invests. Each Bank Holding Company guarantees under its Guarantee (i) the
payment of the Preferred Securities' distributions; and (ii) the full payment
of principal upon liquidation or redemption of the Preferred Securities issued
by its respective Bank Trust, in each case to the extent the Bank Trust has
legally available funds on hand at such time. Each Guarantee is also
subordinated and junior in right of payment to each Bank Holding Company's
debt and other obligations that are senior to its obligations under the
Guarantee (which senior obligations constitute substantially all of the debt
and other obligations of each Bank Holding Company). Accordingly, in the event
of a default under the Preferred Securities, no Bank Holding Company will be
required to make payment under its Guarantee to the Fund unless its senior
obligations are paid first, and then only to the extent of the amount of funds
held by the Bank Trust for payment to the Fund, if any.
3
<PAGE>
FUND SHARES
The Fund will issue 860,000 Fund Shares of beneficial interest that
represent an undivided interest in the assets of the Fund. The assets of the
Fund will (after the use of the proceeds of the Offering) consist of
preferred, non-voting shares of beneficial interest of three community Bank
Trusts, each of which consist solely of Subordinated Debentures and payments
thereunder, and the respective Guarantee of its Bank Holding Company. Fund
Shares, when issued, will be fully paid and non-assessable, and will have no
preemptive or conversion rights or rights to cumulative voting.
The Fund will apply to list the Fund Shares on the AMEX.
Shares of closed-end investment companies like the Fund have during some
periods traded at prices higher than net asset value and during other periods
have traded at prices lower than net asset value. Since the market value of
the Fund Shares will be determined by such factors as relative demand for and
supply of such shares in the market, general market and economic conditions
and other factors beyond the control of the Fund, the Fund cannot assure you
that the Fund Shares will trade at a price higher than net asset value in the
future. The Fund Shares are designed primarily for long-term investors, and
you should not view the Fund as a vehicle for short-term trading purposes.
FUNDAMENTAL POLICIES
The Fund has adopted the following fundamental policies. The Fund will not:
. sell short, purchase on margin, or write put and call options;
. borrow money;
. issue senior securities;
. underwrite securities of other issuers, except to the extent the Fund
may be deemed to be underwriting the underlying Preferred Securities;
. purchase or sell real estate or commodities;
. make loans; or
. concentrate its investments (invest 25% or more of the Fund's total
assets) in any particular industry or group of industries, except the
Fund will concentrate its assets in Preferred Securities issued by three
Bank Trust entities.
Neither these fundamental policies nor the investment objective of the Fund
can be changed without the vote of a majority of the outstanding Fund Shares.
A majority of the outstanding Fund Shares means: (i) 67% or more of the Fund
Shares present at a shareholder meeting, if the holders of more than 50% of
the Fund Shares are present or represented by proxy; or (ii) more than 50% of
the Fund Shares, whichever is less. Unless expressly designated as
fundamental, all other policies of the Fund may be changed by the Board of
Trustees without your approval.
4
<PAGE>
The following diagram illustrates the flow of monies from the investing
public through the various entities to the Bank Holding Companies and each of
the securities issued with respect thereto.
[SAL TRUST PREFERRED FUND I FLOW OF FUNDS DIAGRAM APPEARS HERE]
5
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus and the
Statement of Additional Information, you should consider carefully the risk
factors described below in evaluating your decision to invest in the Fund.
Risk Factors Related to the Fund
The following risk factors relate specifically to the structure of the Fund,
any may therefore have a significant impact upon an investment in the Fund
Shares:
Lack of Diversity and Concentration of Risk. The Fund will invest all of the
net proceeds of the Offering in Preferred Securities issued by the three Bank
Trusts which are affiliated with and controlled by (and consequently the
payment of distributions and principal will be made by) the three Bank Holding
Companies located in Southeast Florida, Southwest Florida and central Texas.
Each Bank Trust will hold as its sole asset the Subordinated Debentures issued
by its corresponding Bank Holding Company. Consequently, in contrast to the
shares of a more diversified and/or nonconcentrated investment company, the
Fund Shares will be particularly susceptible to local economic, political and
regulatory changes and occurrences in each Bank Holding Company's limited
geographic market area. See "--Risk Factors Related to the Bank Holding
Companies--Geographic and Loan Concentration; Significance of Local Economic
Conditions" below.
Closed-end Structure and Absence of Established Public Market for Fund
Shares. The Fund is a closed-end investment company and as such you will not
have the right to cause the Fund to redeem your Fund Shares. Instead, you will
only be able to sell your Fund Shares in secondary transactions. Because the
Fund is newly organized, there is no established secondary market for the Fund
Shares. The Fund has applied for the listing of the Fund Shares on the AMEX
under the trading symbol "PBA". However, if and when approved for listing,
there is no assurance that any market for the Fund Shares will develop or
that, if any market for the Fund Shares develops, it will be maintained or
liquid enough for you to sell your Fund Shares at all or at any particular
price.
No Prior History. The Fund is newly organized and therefore has no prior
history upon which prospective investors can evaluate its performance. In
addition, the investment manager has no previous experience in managing
similar closed-end funds.
Option to Defer Distributions. The Fund reserves the right, at its
discretion, to defer payment of any distributions. The Fund does not
anticipate deferring payment of any distributions except to the extent that
the Bank Holding Companies elect to defer payment of the interest on the
Subordinated Debentures (and consequently the Preferred Securities). See "--
Risk Factors Related to the Preferred Securities--Option to Defer Interest
Payments; Tax Consequences" below.
Risk Factors Related to the Preferred Securities
The following risk factors relate specifically to the Preferred Securities
to be held by the Fund, and may therefore have a significant impact on the
value of the Fund Shares:
Ranking of Subordinated Debentures and Guarantees. The Subordinated
Debentures and the Guarantees issued by the Bank Holding Companies are
unsecured and rank subordinate and junior in right of payment to all senior
debt, subordinated debt and additional senior obligations issued by the Bank
Holding Companies. Neither the Indentures, the Guarantees nor the Trust
Agreements to which the Bank Holding Companies are a party place any
limitations on the amount of secured or unsecured debt, including senior debt,
subordinated debt and additional senior obligations, that may be incurred by
each Bank Holding Company at any time in the future.
Option to Defer Interest Payments; Tax Consequences. The Bank Holding
Companies have the right under the Indenture to defer payment of interest on
the Subordinated Debentures (and consequently defer distributions on the
Preferred Securities and the Fund Shares) at any time, or from time to time,
for a period of up to 20 consecutive quarterly periods (each an "Extension
Period"), provided that no Extension Period may extend beyond the stated
maturity of the Subordinated Debentures. There is no limitation on the number
of times that the Bank Holding Companies may elect to begin a new Extension
Period. During any such Extension Period,
6
<PAGE>
interest on the Subordinated Debentures, distributions on the Preferred
Securities and distributions on the Fund Shares will not be paid but all such
interest and distributions will continue to accrue and compound quarterly.
Consequently, even if you are a cash basis taxpayer, during any Extension
Period, you will still be required to recognize the accrued but unpaid
distributions as taxable income (in the form of original issue discount) even
though no cash will actually be paid during that year. Furthermore, a deferral
may negatively impact the market price for the Fund Shares.
Default by one or more of the Bank Holding Companies. The Fund is a non-
diversified closed-end investment company investing all of the net proceeds of
the Offering in Preferred Securities issued by the three Bank Trusts which are
affiliated with and controlled by (and consequently the payment of
distributions and principal will be made by) the three Bank Holding Companies.
Accordingly, a default by even one of the Bank Holding Companies on its
obligations under the Subordinated Debentures or the Guarantee will have a
material adverse effect on the value of the Fund Shares.
Limited Rights Under the Guarantee. The Guarantee will be issued by each
Bank Holding Company directly to the Fund and provide the Fund with the right
to institute a legal proceeding directly against the Bank Holding Company to
enforce its rights under the Guarantee without first instituting a legal
proceeding against its respective Bank Trust, State Street Bank as the
Guarantee Trustee or any other person or entity. However, the Fund has very
limited rights under the Guarantee as the Guarantee only requires the Bank
Holding Companies to guarantee distributions on their Preferred Securities to
the extent their respective Bank Trusts have legally available funds on hand
at such time. The Bank Trusts have no assets other than the Subordinated
Debentures and consequently maintain no regular funds as all interest payments
on the Subordinated Debentures immediately pass through the Bank Trusts to the
Fund as distributions on the Preferred Securities.
Therefore, in the event that any of the Bank Holding Companies default on
their obligation to pay any amounts payable under the Subordinated Debentures
to their respective Bank Trust, then, because such Bank Trust will possess no
funds for distribution to the Fund as a result of such default, the Bank
Holding Companies will have no obligation to the Fund under the Guarantee. See
"Relationship Among the Preferred Securities, the Subordinated Debentures and
the Guarantee" in the Statement of Additional Information.
Each Bank Holding Company's Option to Redeem Subordinated Debentures. Each
Bank Holding Company, at its sole discretion, can redeem its Subordinated
Debentures, in whole or in part, on or after the date five years from the date
of issuance. In addition, each Bank Holding Company has the right to redeem
the Subordinated Debentures at any time in whole (but not in part) within 180
days following the occurrence of a Capital Event, Tax Event or Investment
Company Event (each as defined below). Any such redemption of Subordinated
Debentures will cause a mandatory redemption of a proportionate amount of
Preferred Securities. If this were to occur, it would most likely result in a
distribution of principal to the Fund's shareholders and a reduction in the
amount of each ongoing quarterly distribution. In addition, the Fund's
investment portfolio would be even less diversified.
"Capital Event" means the receipt of an opinion of counsel experienced in
such matters that the Bank Holding Companies cannot, or will not be permitted
by the applicable regulatory authorities to, account for the Preferred
Securities as Tier 1 capital under the capital guidelines or policies of the
applicable bank regulatory authorities.
"Tax Event" means the receipt of an opinion of counsel experienced in such
matters that: (i) income received or accrued by the Bank Trusts from the
Subordinated Debentures is subject to United States federal income tax; (ii)
interest paid by the Bank Holding Companies on the Subordinated Debentures is
not deductible in whole or in part by the Bank Holding Companies for United
States federal income tax purposes; or (iii) the Bank Trusts will become
subject to more than a minimal amount of other taxes, duties or other
government charges.
"Investment Company Event" means the receipt of an opinion of counsel
experienced in such matters that the Bank Trusts are or will be considered
"investment companies" that are required to be registered under the 1940 Act.
7
<PAGE>
Exchange of Subordinated Debentures for Preferred Securities; Tax
Consequences. Each of the Bank Holding Companies will have the right at any
time to terminate its respective Bank Trust and, after satisfaction of claims
of creditors of that Bank Trust, to cause its Subordinated Debentures to be
distributed to the Fund in exchange for the Preferred Securities.
Under current United States federal income tax law, and assuming, as
anticipated by management of the Bank Holding Companies, that the Bank Trusts
will be classified as grantor trusts and not as associations taxable as
corporations, a distribution of Subordinated Debentures in exchange for the
Preferred Securities upon the dissolution of a Bank Trust would not be a
taxable event to the Fund or to you, as a shareholder of the Fund. If,
however, the Bank Trusts were classified as associations taxable as
corporations, the distribution of the Subordinated Debentures in exchange for
the Preferred Securities would constitute a taxable event to the Bank Trusts,
the Fund and to you, as a shareholder of the Fund.
Subordinated Debentures, Preferred Securities and Guarantee not
Insured. While the Preferred Securities and the Subordinated Debentures
represent a loan to the Bank Holding Companies, neither the Preferred
Securities, the Subordinated Debentures nor the Guarantee are federally
insured by the Federal Deposit Insurance Corporation or any other state or
federal governmental agency.
Absence of Public Market for Preferred Securities, Subordinated Debentures
and Guarantees. The Preferred Securities, Subordinated Debentures and
Guarantees will not be registered with the SEC but will be issued in various
private transactions. The Fund will purchase each of the Preferred Securities
and the Guarantees from the Bank Trusts and the Bank Holding Companies,
respectively, in three separate private transactions pursuant to three
separate Trust Preferred Purchase Agreements. Consequently, the Preferred
Securities, Subordinated Debentures and Guarantees will be restricted
securities for which there can be no public market for at least two years and
for which, thereafter, no public market is expected to ever develop.
In the event that a trading market for any or all of the Preferred
Securities, Subordinated Debentures and Guarantees does ever develop, there
can be no assurance that it can or will be maintained. Accordingly, there can
be no assurance as to the liquidity of the Preferred Securities, Subordinated
Debentures and Guarantees.
Risk Factors Related to the Bank Holding Companies
The following risk factors relate specifically to the Bank Holding
Companies, and may therefore have a significant impact on the value of the
Fund Shares:
Geographic and Loan Concentration; Significance of Local Economic
Conditions. While each of the Bank Holding Companies services different
geographic markets, they are each geographically concentrated in their
respective markets and are thus subject to changing economic conditions in
such geographic markets.
FirstBancorp, Inc. services Naples, Florida which is on the southwest coast
of Florida and the Florida Keys. As of June 30, 1999, approximately 90% of
FirstBancorp, Inc.'s loans were classified as real estate and mortgage loans.
Consequently, FirstBancorp, Inc. is subject to adverse changes in the Florida
real estate market and particularly the real estate market of Naples and the
Florida Keys. Furthermore, being located in Florida and particularly the
Florida Keys, collateral for loans and bank branches may be materially
affected by extreme weather conditions such as hurricanes.
Similarly, First Southern Bancorp, Inc. services Palm Beach County and
Broward County, Florida with branches in cities such as Boca Raton and Ft.
Lauderdale, Florida which are on the southeast coast of Florida. As of June
30, 1999, approximately 75% of First Southern Bancorp, Inc.'s loans were
classified as real estate loans, the majority of which are commercial real
estate. Consequently, like FirstBancorp, Inc., First Southern Bancorp, Inc. is
also subject to adverse changes in the Florida real estate market but is
instead particularly affected by the real estate market along the southeast
coast of Florida as opposed to the southwest coast. Furthermore, as with
FirstBancorp, Inc., First Southern Bancorp, Inc.'s loan collateral and
branches may be materially affected by extreme weather conditions such as
hurricanes.
8
<PAGE>
Central Community Corporation services markets in central Texas including
the greater Austin metropolitan area and maintains its headquarters in Temple,
sixty miles north of Austin. As of June 30, 1999, approximately 51% of Central
Community Corporation's loans were classified as real estate and mortgage
loans. As a result, adverse changes in the general economic conditions and
real estate market of central Texas may have an adverse effect on Central
Community Corporation.
Dependence on Senior Management. Each Bank Holding Company's growth and
development to date has been largely a result of the contributions of certain
of their respective senior executive officers, particularly the chief
executive officers. Because the Bank Holding Companies are each relatively
small bank holding companies, they do not possess the depth of senior
management found within their larger competitors. Consequently, the loss of
the services of any one or more of such individuals could have a material
adverse effect on such Bank Holding Company's business and development. There
is no assurance that replacements for any of such officers could provide the
same leadership.
Status of the Bank Holding Companies. Because the Bank Holding Companies are
holding companies, the right of a Bank Holding Company to participate in any
distribution of assets of any of its subsidiaries from dividends or upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability
of the Fund to benefit indirectly from such distribution) is subject to the
prior claims of creditors of that subsidiary (including depositors), except to
the extent that the Bank Holding Company may itself be recognized as a
creditor of that subsidiary. Accordingly, the Preferred Securities will be
effectively subordinated to all existing and future liabilities of the Bank
Holding Companies' subsidiaries, and the Fund will look only to the assets of
the Bank Holding Companies for payments on the Preferred Securities. None of
the Guarantee, the Indenture, or the Trust Agreement places any limitation on
the amount of secured or unsecured debt that may be incurred by the Bank
Holding Companies' subsidiaries in the future.
Fluctuations in Profitability if the Bank Holding Companies and Banks. Each
Bank Holding Company is primarily a holding company with no material business
operations, or sources of income or assets of its own other than the shares of
its subsidiaries. The Bank Holding Companies rely primarily on dividends from
such subsidiaries to meet their obligations for payment of principal and
interest on their outstanding debt obligations, if any, and corporate
expenses. Accordingly, each Bank Holding Company's operating results may
fluctuate substantially from period to period as a result of a number of
factors affecting its subsidiaries, including the volume of loan production,
interest rates and risk of credit losses. Further, each Bank Holding Company's
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise to make any funds available to the Bank Holding
Companies, whether in the form of loans, dividends or otherwise. There are
also regulatory limitations on each Bank's ability to make loans or
distributions or pay dividends to its Bank Holding Company. See "Supervision
and Regulation of the Bank Holding Companies" in the Statement of Additional
Information. Consequently, there is no assurance that each subsidiary bank
will, at all times, be in a position to make dividends or other distributions
to its respective Bank Holding Company in an amount sufficient for such Bank
Holding Company to service its respective Subordinated Debentures or for its
Bank Trust to pay the distributions due on the Preferred Securities.
Each Bank's profitability is dependent to a large extent on its net interest
income, which is the difference between its income on interest-earning assets
and its expense on interest-bearing liabilities. The Banks, like most
financial institutions, are affected by changes in general interest rate
levels and by other economic factors beyond their control. Interest rate risk
arises in part from the mismatch (i.e., the interest sensitivity gap) between
the dollar amount of repricing or maturing interest earning assets and
interest bearing liabilities, and is measured in terms of the ratio of the
interest rate sensitivity gap to total assets. More interest earning assets
than interest bearing liabilities repricing or maturing over a given time
period is considered asset-sensitive and is reflected as a positive gap, and
more liabilities than assets repricing or maturing over a given time period is
considered liability-sensitive and is reflected as a negative gap. A
liabilities-sensitive position (i.e., a negative gap) may generally enhance
net interest income in a falling interest rate environment (because interest
expense will generally decrease faster than interest income) and reduce net
interest income in a rising interest rate environment (because interest
expense
9
<PAGE>
will generally increase faster than interest income), while an asset-sensitive
position (i.e., a positive gap) may generally enhance net interest income in a
rising interest rate environment and will reduce net interest income in a
falling interest rate environment. Fluctuations in interest rates are not
predictable or controllable, and each Bank's asset or liability sensitive
position will vary from time to time. At June 30, 1999, FirstBancorp, Inc.,
First Southern Bancorp, Inc. and Central Community Corporation had one year
cumulative gap ratios of 0.71%, 0.78% and 0.88%, respectively. If a Bank's
interest income and profitability declines due to changes in market rates of
interest, its Bank Holding Company's ability to pay the Subordinated
Debentures may be substantially impaired, which could make a default on the
Preferred Securities more likely to occur.
Regulatory Restrictions upon the Payments of Dividends to the Bank Holding
Companies. Each of the banking subsidiaries of the Bank Holdings Companies are
subject to various regulatory restrictions upon the amount of dividends which
they may pay to their respective Bank Holding Companies. Consequently, the
inability of any banking subsidiary to pay dividends to its respective Bank
Holding Company due to regulatory restrictions may have a material adverse
effect on such Bank Holding Company's ability to pay interest or repay
principal with respect to its Subordinated Debentures. See "Supervision and
Regulation of the Bank Holding Companies" in the Statement of Additional
Information.
Additional Risk Factors
See also "Additional Risk Factors" in the Statement of Additional
Information for a discussion of additional risk factors associated with your
investment in the Fund.
FORWARD LOOKING STATEMENTS
Certain statements in this Prospectus and the Statement of Additional
Information constitute forward-looking statements, which involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, levels of activity, performance or achievements of the Bank Holding
Companies or the Fund to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, those listed
under "Risk Factors" and elsewhere in this Prospectus and the Statement of
Additional Information. As a result of the foregoing and other factors, no
assurance can be given as to the future results, levels of activity or
achievements, and neither the Bank Holding Companies, the Fund nor any other
person assumes responsibility for the accuracy and completeness of such
statements.
10
<PAGE>
THE BANK HOLDING COMPANIES
FirstBancorp, Inc., Gulf Coast National Bank and
First National Bank of The Florida Keys
General
FirstBancorp, Inc. ("FirstBancorp") was incorporated under the laws of
Florida in February 1988 as a bank holding company registered under the Bank
Holding Company Act of 1956 for the purpose of holding all the shares of First
National Bank of the Florida Keys. FirstBancorp, headquartered in Naples,
Florida, operates two-wholly owned subsidiary banks, First National Bank of
the Florida Keys, Marathon, Florida and Gulf Coast National Bank, Naples,
Florida. FirstBancorp's only significant business activity is the ownership
and supervision of the two banks. As of June 30, 1999, FirstBancorp had total
consolidated assets of approximately $348 million, net loans of approximately
$252 million, deposits of approximately $288 million and shareholders' equity
of approximately $18.7 million.
First National Bank was incorporated as a nationally-chartered bank in
Marathon, Florida in 1977 under the name "First National Bank of Marathon".
The name was changed to "First National Bank of the Florida Keys" in 1982 to
reflect its growth and expansion throughout the Florida Keys. As of June 30,
1999, the bank had total assets of $164 million.
Gulf Coast National Bank was incorporated as a nationally-chartered bank in
Naples, Florida in 1995. This has allowed FirstBancorp to expand into the
faster-growing Collier County market. FirstBancorp moved its corporate
headquarters to Naples in 1995. As of June 30, 1999, the bank had total assets
of $188 million.
FirstBancorp, through it's two subsidiary banks, offers a range of banking
services including residential mortgage, consumer, commercial and real estate
construction lending to customers in their market areas. The banks also offer
a variety of deposit programs to individuals and small businesses at interest
rates consistent with local market conditions. In addition, the banks offer
individual retirement accounts, safe deposit and night depository facilities.
Statement imaging, Internet banking and a website are new services anticipated
to be introduced in 1999. The banks do not offer trust services.
Market
First National Bank and Gulf Coast National Bank maintain the following
banking locations in Monroe and Collier Counties, respectively:
FirstBancorp Banking Locations/Market Share
<TABLE>
<CAPTION>
No. of County Deposit Market
Bank County City Offices Population(1) Share by County(2)
- ---- ------- ---------- ------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
First National Bank of Monroe Marathon 2 78,024 9.84%
the Florida Keys Key West 2
Islamorada 1
Gulf Coast National Bank Collier Naples 4 199,436 3.12%
</TABLE>
- --------
(1) Source: 1990 U.S. Census Bureau
(2) Source: FDIC Internet Site. As of June 30, 1998.
Each bank's primary service area encompasses the county in which it is
headquartered. First National Bank serves Monroe County which includes the
Florida Keys. The economy is primarily based on tourism and service-related
businesses. First National Bank has five offices spread throughout the county.
The bank has two offices in Marathon including its main office. Marathon is
the major population center in the middle keys with a population of
approximately 8,900. According to the Florida Bankers Association December 31,
1998 Branch
11
<PAGE>
Deposit Report, First National is the largest bank in the middle keys with an
approximate 38% deposit market share as of December 31, 1998. The bank has two
offices in Key West. Key West is the largest city in the county with a
population of approximately 25,000. The bank had a 7.1% deposit market share
as of December 31, 1998. The bank operates one office in Islamorada, located
in the upper keys, with a 11.25% deposit market share as of December 31, 1998.
Gulf Coast National Bank serves Collier County including the City of Naples
and its surrounding unincorporated areas. The bank has four branches in
Naples. FirstBancorp anticipates the bank will open its fifth office on Marco
Island in late 1999. The bank is the largest independent community bank in
Collier County with 3.12% market share, as noted above. The economy is
predominantly based on tourism, building construction, retail trade, service-
related businesses and agriculture. The Economic Development Council of
Collier County reports that Collier County has the highest median family
income in Florida.
Business Strategy
FirstBancorp has historically pursued a strategy of growth through internal
expansion and branching while maintaining asset quality. First National Bank
has five offices covering the main population centers in Monroe County.
Recognizing that long-term growth in Monroe County would be steady but
regulated by governmental and land use constraints, the forming of Gulf Coast
National Bank as a de novo bank in Naples has expanded FirstBancorp's
opportunities into one of the fastest growing and most affluent markets in
Florida. With the opening of the Marco Island Office, Gulf Coast National Bank
will have opened five major offices in only four years and established its
core branch network for Collier County. FirstBancorp believes that expanding
its branch network diversifies risk, expands its loan portfolio and enhances
revenue growth.
FirstBancorp may periodically consider establishing branches or other
business facilities in new market areas and expanding into new lines of
business based upon such factors FirstBancorp deems appropriate.
Loan Portfolio
Through the banks, FirstBancorp offers a range of lending services including
residential and commercial real estate, consumer and commercial loans, to
individuals, corporations and small businesses located in the banks' market
areas.
As of June 30, 1999, the banks' consolidated loan portfolio consisted of the
following types and amounts of loans:
<TABLE>
<CAPTION>
Loan Portfolio as of June 30, 1999
-----------------------------------
Amount ($) Percentage (%) of
Loan Type (in thousands) Total Portfolio
- --------- -------------- -----------------
<S> <C> <C>
Commercial and Industrial.................... 14,930 5.9
Real Estate--Construction and Land
Development................................. 46,156 18.2
Real Estate--Residential..................... 113,664 44.8
Real Estate--Farmland........................ -- 0
Real Estate--Commercial...................... 71,157 28.0
Agricultural Loans........................... 928 0.4
Consumer Loans............................... 5,575 2.2
Other Loans.................................. 1,516 0.5
------- ----
Gross Loans................................ 253,926 100
Plus: Unamortized Loan Costs--Net........ 254
Less: Allowance for Loan Losses.......... (2,151)
-------
Net Loans.................................. 252,029
</TABLE>
12
<PAGE>
Lending Policy
The banks seek to make loans that meet the needs of the communities they
serve while making a profit that enhances future operations and increases
franchise value. The banks give primary consideration to existing or potential
customers with economic interests in their market areas. The interest rates
charged on loans vary with the degree of risk, maturity and amount of the
loan, and are further subject to competitive pressures, money market rates,
availability of funds and government regulations.
The banks emphasize the making of residential real estate, commercial real
estate, and construction and land development real estate loans which
comprised 91.4% of the loan portfolio as of June 30, 1999. The banks also
originate residential loans for sale to the secondary market. The banks
establish and implement policies within certain established guidelines,
including lending authority of officers. Each bank periodically monitors its
loan portfolio to identify areas of concern and enable management to take
corrective action when necessary. Lending officers and the banks' boards of
directors meet periodically to review all past due loans, the status of large
loans and certain other matters. Individual lending officers are responsible
for reviewing collection of past due amounts and monitoring changes in the
financial status of borrowers. FirstBancorp retains an outside consultant to
conduct a semi-annual credit review at each bank.
FirstBancorp's nonperforming assets increased from $570,000 at December 31,
1998 to $2.3 million at June 30, 1999. This increase in FirstBancorp's
nonperforming assets is primarily related to a single customer, multiple loan
relationship with a total principal value of approximately $1.6 million.
FirstBancorp believes that it will not incur any material loss on the loans.
Deposits
The principal source of funds for the banks are core deposits consisting of
demand deposits, interest-bearing transaction accounts (NOW), money market
accounts, savings accounts and certificates of deposit. As of June 30, 1999,
the banks' consolidated deposits consisted of the following type and
percentage:
<TABLE>
<CAPTION>
Deposits as of June 30, 1999
-----------------------------
Amount ($) Percentage (%)
Deposit Type (in thousands) of Deposits
- ------------ -------------- --------------
<S> <C> <C>
Non-Interest Bearing Demand Deposits.............. 53,184 18.5
Interest Bearing Deposits......................... 50,506 17.5
Savings Deposits.................................. 87,565 30.4
Certificates of Deposit........................... 96,882(1) 33.6
------- ----
Total Deposits.................................. 288,137 100%
======= ====
</TABLE>
- -------------------------
(1) Includes $55.9 million of certificates of deposit over $100 thousand.
As of June 30, 1999, the banks had no brokered deposits.
Deposit rates can be changed daily by senior management. Management believes
the rates the banks offer are competitive with but typically lower than those
offered by certain other institutions in the banks' market areas. FirstBancorp
focuses on customer service, rather than high rates, to attract and retain
deposits.
13
<PAGE>
Investment Portfolio
As of June 30, 1999, the banks' consolidated investment portfolio consisted
of the following types and amounts of securities:
<TABLE>
<CAPTION>
Investments as of June 30, 1999
------------------------------------
Amount ($)(1) Percentage (%)
Investment Type (in thousands) of Investments
- --------------- ---------------- ---------------
<S> <C> <C>
U.S. Treasury Securities............ 2,003 4.9
U.S. Government Corporations and
Agencies........................... 23,113 56.9
U.S. Agency Mortgage-Backed Securi-
ties............................... 5,658 13.9
Collateralized Mortgage Obliga-
tions.............................. 7,877 19.4
State and Political Subdivision Ob-
ligations.......................... 85 0.2
Equity Securities................... 1,912 4.7
---------------- --------------
Total Investments................. 40,648 100%
================ ==============
</TABLE>
- ----------------------------------
(1) Excludes net unrealized loss of $785 thousand.
As of June 30, 1999, $5.4 million had a remaining maturity less than one
year, $24.3 million had a remaining maturity of one to five years, and $9.0
million had a remaining maturity of over five years. The $1.9 million equity
securities have no maturity date.
Competition
The banking business in Florida is highly competitive, both for making loans
and attracting deposits, and is dominated by a number of major bank holding
companies which have numerous offices and affiliates operating over wide
geographic areas. The banks compete for business with these institutions as
well as with other local community banks, savings and loan associations,
credit unions, brokerage firms, finance companies, mutual funds, mortgage
companies, insurance companies and other financial intermediaries. This
competition is based upon interest rates offered on deposit accounts, interest
rates charged on loans and other credit and service charges, the quality and
scope of the services rendered and the convenience of banking facilities.
Many of these large bank holding company competitors have greater resources
and lending limits and may offer certain services, such as trust services,
that the banks do not currently provide. In addition, many non-bank
competitors are not subject to the same extensive federal regulations that
govern bank holding companies and federally insured banks.
Management believes that FirstBancorp and the banks are positioned to
compete in their primary market areas by following a community banking
strategy that emphasizes commitment and involvement in each primary market
area, local and prompt decision-making and offering quality personalized
banking services.
Properties
FirstBancorp's corporate office and main banking office of Gulf Coast
National Bank are both in the Gulf Coast National Bank Building located at
3838 Tamiami Trail North, Naples, Florida. This is a 40,000 square foot, four-
story condominium office building. The bank owns the first two floors with
approximately 20,000 square feet. The bank also owns all of the land and
buildings for its Pine Ridge Road and Airport Road offices. The North Naples
office operates in a temporary facility while a permanent 35,000 square foot,
three-story condominium office building is completed this fall. The bank will
own approximately 7,000 square feet on the first floor. The land for the
future Marco Island Office is currently under contract.
First National Bank of the Florida Keys' main Marathon Shores office is
located at 12640 Overseas Highway in Marathon, Florida. The land and two-story
10,000 square foot building are owned and operated by the bank. The bank also
owns the land and buildings for its second Marathon office and Kennedy Drive
office in
14
<PAGE>
Key West. The Duval Office in Key West is owned as a condominium unit. The
Islamorada office leases its space under a long-term operating lease.
Employees
As of June 30, 1999, FirstBancorp and the banks had 117 full-time and nine
part-time employees.
Legal Proceedings
While FirstBancorp and the banks are from time to time parties to various
legal proceedings arising in the ordinary course of business, management
believes that there are currently no proceedings pending against FirstBancorp
or the banks that will, individually or in the aggregate, have a material
adverse effect on the consolidated financial condition of FirstBancorp.
Selected Consolidated Financial Data
The following information summarizes certain selected consolidated financial
information of FirstBancorp as of and for its fiscal years ended December 31,
1996, 1997 and 1998 and for the six months ended June 30, 1999. For a more
complete overview, please refer to FirstBancorp's full financial statements
and the notes thereto in the Statement of Additional Information. Historical
financial information is not necessarily indicative of results of operations
for any future period or financial condition as of any future date.
15
<PAGE>
FIRSTBANCORP, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended -------------------------------
June 30, 1999(1) 1998(2) 1997(2) 1996(2)
---------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Selected Results Of
Operations:
Interest income............. $ 11,485 $ 20,592 $ 17,524 $ 13,385
Interest expense............ 5,258 9,544 8,437 5,946
Net interest income......... 6,227 11,048 9,087 7,439
Provision for loan losses... 255 585 474 432
Noninterest income.......... 2,377 3,707 2,903 2,007
Noninterest expenses........ 6,097 10,194 8,595 7,366
Income before income taxes.. 2,252 3,976 2,922 1,648
Net income.................. 1,550 2,492 1,832 904
Per Common Share:
Earnings per common share-
basic...................... $ 0.94 $ 1.53 $ 1.12 $ 0.57
Earnings per common share-
diluted.................... $ 0.89 $ 1.44 $ 1.08 $ 0.56
Cash Dividends declared..... $ 0 $ 0 $ 0 $ 0
Book value per share........ $ 11.36 $ 10.89 $ 9.48 $ 8.36
Average common share
outstanding-basic.......... 1,647,418 1,631,050 1,630,998 1,583,051
Average common shares
outstanding-diluted........ 1,743,839 1,727,471 1,699,767 1,618,212
Selected Balance Sheet Data:
Total assets................ $ 347,754 $ 310,527 $ 254,312 $ 199,609
Securities available for
sale....................... 39,862 22,303 23,201 18,331
Investment securities held
to maturity................ 0 0 0 0
Loans held for sale......... 1,062 1,970 1,669 606
Loans receivable, net....... 252,029 225,563 179,121 144,602
Reserve for loan losses..... 2,151 1,896 1,415 1,156
Deposits.................... 288,137 260,999 216,434 174,878
FHLB advances and other
borrowings................. 34,205 25,922 16,574 5,601
Stockholders' equity........ 18,707 17,720 15,218 13,031
Loan to deposit ratio....... 88.21% 87.15% 83.41% 83.34%
Performance Ratios:(3)
Return on average assets.... 0.91% 0.90% 0.80% 0.57%
Return on average equity.... 16.90% 15.10% 13.09% 6.96%
Net interest margin-taxable
equivalent................. 4.83% 4.88% 4.69% 4.65%
Equity to assets............ 5.38% 5.70% 5.98% 6.53%
Efficiency ratio............ 70.87% 70.73% 72.91% 77.83%
Asset Quality Data:
Nonperforming loans......... $ 1,973 $ 239 $ 506 $ 424
Other real estate owned
(OREO)..................... 331 331 835 375
Nonperforming assets........ 2,304 570 1,341 799
Nonperforming loans/total
loans...................... 0.78% 0.11% 0.28% 0.29%
Nonperforming assets/total
loans + OREO............... 0.91% 0.25% 0.74% 0.55%
Reserve for loan
losses/total loans......... 0.85% 0.83% 0.78% 0.79%
Reserve for loan
losses/nonperforming
loans...................... 107.02% 793.31% 279.64% 272.64%
Reserve for loan
losses/nonperforming
assets..................... 93.36% 332.63% 105.51% 144.68%
Ratio of net charge-offs to
average loans.............. (.01)% 0.05% 0.13% 0.09%
Earnings To Fixed Charge
Coverage Ratios:(4)
Excluding interest on
deposits................... 3.72x 4.49x 5.66x 4.59x
Including interest on
deposits................... 1.43x 1.42x 1.35x 1.28x
Capital Ratios:
Leverage ratio.............. 5.51% 5.86% 6.22% 6.91%
Tier 1 capital (to risk-
weighted assets)........... 8.12% 8.41% 9.04% 9.76%
Total capital (to risk-
weighted assets)........... 9.03% 9.31% 9.88% 10.63%
</TABLE>
- --------
(1) Compiled from unaudited financial statements.
(2) Compiled from audited financial statements.
(3) Annualized for interim period.
(4) The consolidated ratio of earnings to fixed charges has been computed by
dividing income before tax plus fixed charges by fixed charges. Fixed
charges represent all interest expense and the interest factor in rent
expense (ratios are presented both excluding and including interest on
deposits). Interest expense (other than on deposits) includes interest on
federal funds purchased and securities sold under agreements to
repurchase, Federal Home Loan Bank advances, and other borrowed funds.
16
<PAGE>
[MAP APPEARS HERE]
17
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND FIRST SOUTHERN BANK
General
First Southern Bank opened as a Florida State chartered Federal Reserve
member bank in Boca Raton in September of 1987. In April of 1995 the bank's
shareholders voted to form First Southern Bancorp, Inc. (the "FSB Holding
Company") a bank holding company that currently owns approximately 98% of
First Southern Bank stock. Subsequently, First Southern Bank Realty Corp, a
real estate subsidiary was formed to hold branch sites owned by the FSB
Holding Company and leased to the bank.
As of June 30, 1999, First Southern Bank had total assets of approximately
$149.6 million, net loans of approximately $107.3 million, deposits of
approximately $123.5 million and shareholders' equity of approximately $8.5
million.
The FSB Holding Company, through First Southern Bank's six branches in
Florida, offers a broad range of bank related services. First Southern Bank
performs banking services customary for full service community banks of
similar size for customers primarily in Palm Beach and Broward counties. These
services include the making of personal and commercial loans, the furnishing
of personal and commercial checking accounts and the receipt of demand and
time deposit accounts. An emphasis has been placed upon small to medium size
business transactions as well as professionals, (e.g., physicians, attorneys
and CPAs).
Market
The primary service area for each branch is a 5-10 mile radius around each
of the six branches of First Southern Bank. First Southern Bank maintains the
following six branch locations in the highly populated counties of Palm Beach
and Broward in Southeast Florida:
First Southern Bank Banking Locations/Market Share
<TABLE>
<CAPTION>
Deposit Market
County City No. of Offices County Population(1) Share by County(2)
- ------ ---------------- -------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Palm Beach Boca Raton 3 863,518 Less than 1%
Broward Coral Springs 1 1,255,488 Less than 1%
Lighthouse Point 1
Fort Lauderdale 1
</TABLE>
- --------
(1) Source: 1990 U.S. Census Bureau
(2) Source: FDIC Internet Site. As of June 30, 1998.
Broward County's economic base has historically had a large tourism
component. Broward County has also experienced economic growth in various
other industries, including the retail and services sectors.
Recent population and job growth of Palm Beach County has been significant,
with current population estimated to be over one million. According to the
Florida Department of Labor, Palm Beach County added 17,900 non-agricultural
jobs from December 1997 to December 1998, an increase of 4.1%. According to
the Business Development Board of Palm Beach County, among Palm Beach County's
leading industry sectors are medical pharmaceutical/health care; aerospace and
engineering; business/financial/headquarters services; agribusiness; and
computers/information technology.
Broward and Palm Beach Counties have an extensive network of banks, savings
and loan, commercial bank offices and other institutions. However, bank
mergers and acquisitions during recent years have reduced the number of
institutions, and management feels that this consolidation has caused many
customers to explore local community banks as a viable alternative to more
impersonal money center banks.
18
<PAGE>
Business Strategy
The FSB Holding Company's business strategy is to grow the institution while
maintaining high asset quality. The FSB Holding Company will continue to seek
available locations in Palm Beach and Broward Counties, and possibly northern
Miami-Dade County, in markets not overly populated by other community banking
organizations.
Loan Portfolio
First Southern Bank provides a broad range of commercial and retail lending
services to corporations, partnerships, and individuals, including commercial
business loans, commercial and residential real estate construction and
mortgage loans, consumer loans, revolving lines of credit, letters of credit
and accounts receivable financing.
As of June 30, 1999, First Southern Bank's loan portfolio consisted of the
following types and amounts of loans:
<TABLE>
<CAPTION>
Loan Portfolio
as of June 30, 1999
------------------------------
Amount($) Percent (%) of
Loan Type (in thousands) Total Portfolio
- --------- -------------- ---------------
<S> <C> <C>
Commercial and Industrial....................... 19,508 17.9
Real Estate--Construction and Development....... 2,934 2.7
Real Estate--Residential........................ 14,519 13.4
Real Estate--Farmland........................... 0 0.0
Real Estate--Commercial......................... 66,675 61.4
Agricultural Loans.............................. 0 0.0
Consumer........................................ 4,827 4.4
Other........................................... 176 0.2
------- ----
Gross Loans................................... 108,639 100
Less: Unearned Income....................... (41)
Less: Allowance for Loan Losses............. (1,291)
-------
Net Loans..................................... 107,307
</TABLE>
Lending Policy
Certain credit risks are inherent in making loans. These include repayment
risks, risks resulting from uncertainties in the future value of collateral,
risks resulting from changes in economic and industry conditions, and risks
inherent in dealing with individual borrowers. In particular, longer
maturities increase the risk that economic conditions will change and
adversely affect collectibility.
First Southern Bank attempts to minimize loan losses through various means
and uses standardized underwriting criteria. In particular, First Southern
Bank generally relies on the cash flow of a debtor as the primary source of
repayment, outside cash flow and liquidity sources of the guarantor as a
secondary source, and the value of the underlying collateral as the tertiary
source of repayment.
First Southern Bank addresses repayment risks by adhering to internal credit
policies and procedures. These policies and procedures include officer and
customer lending limits, a multi-layered loan approval process for larger
loans, periodic documentation examination, and follow-up procedures for any
exceptions to credit policies. The point in First Southern Bank's loan
approval process at which a loan is approved depends on the size of the
borrower's credit relationship with First Southern Bank. Individual lenders
may approve credits up to $100,000 with a concurrent signature of the chief
credit analyst. The chief lending officer can approve loans up to $500,000 and
the President can approve loans up to $750,000. Loans which exceed $750,000
must be approved by the board of directors.
19
<PAGE>
The FSB Holding Company has a continuous loan review process designed to
promote early identification of credit quality problems. All loan officers are
charged with the responsibility of reviewing no less than quarterly all past
due loans in their respective portfolios. The bank establishes a watch list of
loans to be reviewed monthly by the bank's board of directors.
Deposits
The principal sources of funds for the banks are core deposits, consisting
of demand deposits, interest-bearing transaction accounts, money market
accounts, savings deposits, and certificates of deposit. Transaction accounts
include checking and negotiable order of withdrawal (NOW) accounts which
customers use for cash management and which provide the bank with a source of
fee income and cross-marketing opportunities, as well as a low cost source of
funds. Certificates of deposit and savings accounts also provide a relatively
stable and low cost source of funding. The largest source of deposits for the
Bank is certificates of deposit. A significant portion of the Bank's
certificates of deposit are in excess of $100,000. As of June 30, 1999, First
Southern Bank had no brokered deposits.
As of June 30, 1999, First Southern Bank's deposits consisted of the
following types and amounts:
<TABLE>
<CAPTION>
Deposits
as of June 30, 1999
--------------------------
Amount ($) Percent (%)
Deposit Type (in thousands) of Deposits
- ------------ -------------- -----------
<S> <C> <C>
Non-interest Bearing Demand Deposits................ 31,469 25.5
Interest Bearing Deposits........................... 41,290 33.4
Savings Deposits.................................... 3,486 2.8
Certificates of Deposit............................. 47,250(1) 38.3
-------- ----
Total Deposits.................................... $123,495 100%
======== ====
</TABLE>
- -------------------------
(1) Includes $12.7 million of certificates of deposit over $100 thousand.
Deposit rates are set monthly by senior management and the ALCO committee.
Management believes that the rates offered by First Southern Bank are
generally competitive with rates offered by other institutions in the bank's
market areas. First Southern Bank focuses on customer service to attract and
retain deposits.
Investment Portfolio
As of June 30, 1999, First Southern Bank's investment portfolio consisted of
the following types and amounts:
<TABLE>
<CAPTION>
Investments
as of June 30, 1999
-----------------------------
Amount ($) Percent (%)
Investment Type (in thousands) of Investments
- --------------- -------------- --------------
<S> <C> <C>
U.S. Treasury Obligations......................... 3,061 10.6
U.S. Government Corporations and Agencies......... 16,313 56.7
Mortgage-backed Securities........................ 8,216 28.6
Other Securities.................................. 1,188 4.1
------- ----
Total Investments............................... $28,778 100%
======= ====
</TABLE>
Competition
The banking business in Florida is highly competitive, both for making loans
and attracting deposits. First Southern Bank competes with myriad entities,
consisting of, among others, other commercial banks, savings banks, savings
and loan associations, credit unions, finance companies, mutual funds,
insurance companies,
20
<PAGE>
brokerage and investment banking firms, asset based non-bank lenders, and
other non-financial entities, including retail stores which may maintain their
own credit programs and certain governmental organizations which may offer
more favorable financing than First Southern Bank. The competition arises out
of competitive interest rates, differing quality and scope of services, and
the convenience of banking facilities.
As a community banking organization, which offers a viable alternative to
more impersonal money center banks, First Southern Bank has been able to
compete effectively with other financial institutions, and management believes
that by continuing to offer quality personalized banking services, First
Southern Bank will be well positioned to compete successfully in its primary
market areas.
Properties
First Southern Bank leases its Lighthouse Point branch from First Southern
Bank Realty Corp. and currently leases its other five branch sites from
unrelated third parties. First Southern Bank Realty Corp. owns a two story
14,122 square foot building in Lighthouse Point, in which the Lighthouse Point
branch occupies 2,000 square feet, the bank's data center, mortgage division
and accounting area occupies approximately 5,000 square feet, and the balance
of such building is leased to outside tenants. The building has been fully
leased since First Southern Bank Realty Corp. acquired it in December of 1996.
In May 1999, First Southern Bank Realty Corp. acquired a 9,500 square foot
building in North Palm Beach, which will be renovated for a 4,000 square foot
branch site and the balance of the building will be leased to outside tenants.
Additionally, First Southern Bank Realty Corp. acquired a tract of land in
Boynton Beach in July, 1999, that will be housing a branch and
operations/commercial loan center. It is anticipated that the North Palm Beach
location will be operational by the fourth quarter of 1999, while the Boynton
Beach facility will not be fully operational until the second quarter of 2000.
Employees
As of June 30, 1999, the FSB Holding Company and First Southern Bank had 61
full-time and 12 part-time employees.
Legal Proceedings
In the ordinary course of operations, the FSB Holding Company and First
Southern Bank are parties to various legal proceedings. Management does not
believe that there is any pending or threatened proceeding against the FSB
Holding Company or First Southern Bank which if determined adversely, would
have a material effect on the business, results of operations, or financial
position of the FSB Holding Company or First Southern Bank.
Selected Consolidated Financial Data
The following information summarizes certain selected consolidated financial
information of the FSB Holding Company as of and for its fiscal years ended
December 31, 1996, 1997 and 1998 and for the six months ended June 30, 1999.
For a more complete overview, please refer to FSB Holding Company's full
financial statements in the Statement of Additional Information. Historical
financial information is not necessarily indicative of results of operations
for any future period or financial condition as of any future date.
21
<PAGE>
FIRST SOUTHERN BANCORP, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended -----------------------------
June 30, 1999(1) 1998(2) 1997(2) 1996(2)
---------------- -------- --------- --------
<S> <C> <C> <C> <C>
Selected Results of Operations:
Interest income............... $ 5,283 $ 8,904 $ 7,686 $ 6,175
Interest expense.............. 2,035 3,448 2,899 2,656
Net interest income........... 3,248 5,456 4,787 3,519
Provision for loan losses..... 86 255 110 --
Noninterest income............ 691 1,393 740 681
Noninterest expenses.......... 2,853 4,798 4,043 3,242
Income before income taxes.... 1,000 1,768 1,335 958
Net income.................... 597 1,093 848 586
Per Common Share:
Earnings per common share-
basic........................ $ 0.88 $ 1.71 $ 1.29 $ 0.90
Earnings per common share-
diluted...................... $ 0.86 $ 1.60 $ 1.23 $ 0.87
Cash Dividends declared....... $ 0 $ 0 $ 0 $ 0
Book value per share.......... $ 11.59 $ 11.69 $ 10.02 $ 8.72
Average common share
outstanding-basic............ 676,742 640,233 655,029 648,756
Average common shares
outstanding-diluted.......... 697,522 684,181 688,701 677,268
Selected Balance Sheet Data:
Total assets.................. $151,103 $129,502 $ 101,664 $ 94,462
Securities available for
sale......................... 27,750 21,904 17,627 20,549
Investment securities held to
maturity..................... -- -- -- --
Loans held for sale........... -- -- -- --
Loans receivable, net......... 107,307 81,775 66,138 52,658
Reserve for loan losses....... 1,291 1,246 1,066 961
Deposits...................... 123,429 108,021 88,614 82,741
FHLB advances and other
borrowings................... 19,723 13,061 5,690 5,172
Stockholders' equity.......... 8,078 7,504 6,347 5,689
Loan to deposit ratio......... 87.94% 76.85% 75.83% 64.80%
Performance Ratios:(3)
Return on average assets...... .85% 0.98% 0.89% 0.79%
Return on average equity...... 14.88% 14.62% 13.68% 11.33%
Net interest margin-taxable
equivalent................... 4.74% 4.88% 5.06% 4.46%
Equity to assets.............. 5.35% 5.79% 6.24% 6.02%
Efficiency ratio.............. 72.43% 71.69% 74.54% 77.06%
Asset Quality Data:
Nonperforming loans........... $ 219 $ 405 $ 603 $ 417
Other real estate owned
(OREO)....................... 164 218 0 283
Nonperforming assets.......... 383 648 603 700
Nonperforming loans/total
loans........................ 0.20% 0.58% 0.90% 0.78%
Nonperforming assets/total
loans + OREO................. 0.35% 0.92% 0.90% 1.30%
Reserve for loan losses/total
loans........................ 1.19% 1.78% 1.59% 1.79%
Reserve for loan
losses/nonperforming loans... 589.50% 307.41% 176.78% 230.46%
Reserve for loan
losses/nonperforming assets.. 337.08% 192.13% 176.78% 137.28%
Ratio of net charge-offs to
average loans................ .08% 0.10% 0.01% 0.05%
Earnings to Fixed Charge
Coverage Ratios:(4)
Excluding interest on
deposits..................... 2.46x 3.36x 3.21x 4.42x
Including interest on
deposits..................... 1.34x 1.50x 1.43x 1.36x
Capital Ratios:
Leverage ratio................ 5.80% 5.84% 6.62% 6.50%
Tier 1 capital (to risk-
weighted assets)............. 7.52% 8.32% 9.12% 10.05%
Total capital (to risk-
weighted assets)............. 8.65% 9.57% 10.37% 11.30%
</TABLE>
- --------
(1) Compiled from unaudited financial statements
(2) Compiled from audited financial statements.
(3) Annualized for interim period
(4) The consolidated ratio of earnings to fixed charges has been computed by
dividing income before tax plus fixed charges by fixed charges. Fixed
charges represent all interest expense and the interest factor in rent
expense (ratios are presented both excluding and including interest on
deposits). Interest expense (other than on deposits) includes interest on
federal funds purchased and securities sold under agreements to
repurchase, Federal Home Loan Bank advances, and other borrowed funds.
22
<PAGE>
[MAP APPEARS HERE]
23
<PAGE>
CENTRAL COMMUNITY CORPORATION AND FIRST STATE BANK CENTRAL TEXAS
General
Central Community Corporation ("CCC") was incorporated under the laws of
Delaware in 1990 as a one bank holding company for the purpose of acquiring
First State Bank Central Texas ("First State"). First State is a Texas state
nonmember bank chartered in 1909 and regulated by the Texas Department of
Banking and the Federal Deposit Insurance Corporation. The existing local
control investor group purchased First State in 1987 when it had total assets
of approximately $4 million and relocated its main offices to the bank's
current location in Temple, Texas.
In 1996, a Delaware subsidiary of CCC was formed, FSBT, Inc., to hold 100%
of the outstanding common stock of First State. As of June 30, 1999, CCC had
total consolidated assets of approximately $210.9 million, net loans of
approximately $132.4 million, deposits of approximately $179.4 million, and
shareholders' equity of approximately $17.2 million. First State operates 12
banking offices in six contiguous central Texas counties.
First State offers a broad range of bank and bank-related services. It
performs banking services customary for full service banks of similar size for
customers in their respective service areas. These services include the making
of personal and commercial loans, the furnishing of personal and commercial
checking accounts and the receipt of demand and time deposit accounts. The
bank does not offer trust services.
First State has grown through a combination of internal growth, the
acquisition of other community banks and branches and the opening of new
community banking offices. Operating under a community banking philosophy,
First State seeks to develop broad customer relationships based on service and
convenience. Despite the adverse economic downturn in Texas in the late
1980's, First State has been profitable with good growth every year since
being acquired by the existing controlling ownership in 1987.
Growth through acquisitions includes acquiring Salado National Bank
(approximately $17 million in assets) in September, 1993; Citizens State Bank
of Lometa (approximately $15 million in assets) in March, 1995; the Marlin
branch of First Bank of Texas (approximately $20 million in assets) in
February, 1997; and the First National Bank of Goldthwaite (approximately $22
million in assets) in February, 1997. During 1998, First State entered the
greater Austin banking market through opening an Austin full service branch in
February, 1998, and opening a Georgetown loan production office in December,
1998.
Market
First State maintains the following 12 banking offices in central Texas:
First State Banking Locations/Market Share
<TABLE>
<CAPTION>
Branch Deposits Market
County City No. of Offices County Population(1) Share by County(2)
- ------ ------------- -------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
Bell Belton 1 191,073 5.61%
Little
River/Academy 1
Salado 1
Temple 2
Falls Chilton 1 17,712 22.24%
Marlin 1
Lampasas Lampasas 1 13,541 13.63%
Lometa 1
Mills Goldthwaite 1 4,531 16.57%
Travis Austin 1 576,407 --
Williamson Georgetown 1 139,551 --
</TABLE>
- --------
(1) Source: 1990 U.S. Census Bureau.
(2) Source: FDIC Internet Site. As of June 30, 1998. The Austin and Georgetown
offices were not in existence as of June 30, 1998. However, their market
share is currently less than 1%.
24
<PAGE>
First State's primary market consists of the communities served by its 12
locations in the six contiguous counties in central Texas. First State
believes that economic growth in its current market areas will exceed the
level experienced statewide during the next several years. Temple, the
location of First State's main office, is located approximately 60 miles north
of Austin, Texas on Interstate 35. First State should benefit economically
from expanding international trade activity in the "I-35 Corridor." The
increased traffic along this "NAFTA Highway" linking the interior United
States with Canada and Mexico has enhanced economic activity through the
center of First State's market area and created opportunities for growth. The
economic base in Bell County is diversified and has become a center for
government, medical services, distribution and light industrial production.
Falls, Lampasas and Mills counties remain predominantly agricultural markets;
Travis and Williamson counties to the south of Bell County have a diversified
economy based on education, state government, tourism and industry. In recent
years, both Travis and Williamson counties have experienced significant growth
as the result of high technology companies moving into the area and related
support company start-ups.
Business Strategy
First State intends to continue its responsive community banking philosophy
of developing broad customer relationships while maintaining its conservative
approach to lending and strong asset quality. Its business strategy is to
continue a pattern of above average growth through acquisitions and the
opening of new branches in and around the greater Austin, Texas area in Travis
and Williamson Counties. While several regional and national banks have
offices in this area, management feels that the bank's market niche of small
and medium sized commercial customers is currently under served by these
institutions and provides opportunities for growth. Additionally, management
expects a further expansion into the greater Austin area will provide for
continued diversification of the existing asset base.
Loan Portfolio
First State provides a broad range of commercial and retail lending services
to corporations, partnerships and individuals. Lending activity includes
commercial business loans, agricultural production, commercial and residential
construction, mortgage loans and consumer loans. Historically, the bank has
emphasized agricultural lending, based on the market it served. As of June 30,
1999, the agricultural loan portfolio consisted primarily of cattle loans, and
the portfolio had fewer than 0.10% of its non-government guaranteed loans
categorized as past due. Management believes that the loan portfolio is
diversified as to concentration of credit to single industries and related
groups of borrowers.
At June 30, 1999, First State's loan portfolio consisted of the following
types and amounts of loans:
<TABLE>
<CAPTION>
Loan Portfolio as of June 30, 1999
-------------------------------------
Amount ($) Percentage (%) of
Loan Type (in thousands) Total Portfolio
- --------- -------------- -----------------
<S> <C> <C>
Commercial and Industrial.................... 31,563 23.4
Real Estate--Construction and Land
Development................................. 29,265 21.7
Real Estate--Residential..................... 12,481 9.2
Real Estate--Farmland........................ 5,095 3.8
Real Estate--Commercial...................... 21,793 16.2
Agricultural................................. 15,849 11.7
Consumer..................................... 15,348 11.4
Other........................................ 3,500 2.6
------- ----
Gross Loans................................ 134,894 100
Less: Unearned Income.................... (739)
Less: Allowance for Loan Loss............ (1,797)
-------
Net Loans.................................. 132,358
</TABLE>
25
<PAGE>
Construction and development loans were $29.3 million at June 30, 1999,
which was an increase of $13.2 million or 82% from $16.1 million at June 30,
1998. This increase is primarily due to First State's opening in 1998 of
banking offices in Austin and Georgetown.
Lending Policy
First State seeks to make loans that meet the needs of the communities
served while maintaining appropriate asset quality and earnings. Targeted
markets include commercial and consumer loans, emphasizing commercial loans to
small and medium sized businesses.
First State regularly monitors its loan portfolio to identify areas of
concern and to enable management to take corrective action when necessary.
Lending officers and the Board of Directors meet periodically to review all
past due loans, the status of large loans and certain other matters.
Individual lending officers are responsible for reviewing collection of past
due amounts and monitoring any changes in the financial status of borrowers.
There are credit risks associated with the making of any loan. First State
attempts to minimize this risk through various means including the use of
standardized underwriting criteria, lending authority limits for officers and
a centralized administration of lending activity. This centralized department
provides loan review, quality control, compliance and monitoring services to
the branch offices. Additional loan review and compliance reviews are
contracted from third party vendors.
Deposits
The principal source of funds for First State is core deposits consisting of
transaction, savings and time deposits. First State has a broad base of
commercial and retail deposit customers with no single customer providing more
than 2% of total deposits. At June 30, 1999, First State's deposit base
consisted of the following:
<TABLE>
<CAPTION>
Deposits as of June 30,
1999
--------------------------
Amount ($) Percent (%)
Deposit Type (in thousands) of Deposits
------------ -------------- -----------
<S> <C> <C>
Non-Interest Bearing Demand Deposits.............. 37,846 21.1
Interest Bearing Deposits......................... 27,067 15.1
Savings Deposits.................................. 20,263 11.3
Certificates of Deposits(1)....................... 94,226 52.5
------- ----
Total Deposits.................................. 179,402 100%
======= ====
</TABLE>
- -------------------------
(1) Includes $35.3 million of certificates of
deposit over $100 thousand.
First State is a member of the Federal Home Loan Bank System and, as such,
utilizes its lending program. At June 30, 1999, the balance of FHLB advances
was $7,977,000. These advances are used primarily to provide longer term fixed
rate funds for mortgage lending activities.
As of June 30, 1999, First State had no brokered deposits.
Investment Portfolio
As of June 30, 1999, First State's investment security portfolio consisted
of:
<TABLE>
<CAPTION>
Investments as of June
30, 1999
-----------------------------
Amount ($) Percent (%)
Investment Type (in thousands) of Investments
--------------- -------------- --------------
<S> <C> <C>
U.S. Treasury Obligations..................... 14,155 23.7
U.S. Government Agency Debt................... 11,668 19.5
Mortgage-Backed Securities.................... 1,458 2.4
Collateralized Mortgage Obligations........... 14,865 24.9
Obligations of State & Political Subdiv....... 11,943 20.0
Corporate Debt Obligations.................... 4,890 8.2
Equity Securities............................. 696 1.2
Mutual Fund Balances.......................... 69 0.1
------ ----
Total Securities............................ 59,744 100%
====== ====
</TABLE>
26
<PAGE>
Competition
The banking business is highly competitive, and the profitability of First
State depends principally on the bank's ability to compete in its markets.
First State competes 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 non-bank
lenders and certain other non-financial entities, including retail stores
which may maintain their own credit programs and certain governmental
organizations which may offer more favorable financing than First State. First
State has been able to compete effectively with other financial institutions
by emphasizing customer service, technology and responsive decision-making on
loans, by establishing long-term customer relationships and building customer
loyalty, and by providing products and services designed to address the
specific needs of its customers.
Properties
First State operates from 12 banking locations and one operations center.
All facilities are owned unencumbered by First State, excluding two branch
offices (Georgetown and Austin) and the 2,500 square foot operation center,
which are leased. The leased facilities have leases with remaining terms
between one and four years. CCC and First State maintain their executive
offices and one branch location in a 4,020 square foot building located at
5550 SW H.K. Dodgen Loop, Temple, Texas. CCC and First State maintain their
Credit Administration and Accounting at 402-410 North Main, Temple, Texas.
Employees
As of June 30, 1999, CCC and First State had approximately 77 full-time and
14 part-time employees. CCC and First State provide medical and
hospitalization insurance to its full-time employees. CCC and First State
consider their relations with employees to be excellent. Neither CCC nor First
State is a party to any collective bargaining agreement.
Legal Proceedings
CCC and First State from time to time are 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 CCC or
First State which, if determined adversely, would have a material effect on
the business, results of operations or financial condition of CCC or First
State.
Selected Consolidated Financial Data
The following information summarizes certain selected consolidated financial
information of CCC as of and for its fiscal years ended December 31, 1996,
1997 and 1998 and for the six months ended June 30, 1999. For a more complete
overview, please refer to CCC's full financial statements and the notes
thereto in the Statement of Additional Information. Historical financial
information is not necessarily indicative of results of operations for any
future period or financial condition as of any future date.
27
<PAGE>
CENTRAL COMMUNITY CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June -----------------------
30, 1999 (1) 1998 (2) 1997 (2) 1996 (1)
---------------- -------- -------- --------
<S> <C> <C> <C> <C>
Selected Results Of Operations:
Interest income............... $ 7,994 $ 15,127 $ 13,475 $ 9,610
Interest expense.............. 3,363 6,595 5,527 3,714
Net interest income........... 4,631 8,532 7,948 5,896
Provision for loan losses..... 475 480 420 260
Noninterest income............ 1,296 2,316 1,893 1,347
Noninterest expenses.......... 3,188 6,114 5,205 3,937
Income before income taxes.... 2,264 4,254 4,216 3,046
Net income.................... 1,563 3,108 2,792 3,061
Per Common Share:
Earnings per common share-
basic........................ $ 51.51 $ 102.80 $ 92.83 $ 102.44
Earnings per common share-
diluted...................... $ 47.78 $ 95.33 $ 86.05 $ 94.91
Cash Dividends declared....... $ 0 $ 10 $ 10 $ 0
Book value per share.......... $ 566 $ 569 $ 472 $ 377
Average common share
outstanding-basic............ 30,344 30,233 30,076 29,881
Average common shares
outstanding-diluted.......... 32,714 32,603 32,446 32,251
Selected Balance Sheet Data:
Total assets.................. $210,884 $214,126 $190,217 $129,601
Securities available for
sale......................... 59,744 60,752 60,950 25,301
Investment securities held to
maturity..................... 0 0 0 0
Loans held for sale........... 0 120 0 218
Loans receivable, net......... 132,358 130,744 107,261 89,870
Reserve for loan losses....... 1,797 1,743 1,178 908
Deposits...................... 179,402 187,547 169,560 111,559
FHLB advances and other
borrowings................... 12,777 7,460 4,344 5,880
Stockholders' equity.......... 17,185 17,206 14,197 11,265
Loan to deposit ratio......... 74.78% 69.71% 63.26% 80.56%
Performance Ratios: (3)
Return on average assets...... 1.48% 1.52% 1.56% 2.76%
Return on average equity...... 18.09% 18.57% 20.76% 31.03%
Net interest margin-taxable
equivalent................... 4.98% 4.94% 5.08% 5.23%
Equity to assets.............. 8.15% 8.04% 7.46% 8.69%
Efficiency ratio.............. 53.79% 56.36% 52.89% 54.36%
Asset Quality Data:
Nonperforming loans........... $ 444 $ 1,550 $ 247 $ 850
Other real estate owned
(OREO)....................... 328 101 175 840
Nonperforming assets.......... 772 1,651 422 1,690
Nonperforming loans/total
loans........................ 0.33% 1.19% 0.23% 0.95%
Nonperforming assets/total
loans + OREO................. 0.58% 1.26% 0.39% 1.86%
Reserve for loan losses/total
loans........................ 1.34% 1.33% 1.10% 1.01%
Reserve for loan
losses/nonperforming loans... 404.73% 112.45% 476.92% 106.82%
Reserve for loan
losses/nonperforming assets.. 232.77% 105.57% 279.15% 53.73%
Ratio of net charge-offs to
average loans................ 0.32% (0.07)% 0.24% 0.24%
Earnings To Fixed Charge
Coverage Ratios: (4)
Excluding interest on
deposits..................... 7.97x 11.23x 14.60x 9.83x
Including interest on
deposits..................... 1.67x 1.65x 1.76x 1.82x
Capital Ratios:
Leverage ratio................ 7.76% 7.16% 6.39% 8.40%
Tier 1 capital (to risk-
weighted assets)............. 10.73% 9.90% 9.09% 12.22%
Total capital (to risk-
weighted assets)............. 11.91% 11.08% 10.03% 11.61%
</TABLE>
- --------
(1) Compiled from unaudited financial statements.
(2) Compiled from audited financial statements.
(3) Annualized for interim period.
(4) The consolidated ratio of earnings to fixed charges has been computed by
dividing income before tax plus fixed charges by fixed charges. Fixed
charges represent all interest expense and the interest factor in rent
expense (ratios are presented both excluding and including interest on
deposits). Interest expense (other than on deposits) includes interest on
federal funds purchased and securities sold under agreements to
repurchase. Federal Home Loan Bank advances, and other borrowed funds.
28
<PAGE>
[MAP APPEARS HERE]
29
<PAGE>
MANAGEMENT OF THE FUND
Investment Manager
Sterne Agee Asset Management, Inc., 800 Shades Creek Parkway, Suite 125,
Birmingham, Alabama 36209, serves as the investment manager (the "Manager") to
the Fund pursuant to an investment management agreement (the "Management
Agreement"). Because the Fund intends to buy and hold the Preferred
Securities, the Manager will not generally be making day-to-day investment
decisions for the Fund. Nonetheless, the Manager is responsible for managing
the Fund's business affairs and providing certain clerical, bookkeeping and
administrative services, including fund accounting and shareholder services.
For its services to the Fund, the Manager receives a fee, paid quarterly by
the Fund and reimbursed by the Bank Holding Companies, at an annual rate of
0.10% of the net asset value of the Fund as calculated each quarter. See "Net
Asset Value" below. The Manager has been a registered investment adviser since
May 1988.
The Manager is an affiliate of Sterne, Agee & Leach, Inc., which is one of
the Underwriters of the Fund Shares. Founded in 1916, Sterne, Agee & Leach,
Inc. and its affiliates have approximately $4.9 billion of assets under
management as of June 30, 1999. The Manager and Sterne, Agee & Leach, Inc. are
each wholly-owned subsidiaries of Sterne, Agee & Leach Group, Inc., a Delaware
holding company.
Trustees And Officers
The Board of Trustees is responsible for the management of the Fund,
including general supervision of the duties performed by the Manager. The
trustees of the Fund are James S. Holbrook, Jr., James A. Taylor, Sr. and
Robert M. Couch. Mr. Holbrook is an "interested person" (as the term
"interested person" is defined in the 1940 Act) and James A. Taylor, Sr. and
Robert M. Couch are "disinterested persons." More information regarding the
trustees and officers of the Fund, including their principal occupations and
other affiliations during the past five years, is set forth under "Management
of the Fund" in the Statement of Additional Information.
NET ASSET VALUE
Net asset value is calculated (i) on the last business day of each quarter,
and (ii) at such other times as determined by the Fund's Trustees. Net asset
value of the Fund is the value of the Fund's net assets (the value of its
assets less its liabilities, exclusive of capital stock and surplus). So long
as there remains no market for the Preferred Securities held by the Fund, the
Preferred Securities will be valued as determined in good faith by the Fund's
Trustees, although the actual calculation may be done by others. In making
this determination the Trustees will consider, among other things, publicly
available information regarding the issuer, market conditions and values
ascribed to comparable securities issued by comparable companies.
In the absence of an active trading market for any Preferred Securities
acquired by the Fund, valuing the Preferred Securities held by the Fund will
be difficult. The Fund's Trustees are responsible for making a good faith
determination of the fair value of the Fund's assets. Such determination must
approximate market value, which means the value that the Trustees reasonably
believe could be received in the short term upon the sale of the securities
held by the Fund. The Trustees of the Fund have established and regularly
monitor procedures which are used to value the Fund's Preferred Securities.
Initially, the Preferred Securities held by the Fund are valued at cost. In
determining the fair value of such securities, the Trustees (or their agent)
ordinarily consider the following factors: the existence of restrictions upon
the sale of the security; the public trading values of comparable debt
securities of comparable companies and the current yield to call on comparable
securities; changes in the financial condition and prospects of the issuer;
and any other factors affecting fair value, all in accordance with the 1940
Act.
30
<PAGE>
DISTRIBUTIONS
The Fund expects to pay a Dividend Yield at a fixed rate of %. However, in
the event that the Fund's expenses exceed $185,000 per annum, as adjusted by
the CPI, such additional expenses will be borne by the Fund and will
negatively affect the Dividend Yield. The Fund will pay distributions
quarterly in arrears at an annual rate equivalent to the Dividend Yield,
except that under certain circumstances distributions may be deferred. The net
income of the Fund consists of all interest income accrued on portfolio assets
less all expenses of the Fund. The Fund does not anticipate incurring any
expenses other than those expenses paid by the Bank Holding Companies.
Expenses of the Fund, if any, are accrued each day. All the net investment
income of the Fund will be distributed quarterly, in arrears. Annually, the
Fund also intends to distribute ordinary taxable income and net capital gains,
if any.
TAX MATTERS
Federal Income Tax Consequences
The following is a summary of the principal United States federal income tax
consequences of your purchase, ownership and disposition of Fund Shares when
you purchase Fund Shares upon initial issuance and hold the Fund Shares as a
capital asset. This summary addresses the United States federal income tax
consequences of a shareholder who is a citizen or resident of the United
States, a domestic corporation, a domestic partnership, an estate the income
of which is includible in its gross income for United States federal income
tax purposes regardless of its source, and a trust, if a court within the
United States is able to exercise primary supervision over the administration
of the trust and one or more United States person has the authority to control
all substantial decisions of the trust ("U.S. Investors"). This summary does
not address the tax consequences of persons who are not U.S. Investors or
persons that have a functional currency other than the U.S. dollar. In
addition, this summary does not discuss certain tax consequences that may
apply to persons subject to special tax treatment such as banks, thrifts,
insurance companies, real estate investment trusts, regulated investment
companies, securities dealers, tax exempt organizations, and persons who hold
the Fund Shares as a position in a "straddle," "synthetic investment,"
"hedge," "conversion transaction" or other investment in which the Fund Shares
may be integrated with another instrument. This summary does not discuss the
tax laws of any state, local or foreign government that might apply to Fund
Shares.
This summary is based upon applicable provisions of the Internal Revenue
Code of 1986, Treasury Regulations and administrative rulings and court
decisions. These legal authorities, now in effect, may be changed at any time
in a manner that could adversely affect you, as an investor in the Fund.
Furthermore, since these legal authorities are subject to various
interpretations, the United States federal income tax treatment of the
purchase, ownership and disposition of Fund Shares, may be different from the
treatment discussed in this Summary.
YOU SHOULD CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
FUND SHARES.
Classification of the Fund
The Fund will not be subject to federal income tax on any payments the Fund
receives or accrues, including original issue discount ("OID"). This treatment
of the Fund as a nontaxable entity is consistent with Tax Counsel's opinion
that the Fund will be classified as a grantor trust and not as an association
taxable as a corporation for federal income tax purposes.
Tax Treatment of Shareholders
As a shareholder, you will be required to include in your gross income your
share of each item of income or gain, including OID, attributable to the
Subordinated Debentures, as if you directly owned an interest in each
31
<PAGE>
of the Subordinated Debentures issued by the Bank Holding Companies to the
Bank Trusts. Your interest in the Subordinated Debentures is based on the
Fund's undivided interest in the Subordinated Debentures represented by the
Preferred Securities and your proportionate interest in the Fund represented
by your Fund Shares. See "Additional Risk Factors" and "Additional Tax
Discussion" in the Statement of Additional Information.
Sale of Fund Shares
If you sell Fund Shares you will recognize gain or loss equal to the
difference between your adjusted tax basis in the sold Fund Shares and the
amount you realized in the sale. Your basis in the Fund Shares generally will
equal your initial purchase price, increased by OID previously includible in
your gross income to the date of sale and decreased by the amount of payments
you received on the Fund Shares. Recognized gain or loss generally will be a
capital gain or loss and generally will be a long-term capital gain or loss if
you held the sold Fund Shares for more than one year.
Additional Discussion
Additional discussion of United States federal income tax rules relating to
your purchase, ownership and disposition of Fund Shares is set forth in the
Statement of Additional Information.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
several Underwriters named below, acting through Sterne, Agee & Leach, Inc.,
as representative of the several Underwriters (the "Representative"), have
agreed, severally, to purchase from the Fund the number of Fund Shares set
forth opposite their respective names:
<TABLE>
<CAPTION>
Number of
Fund
Shares Percentage
--------- ----------
<S> <C> <C>
Sterne, Agee & Leach, Inc. ................................
1901 Sixth Avenue North
Suite 2100
Birmingham, Alabama 35203
[OTHER UNDERWRITERS AND ADDRESSES].........................
------- ---
Total.................................................... 860,000 100%
======= ===
</TABLE>
The several Underwriters have agreed in the underwriting agreement, subject
to certain terms and conditions set forth therein to purchase all of the Fund
Shares offered hereby, if any of such Fund Shares are purchased. In the event
of default by an Underwriter, the underwriting agreement provides that, in
certain circumstances, purchase commitments of the non-defaulting Underwriters
may be increased or the underwriting agreement may be terminated.
The Offering price and Dividend Yield have been determined by negotiations
among the Bank Holding Companies, the Fund and the Underwriters, and the
Offering price of the Fund Shares may not be indicative of the market price
following this Offering. The Representative will have no obligation to make a
market in the Fund Shares, however, and may cease marketing-making activities,
if commenced, at any time.
In view of the fact that the net proceeds of the sale of the Fund Shares
will be ultimately used to purchase the Subordinated Debentures of the Bank
Holding Companies, the Bank Holding Companies have agreed to pay as
compensation to the Underwriters arranging the investment of such proceeds
therein, an amount in immediately available funds of 5% of the price to the
public of the Fund Shares or $1.25 per Fund Share ($1,075,000 in total, or
$1,182,500 if the Underwriters' over-allotment option is exercised in full)
for the accounts of the several Underwriters.
In addition, FirstBancorp, Inc. and First Southern Bancorp, Inc. are
obligated to pay the legal fees of the Representative up to an aggregate
maximum of $26,046.51.
32
<PAGE>
In the event that this Offering is not closed by September 30, 1999 as a
result of the actions or inactions of any of the Bank Holding Companies, any
such Bank Holding Company has agreed to reimburse the Representative for out-
of- pocket expenses in excess of the legal fees accounted for above incurred
in connection with this Offering as follows: (i) FirstBancorp, Inc. and First
Southern Bancorp, Inc. have agreed to reimburse the Representative up to a
maximum of $20,000 each; and (ii) Central Community Corporation has agreed to
reimburse the Representative up to a maximum of $50,000.
The Fund will incur various expenses in registering the Fund Shares, all of
which will be reimbursed by the Bank Holding Companies up to a limit of 2% of
all proceeds to FirstBancorp, Inc. and First Southern Bancorp, Inc. and 8% of
all proceeds to Central Community Corporation. The Fund's estimated expenses
of this Offering, excluding underwriting discount, are as follows:
<TABLE>
<S> <C>
Registration fee................................................... $ 6,575
Printing costs..................................................... $100,000
Legal fees and expenses............................................ $100,000
Accounting fees and expenses....................................... $ 3,000
NASD fees.......................................................... $ 2,865
AMEX fees.......................................................... $ 10,000
Miscellaneous...................................................... $ 20,000
--------
Total............................................................ $236,540
========
</TABLE>
This Offering of the Fund Shares is made for delivery when, as and if
accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the Fund Shares. All
funds for the payment of Fund Shares are due on the third business day
following the date that the sale is confirmed, which is expected to be the
effective date of the Offering.
The Fund granted the Underwriters an option, exercisable not later than 30
days from the date of the effectiveness of this Offering (the date of this
Prospectus), to purchase up to an aggregate of 86,000 additional Fund Shares
at the Offering price to cover over-allotments. To the extent the Underwriters
exercise this option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage of their original purchase as
reflected in the table. The Fund will be obligated, pursuant to the option, to
sell such Fund Shares to the Underwriters. The Underwriters may exercise such
option only to cover over-allotments, if any, incurred in connection with the
sale of the 860,000 Fund Shares offered in this Offering. If purchased, the
Underwriters will sell these additional Fund Shares on the same terms as those
on which the Fund Shares are being offered. Interest will start accruing on
the date of issuance of the option Fund Shares, rather than the date of the
closing of the sale of the initial 860,000 Fund Shares.
There currently is no market for the Fund Shares. Consequently, the initial
Offering price has been determined by negotiation by and between the Fund and
Sterne Agee. The Fund will apply to list the Fund Shares on the AMEX under the
symbol "PBA"; however, there can be no assurance that an active trading market
will develop.
In connection with and during this Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the Fund Shares. These transactions may include stabilization transactions
under which persons may bid for or purchase Fund Shares to stabilize its
market price. The Underwriters may also create a "short position" for their
own account by selling more Fund Shares in this Offering than they are
committed to purchase, and in that case they may purchase Fund Shares in the
open market after this Offering is completed to cover all or a part of their
short position. The Underwriters may also cover all or a portion of their
short position, up to 86,000 Fund Shares, by exercising their over-allotment
option described above and on the cover of this Prospectus. Also, the
Representative, on behalf of the Underwriters, may impose "penalty bids",
under contractual arrangements with the Underwriters, that allow it to reclaim
from an underwriter (or dealer participating in this Offering) for the account
of the other Underwriters, the selling concession on the Fund Shares that the
Underwriters distribute in this Offering, but later purchase for their
33
<PAGE>
account in the open market. Any of these transactions may maintain the price
of the Fund Shares at a higher level than the level which the Fund Shares
might otherwise bear in the open market. None of these transactions is
required, and if the Underwriters, selling agents or others engage in these
transactions, they may also stop at any time.
The underwriting agreement provides that the Fund and the Manager will
indemnify the Underwriters against certain liabilities, including certain
liabilities under the Securities Act of 1933, as amended. The Bank Holding
Companies have made similar indemnifications to the Underwriters and the Fund
with respect to certain information contained in this Prospectus and Statement
of Additional Information regarding the Bank Holding Companies, the Bank
Trusts and agreements relating to this Offering.
The foregoing is a summary of certain principal terms of the underwriting
agreement. However, this summary is subject to the definitive terms and
conditions of the Underwriting Agreement, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
FUND CUSTODIAN
The Trust Company of Sterne, Agee & Leach, Inc., 800 Shades Creek Parkway,
Suite 125, Birmingham, AL 35209, serves as Custodian of the Fund. The Trust
Company of Sterne, Agee & Leach, Inc. will perform the Fund's custodial and
portfolio accounting services, as well as serve as the Fund's dividend paying
agent.
EXPERTS
Arthur Andersen LLP serves as independent accountant for the Fund.
Osburn Henning and Company serves as independent accountant for
FirstBancorp, Inc.
Ernst & Young LLP serves as independent accountant for Central Community
Corporation.
McGladrey & Pullen, LLP serves as independent accountant for First Southern
Bancorp, Inc.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, Washington D.C., serves as legal counsel to the
Fund.
Ritchie & Rediker, L.L.C., Birmingham Alabama, serves as legal counsel to
the Underwriters.
34
<PAGE>
BACK COVER
TABLE OF CONTENTS OF THE STATEMENT
OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Additional Description of the Bank Trusts................................ S-2
Additional Risk Factors.................................................. S-2
Additional Description of the Preferred Securities....................... S-4
Additional Description of the Subordinated Debentures.................... S-9
Additional Description of the Guarantee.................................. S-14
Relationship Among the Preferred Securities, the Subordinated Debentures
and the Guarantee....................................................... S-16
Management of the Fund................................................... S-18
Supervision and Regulation of the Bank Holding Companies................. S-19
Additional Tax Discussion................................................ S-24
Index to the Financial Statements........................................ F-1
Balance Sheet of the Fund................................................ F-2
Financial Statements of FirstBancorp, Inc................................ F-6
Financial Statements of First Southern Bancorp, Inc...................... F-27
Financial Statements of Central Community Corporation.................... F-50
</TABLE>
35
<PAGE>
Subject to Completion
, 1999
STATEMENT OF ADDITIONAL INFORMATION
SAL Trust Preferred Fund I
SAL Trust Preferred Fund I (the "Fund") is a newly organized, closed-end,
nondiversified management investment company. The Fund's investment objective
is to provide a high level of current income by investing in Cumulative Trust
Preferred Securities that have been issued by three community bank trust
entities.
This Statement of Additional Information does not constitute a prospectus, but
should be read in conjunction with the Prospectus relating thereto dated
(the "Prospectus"). This Statement of Additional Information does not include
all information that a prospective investor should consider before purchasing
Fund Shares, and investors should obtain and read the Prospectus prior to
purchasing such Fund Shares. A copy of the Prospectus may be obtained without
charge by calling 1-877-978-3763. You may also obtain a copy of the Prospectus
on the Securities and Exchange Commission's web site (http://www.sec.gov).
Capitalized terms used but not defined in this Statement of Additional
Information have the meanings ascribed to them in the Prospectus.
The information in this Statement of Additional Information is not complete
and may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission (the "SEC") is
effective. This Statement of Additional Information is not an offer to buy
these securities in any state where the offer or sale is not permitted.
Statements contained in the Prospectus and this Statement of Additional
Information as to the contents of any contract or other documents referred to
are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement of which the Prospectus and this Statement of
Additional Information form a part, each such statement being qualified in all
respects by such reference.
This Statement of Additional Information is dated
, 19
<PAGE>
ADDITIONAL DESCRIPTION OF THE BANK TRUSTS
Each Bank Holding Company is the owner of all of the common (voting)
securities of its respective Bank Trust. The Fund is the owner of all the
preferred (nonvoting) securities of each Bank Trust. Each Bank Trust is a
statutory trust formed under Connecticut law pursuant to (i) a trust
agreement, dated as of , executed by the respective Bank Holding Company,
as depositor, and State Street Bank and Trust Company ("State Street") as
property trustee and certain individuals as administrative trustees; and (ii)
a certificate of trust filed with the Connecticut Secretary of State on .
The initial trust agreements will be amended and restated in their entirety as
of the closing date of the Offering (as so amended and restated, the "Trust
Agreements") substantially in the form filed with the SEC as an exhibit to the
registration statement containing this Statement of Additional Information.
The Trust Agreements will, among other things, appoint State Street, as
"Property Trustee" to hold legal title to the Subordinated Debentures in trust
for the benefit of the Bank Holding Companies and the Fund. The Trust
Agreements will also appoint several "Administrative Trustees" who have the
power, duty and authority to cause the Bank Trusts to issue and sell the
Common and Preferred Securities and to execute any documents necessary to
effectuate that issuance and sale.
Each Bank Trust exists for the exclusive purposes of (i) issuing Preferred
Securities to the Fund; (ii) issuing common securities to each respective Bank
Holding Company (the "Common Securities"); (iii) investing the gross proceeds
of the sale of the Common and Preferred Securities in the Subordinated
Debentures; and (iv) engaging in only those other activities necessary,
advisable, or incidental thereto. The Subordinated Debentures will be the only
assets of the Bank Trusts and payments on the Subordinated Debentures will be
the only revenue of the Bank Trusts. The Subordinated Debentures will be
issued by each Bank Holding Company pursuant to Indentures between each Bank
Holding Company and State Street, as "Debenture Trustee" (as amended and
supplemented from time to time, the "Indenture").
ADDITIONAL RISK FACTORS
In addition to the risk factors contained in the Prospectus, you should
consider carefully the risk factors described below in evaluating your
decision to invest in the Fund.
Year 2000 Readiness Disclosure. The Fund, its Manager, the Bank Holding
Companies sponsoring the Bank Trusts and their service providers depend on the
smooth functioning of their computer systems. Many computer software systems
in use today cannot recognize the year 2000, but revert to 1900 or some other
date, due to the manner in which some dates were encoded and calculated.
Financial institutions in the United States have been required by their
federal regulators to meet strict guidelines to ensure year 2000 readiness.
Each of the Bank Holding Companies has pledged its compliance with these
guidelines. The Manager has been actively working on necessary changes to its
computer systems to deal with the year 2000 problem and expects that its
systems will be adapted before that date. Although the Bank Holding Companies
and the Manager are monitoring their remedial efforts, there can be no
assurance that they and the services they provide will not be adversely
affected. Accordingly, the Fund Shares may be adversely affected.
Risk Factors Related to the Preferred Securities
The following risk factors relate specifically to the Preferred Securities
to be held by the Fund, and may therefore have a significant impact on the
value of the Fund Shares:
No Sinking Fund. The Subordinated Debentures will not be subject to any
sinking fund. As a result, there will be no money set aside in a separate
custodial account for the purpose of ensuring that the Bank Holding Companies
meet their obligations to pay any distribution or repay the principal of the
Subordinated Debentures upon maturity or earlier redemption.
Limited Voting Rights. The Fund will generally have limited voting rights
relating only to specific matters, including modification of the terms of the
Preferred Securities, and the exercise of the Bank Trusts'
S-2
<PAGE>
rights as holders of the Subordinated Debentures. The voting rights to
appoint, remove or replace, or to increase or decrease the number of the
Trustees of the Bank Trusts are vested exclusively in the Bank Holding
Companies and not the Fund, with certain exceptions. See "Additional
Description of the Preferred Securities--Voting Rights; Amendment of the Trust
Agreement" below.
Limited Covenants. The covenants in the Indentures restricting activities of
the Bank Holding Companies are limited and there are no such covenants in the
Trust Agreements. As a result, neither the Indentures nor the Trust Agreements
limits the ability of any Bank Holding Company or any subsidiary to incur or
assume additional indebtedness or other obligations. Additionally, neither the
Indentures nor the Trust Agreements contain any financial ratios or specified
levels of liquidity to which the Bank Holding Companies must adhere.
Therefore, the provisions of these governing instruments should not be
considered a significant factor in evaluating whether each Bank Holding
Company will be able to comply with its obligations under its Subordinated
Debentures or its Guarantee.
Risk Factors Related to the Bank Holding Companies
The following risk factors relate specifically to the Bank Holding
Companies, and may therefore have a significant impact on the value of the
Fund Shares:
Interest Rate Fluctuations. Changes in interest rates can have differing
effects on various aspects of the Bank Holding Companies' businesses,
particularly on the net interest income of each Bank Holding Company, the rate
of loan prepayments, the volume of residential mortgage loans originated or
produced, the sales of residential mortgage loans on the secondary market and
the value of each Bank Holding Company's mortgage servicing rights.
Unexpected Loan Losses. Industry experience indicates that a portion of any
Bank's loans held in its own portfolio will become delinquent and a portion of
the loans will become charge-offs, resulting in losses to the Bank. Regardless
of the underwriting criteria used by each of the Banks, losses may be
experienced as a result of various factors beyond a Bank's control, including,
among other things, changes in market conditions affecting the value of
properties and problems affecting the credit of the borrower. Each Bank's
determination of the adequacy of its allowance for possible loan losses is
based on various considerations, including an analysis of the risk
characteristics of various classifications of loans, previous loan loss
experience, specific loans which would have loan loss potential, delinquency
trends, estimated fair value of the underlying collateral, current economic
conditions, the views of each Bank's regulators (who have the authority to
require additional reserves), geographic and industry loan concentration and
other factors. If delinquency levels were to increase as a result of adverse
general economic conditions, the loan loss reserve so determined by each Bank,
however, may not be adequate. Accordingly, the ability of each Bank's Bank
Holding Company to make payments on the Subordinated Debentures may be
impaired, which could make a default on the Preferred Securities more likely
to occur.
Growth. There can be no assurance that the Banks will be able to adequately
and profitably manage their future growth. Failure by a Bank Holding Company
to manage its growth effectively or sustain historical increases in loan
origination volume could have a material adverse effect on the Bank Holding
Company's business, financial condition, and results of operations, and
consequently its ability to repay the Subordinated Debentures.
Competition. Each of the Banks faces substantial competition in purchasing
and originating loans and in attracting deposits. Competitors include national
and state banks, trust companies, thrifts and thrift holding companies,
insurance companies, mortgage banking operations, credit unions, finance
companies, money market funds and other financial and non-financial companies,
many of which offer products similar to those offered by the Banks. Many
competing providers have greater financial resources than the Banks, offer
additional services, have wider geographic presence or more accessible branch
and loan production offices. Accordingly, if any Bank is not successful in
competing, then a material adverse effect on the Bank Holding Company's
ability to pay the Subordinated Debentures may occur.
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ADDITIONAL DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will represent undivided beneficial interests in
the assets of each Bank Trust and the Fund will be entitled to a preference
over the Common Securities in certain circumstances with respect to
distributions and amounts payable upon redemption of the Common and Preferred
Securities or liquidation of each Bank Trust. See "Subordination of Common
Securities." Certain material terms of the Trust Agreements are summarized
below. The following description does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Trust
Agreement which is filed with the SEC as an Exhibit to the Fund's registration
statement.
General
The Preferred Securities will initially be limited to $21,500,000
liquidation amount at any one time outstanding (unless the Underwriters
exercise their over-allotment option in full, and the aggregate liquidation
amount of the Preferred Securities will then be $23,650,000). The Preferred
Securities will rank equally, and payments will be made thereon pro rata, with
the Common Securities of the Trust except as described under "--Subordination
of Common Securities" below. Legal title to the Subordinated Debentures will
be held by State Street, as Property Trustee, in trust for the benefit of the
Fund and the Bank Holding Companies. The Guarantee will not guarantee payment
of distributions or amounts payable on redemption of the Preferred Securities
or liquidation of the Bank Trusts when the Bank Trusts do not have funds on
hand legally available for such payments. See "Additional Description of the
Guarantee" below.
Distributions
The Preferred Securities represent preferred undivided beneficial interests
in the assets of the Bank Trusts. Distributions on the Preferred Securities
will accrue at the annual rate of % of the stated Liquidation Amount of
$25.00 per Preferred Security from the date of issuance, payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year, to
the Fund, as the holder of the Preferred Securities. Distributions will
accumulate from the date the Preferred Securities are issued. The first
distribution payment date for the Preferred Securities will be September 30,
1999. The amount of distributions payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months.
Each of the Bank Holding Companies, or any one of them, has the right under
the Indenture to defer payment of interest on the Subordinated Debentures at
any time or from time to time for a period not exceeding 20 consecutive
quarterly periods with respect to each Extension Period, provided that no
Extension Period may extend beyond the Stated Maturity of the Subordinated
Debentures. As a consequence of any such deferral of interest payments by any
Bank Holding Company, quarterly distributions on its Preferred Securities will
also be deferred by its Bank Trust during any such Extension Period. Deferred
distributions to which the Fund is entitled, and deferred distributions by the
Fund to which Shareholders are entitled, will accumulate, with interest
thereon, at the annual rate of % compounded quarterly, from the relevant
payment date for such distributions. The term "distributions" includes any
such additional interest. See "Additional Description of the Subordinated
Debentures--Option to Extend Interest Payment Date" below for a discussion of
the restrictions imposed on a Bank Holding Company that elects to defer
payment of interest on the Subordinated Debentures.
During any Extension Period, the Bank Holding Company that elected the
deferral may extend the Extension Period as long as the Extension Period does
not exceed 20 consecutive quarterly periods or extend beyond the stated
maturity of the Subordinated Debentures. Upon the termination of any such
Extension Period and the payment of all amounts then due, and subject to the
foregoing limitations, that Bank Holding Company may elect to begin a new
Extension Period. The Bank Holding Company must give State Street Bank and
Trust Company, as Property Trustee, as well as the Administrative Trustees and
the Debenture Trustee notice of its election of any Extension Period or any
extension thereof at least one business day prior to the earlier of:
(i) the date the distributions on the Preferred Securities would have been
payable except for the election to begin or extend the Extension
Period; and
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(ii) the date the Bank Trust is required to give notice to the Fund of the
record date or the date such distributions are payable, but in any
event not less than one business day prior to such record date.
There is no limitation on the number of times that any Bank Holding Company
may elect to begin an Extension Period. During any Extension Period, the Bank
Holding Company electing to defer payment of interest on the Subordinated
Debentures is subject to certain restrictions. For a description of these
restrictions, see below, under "Additional Description of the Subordinated
Debentures--Option to Extend Interest Payment Date."
None of the Bank Holding Companies have any current intention of exercising
their rights to defer payments of interest by extending the interest payment
period on the Subordinated Debentures. However, there can be no assurance that
the Bank Holding Companies will not elect to defer interest payments in the
future.
The revenue of the Bank Trusts available for distribution to the Fund is
limited to payments under the Subordinated Debentures in which the Bank Trusts
will invest the proceeds from the issuance and sale of the Common and
Preferred Securities. If any of the Bank Holding Companies do not make
interest payments on their Subordinated Debentures, its Property Trustee will
not have funds available to pay distributions on its Preferred Securities. The
payment of distributions on Preferred Securities by a Bank Trust is guaranteed
by the corresponding Bank Holding Company on a limited, subordinated basis as
set forth herein under "Description of the Guarantee."
Special Event Redemption
If a Capital Event, Tax Event or Investment Company Event (each as defined
herein, see "Additional Description of the Subordinated Debentures" below)
occurs, then the Bank Holding Companies will have the right, within 180 days
following the occurrence of such event to prepay the Subordinated Debentures
in whole (but not in part) in the manner set forth under "Additional
Description of the Subordinated Debentures--Special Event Prepayment," and
therefore to cause a mandatory redemption of the corresponding Preferred
Securities prior to their stated maturity. A Capital Event, Tax Event or an
Investment Company Event each is sometimes referred to herein as a "Special
Event."
Redemption Payments
Upon the mandatory repayment of any of the Subordinated Debentures at the
stated maturity of the Subordinated Debentures or upon the earlier prepayment
of any of the Subordinated Debentures (upon the occurrence of a Special Event
at any time or at the option of any of the Bank Holding Companies after ,
2004), the proceeds from such repayment shall be applied by the Property
Trustee to redeem the Common and Preferred Securities, upon not less than 30
nor more than 60 days notice prior to the date fixed for repayment or
redemption, at a redemption price equal to 100% of the aggregate Liquidation
Amount of the Common and Preferred Securities so redeemed, plus accumulated
and unpaid distributions due thereon to the date of payment, if any (the
"Redemption Price").
Liquidation of Bank Trusts and Distribution of Subordinated Debentures
Each Bank Trust will automatically dissolve and its affairs will be wound up
upon the first of any of the following events:
(i) certain events of bankruptcy, dissolution or liquidation of its
respective Bank Holding Company;
(ii) the distribution of its Subordinated Debentures to the Fund, if that
Bank Holding Company has given written direction to the Property Trustee
to dissolve its Bank Trust (which direction is optional and wholly
within the discretion of the Bank Holding Company at any time);
(iii) redemption of all of the Common and Preferred Securities as described
above;
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(iv) expiration of the term of the Bank Trust; and
(v) the entry of an order for the dissolution of the Bank Trust by a court
of competent jurisdiction.
Each Bank Holding Company will have the right at any time to liquidate its
respective Bank Trust and cause its Subordinated Debentures to be distributed
to the Fund. The Fund believes that under current United States federal income
tax law, a distribution of Subordinated Debentures in exchange for Preferred
Securities should not be taxable event to the Fund. Should there be a change
in law, a change in legal interpretation, a Tax Event or other circumstances,
however, the distribution of the Subordinated Debentures could be a taxable
event to the Fund.
In the event of termination of any Bank Trust, that Bank Trust will be
liquidated by State Street and the Administrative Trustees as expeditiously as
State Street and the Administrative Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of the
liquidating Bank Trust, to its respective Bank Holding Company and the Fund
the Subordinated Debentures, unless distribution is determined by the Property
Trustee not to be practicable. If distribution is not practicable, its
respective Bank Holding Company and the Fund will be entitled to receive out
of the assets of that Bank Trust legally available for distribution to them,
after satisfaction of liabilities to creditors of that Bank Trust, an amount
equal to the aggregate of the Liquidation Amount of the Common and Preferred
Securities, as the case may be, plus accumulated and unpaid distributions
thereon to the date of payment (the "Liquidation Distribution"). If the
Liquidation Distribution can be paid only in part because that Bank Trust has
insufficient assets on hand legally available to pay in full the aggregate
Liquidation Distribution, then the amounts payable directly by that Bank Trust
on its Common and Preferred Securities will be paid on a pro rata basis,
except that if a Debenture Event of Default has occurred and is continuing,
the Preferred Securities will have a priority over the Common Securities. See
"Additional Description of the Preferred Securities--Subordination of Common
Securities" below.
Redemption Procedures
The Common and Preferred Securities will be redeemed at the Redemption Price
with the proceeds from the contemporaneous repayment of the Subordinated
Debentures. Any redemption of Common and Preferred Securities will be made and
the Redemption Price will be payable on the Redemption Date only to the extent
that the Bank Trusts have funds legally available for the payment of such
Redemption Price. Distributions on Preferred Securities called for redemption
will continue to accumulate at the then applicable rate, from the Redemption
Date originally established by the Bank Trusts to the date such Redemption
Price is actually paid, in which case the actual payment date will be the
Redemption Date for purposes of calculating the Redemption Price.
Notice of any redemption will be mailed at least 30 days but not more than
60 days prior to the Redemption Date to the Fund. Unless the Bank Holding
Companies default in payment of the applicable Redemption Price on, or in the
repayment of, the Subordinated Debentures, on and after the Redemption Date,
distributions will cease to accrue on the Common and Preferred Securities
called for redemption.
Subordination of Common Securities
Payment of distributions on, and the Redemption Price of, the Preferred
Securities and the Common Securities, as applicable, will be made pro rata
based on the Liquidation Amount of the Preferred Securities and Common
Securities; provided, however, that if on any Distribution Date or Redemption
Date a Debenture Event of Default has occurred and is continuing, no payment
of any Distribution on, or Redemption Price of, any of the Common Securities,
will be made unless payment in full in cash of all accumulated and unpaid
Distribution on all of the Preferred Securities for all Distribution periods
terminating on or prior thereto has been made or provided for, and all funds
available to the Property Trustee will first be applied to the payment in full
in cash of all distributions on the Preferred Securities then due and payable.
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In the case of any Event of Default, the applicable Bank Holding Company as
holder of Common Securities will be deemed to have waived any right to act
with respect to such Event of Default until the effect of such Event of
Default has been cured, waived or otherwise eliminated. Until any such Event
of Default has been so cured, waived or otherwise eliminated, the Property
Trustee will act solely on behalf of the Fund and not on behalf of the Bank
Holding Company as holder of the Common Securities, and only the Fund will
have the right to direct the Property Trustee to act on its behalf.
Events of Default; Notice
Any one of the following events constitutes an event of default under the
Trust Agreements (an "Event of Default") with respect to Preferred Securities:
(i) the occurrence of a Debenture Event of Default (see "Additional
Description of the Subordinated Debentures--Debenture Events of
Default"); or
(ii) default by a Bank Trust in the payment of any distribution when it
becomes due and payable, and continuation of such default for a period
of 30 days (except due to the deferral of any due date in the case of an
Extension Period); or
(iii) default by a Bank Trust in the payment of any redemption price of any
Common or Preferred Securities when it comes due and payable; or
(iv) default in the performance, or breach, in any material respect, of any
covenant or warranty of State Street or the Administrative Trustees
(other than a covenant or warranty a default in the performance of which
or the breach of which is dealt with in clauses (ii) or (iii) above),
and continuation of such default or breach for a period of 60 days after
there has been given, by registered or certified mail, to State Street
and the Administrative Trustees by the Fund, a written notice specifying
such default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" under the Trust Agreements; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to State Street, as Property Trustee and the failure by the Bank
Holding Companies to appoint a successor Property Trustee within 60 days
thereof.
Within one business day 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 Fund, the Administrative Trustees and
the corresponding Bank Holding Company unless the Event of Default has been
cured or waived.
If an Event of Default has occurred and is continuing, the Preferred
Securities will have preference over the Common Securities as described under
"Liquidation of Bank Trusts and Distribution of Subordinated Debentures" and
"Subordination of Common Securities" above.
Removal of State Street and the Administrative Trustees
Unless a Debenture Event of Default has occurred and is continuing, State
Street, as Property Trustee, or the Administrative Trustees may be removed at
any time by the Bank Holding Companies, as holders of the Common Securities.
If a Debenture Event of Default has occurred and is continuing, State Street,
as Property Trustee, may be removed at such time by the Fund, as holder of the
Preferred Securities. In no event will the Fund have the right to vote to
appoint, remove or replace the Administrative Trustees. Those voting rights
are vested exclusively in the Bank Holding Companies as the holders of the
Common Securities. No resignation or removal of State Street or the
Administrative Trustees and no appointment of a successor trustee will be
effective until the acceptance of appointment by the successor trustee in
accordance with the provisions of the Trust Agreement. However, the Bank
Holding Companies must maintain State Street or another qualified bank or
trust company reasonably acceptable to the Fund as the Property Trustee,
Indenture Trustee and Guarantee Trustee.
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Voting Rights; Amendment of the Trust Agreement
Except as provided below and under "Removal of State Street and the
Administrative Trustees" and "Additional Description of the Guarantee--
Amendments and Assignment" and as otherwise required by law and the Trust
Agreements, the Fund will have no voting rights as holder of the Preferred
Securities.
Each Trust Agreement may be amended from time to time by the Bank Holding
Companies, State Street and the Administrative Trustees without the consent of
the Fund to:
(i) cure any ambiguity, correct or supplement any provisions in the Trust
Agreement that may be inconsistent with any other provision of the Trust
Agreement, or add any other provisions with respect to matters or
questions arising under the Trust Agreement; or
(ii) modify, eliminate or add to any provisions of the Trust Agreement to the
extent necessary:
(A) to ensure that the Bank Trusts will be classified for United States
federal income tax purposes as grantor trusts at all times that the
Common and Preferred Securities are outstanding;
(B) to ensure that the Bank Trusts will not be required to register as
"investment companies" under the 1940 Act; or
(C) to ensure that the proceeds from the sale of the Common and
Preferred Securities will constitute "Tier 1 capital" under capital
adequacy requirements which may be applicable to the Bank Holding
Companies; provided, however, that in the case of the foregoing
clause (i), such action shall not adversely affect in any material
respect the interests of the Fund as holder of the Preferred
Securities, and any amendments of the Trust Agreement will become
effective when notice thereof is given to the Fund and the Bank
Holding Companies.
The Trust Agreement may be amended by State Street, the Administrative
Trustees and the Bank Holding Companies:
(i) with the consent of the Fund; and
(ii) upon receipt by State Street and the Administrative Trustees of an
opinion of counsel to the effect that such amendment or the exercise of
any power granted to State Street and the Administrative Trustees in
accordance with such amendment will not affect the status of the Bank
Trusts as grantor trusts for United States federal income tax purposes
or the Bank Trusts' exemption from status as "investment companies"
under the 1940 Act, provided that, without the consent of the Fund and
the Bank Holding Companies, the Trust Agreement may not be amended to:
(A) change the amount or timing of any distribution or other payment on
or in respect of the Common or Preferred Securities or otherwise
adversely affect the amount of any other payment required to be made
in respect of the Common or Preferred Securities as of a specified
date; or
(B) restrict the right of the Bank Holding Companies or the Fund to
institute suit for the enforcement of any such payment on or after
such date.
So long as any Subordinated Debentures are held by State Street, as Property
Trustee, State Street and the Administrative Trustees may not, without the
consent of the Fund:
(i) direct the time, method and place of conducting any proceeding for any
remedy available to State Street, as Debenture Trustee, or execute any
trust or power conferred on State Street, as Debenture Trustee, with
respect to the Subordinated Debentures;
(ii) waive certain past defaults under the Indenture;
(iii) exercise any right to rescind or annul a declaration of acceleration
of the maturity of the principal of the Subordinated Debentures; or
(iv) consent to any amendment, modification or termination of the Indenture
or the Subordinated Debentures (if consent of the Fund is required)
without obtaining the prior approval of the Fund. State Street and the
Administrative Trustees will not revoke any action previously authorized
or approved
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by the Fund except by subsequent action of the Fund. State Street, as
Property Trustee, will notify the Fund of any notice of default with
respect to the Subordinated Debentures. In addition to obtaining the
foregoing approvals by the Fund, prior to taking any of the foregoing
actions, State Street and the Administrative Trustees shall obtain an
opinion of counsel experienced in such matters to the effect that the
Bank Trusts will not be classified as associations taxable as
corporations for United States federal income tax purposes on account of
such action.
Any required approval of the Fund may be given by the Manager of the Fund.
State Street, as Property Trustee, will notify the Manager of the Fund of any
meeting at which the Fund is entitled to vote, or of any matter upon which
action by written consent of the Fund is to be taken. No vote or consent of
the Fund will be required for the Bank Trusts to redeem and cancel their
Preferred Securities in accordance with the Trust Agreement.
Notwithstanding that the Fund is entitled to vote or consent under any of
the circumstances described above, any of the Preferred Securities that may be
owned by the Bank Holding Companies, State Street, the Administrative Trustees
or any affiliate of the Bank Holding Companies will, for purposes of such vote
or consent, be treated as if they were not outstanding.
ADDITIONAL DESCRIPTION OF THE SUBORDINATED DEBENTURES
The Subordinated Debentures are to be issued under the Indenture to the
respective Bank Trusts. Certain material terms of the Indenture are summarized
below. This summary of certain terms and provisions of the Subordinated
Debentures and the Indenture does not purport to be complete, and is qualified
in its entirety by reference to all of the provisions of the Indenture filed
with the SEC as an Exhibit to the Fund's registration statement.
General
Concurrently with the issuance of the Preferred Securities, each of the Bank
Trusts will invest the proceeds thereof, together with the consideration paid
by the Bank Holding Companies for the Common Securities (which shall be equal
to 3% of the Offering), in Subordinated Debentures issued by each respective
Bank Holding Company. The Subordinated Debentures will bear interest at the
annual rate of % of the principal amount thereof, payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year (each,
an "Interest Payment Date"), commencing September 30, 1999, to State Street,
as Property Trustee for the Bank Trusts, subject to certain exceptions. It is
anticipated that, until the liquidation, if any, of the Bank Trusts, each
Subordinated Debenture will be held in the name of the Property Trustee in
trust for the benefit of the Bank Holding Companies and the Fund. The amount
of interest payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months. Accrued interest that is not paid on the
applicable Interest Payment Date will bear additional interest on the amount
thereof at the annual rate of % thereof, compounded quarterly. The term
"interest", as used herein, includes quarterly interest payments, interest on
quarterly interest payments not paid on the applicable Interest Payment Date
and additional sums (as described herein), as applicable. The Subordinated
Debentures will be issued in denominations of $25.00 and integral multiples
thereof. The Subordinated Debentures will mature on , 2029 (the "Stated
Maturity"), except as described below.
The Subordinated Debentures will be unsecured and subordinate and rank
junior in right of payment to the extent and in the manner set forth in the
Indenture to all Senior Debt (as defined below, in "Subordination"). The
Indenture does not limit the incurrence or issuance of other secured or
unsecured debt of the Bank Holding Companies, including Senior Debt, or other
obligations. See "--Subordination" below. In addition, the Bank Holding
Companies are holding companies and almost all of the operating assets of the
Bank Holding Companies and their consolidated subsidiaries are owned by those
subsidiaries. Accordingly, the Bank Holding Companies rely primarily on
dividends from their subsidiaries to meet debt service obligations and pay
operating expenses. The inability of the Bank Holding Companies' direct and
indirect subsidiaries to pay dividends to their respective
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Bank Holding Companies in an amount sufficient to meet debt service
obligations and pay operating expenses would have a material adverse effect on
the Bank Holding Companies, Bank Trusts, the Fund and the Fund Shares.
Because the Bank Holding Companies are holding companies, their right to
participate in any distribution of the assets of their subsidiaries upon its
liquidation or reorganization or otherwise, is subject to the prior claims of
creditors of that subsidiary, except to the extent that its Bank Holding
Company may itself be recognized as a creditor of that subsidiary.
Accordingly, the Subordinated Debentures will be effectively subordinated to
all existing and future liabilities of each Bank Holding Company's
subsidiaries, including the respective Banks, and the Fund will look only to
the assets of each Bank Holding Company for distributions on the Preferred
Securities.
In addition, as the Bank Holding Companies are non-operating holding
companies, almost all of the operating assets of each Bank Holding Company are
owned by the respective Bank Holding Companies' subsidiaries. Each Bank
Holding Company relies primarily on dividends from its subsidiaries to meet
its obligations for payment of principal and interest on its outstanding debt
obligations, if any, and corporate expenses. Each of the Banks is subject to
certain restrictions imposed by federal or state law on any extensions of
credit to, and certain other transactions with, its respective Bank Holding
Company, and on investments in stock or other securities thereof. Such
restrictions prevent the Bank Holding Companies and such other affiliates from
borrowing from their respective Banks unless the loans are secured by various
types of collateral. Further, such secured loans, other transactions and
investments by each Bank are generally limited in amount as to its Bank
Holding Company and as to each of its other affiliates to 10% of the
respective Bank's capital and surplus and as to the Bank Holding Company and
all of such other affiliates to an aggregate of 20% of the respective Bank's
capital and surplus. In addition, payment of dividends to the Bank Holding
Companies by their respective Banks is subject to ongoing review by banking
regulators and is subject to various statutory limitations and in certain
circumstances requires prior approval by banking regulatory authorities.
Federal and state regulatory agencies also have the authority to limit further
the Banks' payment of dividends based on other factors, such as the
maintenance of adequate capital for the Banks, which could reduce the amount
of dividends otherwise payable.
Option to Extend Interest Payment Date
Each Bank Holding Company will have the right under its Indenture at any
time during the term of the Subordinated Debentures to defer the payment of
interest on the Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Subordinated Debentures. At the end of an Extension
Period, the Bank Holding Company or Companies that deferred the payment of
interest must pay all interest then accrued and unpaid (together with
additional interest accrued on such deferred interest at the annual rate of
%, compounded quarterly). During an Extension Period, interest will continue
to accrue and the Bank Trusts, will be required to accrue interest income for
United States federal income tax purposes prior to the receipt of cash
attributable to such income. See "Additional Tax Discussion."
During any such Extension Period, the Bank Holding Company electing to defer
payment of interest on the Subordinated Debentures generally may not:
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of its
capital stock (which includes common and preferred stock); or
(ii) make any payment of principal or interest on or repay, repurchase or
redeem any of its debt securities that rank equally with or junior in
right of payment to the Subordinated Debentures (other than the
Guarantee).
Prior to the termination of any such Extension Period, the Bank Holding
Company or Companies that elected the deferral may further extend the
Extension Period, provided that such extension does not cause such Extension
Period to exceed 20 consecutive quarterly periods or to extend beyond the
Stated Maturity of the
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Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all amounts then due on any Interest Payment Date, the Bank
Holding Company may elect to begin a new Extension Period, subject to the
above requirements. No interest will be due and payable during an Extension
Period, except at the end of the period. If the Property Trustee is the only
registered holder of the Subordinated Debentures at the time a Bank Holding
Company elects an Extension Period, the Bank Holding Company must give State
Street, as Property Trustee and Indenture Trustee, notice of its election of
any Extension Period (or an extension thereof) at least one business day prior
to the earlier of (i) the next date on which the distributions on the
Preferred Securities would have been payable except for the election to begin
or extend such Extension Period or (ii) the date the Bank Trust is required to
give notice to the Fund of the record date or the date such distributions are
payable, but in any event not less than one business day prior to such record
date. The Administrative Trustees will notify the Fund and the Fund will
notify Shareholders of the Bank Holding Company's or Companies' election to
begin or extend a new Extension Period to the Fund. There is no limitation on
the number of times that a Bank Holding Company may elect to begin a new
Extension Period.
Special Event Prepayment
If a Capital Event, Tax Event or an Investment Company Event (as defined
below) (each, a "Special Event") occurs, each Bank Holding Company may, at its
option, prepay its Subordinated Debentures in whole (but not in part) at any
time within 180 days of the occurrence of such Special Event, at a prepayment
price (the "Prepayment Price") equal to 100% of the principal amount of such
Subordinated Debentures plus accrued and unpaid interest thereon, if any, to
the date of such prepayment.
A "Capital Event" means the receipt by a Bank Trust of an opinion of counsel
experienced in such matters that the Bank Holding Companies cannot, or within
90 days after the date of the opinion of such counsel will not, be permitted
by the applicable regulatory authorities, due to a change in law, regulation,
policy or guideline or interpretation or application of law or regulation,
policy or guideline, to account for the Preferred Securities as Tier 1 capital
under the capital guidelines or policies of the Federal Reserve or other
applicable federal or state banking regulation.
"Tax Event" means the receipt by a Bank Trust of an opinion of counsel
experienced in such matters to the effect that there is more than an
insubstantial risk that (i) the Bank Trust is, or will be within 90 days of
the date of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Subordinated Debentures, (ii)
interest payable by its Bank Holding Company on the Subordinated Debentures is
not, or within 90 days of the date of such opinion will not be, deductible by
the Bank Holding Company, in whole or in part, for United States federal
income tax purposes, or (iii) the Bank Trust is, or will be within 90 days of
the date of such opinion, subject to more than a minimal amount of other
taxes, duties or other governmental charges.
"Investment Company Event" means the receipt by a Bank Trust of an opinion
of counsel experienced in such matters, to the effect that there is more than
an insubstantial risk that the Bank Trust is or will be considered an
"investment company" required to be registered under the Investment Company
Act.
Notice of any prepayment will be mailed at least 30 days but not more than
60 days before the redemption date to the Bank Trusts to be prepaid at their
registered addresses. Unless a Bank Holding Company defaults in payment of the
prepayment price, on and after the prepayment due date interest ceases to
accrue on its Subordinated Debentures called for prepayment.
If a Bank Trust is required to pay any additional taxes, duties or other
governmental charges solely by reason of its holding the Subordinated
Debentures, then its Bank Holding Company will pay those additional amounts to
the Bank Trust as additional interest under the Indenture.
S-11
<PAGE>
Optional Prepayment After Five Years
The Bank Holding Companies will have the right to prepay their respective
Subordinated Debentures, in whole at any time, or in part from time to time,
at their option at any time after , 2004 (five years after issuance), at
the Prepayment Price plus accrued and unpaid interest.
Debenture Events of Default
The Indenture provides that any one or more of the following described
events with respect to the Subordinated Debentures constitutes an Event of
Default (a "Debenture Event of Default"):
(i) failure for 30 days to pay any interest on the Subordinated Debentures,
when due (subject to the deferral of any due date in the case of an
Extension Period); or
(ii) failure to pay any principal on the Subordinated Debentures when due
whether at maturity, upon redemption, by declaration of acceleration of
maturity or otherwise; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice
to the Bank Holding Companies from the Debenture Trustee or the Bank
Trusts, or the Fund in the case of a distribution of Subordinated
Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the Bank
Holding Companies.
The Bank Trusts or the Fund, as the case may be, have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Debenture Trustee. The Debenture Trustee or the Fund may
declare the entire principal of the Subordinated Debentures due and payable
immediately upon a Debenture Event of Default. The Bank Trusts may annul such
declaration if the default (other than the nonpayment of the principal of the
Subordinated Debentures which has become due solely by such acceleration) has
been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
Debenture Trustee.
Consolidation, Merger, Sale of Assets and Other Transactions
The Indenture provides that any Bank Holding Company may consolidate with or
merge with or into any other person or convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to any
person, but only if the successor person is organized under the laws of the
United States or any State or the District of Columbia, and such successor
person expressly assumes that Bank Holding Company's obligations under its
Subordinated Debentures.
The general provisions of the Indentures do not afford a Bank Trust
protection in the event of a highly leveraged or other transaction involving
its respective Bank Holding Company that may adversely affect the Bank Trust.
Subordination
In the Indenture, the Bank Holding Companies and their Bank Trusts covenant
and agree that their Subordinated Debentures will be subordinate and junior in
right of payment to all Senior Debt (as defined below), whether outstanding at
the date of the Indenture or thereafter incurred, to the extent provided in
the Indenture. Upon any payment or distribution by a Bank Holding Company of
assets to creditors upon any liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors, marshaling of assets
or any bankruptcy, insolvency, debt restructuring or similar proceedings in
connection with any bankruptcy, insolvency, debt restructuring or similar
proceedings of the Bank Holding Company, the holders of Senior Debt will first
be entitled to receive payment in full in respect of such Senior Debt before
the Bank Trusts (and therefore, before the Fund and its Shareholders) will be
entitled to receive or retain any payment in respect thereof.
S-12
<PAGE>
In the event of the acceleration of the maturity of Subordinated Debentures,
the holders of all Senior Debt outstanding at the time of such acceleration
will first be entitled to receive payment in full in respect of such Senior
Debt before the Bank Trusts will be entitled to receive or retain any payment
in respect of the Subordinated Debentures.
No payments on account of principal or interest, if any, in respect of the
Subordinated Debentures will be made if a default in any payment with respect
to Senior Debt or an event of default with respect to any Senior Debt
resulting in the acceleration of the maturity thereof has occurred and is
continuing, or if any judicial proceeding is pending with respect to any such
default.
"Senior Debt" means, with respect to a Bank Holding Company and its
subsidiaries, 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 a Bank Holding Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
debt, whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, such obligations, by their express terms, are not superior
in right of payment to the Subordinated Debentures or to other debt which is
of equal rank or subordinated to the Subordinated Debentures.
However, Senior Debt does not include:
(i) any debt of a Bank Holding 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 Bank
Holding Company;
(ii) any debt of a Bank Holding Company to any of its subsidiaries;
(iii) any debt to any employee of a Bank Holding 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) the principal of and interest, if any (including interest accruing on
or after the filing of any petition in bankruptcy or for reorganization
relating to a Bank Holding Company whether or not such claim for post-
petition interest is allowed in such proceeding), on debt, whether
incurred on or prior to the date of the Indenture or thereafter
incurred, which is by its terms expressly provided to be junior and
subordinate to other debt of the Bank Holding Company (other than the
Subordinated Debentures); and
(vi) trade accounts payable or accrued liabilities to trade creditors
arising in the ordinary course of business.
By reason of such subordination, in the event of an insolvency or other
defaults by a Bank Holding Company, creditors of the Bank Holding Company who
are holders of Senior Debt, as well as certain general creditors of the Bank
Holding Company, may recover more, ratably, than its respective Bank Trust.
Additionally, the Bank Holding Companies currently conduct substantially all
of their operations through subsidiaries, and the Bank Trusts will be
structurally subordinated to the creditors of the Bank Holding Companies'
subsidiaries.
The Indenture places no limitation on the amount of additional secured or
unsecured debt, including the Senior Debt, or other obligations, that may be
incurred by the Bank Holding Companies. The Bank Holding Companies expect from
time to time to incur additional indebtedness and obligations, including
Senior Debt.
Information Concerning The Debenture Trustee
The Debenture Trustee is under no obligation to exercise any of the powers
vested in it by the Indenture at the request of the Bank Trusts unless offered
reasonable indemnity by the Bank Trusts against the costs, expenses and
liabilities which might be incurred thereby. The Debenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Debenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
S-13
<PAGE>
From time to time, the Debenture Trustee and/or its affiliates may extend
credit and may provide other financial services to the Bank Holding Companies.
ADDITIONAL DESCRIPTION OF THE GUARANTEE
The Guarantee will be executed and delivered by the Bank Holding Companies
concurrently with the issuance by the Bank Trusts of the Preferred Securities
for the benefit of the Fund. State Street Bank and Trust Company will act as
guarantee trustee ("Guarantee Trustee") under the Guarantee. Certain material
terms of the Guarantee are summarized below. This summary of certain
provisions of the Guarantee does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all of the provisions of the
Guarantee, which is filed with the SEC as an Exhibit to the Fund's
registration statement. The Guarantee Trustee will hold the Guarantee for the
benefit of the Fund.
General
The Bank Holding Companies will irrevocably agree to pay in full on a
subordinated basis, to the extent set forth herein, the Guarantee Payments (as
defined below) to the Fund, as and when due, regardless of any defense, right
of set-off or counterclaim that the Bank Trusts may have or assert other than
the defense of payment. The Guarantee of each Bank Holding Company applies
only to payments due on the Preferred Securities issued by its corresponding
Bank Trust. The following payments with respect to the Preferred Securities,
to the extent not paid by or on behalf of the Bank Trusts (the "Guarantee
Payments"), will be subject to the Guarantee:
(i) any accumulated and unpaid distributions required to be paid on
Preferred Securities, to the extent the Bank Trusts have funds on hand
at such time legally available therefor;
(ii) the Redemption Price with respect to any Preferred Securities called for
redemption, to the extent that the Bank Trusts have funds on hand at
such time legally available therefor; or
(iii) upon a voluntary or involuntary termination and liquidation of the
Bank Trusts (unless the Subordinated Debentures are distributed to
the Fund), the lesser of:
(a) the aggregate liquidation amount of the Preferred Securities plus
all accrued and unpaid distributions; and
(b) the amount of assets of the Bank Trusts remaining available for
distribution to the Fund.
Accordingly, if a default occurs on the Preferred Securities and the
defaulting Bank Trust does not have the funds on hand to pay amounts due and
unpaid on the Preferred Securities, the Fund will have no recourse under the
Guarantee to seek payment from the corresponding Bank Holding Company.
Therefore, the Guarantee may provide little additional recourse to the Fund.
If a Bank Trust defaults on the Preferred Securities, such default would most
likely be due to a failure by its Bank Holding Company to make required
payments on the Subordinated Debentures, in which case the Bank Trust will
have no funds on hand to be paid under the Guarantee. A Bank Holding Company's
obligation to make a Guarantee Payment may be satisfied by direct payment of
the required amounts by the Bank Holding Company to the Fund or by causing its
respective Bank Trust to pay such amounts to the Fund.
The Guarantee will rank subordinate and junior in right of payment to all
Senior Debt and other liabilities of the Bank Holding Company (other than
capital stock) to the extent provided therein. See "--Status; Subordination"
below.
In addition, because the Bank Holding Companies are holding companies, the
right of the Bank Holding Companies to participate in any distribution of
assets of any subsidiary upon such subsidiary's liquidation or reorganization
or otherwise is subject to the prior claims of creditors of that subsidiary,
except to the extent that a Bank Holding Company may itself be recognized as a
creditor of that subsidiary. Accordingly, the Bank Holding Companies'
obligations under the Guarantee will be effectively subordinated to all
existing and future
S-14
<PAGE>
liabilities of the Bank Holding Companies' direct and indirect subsidiaries,
and claimants should look only to the assets of the Bank Holding Companies for
payments thereunder. See "Additional Description of the Subordinated
Debentures--General." The Guarantee does not limit the incurrence or issuance
of other secured or unsecured debt of the Bank Holding Companies, including
Senior Debt, whether under the Indenture, any other indenture that the Bank
Holding Companies may enter into in the future or otherwise.
Status; Subordination
The Guarantee will constitute an unsecured obligation of each Bank Holding
Company and will rank subordinate and junior in right of payment to all Senior
Debt in the same manner as the Subordinated Debentures and also will rank
subordinate and junior in right of payment to all other liabilities of that
Bank Holding Company.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
Bank Holding Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held for the benefit of the Fund. The Guarantee will not be
discharged except by payment of the Guarantee Payments in full to the extent
not paid by the Bank Trusts or upon distribution to the Fund of the
Subordinated Debentures. The Guarantee does not place a limitation on the
amount of additional Senior Debt that may be incurred by each Bank Holding
Company. The Bank Holding Companies expect from time to time to incur
additional indebtedness constituting Senior Debt.
Amendments and Assignment
Except with respect to any changes that do not materially adversely affect
the rights of the Fund (in which case no vote of the Fund will be required),
the Guarantee may not be amended without the prior approval of the Fund. All
guarantees and agreements contained in the Guarantee Agreement will bind the
successors, assigns, receivers, trustees and representatives of the Bank
Holding Companies and will inure to the benefit of the Fund.
Events of Default
An event of default under the Guarantee will occur upon the failure of a
Bank Holding Company to perform any of its payment or other obligations
thereunder. The Fund will have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Guarantee Trustee
in respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
If the Guarantee Trustee fails to enforce the Guarantee, the Fund may
institute a legal proceeding directly against the applicable Bank Holding
Companies to enforce its rights under the Guarantee without first instituting
a legal proceeding against the Bank Trusts, the Guarantee Trustee or any other
person or entity.
Certain Covenants of the Bank Holding Companies
In its respective Guarantee, each Bank Holding Company will covenant that,
so long as any of its respective Preferred Securities remain outstanding, if
and during the time that an Event of Default under the Guarantee has occurred
and is continuing, that Bank Holding Company will not:
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of its
capital stock (which includes common and preferred stock); or
(ii) make any payment of principal or interest on or repay or repurchase or
redeem any of its debt securities that rank equally with or junior in
right of payment to its Subordinated Debentures.
Termination
The Guarantee will terminate and have no further force and effect upon full
payment of the Redemption Price of the Preferred Securities, upon full payment
of the Liquidation Amount payable upon liquidation of the
S-15
<PAGE>
Bank Trusts or upon distribution of Subordinated Debentures to the Fund. The
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time the Fund must restore payment of any sums paid under the
Preferred Securities or the Guarantee, such as in the event of an order by a
bankruptcy court.
Information Concerning the Guarantee Trustee
The Guarantee Trustee, other than during the continuance of a default with
respect to a Guarantee, will undertake to perform only such duties as are
specifically set forth in such Guarantee and, after default, must exercise the
same degree of care as a prudent individual would exercise in the conduct of
his or her own affairs. Subject to such provisions, the Guarantee Trustee is
under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of the Fund, unless offered reasonable indemnity
against the costs, expenses and liabilities which might be incurred thereby.
The Guarantee Trustee is not required to expend or risk its own funds or
otherwise incur personal financial liability in the performance of its duties
if it reasonably believes that repayment or adequate indemnity is not
reasonably assured to it.
From time to time the Guarantee Trustee and/or its affiliates may extend
credit and may provide other financial services to the Bank Holding Companies.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE
SUBORDINATED DEBENTURES AND THE GUARANTEE
Limited Guarantee
Payments of distributions and other amounts due on the Preferred Securities
(to the extent the Bank Trusts have funds on hand legally available for the
payment of such distributions) will be irrevocably guaranteed by the Bank
Holding Companies only to the extent set forth under "Additional Description
of the Guarantee." Taken together, the Bank Holding Companies' obligations
under the Subordinated Debentures, the Indenture, the Trust Agreement and the
Guarantee will provide, in the aggregate and subject to their respective terms
as described above, a full and irrevocable, but subordinated, obligation for
payments of distributions and other amounts due on the Preferred Securities.
If and to the extent that any Bank Holding Company does not make the required
payments on its Subordinated Debentures, its respective Bank Trusts will not
have sufficient funds to make the related payments, including distributions,
on its respective Preferred Securities. The Guarantee will not cover any such
payment when a Bank Trust does not have sufficient funds on hand legally
available therefor. In such event, a remedy of the Fund is to institute a
lawsuit or other legal action to collect amounts due; however, generally the
Fund will not have a right to receive payment until all Senior Debt of the
Bank Holding Company is paid in full.
Sufficiency of Payments
As long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover
distributions and other payments due on the Preferred Securities, primarily
because:
(i) the aggregate principal amount or Prepayment Price of the Subordinated
Debentures will be equal to the sum of the Liquidation Amount or
Redemption Price, as applicable, of the Preferred Securities and Common
Securities;
(ii) the interest rate and interest and other payment dates on the
Subordinated Debentures will match the Distribution rate and
Distribution and other payment date for the Trust Securities;
(iii) each Bank Holding Company will pay for all and any costs, expenses
and liabilities of its respective Bank Trust except that Bank Trust's
obligations to the Fund; and
(iv) the Trust Agreement will provide that the Bank Trusts are not authorized
to engage in any activity that is not consistent with the limited
purpose thereof.
S-16
<PAGE>
Enforcement of Rights of the Fund; Defaults and Subordination
The Fund may institute a legal proceeding directly against any Bank Holding
Company to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Guarantee Trustee, the Bank Trusts or any other
person or entity.
A Bank Holding Company's default or event of default under any Senior Debt
would not constitute a default or Event of Default under the Trust Agreement.
However, in the event of payment defaults under, or acceleration of, Senior
Debt, the subordination provisions of the Indenture will provide that no
payments may be made in respect of the Subordinated Debentures until such
Senior Debt has been paid in full or any payment default thereunder has been
cured or waived. Failure to make required payments on Subordinated Debentures
constitutes an Event of Default under its respective Trust Agreement.
Limited purpose of the Bank Trusts
The Preferred Securities represent preferred undivided beneficial interests
in the assets of the Bank Trusts and the Bank Trusts exist for the sole
purpose of issuing and selling the Common and Preferred Securities, using the
proceeds from the sale of the Common and Preferred Securities to acquire the
Subordinated Debentures and engaging in only those other activities necessary,
advisable or incidental thereto. A principal difference between the rights of
the Fund and the Bank Trusts is that the Bank Trusts will be entitled to
receive from the Bank Holding Companies the principal and interest on
Subordinated Debentures held, while the Fund is entitled to receive
distributions on the Preferred Securities from the Bank Trusts (or, in certain
circumstances, from the Bank Holding Companies under the Guarantee) if and to
the extent the Bank Trusts have funds on hand legally available for the
payment of such distributions.
Rights upon Termination; Priority of Claims
Unless the Subordinated Debentures are distributed to the Fund, upon any
voluntary or involuntary termination and liquidation of the Bank Trusts, the
Fund will be entitled to receive, out of assets held by the Bank Trusts, after
satisfaction of liabilities to creditors as provided by applicable law, the
Liquidation Distribution. See "Additional Description of the Preferred
Securities--Liquidation of Bank Trusts and Distribution of Subordinated
Debentures." Upon any voluntary or involuntary liquidation or bankruptcy of a
Bank Holding Company, the Property Trustee, as holder of the Subordinated
Debentures, would be a subordinated creditor of that Bank Holding Company,
subordinated in right of payment to all Senior Debt as set forth in the
Indenture, but entitled to receive payment in full of principal and interest,
before any stockholders of that Bank Holding Company receive payments or
distributions. Since each Bank Holding Company will be the guarantor under the
Guarantee and will agree to pay for all costs, expenses and liabilities of its
Bank Trust (other than that Bank Trust's obligations to the Bank Holding
Companies and the Fund) the positions of the Fund and the Bank Trusts relative
to other creditors and to stockholders of the Bank Holding Companies in the
event of liquidation or bankruptcy of a Bank Holding Company are expected to
be similar. Although, in the event of bankruptcy or insolvency proceedings
involving a Bank Holding Company, that Bank Holding Company's obligations
under the Guarantee will rank subordinate and junior in right of payment to
all liabilities of the Bank Holding Company but senior to any obligations in
respect of any class of capital stock of the Bank Holding Company.
S-17
<PAGE>
MANAGEMENT OF THE FUND
Trustees and Officers
The management of the Fund, including general supervision of the duties
performed for the Fund under the Investment Management Agreement, is the
responsibility of the Board of Trustees. The number of trustees of the Fund is
currently set at three, one of whom, Mr. Holbrook, is an "interested person"
(as the term "interested person" is defined in the 1940 Act) and two of whom
are "disinterested persons." The name, date of birth, position with the Fund,
business address and principal occupation and other affiliations during the
past five years are set forth below for each trustee and officer of the Fund.
<TABLE>
<CAPTION>
Name, Date of Birth,
Position with the Fund Principal Occupations and Other Affiliations
and Business Address During the Past Five Years
---------------------- --------------------------------------------
<C> <S>
James S. Holbrook, Jr., Chairman of the Board and CEO of Sterne,
7/12/44, Chairman of the Board, Agee & Leach, Inc., since 1990 and its
Trustee and President, holding company, Sterne Agee & Leach Group,
1901 Sixth Avenue North, Inc. ("SAL Group"), since SAL Group's
Suite 2100, formation in 1996. Mr. Holbrook serves as
Birmingham, Alabama 35203 the Chairman of the Board for each of SAL
Group's other subsidiaries, which include
the Manager of the Fund, Sterne Agee Asset
Management, Inc., and the Custodian of the
Fund, The Trust Company of Sterne, Agee &
Leach, Inc. Mr. Holbrook also serves as a
director for Bobby Allison Wireless
Corporation.
Robert M. Couch, Executive Vice President of New South
4/3/57, Trustee, Bancshares, Inc. since 1994; President of
1900 Crestwood Boulevard, New South Federal Savings Bank since June
Birmingham, Alabama 35210 1997; Director New South Federal Savings
Bank since January 1995; Vice Chairman of
New South Federal Savings Bank from March
1995 until June 1997; President of
Collateral Mortgage Ltd. since August 1995;
and Executive Vice President of Collateral
Mortgage Ltd. from October 1993 to August
1995.
James A. Taylor, Sr., Chairman of the Board and Chief Executive
3/15/42, Trustee, Officer of The Banc Corporation, a Delaware
17 North 20th Street, bank holding company based in Birmingham,
Birmingham, Alabama 35203 Alabama since its incorporation in April
1998; President of The Banc Corporation
since its incorporation in April 1998 until
November 1998; Chairman of the Board,
President and Chief Executive Officer of
Warrior Capital Corporation, an Alabama
banking corporation from October 1997 until
its merger into The Banc Corporation in
September 1998; Founder, Chairman of the
Board and Chief Executive Officer of Alabama
National BanCorporation ("ANB"), a publicly-
traded bank holding company based in
Birmingham, Alabama from its incorporation
in 1986 until his retirement in April 1996;
Chairman of the Board and Chief Executive
Officer of various banks and bank holding
companies that ultimately comprised ANB from
1981 until 1996. Mr. Taylor also currently
serves on the Board of Directors of the
American Sports Medicine Institute.
F. Eugene Woodham, Chief Financial Officer of Sterne, Agee &
2/18/52, Secretary and Treasurer, Leach, Inc. since 1995 and its holding
1901 Sixth Avenue North, company, Sterne, Agee & Leach Group, Inc.
Suite 2100, ("SAL Group"), since SAL Group's formation
Birmingham, Alabama 35203 in 1996. Mr. Woodham serves on the Board of
Directors for each of SAL Group's other
subsidiaries, which include the Manager of
the Fund, Sterne Agee Asset Management,
Inc., and the Custodian of the Fund, The
Trust Company of Sterne, Agee & Leach, Inc.
For the nine years prior to 1995,
Mr. Woodham served in various capacities
with Secor Bank, Federal Savings Bank, most
recently as President and Chairman of the
Board of Directors (after its acquisition by
Regions Bank in 1993).
</TABLE>
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<PAGE>
The Fund pays each of its Trustees who is not a director, officer or
employee of Sterne, Agee & Leach Group, Inc., or any of its affiliates $3,000
for each Board meeting attended in-person or by telephone. In addition, the
Fund will reimburse these Trustees for travel and out-of-pocket expenses
incurred in connection with meetings of the Board of Trustees. Other Trustees
and Officers receive no compensation or expense reimbursement from the Fund.
Investment Manager
Sterne Agee Asset Management, Inc., 800 Shades Creek Parkway, Suite 125,
Birmingham, Alabama 36209, serves as the investment manager (the "Manager") to
the Fund. The Manager is a wholly-owned subsidiary of Sterne, Agee & Leach
Group, Inc., which also serves as the holding company for the Representative
of the Underwriters.
SUPERVISION AND REGULATION OF THE BANK HOLDING COMPANIES
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, not for
the protection of bank holding companies' shareholders or creditors such as
the Fund. Various supervisory and regulatory agencies have broad enforcement
power over bank holding companies and banks, including the power to impose
substantial fines and other penalties for violation of laws and regulations.
The following description summarizes some of the laws to which the Bank
Holding Companies and the Banks 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.
The Bank Holding Companies
The Bank Holding Companies are bank holding companies registered under the
Bank Holding Company Act of 1956 ("BHCA"), and the Bank Holding Companies are
subject to supervision, regulation and examination by the Federal Reserve. In
addition, as a nationally chartered bank, Gulf Coast National Bank, a wholly-
owned subsidiary of FirstBancorp, Inc., is subject to the regulation,
supervision, examination and reporting requirements of the Office of the
Comptroller of the Currency ("OCC"). The BHCA and other federal laws restrict
the types of activities in which bank holding companies may engage and subject
them to a range of supervisory requirements and activities, including
regulatory enforcement actions for violations of laws and regulations.
Regulatory Restrictions on Dividends. It is the policy of the Federal
Reserve that bank holding companies pay cash dividends on common stock only
out of income available over the past year and only if prospective earnings
retention is consistent with a bank holding company's expected future needs
and financial condition. This 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.
The Bank Holding Companies' principal source of funds to make distributions
on the Subordinated Debentures will be cash dividends that the Bank Holding
Companies receive from the Banks. The payment of dividends by the Banks to the
Bank Holding Companies is subject to certain restrictions imposed by federal
banking laws, regulations and authorities. See "Supervision and Regulation--
The Banks" below.
The federal banking statutes prohibit federally insured banks from making
any capital distributions (including a dividend payment) if, after making the
distribution, the institution would be "undercapitalized" as defined by
statute. Federal regulatory authorities also may prohibit an insured bank from
engaging in an unsafe or unsound practice, as determined by the relevant
authority, in conducting an activity. Paying dividends could be deemed an
unsafe or unsound practice, depending on a bank's financial condition. A
regulatory authority
S-19
<PAGE>
could impose stricter limits on a Bank's payment of dividends to its Bank
Holding Company if the authority deemed those limits appropriate to meet
requirements governing capital adequacy.
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 bankruptcy trustee will be deemed to have assumed
and is required to cure immediately any deficit under any commitment of the
debtor holding company imposed by any of the federal banking agencies to
maintain the capital of an insured depository institution. Any claim for
breach of such a commitment generally will 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 that is not a bank or
from engaging in any activity 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 to be
closely related to banking include: 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, 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 an ongoing 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 subsidiaries 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 bank 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 the holding company's consolidated net worth and
the company is not well capitalized or considered well managed, or is subject
to unresolved supervisory issues. 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 that represent unsafe and
unsound banking practices or which constitute violations of
S-20
<PAGE>
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 $1,000,000 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 services offered by a holding company or its affiliates.
Capital Adequacy Requirements. The Federal Reserve and OCC have 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. For each Bank Holding Company's specific capital
ratios, see the Selected Consolidated Financial Data tables of each Bank
Holding Company in the Prospectus under "The Bank Holding Companies".
In addition to the risk-based capital guidelines, the Federal Reserve has
established a required 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 must maintain a minimum leverage ratio of
3.0%, but other bank holding companies may be required to maintain a leverage
ratio of up to 200 basis points above the regulatory minimum. As of June 30,
1999, the leverage ratio for each of the Bank Holding Companies was as
follows: First Southern Bancorp, Inc. 5.80%, FirstBancorp, Inc. 5.51% and
Central Community Corporation 7.76%.
The federal banking agencies' risk-based ratios and leverage ratios are
minimum supervisory ratios generally applicable to banking organizations that
meet certain specified criteria, assuming that they have the highest
regulatory rating. Banking organizations not meeting these criteria are
expected to operate with capital positions well above the minimum ratios. 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 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 lessor 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 could be required to obtain prior
Federal Reserve approval of proposed dividends or could 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
S-21
<PAGE>
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% or 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 would, under the circumstances set forth in the presumption, constitute
acquisition of control of that bank holding company.
In addition, any company 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 the outstanding common stock of any
of the Bank Holding Companies, or otherwise obtaining control or a
"controlling influence" over any of the Bank Holding Companies.
The Banks
Each of the Bank's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") to the extent provided by law. Each Bank is also subject
to numerous state and federal statutes and regulations that affect its
business, activities, and operations, and each is supervised and examined by
one or more state or federal bank regulatory agencies.
First Southern Bank is a state-chartered bank and a member of the Federal
Reserve System and is therefore subject to supervision and examination by the
Federal Reserve, the FDIC and the Florida Department of Banking and Finance.
First State Bank Central Texas, on the other hand, is a state-chartered bank,
but is not a member of the Federal Reserve System, and is therefore subject to
supervision and examination by the FDIC and the Texas Department of Banking
rather than the Federal Reserve. First National Bank of the Florida Keys and
Gulf Coast National Bank are nationally chartered banks and are therefore
subject to regulation, supervision, and examination by the OCC and the FDIC.
The federal banking regulator for each of the Banks, as well as the
appropriate state banking authority for each of the Banks that is a state
chartered bank, regularly examines the operations of the Banks and is given
authority to approve or disapprove mergers, consolidations, the establishment
of branches, and similar corporate actions. The federal and state banking
regulators also have the power to prevent the continuance or development of
unsafe or unsound banking practices or other violations of law.
The Banks are subject to the provisions of the Community Reinvestment Act
(the "CRA"). Under the terms of the CRA, the Banks have a continuing and
affirmative obligation consistent with their safe and sound operations to help
meet the credit needs of their entire communities, including low- and
moderate-income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires each appropriate federal bank regulatory agency, in
connection with its examination of a subsidiary depository institution, to
assess such institution's record in assessing and meeting the credit needs of
the community served by that institution, including low- and moderate-income
neighborhoods. The regulatory agency's assessment of the institution's record
is made available to the public. Further, such assessment is required of any
institution which has applied to: (i) charter a national bank; (ii) obtain
deposit insurance coverage for a newly chartered institution; (iii) establish
a new branch office that will accept deposits; (iv) relocate an office; or (v)
merge or consolidate with, or acquire the assets or assume the liabilities of,
a federally regulated financial institution. In the case of a bank holding
company applying for approval to acquire a bank or other bank holding company,
the Federal Reserve will assess the records of each subsidiary depository
institution of the applicant bank holding company,
S-22
<PAGE>
and such records may be the basis for denying the application. All of the
Banks received at least a "satisfactory" CRA rating in their most recent
examinations.
Payment of Dividends. The Bank Holdings Companies are legal entities
separate and distinct from their banking and other subsidiaries. The principal
source of cash flow of the Bank Holding Companies, including cash flow to pay
dividends to its stockholders and distributions on the Subordinated Debentures
to its Bank Trust, are dividends from the Banks. There are statutory and
regulatory limitations on the payment of dividends by the Banks to the Bank
Holding Companies as well as the Bank Holding Companies to its stockholders.
If, in the opinion of a federal regulatory agency, an institution under its
jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the institution,
could include the payment of dividends), such agency may require, after notice
and hearing, that such institution cease and desist from such practice. The
federal banking agencies have indicated that paying dividends that deplete an
institution's capital base to an inadequate level would be an unsafe and
unsound banking practice. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), an insured institution may not pay any
dividend if payment would cause it to become undercapitalized or if it already
is undercapitalized. See "Corrective Measures for Capital Deficiencies."
Moreover, the Federal Reserve and the FDIC have issued policy statements which
provide that bank holding companies and insured banks should generally pay
dividends only out of current operating earnings.
Capital Adequacy Requirements. The FDIC (and the OCC as to national banks)
has adopted regulations establishing minimum requirements for the capital
adequacy of insured institutions, i.e., the Banks. 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 Bank Holding
Companies discussed above. As of June 30, 1999, First Southern Bank's ratio of
Tier 1 capital to total risk-weighted assets was 8.02% and its ratio of total
capital to total risk weighted assets was 9.16%. As of June 30, 1999, First
National Bank of the Florida Keys and Gulf Coast National Bank's ratio of Tier
1 capital to total risk weighted assets was 9.44% and 9.59%, respectively, and
their ratio of total capital to total risk weighted assets was 10.56% and
10.28% respectively. As of June 30, 1999, First State Bank Central Texas's
ratio of Tier 1 capital to total risk weighted assets was 10.73%, and its
ratio of total capital to total risk weighted assets was 11.91%.
Corrective Measures for Capital Deficiencies. Federal banking regulators are
required to take "prompt corrective action" with respect to capital-deficient
institutions. Agency regulations define, for each capital category, the level
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 CAMEL 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. Each of First Southern Bank, First
National Bank of the Florida Keys, Gulf Coast National Bank and First State
Bank Central Texas is classified as "adequately capitalized," "well
capitalized," "well capitalized" and "well capitalized," respectively, for
purposes of the FDIC's prompt corrective action regulations.
In addition to requiring undercapitalized institutions to submit a capital
restoration plan, applicable 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
S-23
<PAGE>
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 actions become
more severe. A significantly undercapitalized institution in subject to
mandated capital raising activities, restriction 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.
The FDIC established a process for raising or lowering all deposit insurance
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 rule making with
opportunity for public comment.
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 a Bank Holding Company or its banking
subsidiaries, as well as officers, directors and other institution-affiliated
parties of these organizations, to administrative sanctions and 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
applicable state banking regulatory authorities also have broad enforcement
powers over banks in their jurisdictions, including the power to impose
orders, remove officers and directors, impose fines and appoint supervisors
and conservators.
Consumer Laws and Regulations. In addition to the laws and regulations
already discussed herein, the Banks are also subject to certain consumer laws
and regulations that are designed to protect consumers in transactions with
banks. While the following list is not exhaustive, these laws and regulations
include the Truth in Lending Act, the Trust 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 Banks must comply with the applicable
provisions of these consumer protection laws and regulations as part of their
ongoing customer relations.
ADDITIONAL TAX DISCUSSION
Classification of the Subordinated Debentures
Tax Counsel has advised each Bank Holding Company that in Tax Counsel's
opinion, the Subordinated Debentures should be classified under current law as
indebtedness for United States federal income tax purposes. No assurance can
be given, however, that the Internal Revenue Service will not successfully
challenge that position. In determining whether a financial instrument is to
be treated as debt or equity for federal income tax purposes, the Internal
Revenue Service considers a number of factors including whether the
instruments are
S-24
<PAGE>
intended to be treated as debt or equity for non-tax purposes, including
regulatory, rating agency, or financial purposes. The intended treatment of
the arrangement involving the Subordinated Debentures and the Preferred
Securities under bank regulatory capital guidelines as Tier 1 Equity and not
as indebtedness could cause the Internal Revenue Service to challenge the Bank
Holding Companies' treatment of the Subordinated Debentures as indebtedness.
The discussion below assumes that the Subordinated Debentures issued by each
Bank Holding Company will be classified for United States federal income tax
purposes as indebtedness of such Bank Holding Company.
Classification of Bank Trusts
Tax Counsel will render its opinion generally to the effect that under
current law and assuming full compliance with the terms of the Trust Agreement
and Indenture of each Bank Trust that each Bank Trust will be classified for
United States federal income tax purposes as a trust that is taxable as a
grantor trust and not as an association taxable as a corporation. Accordingly,
for United States federal income tax purposes, the Fund generally should be
considered the owner of an undivided interest in the Subordinated Debentures.
Interest Income and Original Issue Discount
Each Bank Holding Company has the right, under the terms of the Subordinated
Debentures, to defer payments of interest by extending interest payment
periods on the Subordinated Debentures. The right to extend interest payment
periods would cause the Subordinated Debentures to be treated as debt
instruments with contingent payments issued with original issue discount OID
unless the likelihood that interest payment periods will be extended is
"remote." The Bank Holding Companies intend to report the interest on the
Subordinated Debentures as OID (even though no Bank Holding Company has a
current intention to exercise its right to defer interest payments). As a
result, a Shareholder must include its pro rata share of the OID in income on
an economic accrual basis regardless of its method of tax accounting, even
though such accrual causes amounts to be included in income prior to the
receipt of cash attributable to the interest. Actual payments and
distributions of stated interest will not be reported as taxable income.
Accordingly, a Shareholder of the Fund might be required to pay more in taxes
on Share income than it receives in Share distributions with respect to
periods in which the interest payments on the Subordinated Debentures are
deferred.
If (as expected) the issue price of the Subordinated Debentures equals their
stated principal amount, the total amount of OID (i.e., the excess of the
total amount of payment due on the Subordinated Debentures over their issue
price) will equal the total amount of interest payable on the Subordinated
Debentures (assuming no redemption before maturity). Accordingly, the amount
of OID which accrues in any semi-annual period ending on a Distribution date
will approximately equal the amount of the interest that accrues on the
Subordinated Debentures during that period. For a Shareholder who uses the
calendar year as its taxable year, the amount of OID to be included in income
for a taxable year should be equal to the distributions received in such year
except during an Extension Period or in a year in which the Fund disposes of
Preferred Securities or the Shareholder disposes of its Fund Shares.
The amount of OID that must be included in a Shareholder's income for a
taxable year is the sum of the "daily portions" of OID, allocated ratably to
each day in an accrual period, on the Shareholder's pro rata share of the
Fund's undivided interest in the Subordinated Debentures for all days during
the year that the Shareholder owns its Fund Shares. The amount of OID
allocable to each accrual period is the product of the "adjusted issue price"
of the Subordinated Debentures and their yield to maturity. The adjusted issue
price at the beginning of an accrual period generally will equal that stated
principal amount if, as expected, the issue price is the stated principal
amount and all accrued interest is paid on each Interest Payment Date. If a
Bank Holding Company were to exercise its right to defer any payment of
interest on the Subordinated Debentures, however, the adjusted issue price
would increase by the amount of accrued but deferred interest, and the amount
of OID accruing during subsequent accrual periods would increase (until all
deferred interest had been paid).
S-25
<PAGE>
Because income on a Share will constitute OID, a corporate holder of a Share
will not be entitled to a dividends-received deduction with respect to any
income recognized with respect to the Share.
Receipt of Subordinated Debentures or Cash upon Liquidation of the Bank Trust
Each Bank Holding Company will have the right at any time to liquidate its
associated Bank Trust and cause its Subordinated Debentures to be distributed
pro rata to the Fund. Under current law, and assuming, based on the opinions
of Tax Counsel, that the Bank Trusts will be classified as grantor trusts and
not associations taxable as corporations, a distribution of Subordinated
Debentures from a Bank Trust to the Fund for United States federal income tax
purposes, would be treated as a nontaxable event to each Shareholder. If,
however, the Bank Trusts were classified for United States federal income tax
purposes as associations taxable as corporations at the time of the
distribution, the distribution of the Subordinated Debentures would constitute
a taxable event to the Bank Trusts and to the Shareholders and a Shareholder's
holding period in the Shareholder's proportionate share of the Subordinated
Debentures would begin on the date such Subordinated Debentures were received.
Under certain circumstances described herein (see "Description of the Fund
Shares"), the Subordinated Debentures may be redeemed for cash and the
proceeds of such redemption distributed to the Fund. Under current law, such a
redemption would, for United States federal income tax purposes, constitute a
taxable disposition of a Shareholder's proportionate share of the redeemed
Subordinated Debentures as if the Shareholder had sold its Fund Shares for
cash.
Sale of Fund Shares
A Shareholder that disposes of Fund Shares between record dates for payments
of distributions thereon will be required to include accrued but unpaid OID on
the Fund Shares through the date of disposition in income as ordinary income
and to add such amount to such Shareholder's adjusted tax basis in its Fund
Shares. If the Fund Shares trade at a price that does not accurately reflect
the value of accrued but unpaid OID with respect to the underlying
Subordinated Debentures and the selling price is less than the Shareholder's
adjusted tax basis, a Shareholder will recognize a capital loss. Subject to
certain limited exceptions, capital losses cannot be applied to offset
ordinary income for United States federal income tax purposes.
Each Shareholder will be required to include in income for a taxable year
the amount of OID for the year attributable to the Subordinated Debentures as
if the Shareholder directly held the Subordinated Debentures. OID is
includible in income for a taxable year even if no cash is actually paid
during that year and the Shareholder is a cash basis taxpayer. If the
Shareholder disposes of the Fund Shares before the record date for the payment
of the cash attributable to the OID which has been included in the
Shareholder's income, the Shareholder's tax basis in the Fund Shares will be
increased. Therefore, the Shareholder may incur a capital loss on the
disposition even though the OID was previously includible as ordinary income.
Backup Withholding
Payments made on, and proceeds from the sale of, Fund Shares may be subject
to a "backup" withholding tax of 31 percent unless the Shareholder complies
with certain identification requirements. Any withheld amounts will be allowed
as a credit against the Shareholder's United States federal income tax,
provided the required information is provided to the Internal Revenue Service.
S-26
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Audited Balance Sheet of the Fund.................................. F-2 - F-5
Audited Financial Statements of FirstBancorp, Inc.................. F-6 - F-24
Unaudited Financial Statements of FirstBancorp, Inc................ F-25 - F-26
Audited Financial Statements of First Southern Bancorp, Inc........ F-27 - F-47
Unaudited Financial Statements of First Southern Bancorp, Inc...... F-48 - F-49
Audited Financial Statements of Central Community Corporation...... F-50 - F-67
Unaudited Financial Statements of Central Community Corporation.... F-68 - F-69
</TABLE>
<PAGE>
AUDITED STATEMENT OF ASSETS AND LIABILITIES
SAL TRUST PREFERRED FUND I
AUGUST 19, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SAL Trust Preferred Fund I:
We have audited the accompanying statement of assets and liabilities of SAL
TRUST PREFERRED FUND I (the "Fund") as of the opening day of business on
August 19, 1999, the date of deposit. The financial statement is the
responsibility of the Fund's management. Our responsibility is to express an
opinion on the financial statement based on our audit.
We conducted our audit 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 statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of SAL Trust Preferred Fund I
at the opening day of business on August 19, 1999 in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Birmingham, Alabama
August 19, 1999
F-3
<PAGE>
SAL TRUST PREFERRED FUND I
STATEMENT OF ASSETS AND LIABILITIES
AT THE OPENING OF BUSINESS ON AUGUST 19, 1999, THE DATE OF DEPOSIT
<TABLE>
<S> <C>
ASSETS:
Cash and cash equivalents............................................ $100,000
========
Net assets applicable to 4,000 common shares of beneficial
interest issued and outstanding....................................... $100,000
========
</TABLE>
F-4
<PAGE>
SAL TRUST PREFERRED FUND I
NOTES TO FINANCIAL STATEMENT
AT THE OPENING OF BUSINESS ON AUGUST 19, 1999, DATE OF DEPOSIT
1. Organization and Risk Factors
SAL Trust Preferred Fund I (the "Fund") was formed under an Agreement and
Declaration of Trust dated July 24, 1999 as a closed-end, nondiversified
management investment company. The Fund has been inactive since that date
except for matters relating to its organization and registration under the
Investment Company Act of 1940 and the sale of 4,000 shares of its beneficial
interest to Sterne Agee Asset Management, Inc., the Fund's investment manager.
The Fund will offer 860,000 shares of beneficial interest at $25.00 per
share through several underwriters in an initial public offering (the
"Offering") without any sales load or underwriting discounts payable by
investors or the Fund. Fund shares, when issued, will be fully paid and
nonassessable, and will have no preemptive or conversion rights or rights to
cumulative voting.
It is the intention of management of the Fund to invest substantially all of
its assets in Cumulative Trust Preferred securities issued in approximately
equal amounts by three statutory trusts, controlled respectively, by three
bank holding companies (First Bancorp, Inc.--Naples, Florida; First Southern
Bancorp, Inc.--Boca Raton, Florida; and Central Community Corporation--Temple,
Texas). It is anticipated that the assets of each statutory trust will consist
solely of subordinated debentures and payments thereunder. This concentration
may result in susceptibility to changes in each bank holding company's limited
geographic market area.
While the Fund's investment objective is to seek a high level of current
income for long-term investors, there can be no assurance that the Fund will
attain its investment objective. In addition, the investment manager has no
previous experience in managing similar closed-end funds.
The Fund's investment manager will receive an annual fee, payable on a
quarterly basis, in a maximum amount equal to .10% of the Fund's average daily
net asset value (including assets attributable to any Fund shares that may be
outstanding liquidation amount).
2. Summary of Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements.
Cash and Cash Equivalents
Cash and cash equivalents represents a principal cash deposit in an
interest-bearing money market account with the Trust Company of Sterne, Agee
and Leach, an affiliate of the Fund's investment manager.
F-5
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
FIRSTBANCORP, INC. AND SUBSIDIARIES
DECEMBER 31, 1998
F-6
<PAGE>
FIRSTBANCORP, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants......................... F-8
Consolidated Balance Sheets................................................ F-9
Consolidated Statements of Income.......................................... F-10
Consolidated Statements of Shareholders' Equity............................ F-11
Consolidated Statements of Cash Flows...................................... F-12
Notes to Consolidated Financial Statements................................. F-13
</TABLE>
F-7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders
FirstBancorp, Inc.
Naples, Florida
We have audited the accompanying consolidated balance sheets of
FirstBancorp, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to report 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
FirstBancorp, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
OSBURN, HENNING AND COMPANY
Orlando, Florida
February 19, 1999
F-8
<PAGE>
FIRSTBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
------
Cash and due from banks.............................. $ 13,697,608 $ 12,639,092
Federal funds sold................................... 14,010,000 20,530,000
------------ ------------
Cash and Cash Equivalents.......................... 27,707,608 33,169,092
Securities available for sale........................ 22,302,911 23,201,290
Loans held for sale.................................. 1,970,297 1,668,550
Loans, net........................................... 225,562,532 179,121,155
Premises and equipment............................... 14,348,607 13,512,635
Other real estate.................................... 331,000 835,000
Other assets......................................... 18,303,796 2,803,919
------------ ------------
TOTAL ASSETS..................................... $310,526,751 $254,311,641
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities
- -----------
Deposits:
Noninterest-bearing................................. $ 51,448,364 $ 35,612,657
Interest-bearing:
Savings, time and demand........................... 150,965,236 132,580,151
Time, $100,000 and over............................ 58,585,834 48,241,165
------------ ------------
Total Deposits.................................... 260,999,434 216,433,973
Short-term borrowings............................... 25,921,998 16,573,660
Other liabilities................................... 3,485,598 3,085,790
Long-term debt...................................... 2,400,000 3,000,000
------------ ------------
Total Liabilities................................. 292,807,030 239,093,423
Commitments and Contingencies--Note 15
- --------------------------------------
Shareholders' Equity
- --------------------
Common stock--$.01 par value, 5,000,000 shares
authorized; 1,627,403 and 1,604,729 shares issued
and outstanding.................................... 16,274 16,047
Additional paid-in capital.......................... 11,251,196 10,797,943
Retained earnings................................... 6,384,392 4,341,699
Accumulated other comprehensive income.............. 67,859 62,529
------------ ------------
Total Shareholders' Equity......................... 17,719,721 15,218,218
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $310,526,751 $254,311,641
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-9
<PAGE>
FIRSTBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Interest Income
Interest and fees on loans........................... $17,824,061 $15,276,452
Interest on securities............................... 1,457,130 1,488,945
Interest on federal funds sold and other............. 1,310,860 758,783
----------- -----------
Total Interest Income.............................. 20,592,051 17,524,180
----------- -----------
Interest Expense
Interest on deposits................................. 8,404,459 7,809,034
Interest on short-term borrowings.................... 848,405 339,525
Interest on long-term debt........................... 290,872 288,192
----------- -----------
Total Interest Expense............................. 9,543,736 8,436,751
----------- -----------
Net Interest Income................................ 11,048,315 9,087,429
Provision for Loan Losses.............................. 585,000 474,000
----------- -----------
Net Interest Income After Provision For Loan
Losses............................................ 10,463,315 8,613,429
----------- -----------
Noninterest Income
Service charges and fees............................. 1,251,600 1,399,292
Securities gains..................................... 7,487 1,499
Gain on sale of loans................................ 1,159,782 570,815
Other................................................ 1,287,632 931,421
----------- -----------
Total Noninterest Income........................... 3,706,501 2,903,027
----------- -----------
Noninterest Expense
Salaries and benefits................................ 4,531,251 3,577,541
Occupancy expense.................................... 885,341 863,480
Equipment expense.................................... 1,063,653 971,144
Other operating expense.............................. 3,713,471 3,182,449
----------- -----------
Total Noninterest Expense.......................... 10,193,716 8,594,614
----------- -----------
Income Before Income Taxes......................... 3,976,100 2,921,842
Income Taxes........................................... 1,483,926 1,089,564
----------- -----------
NET INCOME......................................... $ 2,492,174 $ 1,832,278
=========== ===========
Earnings Per Share:
Basic................................................ $ 1.53 $ 1.12
=========== ===========
Diluted.............................................. $ 1.44 $ 1.08
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-10
<PAGE>
FIRSTBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
----------------- Paid-in Retained Comprehensive Shareholders'
Shares Amount Capital Earnings Income Equity
--------- ------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1996................... 1,558,685 $15,587 $10,107,743 $2,900,081 $ 7,550 $13,030,961
Comprehensive Income:
Net income for 1997.... -- -- -- 1,832,278 -- 1,832,278
Other comprehensive
income, net of
deferred income tax:
Change in unrealized
gain or loss on
securities available
for sale.............. -- -- -- -- 54,979 54,979
-----------
Total Comprehensive
Income.............. 1,887,257
-----------
1.67% common stock
dividend declared in
1996, paid in 1997..... 26,044 260 390,400 (390,660) -- --
Sale of 20,000 shares of
common stock at $15 per
share to the Company's
KSOP Plan.............. 20,000 200 299,800 -- -- 300,000
--------- ------- ----------- ---------- ------- -----------
BALANCE, DECEMBER 31,
1997................... 1,604,729 16,047 10,797,943 4,341,699 62,529 15,218,218
Comprehensive Income:
Net income for 1998.... -- -- -- 2,492,174 -- 2,492,174
Other comprehensive
income, net of
deferred income tax:
Change in unrealized
gain or loss on
securities available
for sale.............. -- -- -- -- 5,330 5,330
-----------
Total Comprehensive
Income.............. 2,497,504
-----------
1.40% common stock
dividend declared in
1997, paid in 1998..... 22,474 225 449,255 (449,481) -- --
Issuance of 200 shares
of common stock at $20
per share.............. 200 2 3,998 -- -- 4,000
--------- ------- ----------- ---------- ------- -----------
BALANCE, DECEMBER 31,
1998................... 1,627,403 $16,274 $11,251,196 $6,384,392 $67,859 $17,719,721
========= ======= =========== ========== ======= ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-11
<PAGE>
FIRSTBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................ $ 2,492,174 $ 1,832,278
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 852,687 784,064
Provision for loan losses....................... 585,000 474,000
Provision for losses on other real estate....... -- 43,980
Provision (benefit) for deferred tax............ (133,566) 105,986
Amortization (accretion) on securities.......... 48,158 (4,240)
Changes in assets and liabilities:
Loans held for sale............................. (301,747) (1,062,727)
Other assets.................................... (384,875) (514,765)
Other liabilities............................... 397,677 (13,527)
------------ ------------
Net Cash Provided By Operating Activities..... 3,555,508 1,645,049
------------ ------------
INVESTING ACTIVITIES
Purchases of securities available for sale........ (17,914,545) (8,999,789)
Maturities, calls and principal collections on
securities available for sale.................... 18,773,230 4,054,727
Increase in loans................................. (47,026,376) (35,576,109)
Investment in bank-owned life insurance policies.. (15,000,000) --
Acquisition of premises and equipment............. (1,671,100) (3,762,103)
Proceeds from sale of repossessed collateral...... 504,000 100,694
------------ ------------
Net Cash Used In Investing Activities......... (62,334,791) (44,182,580)
------------ ------------
FINANCING ACTIVITIES
Net change in deposits............................ 44,565,461 41,556,328
Net change in short-term borrowings............... 9,348,338 10,972,478
Reduction in long-term debt....................... (600,000) --
Issuance of common stock.......................... 4,000 300,000
------------ ------------
Net Cash Provided By Financing Activities..... 53,317,799 52,828,806
------------ ------------
Net Increase (Decrease) in Cash and Cash
Equivalents.................................. (5,461,484) 10,291,275
Cash and Cash Equivalents:
Beginning................................. 33,169,092 22,877,817
------------ ------------
Ending.................................... $ 27,707,608 $ 33,169,092
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-12
<PAGE>
FIRSTBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--Organizational Background and Basis of Financial Statement
Presentation
Organizational Background and Consolidation Policy
FirstBancorp, Inc. (the Company) is a Florida corporation organized during
1988 for the purpose of becoming a bank holding company pursuant to the Bank
Holding Company Act of 1956. At December 31, 1998, the Company owns 100% of
two nationally-chartered commercial banks and a non-banking subsidiary. The
Company's headquarters are in Naples, Florida.
The Company's banking subsidiaries are First National Bank of the Florida
Keys (FNB) in Marathon, Florida, and Gulf Coast National Bank (GCNB) in
Naples, Florida. GCNB opened as a de novo banking institution in August, 1995.
The accompanying consolidated financial statements include the financial
results of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Statement of Cash Flows
For purposes of the statements of cash flows, the Company considers due from
banks and federal funds sold to be cash equivalents. Interest paid totaled
$9,414,811 and $8,777,567 in 1998 and 1997, respectively. Income taxes paid
totaled $1,525,000 and $930,000 during 1998 and 1997, respectively.
Reclassifications
Certain amounts and captions presented in the 1997 financial statements have
been reclassified to conform to the 1998 presentation. These reclassifications
had no effect on total assets, liabilities, equity or income as previously
reported.
NOTE 2--Summary of Significant Accounting Policies
The Company has adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" (SFAS 130). SFAS 130 requires the reporting
of comprehensive income in addition to net income. Comprehensive income is
comprised of net income and items of "other comprehensive income". The
Company's only item of other comprehensive income is the unrealized gain or
loss on the Banks' available for sale investment securities portfolios.
In accordance with SFAS 130, the Company has presented the accompanying
financial statements to reflect the effects of application of the provisions
of SFAS 130 for 1997 as well as for the current year.
Securities Available for Sale
The Banks use their securities portfolios for asset/liability, liquidity,
and other funds management purposes. Because of the indefinite holding periods
of these securities, they are classified as securities available for sale.
Securities available for sale are accounted for on a fair value basis with net
unrealized gains and losses, net of any associated income tax effect, included
in other comprehensive income.
Amortization and accretion are recognized as adjustments to interest income.
Realized gains and losses are determined using the specific identification
method.
Loans and Allowance For Loan Losses
Loans are stated at the amount of unpaid principal, reduced by an allowance
for loan losses and by unearned loan income. Interest on substantially all
loans is calculated by using the simple interest method on daily balances
F-13
<PAGE>
FIRSTBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of the principal amounts outstanding except for those classified as nonaccrual
loans. The accrual of interest is discontinued when future collection of
principal or interest in accordance with the contractual terms may be
doubtful.
Loan fees, net of related origination costs, are capitalized and amortized
as yield adjustments over the respective loan terms using a method which
approximates the interest method. Interest and fees on loans includes loan
fees recognized as yield adjustments of $855,000 and $495,000 in 1998 and
1997, respectively.
The allowance for loan losses is established through a provision for loan
losses charged against income. Loans are charged against the allowance for
loan losses when management believes that the collectibility of the principal
is unlikely. The allowance is an amount that management believes will be
adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans, past loan
loss experience and, in some cases, industry historical loss experience.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation
computed principally on the straight-line method over the estimated useful
lives of the assets. These lives are summarized as follows:
<TABLE>
<CAPTION>
Asset Estimated Lives
----- ---------------
<S> <C>
Building and improvements.................................... 15-40 years
Equipment and furnishings.................................... 5-7 years
</TABLE>
Maintenance and repairs to premises and equipment are charged to operations,
and improvements and additions are capitalized.
Other Real Estate
The Banks record as other real estate those properties foreclosed as a
result of defaulted real estate loans where repayment is otherwise remote. At
the time of foreclosure, the properties are reclassified from loans to other
real estate at the lower of fair value, less estimated costs to sell, or cost.
Any gain or loss upon the subsequent sale is recorded in current operations.
Income Taxes
The Company and the Banks use the liability method of accounting for
deferred income tax. Under this method, deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes, and the amounts used for
income tax purposes. Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the annual provision for income taxes.
The Company and its subsidiaries file consolidated federal and state income
tax returns. Tax is allocated among the entities on an "as though separate"
basis.
Dividends
The Company's ability to pay dividends is principally dependent upon
dividends it receives from its bank subsidiaries. The Banks are limited by
applicable banking statutes as to the amount of dividends they may pay in any
given year. Such restrictions generally limit dividends to an amount not
exceeding net income for the current and two preceding years, unless
additional amounts are approved by the regulatory authorities.
F-14
<PAGE>
FIRSTBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On November 23, 1998, the Company's Board of Directors declared a 1.23%
common stock dividend payable January 4, 1999 to shareholders as of December
1, 1998.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period.
Diluted earnings per share includes the effect of unexercised stock options
using the treasury stock method. The treasury stock method assumes that common
stock was purchased at the average market price during the period. For the
years ended December 31, 1998 and 1997, the reconciliation of the denominators
of the basic and diluted per-share computations is as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Weighted average common shares........................... 1,631,050 1,630,998
Weighted average stock options........................... 96,421 68,769
--------- ---------
Shares used for diluted.................................. 1,727,471 1,699,767
========= =========
</TABLE>
For purposes of determining weighted average common shares, stock dividends
have been given retroactive effect to January 1, 1997. These dividends, and
therefore weighted average common shares, include approximately 20,000 shares
for the stock dividend declared in November, 1998, and paid on January 4,
1999.
NOTE 3--Securities Available for Sale
The amortized cost and estimated fair value of securities available for sale
as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U. S. Treasury securities.... $ 2,612,887 $ 30,491 $ -- $ 2,643,378
U. S. Government agencies.... 17,898,685 88,163 11,408 17,975,440
States and political
subdivisions................ 90,000 662 -- 90,662
Federal Home Loan Bank
stock....................... 1,250,000 -- -- 1,250,000
Federal Reserve Bank and FNMA
stocks...................... 343,625 -- 194 343,431
----------- -------- ------- -----------
$22,195,197 $119,316 $11,602 $22,302,911
=========== ======== ======= ===========
</TABLE>
The amortized cost and estimated fair value of securities available for sale
as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U. S. Treasury securities.... $ 7,243,941 $ 18,756 $ 680 $ 7,262,017
U. S. Government agencies.... 14,440,974 91,096 10,677 14,521,393
States and political
subdivisions................ 95,000 755 -- 95,755
Federal Home Loan Bank
stock....................... 1,002,500 -- -- 1,002,500
Federal Reserve Bank and FNMA
stocks...................... 319,625 -- -- 319,625
----------- -------- ------- -----------
$23,102,040 $110,607 $11,357 $23,201,290
=========== ======== ======= ===========
</TABLE>
F-15
<PAGE>
FIRSTBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The amortized cost and estimated fair value of securities available for sale
at December 31, 1998, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
----------- -----------
<S> <C> <C>
Due in one year or less............................. $ 3,614,511 $ 3,648,878
Due after one year through five years............... 8,060,799 8,085,042
Due after five years through ten years.............. 507,128 512,050
----------- -----------
12,182,438 12,245,970
Mortgage-backed and equity securities............... 10,012,759 10,056,941
----------- -----------
$22,195,197 $22,302,911
=========== ===========
</TABLE>
There were no sales of securities in 1998 or 1997, but the Company realized
gains of $7,487 and $1,499 in 1998 and 1997, respectively, on securities
called during those years.
Interest on investment securities includes tax-exempt interest of $9,669 and
$10,200 in 1998 and 1997, respectively.
At December 31, 1998, investment securities with an amortized cost and
estimated fair value of approximately $17,610,000 and $17,708,000,
respectively, were pledged to secure public funds, the Banks' Treasury Tax and
Loan accounts and repurchase agreements.
NOTE 4--Loans
The composition of loans at December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Commercial and industrial........................ $ 14,912,533 $ 13,657,047
Real estate and mortgage......................... 205,148,317 161,222,231
Consumer......................................... 7,035,347 5,436,059
------------ ------------
227,096,197 180,315,337
Less:
Unearned (income) costs........................ 362,325 220,409
Allowance for loan losses...................... (1,895,990) (1,414,591)
------------ ------------
Net loans........................................ $225,562,532 $179,121,155
============ ============
</TABLE>
Changes in the allowance for loan losses during the years ending December
31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Beginning balance.................................... $1,414,591 $1,155,831
Provision............................................ 585,000 474,000
Charge-offs, net of recoveries....................... (103,601) (215,240)
---------- ----------
Ending Balance....................................... $1,895,990 $1,414,591
========== ==========
</TABLE>
Loans on which the accrual of interest has been discontinued amounted to
approximately $132,000 and $180,000 at December 31, 1998 and 1997,
respectively. Interest income that would have been recorded under
F-16
<PAGE>
FIRSTBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the original terms of these loans, had the accrual of interest not been
discontinued, was immaterial in both years. Loans having balances of $142,917
and $603,532 were transferred to other real estate in 1998 and 1997,
respectively.
Officers, directors, and companies in which they hold a ten percent or more
beneficial ownership, borrow from the Banks in the ordinary course of
business. Amounts due from these parties at December 31, 1998 and 1997 were
approximately $5,168,000 and $2,571,000, respectively, and are included in net
loans.
FNB and GCNB have given the Federal Home Loan Bank of Atlanta (FHLB) a
blanket lien on their residential real estate loan portfolios, approximately
$73 million at December 31, 1998, to collateralize short-term borrowings
discussed in Note 8.
NOTE 5--Premises and Equipment
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Land............................................... $ 4,047,787 $ 3,996,470
Buildings and improvements......................... 9,227,827 8,474,404
Equipment and furnishings.......................... 4,404,552 3,631,650
Bank construction.................................. 274,901 181,443
----------- -----------
17,955,067 16,283,967
Accumulated depreciation and amortization.......... (3,606,460) (2,771,332)
----------- -----------
$14,348,607 $13,512,635
=========== ===========
</TABLE>
Depreciation and amortization of premises and equipment was $834,123 and
$784,065 for 1998 and 1997, respectively.
NOTE 6--Bank-Owned Life Insurance Policies
In late December, 1998, the Banks funded a $15,000,000 single-premium
payment for approximately $56 million in face value of bank-owned life
insurance policies on substantially all of their officers and employees. The
purpose of the policies is to defray future employee benefit costs through
cash surrender value and the growth thereof in future years. This payment
created cash surrender value of life insurance of approximately $15 million,
which amount is included in "Other assets" on the accompanying 1998 balance
sheet.
NOTE 7--Deposits
At December 31, 1998, the scheduled maturities of time certificates of
deposit are as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
1999.......................................................... $ 82,477
2000.......................................................... 12,236
2001.......................................................... 3,959
2002.......................................................... 678
2003 and thereafter........................................... 1,227
--------
$100,577
========
</TABLE>
F-17
<PAGE>
FIRSTBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 8--Short-Term Borrowings
FNB and GCNB had short-term borrowings at December 31 as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
FHLB lines of credit................................ $25,000,000 $15,000,000
Customer repurchase agreements...................... 891,126 1,073,660
TT&L note option.................................... 30,872 500,000
----------- -----------
$25,921,998 $16,573,660
=========== ===========
</TABLE>
The FHLB lines of credit provide for up to $40 million in credit, not to
exceed 75% of the Banks' residential loan portfolios. The amount outstanding
at December 31, 1998 matures August 25, 2008 and bears interest at 4.94%. The
interest rate may be converted to a LIBOR-based rate at the discretion of
FHLB, but not before August 25, 1999. If the interest rate is converted, the
Company may prepay the lines subject to a prepayment amount agreed to by both
parties. The committed but unadvanced portion of the lines ($15 million) are
daily revolving lines, and bear interest at a rate slightly less than the Fed
Funds rate. The high balance and average amount outstanding under the FHLB
lines during 1998 were $25 million and $15.4 million, respectively. Average
outstandings during 1998 under the customer repurchase agreements and the TT&L
note option were $1,087,000. These borrowings are also on a day to day basis,
and bear interest tied to the Fed Funds rate. The effective rate paid on
short-term borrowings during 1998 and 1997 was 5.3% and 5.7%, respectively.
NOTE 9--Long-Term Debt
On June 14, 1996, the Company entered into an agreement with an unrelated
financial institution for $5 million in new debt. This debt consists of a $2
million revolving line of credit, and a $3 million term loan. As of December
31, 1998, the Company has not taken any advances under the line of credit. The
term loan was fully advanced June 14, 1996 and had a balance of $2.4 million
and $3 million at December 31, 1998 and 1997, respectively.
The term loan requires interest-only payments through December 31, 1997 at
8.75%, and then $50,000 per month principal repayments plus interest at 8.75%
until June 30, 1999, then at LIBOR plus 2.25 points. The term loan matures
December 31, 2002, and the revolving line of credit matures June 30, 2000.
Both notes are collateralized by the Company's pledge of all of the stock
owned in FNB and GCNB.
NOTE 10--Employee Benefit Plans
The Banks have a 401(k) and profit sharing plan for eligible employees
(those who have completed at least 6 months of service and attained the age of
20.5 years). The employee becomes 25% vested in the Bank's contributions upon
entry to the plan, and is fully vested after five years of service. The plan
holds approximately 65,000 shares of Company stock at December 31, 1998,
approximately 5,000 of which are unearned. The estimated fair value of
unearned shares at December 31, 1998 is $123,600. The expense related to this
plan was $114,890 and $72,230 in 1998 and 1997, respectively.
In addition, the Banks have provided deferred compensation agreements for
certain of their current directors and officers and, in the case of FNB,
certain former directors and officers. Deferred compensation expense related
to these agreements was $72,000 and $49,500 in 1998 and 1997, respectively.
The related liability, included in other liabilities, was approximately
$502,000 and $508,000 at December 31, 1998 and 1997, respectively.
NOTE 11--Stock Options
In 1991, the Company approved a stock option/stock appreciation rights plan
(the Plan) under which the Board of Directors could grant up to 51,547 stock
options and 25,774 stock appreciation rights to any employee
F-18
<PAGE>
FIRSTBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of the Company or the Banks. The Plan required the grant price to be equal to
the fair value of the underlying stock on the date of grant. Options granted
under the Plan vest immediately and are exercisable at any time within ten
years from the date of grant. During 1991, the Company granted its president
options for 51,547 shares at an exercise price of $5.82, and 23,196 stock
appreciation rights. None of these options or rights have been exercised, and
they remain outstanding at December 31, 1998.
During 1996, the Board of Directors amended the 1991 plan, increasing the
number of options which could be granted under the plan. Upon amendment,
options for an additional 118,043 shares were granted to key personnel,
101,032 of which vested immediately and are exercisable at any time before
their ten year expiration at $14.55 per share. The remaining 17,011 options
had the same terms as the other 1996 options, but vest over a three year
period beginning in 1997. During 1998, options for 37,500 shares were granted
with an exercise price of $20 per share. These options vest immediately and
otherwise have terms essentially identical to the 1996 options.
The following table reflects activity and balances of options at and for the
years ending December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
Weighted Weighted
Number of Options Number Avg. Price Number Avg. Price
----------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Outstanding January 1.................. 169,590 $11.89 169,590 $11.89
Granted during year.................... 37,500 $20.00 -- $ --
------- -------
Outstanding December 31................ 207,090 $13.36 169,590 $11.89
======= =======
</TABLE>
At December 31, 1998, 201,419 options are exercisable, with 51,547 having an
exercise price of $5.82. The balance are exercisable at amounts ranging from
$14.55 to $20.00 per share. The weighted average remaining contractual life at
December 31, 1998 is 6.9 years.
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation". As permitted by the
provisions of SFAS No. 123, the Company applies APB Opinion 25 and related
interpretations in accounting for its stock option plan and, accordingly, does
not recognize compensation cost for other than its stock appreciation rights.
The Company has based the fair value of its options on a standardized option
pricing model. If the Company had elected to recognize compensation costs
relating to those options vesting in 1998, net income as reported would have
been reduced by approximately $195,000. The pro forma effect on 1997 net
income of options vesting in 1997 was immaterial.
During 1998 and 1997, the Company charged earnings for $144,000 and $68,581,
respectively, for the stock appreciation rights associated with the 1991
options.
NOTE 12--Other Operating Expense
Expense categories in excess of $100,000 in either 1998 or 1997 included in
consolidated other operating expense are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Data processing.............................................. $522,630 $444,348
Advertising.................................................. 354,276 340,775
Telephone.................................................... 283,829 221,004
Stationary and supplies...................................... 232,013 204,260
Postage and courier.......................................... 207,668 197,571
Legal and professional....................................... 174,518 158,097
Directors fees............................................... 151,850 134,000
Regulatory fees and deposit insurance........................ 112,229 117,241
</TABLE>
F-19
<PAGE>
FIRSTBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 13--Income Taxes
Components of income taxes for the years ended December 31, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
Current Deferred Total
---------- --------- ----------
<S> <C> <C> <C>
1998
----
Federal..................................... $1,414,774 $(120,000) $1,294,774
State....................................... 202,718 (13,566) 189,152
---------- --------- ----------
$1,617,492 $(133,566) $1,483,926
========== ========= ==========
1997
----
Federal..................................... $ 862,716 $ 96,456 $ 959,172
State....................................... 120,862 9,530 130,392
---------- --------- ----------
$ 983,578 $ 105,986 $1,089,564
========== ========= ==========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Deferred tax assets:
Excess book loan loss provision.................... $ 608,000 $390,000
Deferred compensation taxed........................ 340,000 190,000
Pre-opening costs.................................. 49,000 80,000
OREO loss provision................................ 42,000 42,000
Other accounting accruals taxed.................... 5,060 55,504
---------- --------
1,044,060 757,504
---------- --------
Deferred tax liabilities:
Tax over book unearned loan fees................... 396,000 373,000
Tax over book depreciation expense................. 222,000 92,000
---------- --------
618,000 465,000
---------- --------
426,060 292,504
Deferred tax attributable to unrealized gain on
securities available for sale..................... (39,856) (36,723)
---------- --------
Net Deferred Tax Asset........................... $ 386,204 $255,781
========== ========
</TABLE>
The difference between income taxes computed using the federal statutory
rate of 34% and as recorded is attributable principally to Florida's state
corporate income tax of 5.5%, adjusted for certain credits.
NOTE 14--Regulatory Matters
The Banks are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the Banks' financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Banks must meet specific capital guidelines that involve quantitative measures
of their assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Banks'
F-20
<PAGE>
FIRSTBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
capital amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Banks to maintain minimum amounts and ratios of Total and Tier I
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier I capital (as defined) to average assets (as defined). If such
minimum amounts and ratios are met, the Banks are considered "adequately
capitalized". If a bank exceeds the requirements of "adequately capitalized"
and meets even more stringent minimum standards, it is considered to be "well
capitalized". Management believes that as of December 31, 1998 and 1997, both
Banks meet and exceed all capital adequacy requirements to which they are
subject.
As of December 31, 1998, the most recent notification from the Banks'
regulatory agency categorized the Banks as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Banks must maintain Total risk-based, Tier I risk-based, and
Tier I leverage ratios as set forth in the table which follows. There are no
conditions or events since that notification that management believes have
changed the institutions' category.
<TABLE>
<CAPTION>
Minimum to Remain
Actual Well Capitalized
------------- -------------------
Amount Ratio Amount Ratio
------- ----- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital (to Risk Weighted Assets):
Consolidated.......................... $19,523 9.31% $ 20,958 10.0%
FNB................................... $11,028 10.09% $ 10,927 10.0%
GCNB.................................. $10,555 10.31% $ 10,238 10.0%
Tier I Capital (to Risk Weighted
Assets):
Consolidated.......................... $17,627 8.41% $ 12,575 6.0%
FNB................................... $ 9,807 8.97% $ 6,556 6.0%
GCNB.................................. $ 9,831 9.50% $ 6,143 6.0%
Tier I Capital (to Average Assets):
Consolidated.......................... $17,628 5.86% $ 15,042 5.0%
FNB................................... $ 9,807 6.65% $ 7,369 5.0%
GCNB.................................. $ 9,831 6.43% $ 7,644 5.0%
As of December 31, 1997:
Total Capital (to Risk Weighted Assets):
Consolidated.......................... $16,570 9.88% $ 16,891 10.0%
FNB................................... $ 9,824 10.47% $ 9,379 10.0%
GCNB.................................. $ 8,208 10.81% $ 7,593 10.0%
Tier I Capital (to Risk Weighted
Assets):
Consolidated.......................... $15,155 9.04% $ 10,134 6.0%
FNB................................... $ 8,807 9.39% $ 5,628 6.0%
GCNB.................................. $ 7,810 10.29% $ 4,556 6.0%
Tier I Capital (to Average Assets):
Consolidated.......................... $15,155 6.22% $ 13,435 5.0%
FNB................................... $ 8,807 6.93% $ 6,358 5.0%
GCNB.................................. $ 7,810 6.28% $ 6,215 5.0%
</TABLE>
F-21
<PAGE>
FIRSTBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 15--Commitments and Contingencies
Financial Instruments With Off-Balance-Sheet Risk
The financial statements do not reflect various commitments and contingent
liabilities that arise in the normal course of business to meet the financing
needs of customers. These include commitments to extend credit and honor
stand-by letters of credit. These instruments involve, to varying degrees,
elements of credit, interest rate and liquidity risks in excess of amounts
reflected in the balance sheets. The extent of the Company's and its bank
subsidiaries' involvement in these commitments or contingent liabilities is
expressed by the contractual, or notional, amounts of the instruments.
Commitments to extend credit, which amount to $53,665,000 and $37,720,000 at
December 31, 1998 and 1997, respectively, represent legally binding agreements
to lend to customers with fixed expiration dates or other termination clauses.
Since many commitments are expected to expire without being funded, committed
amounts do not necessarily represent future liquidity requirements. The amount
of collateral obtained, if any, is based on management's credit evaluation in
the same manner as though an immediate credit extension were to be granted.
Collateral held varies, but may include accounts receivable, inventory or
other tangible personal property, as well as marketable securities or
certificates of deposit.
Stand-by letters of credit are conditional commitments issued by the Banks
guaranteeing the performance of a customer to a third party. The decision
whether to guarantee such performance and the extent of collateral
requirements are made considering the same factors as are considered in credit
extension. The Banks had $310,150 and $825,415 outstanding on stand-by letters
of credit at December 31, 1998 and 1997, respectively.
The Company guarantees indirect indebtedness of its non-bank subsidiary in
the amount of approximately $1,211,000 at December 31, 1998.
Concentrations of Credit Risk
The Banks originate residential and commercial real estate loans, and other
consumer and commercial loans primarily in their immediate market areas and
adjacent counties in Florida. In addition, they may occasionally purchase
loans. Although the banks have diversified loan portfolios, a substantial
portion of their borrowers' ability to repay their loans is dependent upon
economic conditions in the Banks' market areas.
Advances from the Federal Home Loan Bank
The amount available under these lines at December 31, 1998 is $15,000,000.
Use of Estimates in Preparation of Financial Statements
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues and expenses. For the
Banks, such estimates significantly affect the amount at which the allowances
for loan losses are carried, the amount of deferred tax assets that are
dependent upon future taxable income and the likelihood and timing of
realization of such assets, and the factors and amounts entering into the
estimate of fair value of financial instruments disclosed in Note 17. All such
estimates relate to unsettled transactions and events as of the date of the
financial statements and, accordingly, upon settlement it is likely that
actual amounts will differ from currently estimated amounts.
F-22
<PAGE>
FIRSTBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Leases and Other Commitments
One of the Banks is obligated under operating lease agreements for
facilities. Future minimum lease payments at December 31, 1998 under non-
cancelable operating leases relating to these leases are as follows:
<TABLE>
<S> <C>
1999................................. $87,180
2000................................. 67,180
2001................................. 57,180
2002................................. 52,170
2003................................. 12,380
</TABLE>
The Banks and the Company are obligated under various other leases for
fixtures and equipment and a vehicle. These leases have terms ranging from
three to five years, with payments aggregating approximately $100,000 per
year.
Rent expense for all rental agreements, cancelable and non-cancelable,
totaled approximately $213,000 and $224,000 in 1998 and 1997, respectively.
In addition to rental and leasing arrangements, both Banks are obligated
under commitments for various services from their data service and equipment
maintenance service companies.
NOTE 16--Fair Value of Financial Instruments
The table which follows shows the estimated fair value and the related
carrying amounts of the Banks' financial instruments at December 31, 1998.
For purposes of this disclosure, the estimated fair value for cash and cash
equivalents is considered to approximate their carrying amounts. The estimated
fair value for securities is based on quoted market values for the individual
or equivalent securities. The estimated fair value for loans is based on
interest rates the Banks would have charged borrowers at December 31, 1998 for
similar loans, maturities and terms.
The estimated fair value for demand and savings deposits is based on their
carrying amount. The estimated fair value for time deposits is based on rates
the Banks offered at December 31, 1998 for deposits of similar remaining
maturities. The estimated fair value for other financial instruments and off-
balance-sheet loan commitments are considered to approximate carrying amounts
at December 31, 1998. Assets and liabilities of the Banks that are not defined
as financial instruments, such as premises and equipment, are excluded from
these disclosures.
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
-------- ----------
(In Thousands)
<S> <C> <C>
Financial Assets
Cash and cash equivalents.............................. $ 27,708 $ 27,708
Securities available for sale.......................... 22,303 22,303
Loans held for sale.................................... 1,970 1,966
Loans.................................................. 227,096 225,847
Financial Liabilities
Demand and Savings Deposits............................ 202,413 202,413
Time Deposits.......................................... 58,586 58,787
Short-term borrowings.................................. 25,922 25,979
Long-term debt......................................... 2,400 2,400
</TABLE>
F-23
<PAGE>
FIRSTBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Non-financial instruments typically not recognized in the financial
statements nevertheless may have value but are not included in the above
disclosures. These include, among other items, the estimated earnings power of
core deposit accounts, the earnings potential of loan servicing rights,
customer goodwill, and similar items.
While these estimates of fair value are based on management's judgment of
the most appropriate factors, there is no assurance that, were the Banks to
have disposed of such items at December 31, 1998, the estimated fair values
would necessarily have been achieved at that date, since market values may
differ depending on various circumstances. The estimated fair values at
December 31, 1998 should not necessarily be considered to apply at subsequent
dates.
F-24
<PAGE>
FIRSTBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
------
Cash and due from banks.............................. $ 15,793,148 $ 7,639,055
Federal funds sold................................... 3,665,000 24,620,000
------------ ------------
Cash and Cash Equivalents.......................... 19,458,148 32,259,055
------------ ------------
Securities available for sale........................ 39,861,551 24,231,936
Loans held for sale.................................. 1,061,569 2,547,573
Loans, net........................................... 252,029,352 185,805,711
Premises and equipment, net.......................... 16,332,364 14,779,412
Other real estate.................................... 331,000 835,000
Other assets......................................... 18,679,774 2,594,771
------------ ------------
TOTAL ASSETS..................................... $347,753,758 $263,053,458
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities
- -----------
Deposits:
Noninterest-bearing................................. $ 53,183,220 $ 39,978,462
Interest-bearing:
Savings, time and demand........................... 179,052,816 132,178,886
Time, $100,000 and over............................ 55,900,599 56,436,203
------------ ------------
Total Deposits................................... 288,136,635 228,593,551
------------ ------------
Short-term borrowings............................... 34,204,832 11,365,561
Other liabilities................................... 3,426,156 3,390,167
Long-term debt...................................... 3,279,074 3,321,820
------------ ------------
Total Liabilities................................ 329,046,697 246,671,099
Shareholders' Equity
- --------------------
Common stock........................................ 16,474 16,272
Additional paid-in capital.......................... 11,751,371 11,247,198
Retained earnings................................... 7,434,421 5,077,842
Accumulated other comprehensive income (loss)....... (495,205) 41,047
------------ ------------
Total Shareholders' Equity....................... 18,707,061 16,382,359
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....... $347,753,758 $263,053,458
============ ============
</TABLE>
F-25
<PAGE>
FIRSTBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1999 1998
------------- ------------
<S> <C> <C>
Interest Income
Interest and fees on loans........................ $ 10,042,399 $ 8,460,250
Interest on securities............................ 995,026 772,464
Interest on federal funds sold and other.......... 447,213 635,482
------------- ------------
Total Interest Income........................... 11,484,638 9,868,196
------------- ------------
Interest Expense
Interest on deposits.............................. 4,430,735 4,145,276
Interest on short-term borrowings................. 678,973 290,148
Interest on long-term debt........................ 147,787 152,037
------------- ------------
Total Interest Expense.......................... 5,257,495 4,587,461
------------- ------------
Net Interest Income............................. 6,227,143 5,280,735
Provision for Loan Losses........................... 255,000 330,000
------------- ------------
Net Interest Income After Provision For Loan
Losses......................................... 5,972,143 4,950,735
------------- ------------
Noninterest Income
Service charges and fees.......................... 653,226 639,800
Securities gains.................................. 526 1,849
Gain on sale of loans............................. 690,906 582,977
Other............................................. 1,031,727 1,079,683
------------- ------------
Total Noninterest Income........................ 2,376,385 2,304,309
------------- ------------
Noninterest Expense
Salaries and benefits............................. 2,930,160 2,221,947
Occupancy expense................................. 490,153 427,336
Equipment expense................................. 628,977 506,426
Other operating expense........................... 2,047,256 2,209,808
------------- ------------
Total Noninterest Expense....................... 6,096,546 5,365,517
------------- ------------
Income Before Income Taxes...................... 2,251,982 1,889,527
Income Taxes........................................ 701,578 703,903
------------- ------------
NET INCOME...................................... $ 1,550,404 $ 1,185,624
============= ============
Earnings Per Share:
Basic............................................. $ .94 $ .73
============= ============
Diluted........................................... $ .89 $ .69
============= ============
</TABLE>
F-26
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1998
F-27
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Independent Auditor's Report .............................................. F-29
Consolidated Balance Sheets................................................ F-30
Consolidated Statements of Income.......................................... F-31
Consolidated Statements of Stockholders' Equity............................ F-32
Consolidated Statements of Cash Flows...................................... F-33
Notes to Consolidated Financial Statements................................. F-34
</TABLE>
F-28
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
First Southern Bancorp, Inc. and Subsidiaries
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of First
Southern Bancorp, Inc. and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of income, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Bank'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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Southern Bancorp, Inc. and subsidiaries as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles.
McGladrey & Pullen, LLP
Fort Lauderdale, Florida
January 15, 1999
F-29
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks (Note 2)..................... $ 7,819,221 $ 7,545,745
Federal funds sold................................... 11,540,000 5,483,000
------------ ------------
Total cash and cash equivalents.................. 19,359,221 13,028,745
Securities available for sale (Note 3)............... 21,903,523 17,626,673
Federal Reserve and Federal Home Loan Bank stock, at
cost................................................ 952,400 1,199,550
Loans, net (Notes 4, 10, 12 and 15).................. 81,775,038 66,138,477
Other real estate owned.............................. 218,151 --
Premises and equipment (Note 5)...................... 2,350,121 2,308,407
Accrued interest receivable.......................... 674,582 689,312
Deferred tax asset (Note 8).......................... 423,060 329,389
Other assets (Note 7)................................ 1,845,681 343,810
------------ ------------
$129,501,777 $101,664,363
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits................. $ 29,952,023 $ 31,427,958
Interest-bearing deposits:
NOW accounts....................................... 12,667,681 12,224,073
Savings............................................ 2,780,276 2,039,078
Money market accounts.............................. 30,108,760 16,132,819
Time (Note 6)...................................... 32,512,724 26,789,994
------------ ------------
Total deposits................................... 108,021,464 88,613,922
Notes payable (Note 10).............................. 13,061,486 5,689,753
Other liabilities (Note 7)........................... 759,694 855,006
------------ ------------
Total liabilities................................ 121,842,644 95,158,681
------------ ------------
Commitments and contingencies (Note 15)
Minority interest in First Southern Bank (Note 2).... 154,645 158,713
------------ ------------
Stockholders' equity (Notes 3, 11, and 14):
Common stock, $6 par value; 3,000,000 shares
authorized; issued and outstanding 1998 641,750
shares 1997 633,686 shares......................... 3,850,500 3,802,116
Additional paid-in capital.......................... 1,308,206 1,275,849
Retained earnings................................... 2,332,745 1,239,473
Accumulated other comprehensive income.............. 13,037 29,531
------------ ------------
7,504,488 6,346,969
------------ ------------
$129,501,777 $101,664,363
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-30
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans........................... $7,107,248 $5,852,028
Investment securities................................ 927,882 1,643,100
Other................................................ 868,789 190,679
---------- ----------
8,903,919 7,685,807
---------- ----------
Interest expense:
Deposits............................................. 2,851,625 2,484,213
Other................................................ 596,753 414,468
---------- ----------
3,448,378 2,898,681
---------- ----------
Net interest income.................................... 5,455,541 4,787,126
Provision for loan losses (Note 4)..................... 255,000 110,000
---------- ----------
Net interest income after provision for loan
losses............................................ 5,200,541 4,677,126
---------- ----------
Other income:
Service charges on deposit accounts.................. 1,008,880 515,492
Securities gains, net (Note 3)....................... 105,703 33,955
Other................................................ 278,145 190,315
---------- ----------
1,392,728 739,762
---------- ----------
Other expenses:
Salaries and employee benefits....................... 2,955,153 2,350,607
Occupancy and equipment.............................. 1,013,227 856,759
Office expenses and insurance........................ 322,615 308,959
Marketing, advertising, and business development..... 122,299 159,159
Professional and data processing fees................ 230,808 177,490
Other................................................ 154,189 190,182
---------- ----------
4,798,291 4,043,156
---------- ----------
Income before income taxes and minority interest....... 1,794,978 1,373,732
Provision for income taxes (Note 8).................... 675,450 487,146
---------- ----------
Net income before minority interest................ 1,119,528 886,586
Minority interest in net income of First Southern
Bank.............................................. (26,256) (38,927)
---------- ----------
Net income....................................... $1,093,272 $ 847,659
========== ==========
Basic earnings per share (Note 17)..................... $ 1.71 $ 1.29
========== ==========
Diluted earnings per share (Note 17)................... $ 1.60 $ 1.23
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-31
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Additional Other
Comprehensive Common Paid-In Retained Comprehensive
Income Stock Capital Earnings Income Total
------------- ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... -- $3,913,380 $1,530,196 $ 391,814 $(146,589) $5,688,801
Comprehensive income:
Net income............. $ 847,659 -- -- 847,659 -- 847,659
Other comprehensive
income, net of tax:
Change in unrealized
gain (loss) on
securities available
for sale (Note 3)..... 176,120 -- -- -- 176,120 176,120
----------
Comprehensive income.... $1,023,779 -- -- -- -- --
----------
Issuance of 20,109
shares of common
stock.................. 120,654 93,530 -- -- 214,184
Redemption of 38,653
shares of common
stock.................. (231,918) (347,877) -- -- (579,795)
---------- ---------- ---------- --------- ----------
Balance, December 31,
1997................... 3,802,116 1,275,849 1,239,473 29,531 6,346,969
Comprehensive income:
Net income............. $1,093,272 -- -- 1,093,272 -- 1,093,272
Other comprehensive
income, net of tax:
Change in unrealized
gain (loss) on
securities available
for sale (Note 3)..... (16,494) -- -- -- (16,494) (16,494)
----------
Comprehensive income.... $1,076,778
----------
Issuance of 8,151 shares
of common stock........ 48,906 33,140 -- -- 82,046
Redemption of 87 shares
of common stock........ (522) (783) -- -- (1,305)
---------- ---------- ---------- --------- ----------
Balance, December 31,
1998................... $3,850,500 $1,308,206 $2,332,745 $ 13,037 $7,504,488
========== ========== ========== ========= ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-32
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities
Net income........................................... $ 1,093,272 $ 847,659
Adjustments to reconcile net income to net cash
provided by operating activities:
Net amortization/(accretion) on securities.......... 114,679 74,559
Provision for loan losses........................... 255,000 110,000
Depreciation and amortization....................... 368,951 287,925
Deferred taxes...................................... (86,000) (70,000)
Securities gains, net............................... (105,703) (33,955)
Gain on sale of loans and other real estate......... -- (20,630)
Minority interest in net income of First Southern
Bank............................................... 26,256 38,927
Decrease (increase) in:
Accrued interest receivable........................ 14,730 (157,316)
Other assets....................................... (26,871) (181,783)
Increase (decrease) in other liabilities............ (43,093) 301,256
----------- -----------
Net cash provided by operating activities......... 1,611,221 1,196,642
----------- -----------
Cash Flows From Investing Activities
Net cash flows from securities (Note 16)............. (4,063,338) 2,998,515
Loan originations and principal collections on loans,
net................................................. (16,109,712) (13,362,720)
Purchase of cash value of life insurance............. (1,475,000) --
Purchase of premises and equipment................... (410,665) (655,260)
Proceeds from sale of other real estate owned........ -- 75,968
----------- -----------
Net cash used in investing activities............. (22,058,715) (10,943,497)
----------- -----------
Cash Flows From Financing Activities
Funds received from notes payable.................... 7,500,000 579,795
Principal payments on notes payable.................. (128,267) (61,884)
Common stock issued upon exercise of options......... -- 19,640
Redemption of common stock........................... (1,305) (579,795)
Net increase in deposits............................. 19,407,542 5,872,569
----------- -----------
Net cash provided by financing activities......... 26,777,970 5,830,325
----------- -----------
Increase (decrease) in cash and cash equivalents.. 6,330,476 (3,916,530)
Cash and cash equivalents
Beginning............................................ 13,028,745 16,945,275
----------- -----------
Ending............................................... $19,359,221 $13,028,745
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements (Additional cash flow
information--Note 16).
F-33
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Description of business: First Southern Bancorp, Inc. (the "Company")
provides a full range of banking services to individual and corporate
customers in Palm Beach and Broward counties in Florida through its subsidiary
bank.
Basis of presentation: The financial statements of First Southern Bancorp,
Inc. and its subsidiaries have been prepared in conformity with generally
accepted accounting principles and conform to predominate practice within the
banking industry. In preparing the financial statements, the Company's
management is required to make estimates and assumptions which significantly
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.
Significant estimates which are particularly susceptible to change in a short
period of time include the determination of the allowance for loan losses and
the fair value of financial instruments. Actual results could differ from
those estimates.
Effective January 1, 1998, the Company adopted FASB Statement No. 130, which
was issued in June 1997. Statement No. 130 establishes new rules for the
reporting and display of comprehensive income and its components, but has no
effect on the Company's net income or total stockholders' equity. Statement
No. 130 requires unrealized gains and losses on the Bank's available-for-sale
securities, which prior to adoption were reported separately in stockholders'
equity, to be included in comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of Statement
No. 130.
Principles of consolidation: The accompanying consolidated financial
statements include the accounts of First Southern Bancorp, Inc. and its
majority-owned subsidiaries, First Southern Bank (the "Bank") and First
Southern Bank Realty Corporation. All significant intercompany balances and
transactions have been eliminated in consolidation.
Cash and cash flows: Cash and cash equivalents includes cash and due from
banks, and federal funds sold. For purposes of reporting cash flows, loans and
deposits are reported net. The Bank maintains deposits with financial
institutions which are in excess of federally insured amounts.
Securities available for sale: Securities classified as available-for-sale
are those debt securities that the Bank intends to hold for an indefinite
period of time, but not necessarily to maturity. Any decision to sell a
security classified as available-for-sale would be based on various factors,
including significant movements in interest rates, changes in the maturity mix
of the Bank's assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors.
Securities available for sale are reported at fair value with unrealized
gains or losses reported as a separate component of other comprehensive
income, net of the related deferred tax effect. The amortization of premiums
and accretion of discounts, computed by the interest method over their
contractual lives, are recognized in interest income. Realized gains or
losses, determined on the basis of the cost of specific securities sold, are
included in earnings.
Declines in the fair value of individual securities classified as either
held to maturity or available for sale below their amortized cost that are
determined to be other than temporary result in write-downs of the individual
securities to their fair value with the resulting write-downs included in
current earnings as realized losses.
Loans: Loans receivable that management has the intent and ability to hold
for the foreseeable future or until maturity or payoff are stated at the
amount of unpaid principal, net of unearned discount, net loan origination
fees and costs, and an allowance for loan losses.
F-34
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Loan origination and commitment fees and certain direct loan origination
costs are being deferred and recognized over the expected life of the related
loan as an adjustment of yield. The Bank is generally amortizing these amounts
over the contractual life using the interest method. Commitment fees based
upon a percentage of a customer's unused line of credit and fees related to
standby letters of credit are recognized over the commitment period.
Interest on loans is calculated by using the simple interest method on daily
balances of the principal amount outstanding. For impaired loans, accrual of
interest is discontinued on a loan when management believes, after considering
collection efforts and other factors, that the borrower's financial condition
is such that collection of interest is doubtful. Interest income is recognized
on those loans only upon receipt.
A loan is impaired when it is probable the Bank will be unable to collect
all contractual principal and interest payments due in accordance with the
terms of the loan agreement. Impaired loans are measured based on the present
value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
The amount of impairment, if any, and any subsequent changes are included in
the allowance for loan losses.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb estimated losses on existing loans, based on an evaluation of the
collectibility of loans and prior loss experience. This evaluation also takes
into consideration such factors as changes in the nature and volume of the
loan portfolio, overall portfolio quality, review of specific problem loans,
and current economic conditions that may affect the borrower's ability to pay.
While management uses the best information available to make its evaluation,
future adjustments to the allowance may be necessary if there are significant
changes in economic conditions.
Other real estate owned: Other real estate owned ("OREO") represents
properties acquired through foreclosure or other proceedings and is initially
recorded at fair value at the date of foreclosure less estimated costs of
disposal, which establishes a new cost. After foreclosure, OREO is held for
sale and is carried at the lower of cost or fair value less estimated costs of
disposal. Any write-down to fair value at the time of transfer to OREO is
charged to the allowance for loan and lease losses. Property is evaluated
regularly to ensure the recorded amount is supported by its current fair value
and valuation allowances to reduce the carrying amount to fair value less
estimated costs to dispose are recorded as necessary.
Premises and equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed principally by the
straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
Years
------
<S> <C>
Building.............................................................. 22
Leasehold improvements................................................ 5 - 10
Furniture and equipment............................................... 3 - 12
</TABLE>
Income taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences, and
operating loss or tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their
tax bases. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
F-35
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Earnings per share: Basic earnings per-share amounts are computed by
dividing net income (the numerator) by the weighted-average number of common
shares outstanding (the denominator). Diluted earnings per-share amounts
assume the conversion, exercise or issuance of all potential common stock
instruments unless the effect is to reduce the loss or increase the income per
common share from continuing operations.
Fair value of financial instruments: SFAS No. 107, Disclosures about Fair
Value of Financial Instruments requires disclosure of fair value information
about financial instruments, whether or not recognized in the statement of
financial condition, for which it is practicable to estimate that value. In
cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent markets
and, in many cases, could not be realized in immediate settlement of the
instrument. SFAS No. 107 excludes certain financial instruments and all
nonfinancial assets and liabilities from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Bank.
The fair value estimates presented are based on pertinent information
available to management as of December 31, 1998 and 1997. Although management
is not aware of any factors that would significantly affect the estimated fair
value amount, such amounts have not been comprehensively revalued for purposes
of these financial statements since these dates and therefore, current
estimates of fair value may differ significantly from the amounts presented in
these financial statements.
Emerging accounting standards: In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in years
beginning after June 15, 1999. The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The Bank expects to adopt
the new Statement effective January 1, 2000. The Statement will require the
Bank to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings
or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in
fair value will be immediately recognized in earnings.
Because of the Bank has not used derivatives in the past, management does
not anticipate that the adoption of the new Statement will have a significant
effect on the Bank's earnings or financial position.
Note 2. Restrictions on Cash and Due From Banks
The Bank is required to maintain reserve balances in cash or on deposit with
the Federal Reserve Bank, based on a percentage of deposits. The total of
those reserve balances was approximately $900,000 at December 31, 1998 and
1997.
F-36
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3. Securities Available for Sale
Carrying amounts and fair values of securities available for sale as of
December 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
U. S. Treasury
securities.............. $ 100,989 $ 1,152 $ -- $ 102,141
U. S. Government
corporations and
agencies................ 12,090,976 44,062 (6,338) 12,128,700
Other securities......... 160,000 -- -- 160,000
Mortgage-backed
securities.............. 9,530,305 16,981 (34,604) 9,512,682
----------- ------- -------- -----------
$21,882,270 $62,195 $(40,942) $21,903,523
=========== ======= ======== =========== ===
<CAPTION>
December 31, 1997
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
U. S. Treasury
securities.............. $ 4,006,230 $ 6,250 $ -- $ 4,012,480
U. S. Government
corporations and
agencies................ 4,980,262 19,737 (1,570) 4,998,429
Municipal securities..... 2,547,957 65,638 -- 2,613,595
Other securities......... 150,000 -- -- 150,000
Mortgage-backed
securities.............. 5,896,309 1,633 (45,773) 5,852,169
----------- ------- -------- -----------
$17,580,758 $93,258 $(47,343) $17,626,673
=========== ======= ======== ===========
</TABLE>
The amortized cost and fair values of securities available for sale as of
December 31, 1998, by contractual maturity, are shown below. Maturities may
differ from contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or repaid without any
penalties. Therefore, these securities are not included in the maturity
categories in the following maturity summary.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
----------- -----------
<S> <C> <C>
Due after one year through five years............... $ 4,225,669 $ 4,250,261
Due after five years through ten years.............. 8,126,296 8,140,580
Mortgage-backed securities.......................... 9,530,305 9,512,682
----------- -----------
$21,882,270 $21,903,523
=========== ===========
</TABLE>
F-37
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unrealized gains (losses) on available-for-sale securities for the years
ended December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Unrealized holding gains (losses) arising during the
period................................................ $ 81,041 $314,749
Less reclassification adjustment for gains (losses)
realized in net income................................ 105,703 33,955
-------- --------
Net unrealized gains (losses), before tax (expense)
benefit............................................... (24,662) 280,794
Tax (expense) benefit.................................. 7,671 (96,445)
-------- --------
Other comprehensive income before minority interest.... (16,991) 184,349
Minority interest in other comprehensive income of
subsidiary............................................ 497 (8,229)
-------- --------
Other comprehensive income............................. $(16,494) $176,120
======== ========
</TABLE>
Gross realized gains and losses from the sale of securities available for
sale for the years ended December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Realized gains............................................. $105,703 $52,139
Realized (losses).......................................... -- (18,184)
</TABLE>
Securities available for sale with a carrying amount of approximately
$4,650,000 and $630,415 at December 31, 1998 and 1997, respectively, were
pledged as collateral on public deposits and for other purposes as required or
permitted by law.
Note 4. Loans
The composition of loans as of December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
Percent Percent
of of
Amount Total Amount Total
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Commercial......................... $17,661,573 21.3% $20,736,385 30.9%
Real estate, commercial............ 48,797,536 58.8 31,360,471 46.6
Real estate, residential........... 12,637,943 15.2 12,228,922 18.2
Consumer........................... 3,749,396 4.5 2,820,827 4.2
Other.............................. 174,360 0.2 58,051 0.1
----------- ----- ----------- -----
83,020,808 100.0% 67,204,656 100.0%
===== =====
Allowance for loan losses.......... (1,245,770) (1,066,179)
----------- -----------
Loans, net......................... $81,775,038 $66,138,477
=========== ===========
</TABLE>
F-38
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Activity in the allowance for loan losses for the years ended December 31,
1998 and 1997 was as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Balance, beginning................................... $1,066,179 $ 960,853
Provision charged to operating expense............... 255,000 110,000
Recoveries of amounts charged off.................... 3,591 17,000
---------- ----------
1,324,770 1,087,853
Amounts charged off.................................. (79,000) (21,674)
---------- ----------
Balance, ending...................................... $1,245,770 $1,066,179
========== ==========
</TABLE>
There are no impaired loans as of December 31, 1998 or 1997 for which a
specific allowance has been recognized. Recorded investments in other impaired
loans were $219,684 and $414,762 at December 31, 1998 and 1997, respectively.
The average recorded investment in impaired loans during 1998 and 1997 was
$415,031 and $315,000, respectively. Interest income on impaired loans,
recognized for cash payments received in 1998 and 1997, was not significant.
Note 5. Premises and Equipment
The major classes of premises and equipment and the total accumulated
depreciation as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land and building..................................... $ 650,000 $ 650,000
Leasehold improvements................................ 937,439 772,290
Furniture and equipment............................... 2,155,105 1,889,914
Construction in progress.............................. 78,284 129,654
---------- ----------
3,820,828 3,441,858
Less accumulated depreciation and amortization........ 1,470,707 1,133,451
---------- ----------
$2,350,121 $2,308,407
========== ==========
</TABLE>
Note 6. Deposits
The composition of time deposits at December 31, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Time deposits, $100,000 or more..................... $ 8,988,015 $ 9,350,876
Other time deposits................................. 23,524,709 17,439,118
----------- -----------
Total............................................... $32,512,724 $26,789,994
=========== ===========
</TABLE>
At December 31, 1998, the scheduled maturities of time deposits are as
follows:
<TABLE>
<CAPTION>
Years Ending
December 31, Amount
------------ -----------
<S> <C>
1999............................................................. $22,886,063
2000............................................................. 9,158,589
2001............................................................. 146,119
2002............................................................. 7,925
2003............................................................. 314,028
-----------
$32,512,724
===========
</TABLE>
F-39
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 7. Deferred Compensation and Life Insurance
During 1998, the Bank adopted Directors Phantom Stock Agreements for the
directors. The agreements provide for monthly benefits to be paid over a
period of 15 years following the retirement of the directors. Under each
agreement the amount of benefits to be paid will be determined based on the
number of phantom shares granted to the director and the fair value of the
Company common stock at the date of retirement. The Bank records periodic
accruals for the cost of providing such benefits by charges to income. The
Bank has recognized expenses of $35,000 in the year ended December 31, 1998.
The Bank is the owner and beneficiary of life insurance policies on the
lives of certain directors with aggregate death benefits of approximately
$3,000,000. All of the policies were acquired in 1998. The cash surrender
value of the policy in the amount of $1,500,000 is included in other assets at
December 31, 1998.
Note 8. Income Taxes
The net cumulative tax effects of the primary temporary differences are
shown in the following table:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses.............................. $402,000 $289,000
Deferred income........................................ 28,000 22,000
Accrued expenses....................................... 30,000 15,000
Other.................................................. 10,000 28,000
-------- --------
Total deferred tax assets............................ 470,000 354,000
-------- --------
Deferred tax liabilities:
Unrealized gain on securities available for sale....... (7,940) (15,611)
Premises and equipment................................. (18,000) --
Other.................................................. (21,000) (9,000)
-------- --------
Total deferred tax liabilities....................... (46,940) (24,611)
-------- --------
Net deferred tax assets.................................. $423,060 $329,389
======== ========
</TABLE>
The provision for income taxes charged to operations for the years ended
December 31, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Current tax expense...................................... $761,450 $557,146
Deferred tax expense..................................... (86,000) (70,000)
-------- --------
$675,450 $487,146
======== ========
</TABLE>
F-40
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision for income taxes for the years ended December 31, 1998 and
1997 differs from the amount of income tax determined by applying the U. S.
federal income tax rate to pretax income as follows:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
Amount Percent Amount Percent
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Computed "expected" federal tax
expense............................... $610,293 34.0% $467,066 34.0%
Increase (decrease) resulting from:
State income taxes, net of federal
tax benefit......................... 39,049 2.2 30,177 2.2
Tax-exempt income.................... (3,611) (0.2) (31,954) (2.3)
Other................................ 29,719 1.6 21,857 1.6
-------- ---- -------- ----
Provision for income taxes............. $675,450 37.6% $487,146 35.5%
======== ==== ======== ====
</TABLE>
Note 9. Lines of Credit
The Bank has unsecured Federal Funds lines of credit with correspondent
banks totaling $4,500,000. As of December 31, 1998, the Bank had no
outstanding balance due on the available lines of credit.
Note 10. Notes Payable
The Bank has a line of credit in the amount of $17,000,000 with the Federal
Home Loan Bank ("FHLB"). The Bank had advances payable of $12,000,000 and
$4,500,000 as of December 31, 1998 and 1997, respectively, under this line of
credit. The balance at December 31, 1998 is due June 2003, with a one time
call option in June 2000, and interest is payable quarterly at 5.55%. The
advance is collateralized by qualifying residential mortgage loans totaling
approximately $12,500,000, securities with a carrying value of approximately
$4,000,000 and FHLB stock in the amount of $782,500 at December 31, 1998.
First Southern Bank Realty Corp. has a note payable to a bank with a balance
due of $539,670 and $609,958 at December 31, 1998 and 1997, respectively. The
note payable requires monthly payments of $6,576, including interest at 8.32%
through December 2001, at which time the remaining balance is due. The note is
collateralized by land and a building with a book value of approximately
$625,000 at December 31, 1998.
The Company has a note payable to a bank in the amount of $521,816 and
$579,795 at December 31, 1998 and 1997, respectively. The note requires
semiannual principal payments of $57,980 beginning July 1, 1998 with the final
payment due December 31, 2002. Interest is payable quarterly at a rate 2.5% in
excess of the LIBOR Index Rate, resulting in an effective rate of
approximately 8.13% at December 31, 1998. The note is secured by all of the
Company's shares of First Southern Bank common stock.
Scheduled maturities of the notes payable for the years ending December 31,
1999 through 2003 are as follows: 1999 $151,649; 2000 $154,735; 2001 $581,167;
2002 $173,935; 2003 $12,000,000.
Note 11. Stock Options
Under the Incentive Stock Option Plan (the "Plan") adopted in 1989, 40,000
shares of Company common stock are authorized for option. The Bank has granted
options under the Plan to the President for the purchase of 20,000 shares at
an exercise price of $6.45 per share which expire in October 2004 and for the
purchase of 3,000 shares at an exercise price of $6.00 per share which also
expire in October 2004.
The Company has adopted a Directors Stock Option Plan (the "Directors Plan")
for directors and certain individuals. Under the Directors Plan, 50,000 shares
of Company common stock are authorized for option. The
F-41
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company has granted options to various directors for the purchase of 35,500
shares which expire from April 2005 through April 2008. All options granted
were immediately exercisable.
In addition to the plans discussed above, the Bank has granted stock options
for the purchase of 20,000 shares of Company common stock to the Chairman
Emeritus of the Board at an exercise price of approximately $6.61 per share
which expire in October 2004. The Bank has also granted options for the
purchase of 2,000 shares of Company common stock at an exercise price of $6.26
per share to the Executive Vice-President which expire in October 2004.
The Company applies APB Opinion 25 and related Interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized for the
stock options discussed above. Had compensation cost for the Company's stock
options been determined based on the fair value at the grant dates for awards
under those plans, the Company's net income for the years ended December 31,
1998 and 1997 would not have been significantly impacted.
A summary of the options outstanding as of December 31, 1998 and 1997, and
changes during the years then ended is presented below. The fair value of each
option grant is estimated on the date of grant using the present value with
the following weighted-average assumptions used for grants in 1998 and 1997:
risk-free interest rates of 5.5 percent and 6.0 percent, respectively and
expected lives of 8 and 7 years, respectively.
<TABLE>
<CAPTION>
1998 1997
--------------------- ----------------------
Weighted- Weighted-
Average Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year......................... 75,000 $6.94 74,000 $6.88
Granted....................... 3,000 9.97 3,500 8.97
Exercised..................... -- (2,500) 7.86
Forfeited..................... -- --
------ ------
Outstanding at end of year.... 78,000 7.06 75,000 6.94
====== ======
Options exercisable at year-
end.......................... 78,000 7.06 75,000 6.94
====== ======
Weighted-average fair value of
options granted during the
year......................... $ 8.57 $ 6.10
====== ======
</TABLE>
Note 12. Related-Party Transactions
The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors, significant
stockholders, principal officers, their immediate families and affiliated
companies in which they are principal stockholders (commonly referred to as
related parties). Aggregate loans to, or guaranteed by, these related parties
totaled $471,430 and $770,036 at December 31, 1998 and 1997, respectively.
There were no commitments to extend additional credit to these related parties
at December 31, 1998.
Note 13. Leases
The Bank leases five office facilities under various noncancelable leases
which expire between August 2002 and December 2003. The leases also have
options to renew for various periods of time. Total rent expense for the years
ended December 31, 1998 and 1997 approximated $380,000 and $368,000,
respectively, and is included in occupancy and equipment expense in the
accompanying consolidated statements of income.
F-42
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table is a schedule by year of the approximate future minimum
lease payments of the Bank's noncancelable operating leases as of December 31,
1998:
<TABLE>
<CAPTION>
Years Ending
December 31, Amount
------------ ----------
<S> <C>
1999.............................................................. $ 296,600
2000.............................................................. 296,600
2001.............................................................. 296,600
2002.............................................................. 259,209
2003.............................................................. 127,581
----------
$1,276,590
==========
</TABLE>
Note 14. Restrictions on Retained Earnings and Regulatory Matters
The Bank is subject to certain restrictions on the amount of dividends that
may be declared without prior regulatory approval. At December 31, 1998,
approximately $250,000 of retained earnings were available for dividend
declaration without regulatory approval.
The Bank is subject to various capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital to risk-weighted assets, and of Tier
I capital to average assets (all defined in the regulations). Management
believes the Bank meets all capital adequacy requirements to which it is
subject as of December 31, 1998.
As of December 31, 1998, the most recent notification from the Federal
Reserve 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 below. There are no conditions or
events since that notification that management believes have changed the
Bank's category.
The Bank's actual capital amounts and ratios are also presented in the table
below:
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
--------------- -------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital (to Risk-
Weighted Assets)...... $9,183,183 10.3% $7,152,960 8.0% $ 8,941,200 10.0%
Tier I Capital (to
Risk-Weighted
Assets)............... $8,065,533 9.0% $3,376,480 4.0% $ 5,364,720 6.0%
Tier I Capital (to
Average Assets)....... $8,065,533 6.3% $5,107,320 4.0% $ 6,384,150 5.0%
As of December 31, 1997:
Total Capital (to Risk-
Weighted Assets)...... $7,809,292 11.4% $5,489,120 8.0% $ 6,861,400 10.0%
Tier I Capital (to
Risk-Weighted
Assets)............... $6,951,617 10.1% $2,744,560 4.0% $ 4,116,840 6.0%
Tier I Capital (to
Average Assets)....... $6,951,617 7.3% $3,789,720 4.0% $ 4,737,150 5.0%
</TABLE>
F-43
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 15. Commitments and Contingencies
Financial instruments with off-balance-sheet risk: The Bank, in the normal
course of business, is a party to financial instruments with off-balance-sheet
risk to meet the financing needs of its customers. 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 on the consolidated balance sheet.
The contractual amounts of these instruments reflect the Bank's involvement in
particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual amounts of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
These commitments were as follows at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Commitments to extend credit............................ $12,071,700 $8,704,900
Standby letters of credit............................... 705,600 500,700
----------- ----------
$12,777,300 $9,205,600
=========== ==========
</TABLE>
Commitments to extend credit are commitments to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if any, is based on management's credit evaluation of the
counterparty. Collateral held varies, but may include cash, accounts
receivable, inventory, property, plant and equipment, and residential and
commercial real estate.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.
Contingencies: In the normal course of business, the bank is involved in
various legal proceedings. In the opinion of management, any liability
resulting from such proceedings would not have a material adverse effect on
the Bank's financial statements.
Financial instruments with concentration of credit risk: The Bank makes
commercial, residential and consumer loans to customers primarily in Palm
Beach and Broward counties in Florida. Included in the Bank's loan portfolio
(see Note 4) is a concentration of commercial loans to professionals in the
medical field and commercial real estate loans. A substantial portion of its
debtors' abilities to honor their contracts is dependent upon the local
economy. The economy of the Bank's primary market area is not heavily
dependent on any individual economic sector.
Interest rate risk: The Bank assumes interest rate risk as a result of its
normal operations. As a result, the fair values of the Bank's financial
instruments will change when interest rate levels change, and that change may
be either favorable or unfavorable to the Bank. Management attempts to match
maturities of assets and liabilities to the extent believed necessary to
manage interest rate risk. However, borrowers with fixed-rate obligations are
more likely to prepay in a falling rate environment and less likely to prepay
in a rising rate environment.
F-44
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Conversely, depositors who are receiving fixed rates are more likely to
withdraw funds before maturity in a rising rate environment and less likely to
do so in a falling rate environment. Management monitors rates and maturities
of assets and liabilities and attempts to manage interest rate risk by
adjusting terms of new loans and deposits and by investing in securities with
terms that mitigate the Bank's overall interest rate risk.
Note 16. Additional Cash Flow Information
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash Flows From Securities
Securities available for sale:
Sales........................................... $ 2,634,072 $ 17,571,926
Maturities and paydowns......................... 10,416,360 1,167,434
Purchases....................................... (17,360,920) (15,577,245)
Federal Home Loan Bank and Federal Reserve Bank
stock:
Redemptions..................................... 253,300 --
Purchases....................................... (6,150) (163,600)
------------ ------------
$ (4,063,338) $ 2,998,515
============ ============
Supplemental Disclosures of Cash Flow Information
Cash payments for income taxes.................. $ 1,046,946 $ 336,423
============ ============
Cash payments for interest...................... $ 3,380,544 $ 2,907,856
============ ============
Supplemental Schedule of Noncash Investing and
Financing Activities
Issuance of common stock as officer compensation,
1998 5,427 shares; 1997 2,101 shares............. $ 50,914 $ 18,863
============ ============
Acquisition of other real estate upon foreclosure
of loans......................................... $ 218,151 $ --
============ ============
Sale of other real estate financed by the Bank.... $ -- $ 227,500
============ ============
Issuance of common stock in exchange for common
stock of the Bank, 1998 2,724 shares; 1997 15,508
shares........................................... $ 29,827 $ 175,681
============ ============
</TABLE>
Note 17. Earnings Per Share
Following is information about the computation of the earnings per share
data for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
---------------------------------
Per-Share
Amounts
Numerator Denominator Net Income
---------- ----------- ----------
<S> <C> <C> <C>
Basic earnings per share.................... $1,093,272 $640,233 $1.71
=====
Effect of dilutive securities:
Shares to be issued to officers as
compensation............................. -- 2,917
Options................................... -- 41,031
---------- --------
Diluted earnings per share, assumed exercise
of options................................. $1,093,272 $684,181 $1.60
========== ======== =====
</TABLE>
F-45
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
--------------------------------
Per-Share
Amounts
Numerator Denominator Net Income
--------- ----------- ----------
<S> <C> <C> <C>
Basic earnings per share..................... $847,659 $655,029 $1.29
=====
Effect of dilutive securities:
Shares to be issued to officers as
compensation.............................. -- 1,433
Options.................................... -- 32,239
-------- --------
Diluted earnings per share, assumed exercise
of options.................................. $847,659 $688,701 $1.23
======== ======== =====
</TABLE>
Note 18. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating
the fair value of its financial instruments:
Cash and cash equivalents: The carrying amounts reported in the statement of
financial condition for cash and short-term instruments approximated their
fair values.
Investment securities (including mortgage-backed securities): Fair values
for investment securities are based on quoted market prices, where available.
If quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
Loans receivable: For variable-rate loans that reprice frequently and with
no significant change in credit risk, values are based on carrying values.
Fair values for other loans are estimated based on discounted cash flows,
using interest rates currently being offered for loans with similar terms to
borrowers with similar credit quality. Management believes that the allowance
for loan losses is an appropriate indication of the applicable credit risk
associated with determining the fair value of its loan portfolio and the
allowance has been deducted from the estimate fair value of loans.
Accrued interest receivable: The carrying amount of accrued interest
receivable approximates its fair value.
Off-balance-sheet instruments: Fair values for the Bank's off-balance-sheet
instruments, primarily lending commitments, are based on fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements. The fair value for such commitments are nominal.
Deposit liabilities: The fair values of demand deposits and passbook savings
equal their carrying amounts which represents the amount payable on demand.
The carrying amounts for variable-rate, fixed-term money market accounts and
certificates of deposit approximate their fair value at the reporting date.
Fair values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits.
Other liabilities: The carrying amount of other liabilities approximates
their fair value.
F-46
<PAGE>
FIRST SOUTHERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Following is a summary of the carrying amounts and approximate fair values of
the Bank's financial instruments at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998
-----------------------
Carrying Fair
Amount Value
----------- -----------
<S> <C> <C>
Cash and cash equivalents............................. $19,359,221 $19,359,221
Investment securities (including Federal Reserve Bank
and Federal Home Loan Bank stock).................... 22,855,923 22,855,923
Loans receivable...................................... 81,750,038 82,027,552
Accrued interest receivable........................... 674,582 674,582
Deposits.............................................. 108,021,464 108,167,399
Other liabilities..................................... 13,759,202 13,759,202
Commitments to extend credit.......................... -- --
<CAPTION>
1997
-----------------------
Carrying Fair
Amount Value
----------- -----------
<S> <C> <C>
Cash and cash equivalents............................. $13,028,745 $13,028,745
Investment securities (including Federal Reserve Bank
and Federal Home Loan Bank stock).................... 18,826,223 18,826,223
Loans receivable...................................... 66,138,477 66,519,896
Accrued interest receivable........................... 689,312 689,312
Deposits.............................................. 88,613,922 88,616,656
Other liabilities..................................... 6,544,759 6,544,759
Commitments to extend credit.......................... -- --
</TABLE>
F-47
<PAGE>
FIRST SOUTHERN BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, June 30,
1999 1998
------------ ------------
<S> <C> <C>
Assets
Cash and due from banks............................. $ 6,904,803 $ 5,810,556
Federal funds sold.................................. 800,000 19,972,000
Investment securities............................... 28,778,630 16,596,921
Loans, net.......................................... 107,307,007 73,600,221
Fixed assets--net................................... 3,419,681 2,333,547
Other real estate owned............................. 163,592 --
Other assets........................................ 3,729,398 1,613,967
------------ ------------
Total assets...................................... $151,103,112 $119,927,212
============ ============
Liabilities and capital
Demand deposits..................................... $ 31,402,813 $ 29,735,167
Now accounts........................................ 12,760,269 10,588,075
Money market accounts............................... 28,529,623 19,807,817
Savings accounts.................................... 3,486,322 2,258,246
Certificates of deposit............................. 47,249,535 36,616,381
------------ ------------
Total deposits.................................... $123,428,561 $ 99,005,686
Other liabilities................................... 19,477,836 13,740,021
------------ ------------
Total liabilities................................. $142,906,397 $112,745,707
Minority interest in First Southern Bank............ 118,952 149,982
Common stock........................................ 4,183,440 3,847,974
Capital surplus..................................... 1,455,696 1,306,258
Retained earnings (deficit)......................... 2,930,157 1,894,927
Accumulated other comprehensive income (loss)....... (491,530) (17,636)
------------ ------------
Total shareholders' equity.......................... $ 8,077,763 $ 7,031,523
------------ ------------
Total liabilities & shareholders' equity............ $151,103,112 $119,927,212
============ ============
</TABLE>
F-48
<PAGE>
FIRST SOUTHERN BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ending Ending
June 30, June 30,
1999 1998
----------- ----------
<S> <C> <C>
INTEREST INCOME
INTEREST & FEES ON LOANS............................. $ 4,328,015 $3,345,345
INVESTMENT SECURITIES................................ 745,087 414,497
FEDERAL FUNDS SOLD................................... 209,616 363,377
----------- ----------
5,282,719 4,123,219
INTEREST EXPENSE ON DEPOSITS......................... 16,505,505 1,407,264
INTEREST EXPENSE ON BORROWINGS....................... 384,244 48,891
----------- ----------
NET INTEREST INCOME.............................. 3,247,970 2,667,064
PROVISION FOR LOAN LOSSES............................ 86,000 60,000
----------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES............................................ 3,161,970 2,607,064
OTHER INCOME......................................... 682,384 681,294
GAIN ON ASSETS SOLD.................................. 8,452 105,703
OTHER EXPENSES
SALARIES & BENEFITS.................................. 1,598,239 1,204,161
OCCUPANCY & EQUIPMENT................................ 556,855 532,773
INSURANCE EXPENSE.................................... 64,991 60,770
STATIONARY & SUPPLIES................................ 63,050 49,657
TELEPHONE EXPENSE.................................... 69,046 54,328
MARKETING, ADVERTISING AND BUSINESS DEVELOPMENT...... 147,982 123,456
LEGAL EXPENSE........................................ 34,937 35,775
OTHER PROFESSIONAL AND DATA PROCESSING FEES.......... 63,153 59,832
OTHER EXPENSE........................................ 254,478 195,889
----------- ----------
TOTAL OTHER EXPENSES............................... 2,852,731 2,316,641
----------- ----------
NET INCOME BEFORE TAX AND MINORITY INTEREST........ 1,000,075 1,077,420
INCOME TAXES......................................... 375,865 405,433
----------- ----------
NET INCOME BEFORE MINORITY INTEREST IN FIRST SOUTHERN
BANK................................................ 6,241,210 671,987
MINORITY INTEREST IN FIRST SOUTHERN BANK............. (26,790) (16,532)
----------- ----------
NET INCOME........................................... 597,412 655,455
=========== ==========
NET INCOME PER COMMON SHARE.......................... $ 0.88 $ 1.02
=========== ==========
</TABLE>
F-49
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CENTRAL COMMUNITY CORPORATION AND SUBSIDIARIES
Years ended December 31, 1998 and 1997
with Report of Independent Auditors
F-50
<PAGE>
CENTRAL COMMUNITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
Contents
<TABLE>
<S> <C>
Report of Independent Auditors............................................. F-52
Consolidated Balance Sheets................................................ F-53
Consolidated Statements of Income.......................................... F-54
Consolidated Statements of Changes in Stockholders' Equity................. F-55
Consolidated Statements of Cash Flows...................................... F-56
Notes to Consolidated Financial Statements................................. F-57
</TABLE>
F-51
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Central Community Corporation
We have audited the accompanying consolidated balance sheets of Central
Community Corporation and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of income, changes in stockholders'
equity, and cash flows for the years then ended. These financial statements
are the responsibility of the Corporation'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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Central
Community Corporation and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
FORT WORTH, TEXAS
May 14, 1999
F-52
<PAGE>
CENTRAL COMMUNITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Assets
Cash and due from banks............................ $ 11,908,679 $ 9,825,133
Interest-bearing deposits in other banks........... 44,324 277,921
Federal funds sold................................. 2,000,000 3,250,000
------------ ------------
13,953,003 13,353,054
Investment securities.............................. 60,752,392 60,950,052
Loans, net......................................... 130,744,098 107,261,017
Bank premises and equipment, net................... 3,957,694 3,641,735
Accrued interest receivable and other assets....... 2,597,939 2,645,754
Goodwill, net...................................... 2,120,847 2,365,734
------------ ------------
Total assets................................... $214,125,973 $190,217,346
============ ============
Liabilities and Stockholders' Equity
Deposits:
Interest-bearing................................... $145,152,168 $135,301,541
Non-interest-bearing............................... 42,394,512 34,258,270
------------ ------------
187,546,680 169,559,811
Securities sold under agreements to repurchase..... 3,300,000 1,702,427
Accrued interest payable........................... 654,203 577,741
Accrued expenses and other liabilities............. 583,083 748,132
Deferred tax liability............................. 676,320 790,859
------------ ------------
5,213,606 3,819,159
Notes payable...................................... 4,159,585 2,641,589
Stockholders' equity:
Common stock, $1 par:
Authorized shares--40,000 Issued and outstanding
shares--32,252.................................. 32,252 32,252
Additional paid-in capital....................... 4,220,067 4,220,067
Retained earnings................................ 13,279,855 10,472,974
Accumulated other comprehensive income........... 479,784 374,333
Treasury stock at cost, 1,886 and 2,019 shares
for 1998 and 1997, respectively................. (805,856) (902,839)
------------ ------------
Total stockholders' equity..................... 17,206,102 14,196,787
------------ ------------
Total liabilities and stockholders' equity..... $214,125,973 $190,217,346
============ ============
</TABLE>
See accompanying notes.
F-53
<PAGE>
CENTRAL COMMUNITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Interest income:
Interest and fees on loans........................... $11,661,654 $10,545,870
Interest on investment securities:
Taxable............................................ 2,773,328 2,255,226
Tax-exempt......................................... 536,493 391,600
Federal funds sold................................. 155,665 282,387
----------- -----------
Total interest income.................................. 15,127,140 13,475,083
Interest expense:
Deposits............................................. 6,178,985 5,217,657
Federal funds purchased and securities sold under
agreement to repurchase............................. 113,502 118,300
Note payable......................................... 302,337 191,135
----------- -----------
Total interest expense................................. 6,594,824 5,527,092
----------- -----------
Net interest income.................................... 8,532,316 7,947,991
Provision for loan losses.............................. 480,000 420,000
----------- -----------
Net interest income after provision for loan losses.... 8,052,316 7,527,991
Other income:
Service charges and fees on deposit accounts......... 1,467,512 1,504,243
Gain on sale of loans................................ 18,767 15,560
Gain on sale of securities........................... 501,524 108,005
Other................................................ 328,567 265,242
----------- -----------
2,316,370 1,893,050
Other expenses:
Salaries and benefits................................ 2,993,893 2,562,931
Net occupancy expenses............................... 883,114 730,602
Goodwill amortization................................ 264,040 244,016
Professional fees.................................... 516,162 206,681
Data processing fees................................. 663,098 639,866
Other................................................ 629,198 821,382
----------- -----------
5,949,505 5,205,478
----------- -----------
Income before income tax expense....................... 4,419,181 4,215,563
Income tax expense..................................... 1,310,739 1,423,323
----------- -----------
Net income............................................. $ 3,108,442 $ 2,792,240
=========== ===========
</TABLE>
See accompanying notes.
F-54
<PAGE>
CENTRAL COMMUNITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
$1 Par Value,
Authorized Unrealized
40,000 Shares Gain on
------------------- Additional Securities
Outstanding Paid-In Retained Available Treasury
Shares Amount Capital Earnings for Sale Stock Total
----------- ------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... 32,252 $32,252 $4,220,067 $ 7,981,494 $ 34,091 $(1,003,005) $11,264,899
Comprehensive income:
Net income............. -- -- -- 2,792,240 -- -- 2,792,240
Other comprehensive
income:
Change in unrealized
gain on securities
available for sale,
net of deferred
income taxes of
$175,275............ -- -- -- -- 340,242 -- 340,242
-----------
Comprehensive income... 3,132,482
Sale of treasury
stock................. -- -- -- -- -- 100,166 100,166
Cash dividends paid.... -- -- -- (300,760) -- -- (300,760)
------ ------- ---------- ----------- -------- ----------- -----------
Balance at December 31,
1997................... 32,252 32,252 4,220,067 10,472,974 374,333 (902,839) 14,196,787
Comprehensive income: -- -- -- -- -- -- --
Net income............. 3,108,442 3,108,442
Other comprehensive
income:
Change in unrealized
gain on securities
available for sale,
net of deferred
income taxes of
$54,323............. -- -- -- -- 105,451 -- 105,451
-----------
Comprehensive income... -- -- -- -- -- -- 3,213,893
Sale of treasury
stock................. -- -- -- -- -- 96,983 96,983
Cash dividends paid.... -- -- -- (301,830) -- -- (301,561)
------ ------- ---------- ----------- -------- ----------- -----------
Balance at December 31,
1998................... 32,252 $32,252 $4,220,067 $13,279,855 $479,784 $ (805,856) $17,206,102
====== ======= ========== =========== ======== =========== ===========
</TABLE>
See accompanying notes.
F-55
<PAGE>
CENTRAL COMMUNITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Operating Activities
Net income........................................ $ 3,108,442 $ 2,792,240
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses....................... 480,000 420,000
Depreciation and amortization................... 703,534 667,713
Gain on sale of securities...................... (501,524) (108,005)
Net gain on sale of repossessed assets.......... (10,128) (6,407)
Gain on sale of loans........................... (18,767) (15,560)
Loss (gain) on sale of fixed assets............. (2,201) 6,546
Net amortization (accretion) of investment
security premiums/discounts.................... 88,016 (15,429)
Changes in operating assets and liabilities:
Accrued interest receivable and other assets.. 54,103 529,867
Accrued interest payable...................... 76,462 (1,114)
Accrued expenses and other liabilities........ (333,911) 417,882
------------ ------------
Net cash provided by operating activities......... 3,644,026 4,687,733
Investing Activities
Acquisition of bank, less cash and cash
equivalents acquired............................. -- 22,718,038
Proceeds from maturities/sales of investment
securities available for sale.................... 82,107,428 23,742,332
Purchases of investment securities available for
sale............................................. (81,336,486) (56,209,927)
Net increase in loans............................. (23,944,314) (7,302,558)
Purchases of bank premises and equipment, net..... (768,565) (184,079)
------------ ------------
Net cash used in investing activities............. (23,941,937) (17,236,194)
Financing Activities
Net increase in deposits.......................... 17,986,869 19,377,255
Net increase (decrease) in securities sold under
agreements to repurchase......................... 1,597,573 (97,574)
Cash dividends on common stock.................... (301,561) (300,760)
Net proceeds (payments) on notes payable.......... 1,517,996 (1,438,327)
Sale of treasury stock............................ 96,983 100,166
------------ ------------
Net cash provided by financing activities......... 20,897,860 17,640,760
------------ ------------
Increase in cash and cash equivalents............. 599,949 5,092,299
Cash and cash equivalents at beginning of year.... 13,353,054 8,260,755
------------ ------------
Cash and cash equivalents at end of year.......... $ 13,953,003 $ 13,353,054
============ ============
</TABLE>
See accompanying notes.
F-56
<PAGE>
CENTRAL COMMUNITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
1. Summary of Significant Accounting Policies
Organization
The consolidated financial statements include the accounts of Central
Community Corporation and its subsidiaries (the Company); the 100% owned
subsidiary, FSBT, Inc. (FSBT); and FSBT's 100% owned subsidiary, First State
Bank, Temple (the Bank). All material intercompany accounts and transactions
have been eliminated in consolidation. The Bank conducts full service banking.
The Bank's principal market for these services is Bell, Falls, Lampasas,
Mills, Travis and Williamson counties.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Impact of New Accounting Standards
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130). SFAS No.
130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this statement had no
impact on the Company's net income or stockholders' equity. SFAS No. 130
required unrealized gains or losses on the Company's available-for-sale
securities, which prior to adoption were reported separately in stockholders'
equity, to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of SFAS No.
130.
Investment Securities
The Company has determined all securities to be available-for-sale (AFS).
AFS securities are stated at estimated fair value with unrealized gains and
losses, net of deferred income taxes, reported as a separate component of
stockholders' equity. The Bank has no trading securities. The amortized cost
of AFS securities is adjusted for amortization of premium and accretion of
discount. The cost of securities sold is based on the specific identification
method. Realized gains and losses and declines in value judged to be other-
than-temporary are included in securities gains (losses).
Loans
Loans are stated at the principal amount outstanding, net of unearned
discount and the allowance for loan losses. Interest income on loans generally
is recognized based on the principal amounts outstanding.
Loans are placed on nonaccruing status when management believes that
interest on such loans may not be collected in the ordinary course of
business. Interest income on nonaccruing loans is normally reported on a cash
basis as it is collected.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of
the portfolio; past loan loss experience; current economic conditions; volume,
growth, and composition of the loan portfolio; and other relevant factors. The
allowance is increased by provisions for loan
F-57
<PAGE>
CENTRAL COMMUNITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
losses charged against income. The allowance is based on estimates, and
ultimate losses may differ from current estimates if future events vary
substantially from the assumptions used in making the assessments.
Bank Premises and Equipment
Bank premises and equipment are generally stated at cost, less accumulated
depreciation. Depreciation is computed using straight-line and accelerated
methods over the estimated useful lives of the related assets.
Income Taxes
Deferred income taxes are recorded by the Company using the liability method
in accordance with FASB Statement No. 109, "Accounting for Income Taxes."
Under the liability method, deferred tax assets and liabilities are
recognized for the expected future tax consequences of existing differences
between financial reporting and tax reporting bases of assets and liabilities,
as well as for operating losses net of valuation allowances, if any, using
enacted tax laws and rates. Deferred tax expense represents the net change in
the net deferred tax asset or liability balance during the year. This amount,
together with income taxes currently payable or refundable for the current
year, represents the total income tax expense for the year.
Fair Values of Financial Instruments
Statement of Financial Accounting Standards No 107, "Disclosures about Fair
Value of Financial Instruments" (SFAS 107), requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent markets
and, in many cases, could not be realized in immediate settlement of the
instrument. SFAS 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of the Company. The following methods and assumptions were used by the Company
in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents--The carrying amounts reported in the
consolidated balance sheets for cash and short-term instruments approximate
those assets' fair values.
Investment securities--Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans--For variable-rate loans that reprice frequently with no
significant change in credit risk, fair values are based on carrying
values. The fair values for all other loans are estimated by using
discounted cash flow analyses, using interest rates currently being offered
for loans with similar terms to borrowers of similar credit quality.
Management has made an adjustment to the fair values to reflect significant
collectibility concerns. The carrying amount of interest earned not
collected approximates its fair value.
Deposit liabilities--The fair values disclosed for demand deposits (e.g.,
interest and noninterest checking, passbook savings and certain types of
money market accounts) are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). The carrying
amounts for variable-rate, fixed-term money market accounts and
certificates of deposits approximate their fair values at the reporting
date. Fair values for fixed-rate certificates of deposit are estimated
using a discounted cash
F-58
<PAGE>
CENTRAL COMMUNITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities and
interest payments on time deposits.
Term borrowings--The carrying amounts of securities sold under agreement
to repurchase approximate their fair values. Fair values of other
borrowings are estimated using discounted cash flow analyses based on the
Bank's current incremental borrowing rates for similar types of borrowing
arrangements.
Loan commitments and standby letters of credit--The fair values of these
off-balance-sheet instruments are based on fees currently charged to enter
into similar agreements, taking into account the remaining term of the
agreements and the counterparties' credit standing. Management believes
that the fair values of these off-balance-sheet instruments are not
material.
Goodwill
Goodwill relates primarily to the acquisition of certain assets and
liabilities of First Bank Texas, Marlin (Marlin), and First National
Goldthwaite (Goldthwaite) and is being amortized over periods of 8 to 11 years
using the straight-line method. Accumulated amortization totaled approximately
$625,175 and $361,135 at December 31, 1998 and 1997.
Cash Equivalents
Cash equivalents include amounts due from banks and interest-bearing
deposits in other banks and federal funds sold with initial maturities of
three months or less.
Reclassification
Certain reclassifications have been made to the 1997 financial statements to
conform to the 1998 presentation.
F-59
<PAGE>
CENTRAL COMMUNITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Acquisition
On January 17, 1997, the Company assumed the deposit liabilities of Marlin
and received approximately $19,500,000 net cash, including costs of
acquisition. On February 1, 1997, the Company acquired the outstanding common
stock of Goldthwaite for approximately $3,324,000, including costs of
acquisition. The operations of Goldthwaite were merged into the Bank. These
transactions were accounted for under the purchase method of accounting and,
accordingly, the assets acquired and liabilities assumed were recorded at
their estimated fair values. In acquisitions of Marlin and Goldthwaite, the
excess purchase price over fair value of the net tangible assets was
approximately $669,000 and $1,569,000, respectively, and has been recorded as
goodwill, which is being amortized on a straight-line basis over 8 and 11
years, respectively.
The purchase price for Marlin and Goldthwaite has been allocated to the
tangible assets purchased and the liabilities assumed based upon the estimated
fair values on the date of acquisition, as follows (dollars in thousands):
<TABLE>
<CAPTION>
Marlin Goldthwaite
-------- -----------
<S> <C> <C>
Cash and cash equivalents.............................. $ 20,776 $ 6,359
Investment securities.................................. -- 2,543
Loans, net............................................. 565 10,071
Other assets........................................... 543 410
Deposits............................................... (21,374) (17,250)
Other liabilities...................................... (110) (378)
-------- --------
Net tangible assets.................................... 400 1,755
Purchase Price......................................... (1,069) (3,324)
-------- --------
Goodwill............................................... $ 669 $ 1,569
======== ========
</TABLE>
The operating results of Marlin and Goldthwaite have been included in the
consolidated financial statement of income from the date of acquisition.
F-60
<PAGE>
CENTRAL COMMUNITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Investment Securities
Investment securities with a market value aggregating approximately
$18,103,000 and $16,347,000 were pledged to secure deposits at December 31,
1998 and 1997. Investment securities segregated as sold under agreement to
repurchase totaled $3,300,000 and $1,702,427 at December 31, 1998 and 1997.
The amortized cost and fair values of investment securities available for
sale at December 31, 1998 and 1997, were:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Debt securities:
United States Treasury and
federal agencies......... $40,449,011 $306,015 $(158,881) $40,596,145
State and political sub-
divisions................ 11,879,486 455,281 (4,281) 12,330,486
Corporate debt............ 6,777,232 134,582 (5,770) 6,906,044
----------- -------- --------- -----------
Total debt securities... 59,105,729 895,878 (168,932) 59,832,675
----------- -------- --------- -----------
Equity securities:
Non-marketable (primarily
Federal Home Loan Bank
stock)................... 919,717 -- -- 919,717
----------- -------- --------- -----------
$60,025,446 $895,878 $(168,932) $60,752,392
=========== ======== ========= ===========
Debt securities:
United States Treasury and
federal agencies......... $44,512,207 $324,863 $ (37,211) $44,799,859
State and political sub-
divisions................ 11,416,310 260,136 (36,903) 11,639,543
Corporate debt............ 3,768,531 56,450 (165) 3,824,816
----------- -------- --------- -----------
Total debt securities... 59,697,048 641,449 (74,279) 60,264,218
----------- -------- --------- -----------
Equity securities:
Non-marketable (primarily
Federal Home Loan Bank
stock)................... 644,400 -- -- 644,400
Marketable................ 41,434 -- -- 41,434
----------- -------- --------- -----------
$60,382,882 $641,449 $ (74,279) $60,950,052
=========== ======== ========= ===========
</TABLE>
The amortized cost and fair value of available for sale debt securities at
December 31, 1998, by contractual maturity, are shown below. Actual 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>
Fair
Amortized Cost Value
-------------- -----------
<S> <C> <C>
Due in one year or less.......................... $ 1,444,469 $ 1,454,903
Due after one year through five years............ 8,585,914 8,672,193
Due after five years through ten years........... 25,324,634 25,818,520
Due after ten years.............................. 3,391,091 3,445,703
Mortgage backed securities....................... 20,359,621 20,441,356
----------- -----------
$59,105,729 $59,832,675
=========== ===========
</TABLE>
F-61
<PAGE>
CENTRAL COMMUNITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Loans and Allowance for Loan Losses
The Bank grants commercial, real estate, and installment loans to customers
throughout its local lending area. The Bank has a diversified loan portfolio.
Loans by category at December 31, 1998 and 1997, were:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Commercial....................................... $ 35,909,208 $ 30,352,739
Real estate...................................... 64,565,252 48,620,834
Agricultural..................................... 18,586,151 17,547,173
Consumer......................................... 14,447,784 12,873,581
Unearned discount................................ (747,288) (812,363)
Loan origination fees............................ (274,177) (142,514)
------------ ------------
132,486,930 108,439,450
Allowance for loan losses........................ (1,742,832) (1,178,433)
------------ ------------
$130,744,098 $107,261,017
============ ============
</TABLE>
As of January 1, 1995, the Company adopted Financial Accounting Standards
Board Statement No. 114 (as amended by Statement No. 118), "Accounting by
Creditors for Impairment of a Loan." These new accounting standards require
that certain impaired loans (loans in which substantial doubt exists about the
recovery of interest and principal pursuant to the original terms of the
loans) be reported at the present value of expected future cash flows using
the loans' effective interest rates, or, as a practical expedient, at the
loans' observable market prices or the fair value of the collateral if the
loans are collateral dependent. Impaired loans have an outstanding principal
balance of $1,772,120 as of December 31, 1998 with a related allowance for
loan losses of $97,080. There were no impaired loans at December 31, 1997.
Loans on which the accrual of interest has been discontinued amounted to
approximately $1,508,000 and $142,000 at December 31, 1998 and 1997.
Transactions in the allowance for loan losses at December 31, 1998 and 1997,
were:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Balance at beginning of year......................... $1,178,433 $ 907,885
Allowance relating to Goldthwaite acquisition........ -- 101,729
Provision charged to expense......................... 480,000 420,000
Loans charged off.................................... (122,301) (422,057)
Recoveries of loans previously charged off........... 206,700 170,876
---------- ----------
$1,742,832 $1,178,433
========== ==========
</TABLE>
The Bank has granted loans to its officers, directors, and their affiliates.
Related party loans are made on substantially the same terms as those
prevailing at the time for comparable transactions with unrelated persons. The
aggregate dollar amounts of these loans were $1,910,000 and $1,120,000 at
December 31, 1998 and 1997.
In 1998, the Bank began servicing single family mortgage loans for an
affiliate. At December 31, 1998, the amount of loans being serviced by the
Bank approximated $300,000.
F-62
<PAGE>
CENTRAL COMMUNITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Income Taxes
The Company has a net deferred tax liability of approximately $407,000 and
$791,000 at December 31, 1998 and 1997. Deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of deferred taxes are mainly
differences between the financial reporting and tax basis of loan loss
reserves, fair value adjustments to certain assets and liabilities for
financial reporting purposes associated with certain stock acquisitions,
accounting for repossessed assets, and the tax effect of net operating loss
carryforwards, net of any valuation allowance.
Income tax expense computed for 1998 using the federal statutory tax rate of
34% is different from the recorded income tax expense of mainly due to tax-
exempt interest.
Income tax expense at December 31, 1998 and 1997, consists of:
<TABLE>
<S> <C> <C>
Current expense...................................... $1,748,719 $1,457,153
Deferred expense (benefit)........................... (437,980) (33,830)
---------- ----------
$1,310,739 $1,423,323
========== ==========
</TABLE>
The Company made federal income tax payments of $1,840,900 and $1,000,000
during 1998 and 1997. The Company has a net operating loss carryforward of
approximately $932,000 which expires in 2010. A valuation allowance of
approximately $200,000 has been established in 1997 and 1998 as a reduction of
the estimated future tax benefits available from the utilization of the net
operating loss carryforward.
6. Bank Premises and Equipment
Bank premises and equipment consisted of the following at December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land.................................................. $ 941,120 $ 934,204
Buildings and improvements............................ 3,017,419 2,578,679
Leaseholds............................................ 25,684 --
Furniture and equipment............................... 1,755,093 1,517,238
---------- ----------
5,739,316 5,030,121
Accumulated depreciation.............................. 1,781,622 1,388,386
---------- ----------
$3,957,694 $3,641,735
========== ==========
</TABLE>
7. Interest-Bearing Deposits
At December 31, 1998 and 1997, interest-bearing deposits of $100,000 or more
were approximately $53,654,000 and $46,015,000.
At December 31, 1998, the scheduled maturities of interest-bearing time
deposits are as follows:
<TABLE>
<S> <C>
1999............................................................. $82,659,115
2000............................................................. 6,406,448
2001............................................................. 3,630,906
2002 and thereafter.............................................. 1,639,478
-----------
$94,335,947
===========
</TABLE>
F-63
<PAGE>
CENTRAL COMMUNITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Employee Benefit Plan
The Company has an employee stock ownership plan and 401(k) retirement plan
for all eligible employees. Employee contributions to the 401(k) are voluntary
and limited to 6% of each employee's gross earnings. Employer contributions
are made at the discretion of management. Company plan expense was $174,000
and $159,000 for 1998 and 1997.
9. Notes Payable
<TABLE>
<CAPTION>
December 31
---------------------
Description 1998 1997
----------- ---------- ----------
<S> <C> <C>
Note payable, unaffiliated Bank, bears interest at
prime less 1/2% (7 1/4% at December 31, 1998 and 8%
at December 31, 1997), due July 2000, secured by all
outstanding common stock of the Bank................. $1,600,000 $1,600,000
Note payable Federal Home Loan Bank, bears interest at
6.29%, due 2012, secured by general blanket lien on
all single (1-4) family mortgages.................... 401,271 419,253
Note payable Federal Home Loan Bank, bears interest at
5.40%, due 2008, secured by general blanket lien on
all single (1-4) family mortgages.................... $ 462,953 $ 497,336
Note payable Federal Home Loan Bank, bears interest at
5.86%, due 2013, secured by general blanket lien on
all single (1-4) family mortgages.................... 701,846 --
Note payable Federal Home Loan Bank, bears interest at
4.87%, due 2008, secured by general blanket lien on
all single (1-4) family mortgages.................... 993,515 --
Note payable, third-party commercial company, bears
interest at 10%, due 1998............................ -- 125,000
---------- ----------
$4,159,585 $2,641,589
========== ==========
</TABLE>
The Bank has eight repurchase agreements secured by securities outstanding
at December 31, 1998 and 1997, in the amount of $3,300,000 and $1,702,427,
respectively. All repurchase agreements mature in 1999. The transactions were
accounted for as financing transactions.
Scheduled maturities of debt are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 367,828
2000.............................................................. 1,577,013
2001.............................................................. 186,703
2002.............................................................. 196,927
2003 and thereafter............................................... 1,831,114
----------
$4,159,585
==========
</TABLE>
In addition to the above, the Company had unsecured federal fund lines of
credit for $10 million at December 31, 1998 and 1997. At December 31, 1998 and
1997, the outstanding balance on these unused federal fund lines was zero.
The Company paid approximately $6,595,000 and $5,527,000 in interest on
deposits and other borrowings during 1998 and 1997.
F-64
<PAGE>
CENTRAL COMMUNITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has certain financial data covenants on the note payable to the
unaffiliated Bank and was in compliance with these covenants, as of, and
during the years ended December 31, 1998 and 1997.
10. Restrictions on Cash and Other Regulatory Restrictions
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank. The amount of those reserve balances at December 31, 1998 and
1997, approximated $1,895,000 and $1,594,000.
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory (and possibly additional discretionary) actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1998 and
1997, that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 1998, the most recent notification from the FDIC
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 1 risk-based, Tier 1 leverage ratios
as set forth in the table below (dollars in thousands). There are no
conditions or events since the notification that management believes have
changed the institution's category.
<TABLE>
<CAPTION>
To Be
Well Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
------------- -------------------------------- ---------------------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ------------------------ ------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total capital (to risk
weighted assets)...... $16,966 11.11% $12,216 (greater than or =) 8.00% $15,270 (greater than or =) 10.00%
Tier 1 capital (to risk
weighted assets)...... 15,784 10.34% 6,108 (greater than or =) 4.00% 9,162 (greater than or =) 6.00%
Tier 1 capital (to
average assets)....... 15,784 8.10% 7,796 (greater than or =) 4.00% 9,745 (greater than or =) 5.00%
As of December 31, 1997:
Total capital (to risk
weighted assets)...... $13,941 11.11% $10,035 (greater than or =) 8.00% $12,544 (greater than or =) 10.00%
Tier 1 capital (to risk
weighted assets)...... 12,977 10.35% 5,018 (greater than or =) 4.00% 7,527 (greater than or =) 6.00%
Tier 1 capital (to
average assets)....... 12,977 7.81% 6,643 (greater than or =) 4.00% 8,304 (greater than or =) 5.00%
</TABLE>
11. Financial Instruments With Off-Balance-Sheet Risk
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and
commercial standby letters of credit. Those instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
accompanying financial statements.
F-65
<PAGE>
CENTRAL COMMUNITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Bank'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 those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk:
<TABLE>
<S> <C>
Commitments to extend credit.................................... $32,942,170
Standby letters of credit....................................... 1,303,459
Commercial letters of credit.................................... 37,810
</TABLE>
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 may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
The Bank enters into covered call transactions using U.S. Treasury Bonds as
collateral. These transactions usually expire within 30 days. As of December
31, 1998, the Company had no covered call options outstanding. Covered call
options backed by $8,000,000 in U.S. Treasury Bond collateral were outstanding
as of December 31, 1997. The Bank defers income recognition until the options
are exercised or expire. As of December 31, 1998, the Company had no deferred
income related to covered call options. At December 31,1997, deferred income
was $31,250 and the unrealized gain on the collateral was approximately
$45,000 before tax effect.
Stock options outstanding to an officer of the Company for 2,370 shares at
$465 per share expire on October 16, 2001.
12. Fair Values of Financial Instruments
A summary of the carrying amounts and estimated fair values of financial
instruments at December 31, 1998, as disclosed separately in previous
footnotes, is as follows (carrying amounts of cash and cash equivalents and
securities sold under agreement to repurchase approximate fair value at
December 31, 1998):
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------
Carrying Fair
Amount Value
------------ ------------
<S> <C> <C> <C>
Investment securities.......................... $ 60,752,392 $ 60,752,392
Loans, net..................................... 130,744,098 132,404,849
Interest-bearing deposits...................... 145,152,168 145,901,322
Notes payable.................................. 4,159,585 4,209,808
</TABLE>
In the table above, the carrying amounts are included in the consolidated
balance sheet under the indicated captions.
F-66
<PAGE>
CENTRAL COMMUNITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Leases
Future minimum lease payments under operating leases as of December 31,
1998, are as follows:
<TABLE>
<S> <C>
1999............................................................... $106,600
2000............................................................... 124,700
2001............................................................... 110,800
2002............................................................... 100,900
2003............................................................... 16,600
--------
Total minimum lease payments....................................... $459,600
========
</TABLE>
Rent expense during 1998 was $57,700. There was no rent expense during 1997.
14. Litigation
The Bank has been named in a claim alleging the Bank improperly accepted and
presented for payment certain checks. The Bank has engaged counsel to defend
the litigation and an accrual has been recorded in the financial statements
for estimated settlement and defense costs.
15. Impact of Year 2000 (Unaudited)
Many existing computer software programs use only two digits to identify the
year in date fields and, as such, could create erroneous results in the year
2000. The Bank utilizes a limited number of software systems in its daily
operations. The Bank and its primary third-party software provider have made
and will continue to make the necessary changes in its software systems to
ensure that the Bank is Year 2000 compliant. In addition, the Bank has taken
steps to ensure that the institutions it interfaces with as well as the
vendors it utilizes in various capacities are also taking the necessary steps
to become Year 2000 compliant. Testing will be completed by the first quarter
of 1999. The financial impact of becoming Year 2000 compliant has not been and
is not expected to be material to the Bank or the results of its operations.
16. Subsequent Event
Preferred Stock
The Company entered into a letter of intent in March 1999, to participate
with two other banks in the issuance of $21,500,000 Trust Preferred
Securities. The Company's share of the issue will be $7,500,000 and the
transaction is expected to be completed in August. The proceeds will be
utilized for various business purposes including paying off existing company
debt and contributed as additional capital to the Bank.
F-67
<PAGE>
CENTRAL COMMUNITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash and due from banks........................... $ 9,019,235 $ 9,868,607
Interest-bearing deposits in other banks.......... 89,541 2,151,092
Federal funds sold................................ 500,000 2,000,000
------------ ------------
9,608,776 14,019,699
Investment securities............................. 59,743,831 53,293,751
Loans, net........................................ 132,357,547 116,131,808
Bank premises and equipment, net.................. 3,856,931 3,872,309
Accrued interest receivable and other assets...... 3,332,597 2,878,474
Goodwill, net..................................... 1,984,817 2,252,868
------------ ------------
Total Assets.................................... 210,884,499 192,448,909
============ ============
Deposits
Interest-bearing................................ 141,555,899 133,868,282
Non-interest bearing............................ 37,846,339 32,677,581
------------ ------------
179,402,238 166,545,863
Fed Funds Purchased and Securities Sold Under
Repurchase Agreements............................ 3,400,000 1,500,000
Accrued interest payable.......................... 563,194 579,093
Accrued expenses and other liabilities............ 957,067 884,199
Deferred tax liability............................ -- 595,032
------------ ------------
1,520,261 2,058,324
Notes payable..................................... 9,376,788 6,790,730
Common stock, par................................. 32,252 32,252
Additional paid-in capital........................ 4,220,067 4,220,067
Retained earnings................................. 14,842,841 11,910,347
Unrealized gain on securities AFS................. (1,089,770) 321,988
Treasury stock.................................... (820,178) (930,662)
------------ ------------
Total stockholders equity....................... 17,185,212 15,553,992
------------ ------------
Total liabilities and stockholders equity....... $210,884,499 $192,448,909
============ ============
</TABLE>
F-68
<PAGE>
CENTRAL COMMUNITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ending
June 30
---------------------
1999 1998
---------- ----------
<S> <C> <C>
Interest income
Interest and fees on loans............................. $6,371,558 $5,618,843
Interest on investment securities
Taxable.............................................. 1,330,803 1,455,350
Tax Exempt........................................... 277,269 264,289
Interest on federal funds sold......................... 14,370 51,249
---------- ----------
7,994,000 7,389,731
Interest expense
Deposits............................................... 3,038,035 2,997,121
Federal funds purchased................................ 140,524 41,997
Notes payable.......................................... 184,496 178,185
---------- ----------
3,363,055 3,217,303
---------- ----------
Net interest income...................................... 4,630,945 4,172,428
Provision for loan losses................................ 475,000 240,000
---------- ----------
Net interest income after provision for loan losses...... 4,155,945 3,932,428
Other income
Service charges & fees on deposit accounts............. 873,361 700,530
Gain on sale of loans.................................. 18,446 8,545
Gain on sale of securities............................. 60,182 198,654
Other.................................................. 344,612 131,790
---------- ----------
1,296,601 1,039,519
Other expenses
Salaries and benefits.................................. 1,683,838 1,439,164
Net occupancy expenses................................. 422,169 356,918
Goodwill amortization.................................. 136,031 132,020
Professional fees...................................... 91,735 222,689
Data processing fees................................... 361,986 309,918
Other.................................................. 492,418 476,612
---------- ----------
3,188,177 2,937,321
Income before income tax expense......................... 2,264,369 2,034,626
Income tax expense....................................... 701,383 597,523
---------- ----------
Net income............................................... $1,562,986 $1,437,103
========== ==========
Basic earnings per common share outstanding............ $ 51.51 $ 47.53
Book value per common share outstanding................ 566.35 514.47
</TABLE>
F-69
<PAGE>
You should rely only on the information provided in this Prospectus and
Statement of Additional Information or any supplement. The Fund has not
authorized anyone else to provide you with different information. The Fund is
not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this Prospectus and
Statement of Additional Information or any supplement is accurate as of any
date other than the date on the front of those documents.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS
Prospectus Summary....................................................... i
Summary of Fund Expenses................................................. 1
The Fund................................................................. 2
Additional Information................................................... 2
Use of Proceeds.......................................................... 2
The Fund's Investments................................................... 2
Fund Shares.............................................................. 4
Fundamental Policies..................................................... 4
Flow of Funds Diagram.................................................... 5
Risk Factors............................................................. 6
Forward Looking Statements............................................... 10
The Bank Holding Companies............................................... 11
Management of the Fund................................................... 30
Net Asset Value.......................................................... 30
Distributions............................................................ 31
Tax Matters.............................................................. 31
Underwriting............................................................. 32
Fund Custodian........................................................... 34
Experts.................................................................. 34
Legal Counsel............................................................ 34
Table of Contents of the Statement of Additional Information............. 35
STATEMENT OF ADDITIONAL INFORMATION
Additional Description of the Bank Trusts................................ S-2
Additional Risk Factors.................................................. S-2
Additional Description of the Preferred Securities....................... S-4
Additional Description of the Subordinated Debentures.................... S-9
Additional Description of the Guarantee.................................. S-14
Relationship Among the Preferred Securities, the Subordinated Debentures
and the Guarantee....................................................... S-16
Management of the Fund................................................... S-18
Supervision and Regulation of the Bank Holding Companies................. S-19
Additional Tax Discussion................................................ S-24
Index to Financial Statements............................................ F-1
Balance Sheet of the Fund................................................ F-2
Financial Statements of FirstBancorp, Inc................................ F-6
Financial Statements of First Southern Bancorp, Inc. .................... F-27
Financial Statements of Central Community Corporation.................... F-50
</TABLE>
Until [25 days after the date of this offering], 1999, all dealers that effect
transactions in these securities whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
860,000 Shares
SAL Trust Preferred Fund I
----------------
PROSPECTUS
----------------
STERNE, AGEE & LEACH, INC.
[DATE]
<PAGE>
SAL TRUST PREFERRED FUND I
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
1. Financial Statements:
All other financial statements, schedules and historical financial
information have been omitted as the subject matter is not required, not
present, or not present in amounts sufficient to require submission.
2. Exhibits
<TABLE>
<CAPTION>
Item
number Exhibits
------ --------
<C> <S> <C>
a.1 Charter Certificate of Trust as filed with the State of Delaware on
June 24, 1999 is incorporated by reference to Exhibit a.1
of the Registration Statement on Form N-2 as filed on
July 2, 1999.
a.2 Declaration of Trust dated June 24, 1999 is filed herewith.
b. By-Laws By-laws are filed herewith.
c. Any Voting Trust Agree- Not Applicable.
ment
d. All Instruments Defining Not Applicable.
Rights
of Securities' Holders
e. Dividend Reinvestment Not Applicable.
Plan
f. Constituent Instruments Not Applicable.
Defining
the Rights of the Hold-
ers of
Long-Term Debt
g. Investment Advisory Con- Form of Management Agreement is filed herewith.
tracts
h. Underwriting or Form of Underwriting Agreement is filed herewith.
Distribution Contract
i. Bonus, Profit Sharing, Not Applicable.
Pension or
Other Similar Contracts
j. Custodian Agreements and Form of Custodian Agreement is filed herewith.
Depositary Contracts
k.1 All other Material Con- Forms of Trust Preferred Purchase Agreement are filed herewith.
tracts
k.2 Form of Guarantee Agreement is filed herewith.
k.3 Form of Indenture is filed herewith.
k.4 Form of Bank Trust Agreement is filed herewith.
l. Opinion and Consent of Opinion and Consent of Counsel to the Fund is filed herewith.
Counsel
m. Consent to Service of Not Applicable.
Process
n.1 Copies of Other Opinions Consent of Aurthur Andersen LLP, Independent Public
Accountants to the Fund is filed herewith.
n.2 Consent of Osburn, Henning and Company Independent
Public Accountants to First Bancorp, Inc. is filed herewith.
n.3 Consent of McGladery & Pullen, LLP Independent Public
Accountants to First Southern Bancorp, Inc. is filed herewith.
n.4 Consent of Ernst & Young LLP Independent Public Accountants
to Central Community Corporation is filed herewith.
o. Omitted Financial State- Not Applicable.
ments
p. Initial Capital Agree- Form of Initial Capital Agreement is filed herewith.
ments
q. Retirement Plan Not Applicable.
</TABLE>
- --------
II-1
<PAGE>
Item 25. Marketing Arrangements.
See paragraphs 2 and 3 of Exhibit h filed herewith.
Item 26. Other Expenses of Issuance and Distribution.
<TABLE>
<S> <C>
Registration fee $ 6,575
Printing costs $100,000
Legal fees and expenses $100,000
Accounting fees and expenses $ 3,000
NASD fees $ 2,865
AMEX fees $ 10,000
Miscellaneous $ 20,000
--------
Total $236,540*
</TABLE>
*None of these expenses will be borne by the Fund.
Item 27. Persons controlled by or under Common Control with Registrant.
Not Applicable.
Item 28. Number of Holders of Securities.
Not Applicable.
Item 29. Indemnification.
See Section 10.02 of exhibit a.2 filed herewith and Section 8 of exhibit h
filed herewith.
Item 30. Business and Other Connections of Investment Adviser
<TABLE>
<CAPTION>
Name and Position with the Manager Name of Other Company Connection with Other Company
---------------------------------- --------------------- -----------------------------
<S> <C> <C>
James S. Holbrook, Jr. Bobby Allison director
Chairman of the Board Wireless Corporation
2055 Lake Avenue, S.E.
Suite A
Largo, Florida 34641
A. Fox deFuniak, III Birmingham Recycling director
director Investment Corporation
1000 Urban Center Drive
Suite 300
Birmingham, AL 35242
Cobb Theaters, Inc. former director
7001 Crestwood Blvd.
Birmingham, AL 35210
</TABLE>
Item 31. Location of Accounts and Records.
The name and address of each person maintaining physical possession of each
account, book or other document required to be maintained by Section 31(a) of
the 1940 Act are as follows:
Sterne Agee Asset Management, Inc. Morgan, Lewis & Bockius LLP
800 Shades Creek Parkway 1800 M Street N.W.
Suite 125 Washington, D.C. 20036
Birmingham, AL 35209
II-2
<PAGE>
Item 32. Management Service.
Not Applicable.
Item 33. Undertakings.
1. An undertaking to suspend the offering of shares until the prospectus
is amended if : (1) subsequent to the effective date of its
registration statement, the net asset value declines more than 10
percent from its net asset value as of the effective date of the
registration statement; or (2) the net asset value increases to an
amount greater than its net proceeds as stated in the prospectus.
2. Not Applicable.
3. Not Applicable.
4. Not Applicable.
5. If the registrant is filing a registration statement permitted by
Rule 430A under the Securities Act of 1933, an undertaking that:
a. For the purpose of determining any liability under the 1933 Act,
the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant under
Rule 497(h) under the 1933 Act shall be deemed to be part of this
registration statement as of the time it was declared effective;
and
b. For the purpose of determining any liability under the 1933 Act,
each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona
fide offering thereof.
6. Not Applicable.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant has duly caused this Pre-
Effective Amendment No. 1 to the Registration Statement on Form N-2 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Birmingham, and State of Alabama, on the 19th day of August, 1999.
SAL Trust Preferred Fund I
/s/ James S. Holbrook, Jr.
By: _________________________________
James S. Holbrook, Jr. Initial
Trustee, CEO, CFO
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 1 to the Registration Statement on Form N-2 has been
signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ------- ------
<S> <C> <C>
/s/ James S. Holbrook, Jr.
- ------------------------------------- Chairman of the August 19, 1999
James S. Holbrook, Jr. Board of Trustees
and President
/s/ James A. Taylor, Sr. Trustee August 19, 1999
- -------------------------------------
James A. Taylor, Sr.
/s/ Robert M. Couch Trustee August 19, 1999
- -------------------------------------
Robert M. Couch
/s/ F. Eugene Woodham Treasurer and August 19, 1999
- ------------------------------------- Secretary
F. Eugene Woodham
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Item
number Exhibits
- ------ --------
<S> <C> <C>
a.1 Charter Certificate of Trust as filed with the State of Delaware on
June 24, 1999 is incorporated by reference to Exhibit a.1
of the Registration Statement on Form N-2 as filed on
July 2, 1999.
a.2 Declaration of Trust dated June 24, 1999 is filed herewith.
b. By-Laws By-laws are filed herewith.
c. Any Voting Trust Agreement Not Applicable.
d. All Instruments Defining Rights Not Applicable.
of Securities' Holders
e. Dividend Reinvestment Plan Not Applicable.
f. Constituent Instruments Defining Not Applicable.
the Rights of the Holders of
Long-Term Debt
g. Investment Advisory Contracts Form of Management Agreement is filed herewith.
h. Underwriting or Distribution Contract Form of Underwriting Agreement is filed herewith.
i. Bonus, Profit Sharing, Pension or Not Applicable.
Other Similar Contracts
j. Custodian Agreements and Form of Custodian Agreement is filed herewith.
Depositary Contracts
k.1 All other Material Contracts Forms of Trust Preferred Purchase Agreement are filed herewith.
k.2 Form of Guarantee Agreement is filed herewith.
k.3 Form of Indenture is filed herewith.
k.4 Form of Bank Trust Agreement is filed herewith.
l. Opinion and Consent of Counsel Opinion and Consent of Counsel to the Fund is filed herewith.
m. Consent to Service of Process Not Applicable.
n.1 Copies of Other Opinions Consent of Aurthur Andersen LLP, Independent Public
Accountants to the Fund is filed herewith.
n.2 Consent of Osburn, Henning and Company Independent
Public Accountants to First Bancorp, Inc. is filed herewith.
n.3 Consent of McGladery & Pullen, LLP Independent Public
Accountants to First Southern Bancorp, Inc. is filed herewith.
n.4 Consent of Ernst & Young LLP Independent Public Accountants
to Central Community Corporation is filed herewith.
o. Omitted Financial Statements Not Applicable.
p. Initial Capital Agreements Form of Initial Capital Agreement is filed herewith.
q. Retirement Plan Not Applicable.
</TABLE>
II-5
<PAGE>
EXHIBIT 99.a.2
SAL TRUST PREFERRED FUND I
--------------------------
DECLARATION OF TRUST
DATED JUNE 24, 1999
<PAGE>
SAL TRUST PREFERRED FUND I
--------------------------
Dated June 24, 1999
This DECLARATION OF TRUST (hereinafter "Declaration") is made June
24, 1999 by the Trustees named hereunder for the purpose of forming a Delaware
business trust under the Delaware Business Trust Statute and this Declaration
shall constitute the governing instrument of such business trust.
NOW, THEREFORE, the Trustees hereby direct that a Certificate of
Trust be filed with the office of the Secretary of State of the State of
Delaware and do hereby declare that the Trustees will hold IN TRUST all cash,
securities and other assets which the Trust may from time to time acquire in any
manner upon the following terms and conditions for the benefit of the holders of
shares of beneficial interest in this Trust.
ARTICLE I
---------
NAME AND DEFINITIONS
--------------------
Section 1.01. Name. This trust shall be known as "SAL Trust Preferred Fund I"
- ------------ ----
and the Trustees shall conduct the business of the Trust under that name or any
other name as they may from time to time determine.
Section 1.02. Definitions. Wherever used herein, unless otherwise required by
- ------------ -----------
the context or specifically provided:
(a) The term "Bylaws" shall mean the bylaws of the Trust, if any,
as from time to time amended;
(b) The terms "Commission," "Affiliated Person," "Assignment,"
"Interested Person," "Majority Shareholder Vote," "Person," and "Principal
Underwriter" shall have the meanings given them in the 1940 Act, as modified by
or interpreted by any applicable order or orders of the Commission or any rules
or regulations adopted by or interpretive releases of the Commission thereunder;
(c) The term "Delaware Business Trust Statute" shall mean the
provisions of Chapter 38 of Title 12 of the Delaware Code entitled "Treatment of
Delaware Business Trusts," as it may be amended from time to time;
(d) The term "Net Asset Value" shall mean the net asset value of
the Trust (as defined below) determined in the manner provided in Article IX,
Section 9.02 hereof;
1
<PAGE>
(e) The term "Preferred Securities" shall mean the preferred
securities issued by the three statutory trusts organized and established by
FirstBancorp, Inc., First Southern Bancorp, Inc. and Central Community
Corporation, respectively; or, if one or more of the statutory trusts is
terminated, the subordinated debentures held by the respective statutory trust
or trusts at the time of its termination.
(f) The term "Shareholder" shall mean a record owner of Shares of
the Trust;
(g) The term "Shares" shall mean the equal proportionate
transferable units of beneficial interest into which the beneficial interest of
the Trust shall be divided and may include fractions of Shares as well as whole
Shares;
(h) The term "Trust" shall refer to the SAL Trust Preferred Fund
I;
(i) The term "Trustee" or "Trustees" shall mean the person or
persons who has or have signed this Declaration, so long as such person or
persons shall continue in office in accordance with the terms hereof, and all
other persons who may from time to time be duly qualified and serving as
Trustees in accordance with the provisions of Article III hereof and reference
herein to a Trustee or to the Trustees shall refer to the individual Trustees in
their capacity as Trustees hereunder;
(j) The term "Trust Property" shall mean any and all property,
real or personal, tangible or intangible, which is owned or held by or for the
account of the Trust or the Trustees on behalf of the Trust.
(k) The term "1940 Act" shall refer to the Investment Company Act
of 1940, as amended from time to time.
ARTICLE II
----------
BENEFICIAL INTEREST
-------------------
Section 2.01. Shares of Beneficial Ownership Interest. The beneficial interest
- ------------ ---------------------------------------
in the Trust shall be divided into such transferable Shares of one class. The
number of Shares authorized hereunder is unlimited. Each Share shall have no
par value. All Shares issued hereunder, including without limitation, Shares
issued in connection with a dividend in Shares or a split or reverse split of
Shares, shall be fully paid and nonassessable.
Section 2.02. Issuance of Shares. The Trustees in their discretion may, from
- ------------ ------------------
time to time, without vote of the Shareholders, issue Shares, to such party or
parties and for such amount and type of consideration, subject to applicable
law, at such time or times and on such terms as the Trustees may deem
appropriate. In connection with any issuance of Shares, the Trustees may issue
fractional
2
<PAGE>
Shares and Shares held in the treasury. The Trustees from time to time may
divide or combine the Shares into a greater or lesser number without thereby
changing the proportionate beneficial interests in the Trust.
Section 2.03. Ownership and Transfer of Shares. The Trust or a transfer or
- ------------ --------------------------------
similar agent for the Trust shall maintain a register containing the names and
addresses of the Shareholders, the number of Shares held by such Shareholders,
and a record of all Share transfers. The register shall be conclusive as to the
identity of Shareholders of record and the number of Shares held by them from
time to time. The Trustees may authorize the issuance of certificates
representing Shares and adopt rules governing their use. The Trustees may make
rules governing the transfer of Shares, whether or not represented by
certificates. Except as otherwise provided by the Trustees, Shares shall be
transferable on the books of the Trust only by the record holder thereof or by
his duly authorized agent upon delivery to the Trustees or the Trust's transfer
agent of a duly executed instrument of transfer, together with a Share
certificate if one is outstanding, and such evidence of the genuineness of each
such execution and authorization and of such other matters as may be required by
the Trustees. Upon such delivery, and subject to any further requirements
specified by the Trustees or contained in the Bylaws, the transfer shall be
recorded on the books of the Trust. Until a transfer is so recorded, the
Shareholder of record of Shares shall be deemed to be the holder of such Shares
for all purposes hereunder and neither the Trustees nor the Trust, nor any
transfer agent or registrar or any officer, employee or agent of the Trust,
shall be affected by any notice of a proposed transfer.
Section 2.04. Treasury Shares. Shares held in the treasury shall not confer
- ------------ ---------------
any voting rights on the Trustees, nor shall such Shares be entitled to any
dividends or other distributions declared with respect to the Shares.
Section 2.05. No Preemptive Rights. Shareholders shall have no preemptive or
- ------------ --------------------
other right to subscribe to any additional Shares or other securities issued by
the Trust or the Trustees.
Section 2.06. Personal Liability of Shareholders. Each Shareholder of the
- ------------ ----------------------------------
Trust shall not be personally liable for debts, liabilities, obligations and
expenses incurred by, contracted for, or otherwise existing with respect to, the
Trust. The Trustees shall have no power to bind any Shareholder personally or
to call upon any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time personally agree
to pay by way of subscription for any Shares or otherwise. Shareholders shall
have the same limitation of personal liability as is extended to shareholders of
a private corporation for profit incorporated in the State of Delaware.
Section 2.07. Assent to Declaration. Every Shareholder, by virtue of having
- ------------ ---------------------
purchased a Share shall become a Shareholder and shall be held to have expressly
assented and agreed to be bound by the terms hereof.
3
<PAGE>
ARTICLE III
-----------
THE TRUSTEES
------------
Section 3.01. Management of the Trust. The Trustees shall have exclusive and
- ------------ -----------------------
absolute control over the Trust Property and over the business of the Trust to
the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations and maintain offices both
within and without the State of Delaware, in any and all states of the United
States of America, in the District of Columbia, in any and all commonwealths,
territories, dependencies, colonies, or possessions of the United States of
America, and in any foreign jurisdiction and to do all such other things and
execute all such instruments as they deem necessary, proper or desirable in
order to promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive. In construing the
provisions of this Declaration, the presumption shall be in favor of a grant of
power to the Trustees.
The enumeration of any specific power in this Declaration shall
not be construed as limiting the aforesaid power. The powers of the Trustees may
be exercised without order of or resort to any court.
Except for the Trustees named herein, appointed prior to a public
offering of Shares pursuant to Section 3.02 of this Article III, or appointed
to fill vacancies pursuant to Section 3.04 of this Article III, the Trustees
shall be elected by the Shareholders owning of record a plurality of the Shares
voting at a meeting of Shareholders. Such a meeting shall be held on a date
fixed by the Trustees. In the event that less than a majority of the Trustees
holding office have been elected by Shareholders, the Trustees then in office
will call a Shareholders' meeting for the election of Trustees.
Section 3.02. Initial Trustees. The initial Trustee shall be the person named
- ------------ ----------------
herein. Prior to a public offering of Shares, the initial Trustee may appoint
additional Trustees subject to Section 3.06 of this Article III. As soon as any
Trustee appointed pursuant to this Section 3.02 shall have accepted this Trust,
the Trust Property shall vest in the new Trustee or Trustees, together with
initial Trustee, without any further act or conveyance, and the newly appointed
Trustee shall be deemed a Trustee hereunder.
Section 3.03. Term of Office of Trustees. The Trustees shall hold office
- ------------ --------------------------
during the lifetime of this Trust, and until its termination as herein provided,
except that: (a) any Trustee may resign his trust by written instrument signed
by him and delivered to the other Trustees, which shall take effect upon such
delivery or upon such later date as is specified therein; (b) any Trustee may be
removed at any time by a vote of at least two-thirds of the number of Trustees
prior to such removal, specifying the date when such removal shall become
effective; (c) any Trustee who requests in writing to be retired or who has
died, become physically or mentally incapacitated by reason of disease or
otherwise, or
4
<PAGE>
is otherwise unable to serve, may be retired by written instrument signed by a
majority of the other Trustees, specifying the date of his retirement; and (d) a
Trustee may be removed at any meeting of the Shareholders of the Trust by a vote
of Shareholders owning at least two-thirds of the outstanding Shares.
Section 3.04. Vacancies and Appointment of Trustees. In case of the
- ------------ -------------------------------------
declination to serve, death, resignation, retirement, removal, physical or
mental incapacity by reason of disease or otherwise, or a Trustee is otherwise
unable to serve, or if by reason of an increase in the number of Trustees, a
vacancy shall occur. Whenever a vacancy in the Board of Trustees shall occur,
until such vacancy is filled, the other Trustees shall have all the powers
hereunder and the certificate of the other Trustees of such vacancy shall be
conclusive. In the case of an existing vacancy, the remaining Trustees shall
fill such vacancy by appointing such other person as they in their discretion
shall see fit consistent with the limitations under the 1940 Act. Such
appointment shall be evidenced by a written instrument signed by a majority of
the Trustees in office or by resolution of the Trustees, duly adopted, which
shall be recorded in the minutes of a meeting of the Trustees, whereupon the
appointment shall take effect.
An appointment of a Trustee may be made by the Trustees then in
office in anticipation of a vacancy to occur by reason of retirement,
resignation or increase in number of Trustees effective at a later date,
provided that said appointment shall become effective only at or after the
effective date of said retirement, resignation or increase in number of
Trustees. As soon as any Trustee appointed pursuant to this Section 3.04 shall
have accepted this Trust, the Trust Property shall vest in the new Trustee or
Trustees, together with the continuing Trustees, without any further act or
conveyance, and the newly appointed Trustee shall be deemed a Trustee hereunder.
The power to appoint a Trustee pursuant to this Section 3.04 is subject to the
provisions of Section 16(a) of the 1940 Act, as modified by or interpreted by
any applicable orders of the Commission or any rules or regulations adopted by
or interpretive releases of the Commission.
Section 3.05. Temporary Absence of Trustee. Any Trustee may, by power of
- ------------ ----------------------------
attorney, delegate his power for a period not exceeding six months at any one
time to any other Trustee or Trustees, provided that in no case shall less than
two Trustees personally exercise the other powers hereunder except as herein
otherwise expressly provided.
Section 3.06. Number of Trustees. Prior to a public offering of Shares, there
- ------------ ------------------
may be a sole Trustee. Thereafter, the number of Trustees shall be such number,
as shall be set forth in a written instrument signed or adopted by a majority of
the Trustees then in office.
Section 3.07. Effect of Death, Resignation, Etc., of a Trustee. The
- ------------ ------------------------------------------------
declination to serve, death, resignation, retirement, removal, incapacity, or
inability of the Trustees, or any one of them, shall not operate to terminate
the Trust or to revoke any existing agency created pursuant to the terms of this
Declaration.
5
<PAGE>
Section 3.08. Legal Title. Legal title to all the Trust Property shall be
- ------------ -----------
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name of any
other Person as nominee, custodian or pledgee, on such terms as the Trustees may
determine, provided that the interest of the Trust therein is appropriately
protected.
The right, title and interest of the Trustees in the Trust
Property shall vest automatically in each person who may hereafter become a
Trustee upon his due election and qualification. Upon the ceasing of any person
to be a Trustee for any reason, such person shall automatically cease to have
any right, title or interest in any of the Trust Property, and the right, title
and interest of such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
Section 3.09. Compensation. The Trustees as such shall be entitled to
- ------------ ------------
reasonable compensation from the Trust, and they may periodically fix the amount
of such compensation. Nothing herein shall in any way prevent the employment of
any Trustee for advisory, management, legal, accounting, investment banking or
other services and payment for the same by the Trust.
ARTICLE IV
----------
POWERS OF THE TRUSTEES
----------------------
Section 4.01. Powers. The Trustees shall owe to the Trust and its Shareholders
- ------------ ------
the same fiduciary duties as owed by directors of corporations to such
corporations and their stockholders under the general corporation law of the
State of Delaware. The Trustees shall have exclusive and absolute control over
the Trust Property and over the business of the Trust to the same extent as if
the Trustees were the sole owners of the Trust Property and business in their
own right, but with such powers of delegation as may be permitted by this
Declaration. The Trustees shall have power to engage in any activity not
prohibited by Delaware law or the terms of this Declaration. The enumeration of
any specific power herein shall not be construed as limiting the aforesaid
power. The Trustees may perform such acts as in their sole discretion are
proper for conducting the business of the Trust. The powers of the Trustees may
be exercised without order of or resort to any court. Subject to any applicable
limitation in this Declaration or the Bylaws of the Trust, the Trustees shall
have power and authority:
(a) To acquire and hold the Preferred Securities for the benefit
of the Shareholders;
(b) To operate as and carry on the business of an investment
company, and exercise all the powers necessary and appropriate to the conduct of
such operations;
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(c) To provide for the distribution of interests of the Trust
either through a principal underwriter in the manner hereinafter provided for or
by the Trust itself, or both, or otherwise pursuant to a plan of distribution of
any kind;
(d) To adopt Bylaws not inconsistent with this Declaration
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent that they do not reserve that right to the Shareholders; such
Bylaws shall be deemed incorporated and included in this Declaration;
(e) To elect and remove such officers and appoint and terminate
such agents as they consider appropriate;
(f) To employ one or more banks, trust companies or companies that
are members of a national securities exchange or such other entities as the
Commission may permit as custodians of any assets of the Trust subject to any
conditions set forth in this Declaration or in the Bylaws;
(g) To retain one or more transfer agents and shareholder
servicing agents, or both;
(h) To set record dates in the manner provided herein or in the
Bylaws;
(i) To delegate such authority as they consider desirable to any
officers of the Trust and to any investment manager, custodian, underwriter or
other agent or independent contractor;
(j) To vote or give assent, or exercise any rights of ownership,
with respect to stock or other securities or property; and to execute and
deliver powers of attorney to such person or persons as the Trustee shall deem
proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(k) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(l) To hold any security or property in a form not indicating any
trust, whether in bearer, book entry, unregistered or other negotiable form; or
either in the name of the Trust or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to the usual
practice of Delaware business trusts or investment companies;
(m) To compromise, arbitrate, or otherwise adjust claims in favor
of or against the Trust or any matter in controversy including, but not limited
to, claims for taxes;
(n) To make distributions of income and of capital gains to
Shareholders in the manner hereinafter provided;
7
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(o) To establish one or more committees, to delegate any of the
powers of the Trustees to said committees and to adopt a committee charter
providing for such responsibilities, membership (including Trustees, officers or
other agents of the Trust therein) and any other characteristics of said
committees as the Trustees may deem proper. Notwithstanding the provisions of
this Article IV, and in addition to such provisions or any other provision of
this Declaration or of the Bylaws, the Trustees may by resolution appoint a
committee consisting of less than the whole number of Trustees then in office,
which committee may be empowered to act for and bind the Trustees and the Trust,
as if the acts of such committee were the acts of all the Trustees then in
office, with respect to the institution, prosecution, dismissal, settlement,
review or investigation of any action, suit or proceeding which shall be pending
or threatened to be brought before any court, administrative agency or other
adjudicatory body;
(p) To interpret the investment policies, practices, or
limitations;
(q) To establish a registered office and have a registered agent
in the state of Delaware;
(r) In general to carry on any other business in connection with
or incidental to any of the foregoing powers, to do everything necessary,
suitable, or proper for the accomplishment of any purpose or the attainment of
any object or the furtherance of any power hereinbefore set forth, either alone
or in association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and
power, and the foregoing enumeration of specific powers shall not be held to
limit or restrict in any manner the general powers of the Trustees. Any action
by one or more of the Trustees in their capacity as such hereunder shall be
deemed an action on behalf of the Trust, and not an action in an individual
capacity.
No one dealing with the Trustees shall be under any obligation to
make any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or upon
their order.
Notwithstanding anything herein to the contrary, the Trustees may
not vary the investments of the Trust which shall be limited to the Preferred
Securities and interim short-term investments of funds received by the Trust
between distribution dates. If Preferred Securities subject to a contract to
purchase are not transferred to the Trust in accordance with the terms of such
contract, the Trustees may within a 20-day period acquire securities of
substantially the same character and quality as those under the "failed"
contract. If such other securities are not so acquired, the Trustees will refund
to the Shareholders on the next distribution date all amounts attributable to
such "failed" contract.
Section 4.02. Issuance and Repurchase of Shares. The Trustees shall have the
- ------------ ---------------------------------
power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold, resell,
reissue, dispose of, transfer and otherwise
8
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deal in Shares and, subject to the provisions set forth in Article II and
Article IX, to apply to any such repurchase, redemption, retirement,
cancellation, or acquisition of Shares any funds or property of the Trust, with
respect to which such Shares are issued.
Section 4.03. Trustees and Officers as Shareholders. Any Trustee, officer, or
- ------------ -------------------------------------
agent of the Trust may acquire, own, and dispose of Shares to the same extent as
if he were not a Trustee, officer, or agent; and the Trustees may issue and sell
or cause to be issued and sold Shares to and buy such Shares from any such
person or any firm or company in which he is interested, subject only to the
general limitations herein contained as to the sale and purchase of such Shares;
and all subject to any restrictions which may be contained in the Bylaws.
Section 4.04. Action by the Trustees. The Trustees shall act by majority vote
- ------------ ----------------------
at a meeting duly called or by written consent of a majority of the Trustees
without a meeting or by telephone meeting provided a quorum of Trustees
participate in any such telephone meeting, unless the 1940 Act requires that a
particular action be taken only at a meeting at which the Trustees are present
in person. At any meeting of the Trustees, a majority of the Trustees shall
constitute a quorum. Meetings of the Trustees may be called orally or in writing
by the Chairman or by any two (2) other Trustees. Notice of the time, date and
place of all meetings of the Trustees shall be given by the party calling the
meeting to each Trustee by telephone, telefax, telegram or other electronic
means sent to his home or business address at least twenty-four (24) hours in
advance of the meeting or by written notice mailed to his home or business
address at least seventy-two (72) hours in advance of the meeting. Notice need
not be given to any Trustee who attends the meeting without objecting to the
lack of notice or who executes a written waiver of notice with respect to the
meeting. Any meeting conducted by telephone shall be deemed to take place at
the principal office of the Trust, as determined by the Bylaws or by the
Trustees. Subject to the requirements of the 1940 Act, the Trustees by majority
vote may delegate to any one or more of their number their authority to approve
particular matters or take particular actions on behalf of the Trust. Written
consents or waivers of the Trustees may be executed in one or more counterparts.
Execution of a written consent or waiver and delivery thereof to the Trust may
be accomplished by telefax or other electronic means.
Section 4.05. Chairman of the Trustees. The Trustees shall appoint one of
- ------------ ------------------------
their number to be Chairman of the Board of Trustees. The Chairman shall preside
at all meetings of the Trustees, shall be responsible for the execution of
policies established by the Trustees and the administration of the Trust, and
may be (but is not required to be) the chief executive, financial, and/or
accounting officer of the Trust.
ARTICLE V
---------
EXPENSES OF THE TRUST
---------------------
Section 5.01. Payment of Expenses By The Trust. Subject to the provisions of
- ------------ --------------------------------
Article II, Section 2.07 hereof, the Trust shall pay, or shall reimburse the
Trustees from the assets of the Trust for their
9
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expenses and disbursements, including, without limitation, fees and expenses of
Trustees, interest expense, taxes, fees and commissions of every kind, expenses
of pricing Trust portfolio securities, expenses of issue, repurchase and
redemption of shares, including expenses attributable to a program of periodic
repurchases or redemptions, expenses of registering and/or qualifying the Trust
and its Shares under Federal and State laws and regulations or under the laws of
any foreign jurisdiction, charges of third parties, including investment
advisors, managers, custodians, transfer agents, portfolio accounting and/or
pricing agents, and registrars, expenses of preparing and setting up in type
prospectuses and statements of additional information and other related Trust
documents, expenses of printing and distributing prospectuses sent to existing
Shareholders, auditing and legal expenses, reports to Shareholders, expenses of
meetings of Shareholders and proxy solicitations therefor, insurance expenses,
association membership dues and for such non-recurring items as may arise,
including litigation to which the Trust (or a Trustee acting as such) is a
party, and for all losses and liabilities by them incurred in administering the
Trust, and for the payment of such expenses, disbursements, losses and
liabilities the Trustees shall have a lien on the assets belonging to the Trust
prior to any rights or interests of the Shareholders thereto. This section shall
not preclude the Trust from directly paying any of the aforementioned fees and
expenses.
ARTICLE VI
----------
CONTRACTS WITH SERVICE PROVIDERS
--------------------------------
Section 6.01. Investment Manager. The Trustees may in their discretion, from
- ------------- ------------------
time to time, enter into an investment advisory or management contract or
contracts with respect to the Trust; provided, however, that the initial
approval and entering into of such contract or contracts shall be subject to a
"majority shareholder vote," as defined by the 1940 Act.
The Trustees may authorize, subject to applicable requirements of
the 1940 Act, including those relating to Shareholder approval, the investment
manager to employ, from time to time, one or more sub-managers to perform such
of the acts and services of the investment manager, and upon such terms and
conditions, as may be agreed upon between the investment manager and sub-
manager. Any reference in this Declaration to the investment manager shall be
deemed to include such sub-managers, unless the context otherwise requires.
Section 6.02. Principal Underwriter. The Trustees may in their discretion from
- ------------ ---------------------
time to time enter into an exclusive or non-exclusive underwriting contract or
contracts providing for the sale of Shares, whereby the Trust may either agree
to sell Shares to the other party to the contract or appoint such other party
its sales agent for such Shares. In either case, the contract shall be on such
terms and conditions, if any, as may be prescribed in the Bylaws, and such
further terms and conditions as the Trustees may in their discretion determine
not inconsistent with the provisions of this Article VI, or of the Bylaws; and
such contract may also provide for the repurchase or sale of Shares by such
other party as principal or as agent of the Trust.
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Section 6.03. Transfer Agent. The Trustees may in their discretion from time
- ------------ --------------
to time enter into one or more transfer agency and shareholder service contracts
whereby the other party or parties shall undertake to furnish the Trustees with
transfer agency and shareholder services. The contract or contracts shall be on
such terms and conditions as the Trustees may in their discretion determine not
inconsistent with the provisions of this Declaration or of the Bylaws.
Section 6.04. Administrator. The Trustees may in their discretion from time to
- ------------ -------------
time enter into an administration agreement whereby the other party to such
agreement shall undertake to manage the business affairs of the Trust and
furnish the Trust with office facilities, and shall be responsible for the
ordinary clerical, bookkeeping and recordkeeping services at such office
facilities, and other facilities and services, if any, and all upon such terms
and conditions as the Trustees may in their discretion determine.
Section 6.05. Parties to Contract. Any contract of the character described in
- ------------ -------------------
Sections 6.01, 6.02, 6.03 and 6.04 of this Article VI or any contract of the
character described in Article VIII hereof may be entered into with any
corporation, firm, partnership, trust, or association, although one or more of
the Trustees or officers of the Trust may be an officer, director, trustee,
shareholder, or member of such other party to the contract, and no such contract
shall be invalidated or rendered void or voidable by reason of the existence of
any such relationship, nor shall any person holding such relationship be
disqualified from voting on or executing the same in his capacity as Shareholder
and/or Trustee, nor shall any person holding such relationship be liable merely
by reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was not
inconsistent with the provisions of this Article VI or Article VIII hereof or of
the Bylaws. The same person (including a firm, corporation, partnership, trust
or association) may be the other party to contracts entered into pursuant to
Sections 6.01, 6.02, 6.03 and 6.04 of this Article VI or pursuant to Article
VIII hereof, and any individual may be financially interested or otherwise
affiliated with Persons who are parties to any or all of the contracts mentioned
in this Section 6.05.
Section 6.06. Provisions and Amendments. Any contract entered into pursuant to
- ------------ -------------------------
Sections 6.01 or 6.02 of this Article VI shall be consistent with and subject to
the requirements of Section 15 of the 1940 Act or other applicable Act of
Congress hereafter enacted with respect to its continuance in effect, its
termination, and the method of authorization and approval of such contract or
renewal thereof, and no amendment to any contract, entered into pursuant to
Section 6.01 of this Article VI shall be effective unless assented to in a
manner consistent with the requirements of said Section 15, as modified by any
applicable rule, regulation, order or interpretive release of the Commission.
11
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ARTICLE VII
-----------
SHAREHOLDERS' VOTING POWERS AND MEETINGS
----------------------------------------
Section 7.01. Voting Powers. The Shareholders shall have power to vote only
- ------------ -------------
(i) for the election of Trustees as provided in Article III, Section 3.01 and
3.02 hereof, (ii) for the removal of Trustees as provided in Article III,
Section 3.03(d) hereof, (iii) with respect to any investment advisory or
management contract as provided in Article VI, Sections 6.01 and 6.07 hereof,
and (iv) with respect to such additional matters relating to the Trust as may be
required by law, by this Declaration, or the Bylaws or any registration of the
Trust with the Commission or any State, or as the Trustees may consider
necessary or desirable.
Each whole share shall be entitled to one (1) vote as to any
matter on which it is entitled to vote, and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no cumulative voting
in the election of Trustees. Shares may be voted in person or by proxy or in any
manner provided for in the Bylaws. A proxy may be given in writing. The Bylaws
may provide that proxies may also, or may instead, be given by any electronic or
telecommunications device or in any other manner. Notwithstanding anything else
herein or in the Bylaws, in the event a proposal by anyone other than the
officers or Trustees of the Trust is submitted to a vote of the Shareholders of
the Trust, or in the event of any proxy contest or proxy solicitation or
proposal in opposition to any proposal by the officers or Trustees of the Trust,
Shares may be voted only in person or by written proxy. Until Shares are issued,
the Trustees may exercise all rights of Shareholders and may take any action
required or permitted by law, this Declaration or any of the Bylaws of the Trust
to be taken by Shareholders. Meetings of shareholders shall be called and notice
thereof and record dates therefor shall be given and set as provided in the
Bylaws.
Section 7.02. Quorum and Required Vote. One-third of Shares entitled to vote in
- ------------ ------------------------
person or by proxy shall be a quorum for the transaction of business at a
Shareholders' meeting. Any lesser number shall be sufficient for adjournments.
Any adjourned session or sessions may be held, within a reasonable time after
the date set for the original meeting, without the necessity of further notice.
Except when a larger vote is required by law or by any provision of this
Declaration of the Bylaws, a majority of the Shares voted in person or by proxy
shall decide any questions and a plurality shall elect a Trustee.
ARTICLE VIII
------------
CUSTODIAN
---------
Section 8.01. Appointment and Duties. The Trustees at all times shall employ a
- ------------ ----------------------
bank, a company that is a member of a national securities exchange, or a trust
company, or any other entity satisfying the requirements of the 1940 Act, as
custodian with authority as its agent, but subject to such
12
<PAGE>
restrictions, limitations, and other requirements, if any, as may be contained
in the Bylaws of the Trust:
(1) to hold the securities and other assets of the Trust and
deliver the same upon written order or oral order confirmed in
writing;
(2) to receive and receipt for any moneys due to the Trust and
deposit the same in its own banking department or elsewhere as
the Trustees may direct; and
(3) to disburse such funds upon orders or vouchers;
and the Trust also may employ such custodian as its agent:
(4) to keep the books and accounts of the Trust and furnish
clerical and accounting services; and
(5) to compute, if authorized to do so by the Trustees, the Net
Asset Value in accordance with the provisions hereof; all upon
such basis of compensation as may be agreed upon between the
Trustees and the custodian.
The Trustees also may authorize the custodian to employ one or
more sub-custodians from time to time to perform such of the acts and services
of the custodian, and upon such terms and conditions, as may be agreed upon
between the custodian and such sub-custodian and approved by the Trustees,
provided that in every case such sub-custodian shall be a bank, a company that
is a member of a national securities exchange, a trust company or any other
entity satisfying the requirements of the 1940 Act.
Section 8.02. Central Certificate System. Subject to such rules, regulations,
- ------------ --------------------------
and orders as the Commission may adopt, the Trustees may direct the custodian to
deposit all or any part of the securities owned by the Trust in a system for the
central handling of securities established by a national securities exchange or
a national securities association registered with the Commission under the
Securities Exchange Act of 1934, as amended, or such other Person as may be
permitted by the Commission, or otherwise in accordance with the 1940 Act,
pursuant to which system all securities of any particular class or series of any
issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust or its custodians, sub-custodians or other agents.
13
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ARTICLE IX
----------
DISTRIBUTIONS AND REDEMPTIONS
-----------------------------
Section 9.01. Distributions.
- ------------ -------------
(a) The Trustees from time to time may declare and pay dividends
or other distributions, the amount of such dividends or distributions and the
payment of them and whether they are in cash or any other Trust Property shall
be wholly in the discretion of the Trustees.
(b) Dividends and other distributions may be paid or made to the
Shareholders of record at the time of declaring a dividend or other distribution
or among the Shareholders of record at such other date or time or dates or times
as the Trustees shall determine, which dividends or distributions, at the
election of the Trustees, may be paid pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine.
Section 9.02. Determination of Net Asset Value and Valuation of Portfolio
- ------------ -----------------------------------------------------------
Assets. The term "Net Asset Value" of the Trust shall mean that amount by which
- ------
the assets of the Trust exceed its liabilities, all as determined by or under
the direction of the Trustees. Such value shall be determined on such days and
at such times as the Trustees may determine. The Trustees may delegate any of
their powers and duties under this Section 9.02 with respect to valuation of
assets and liabilities. The resulting amount, which shall represent the total
Net Asset Value of the Trust, shall be divided by the total number of shares of
the Trust outstanding at the time and the quotient so obtained shall be the Net
Asset Value per Share. At any time the Trustees may cause the Net Asset Value
per Share last determined to be determined again in similar manner and may fix
the time when such redetermined value shall become effective.
ARTICLE X
---------
LIMITATION OF LIABILITY AND INDEMNIFICATION
-------------------------------------------
Section 10.01. Limitation of Liability. All Persons contracting with or having
- ------------- -----------------------
any claim against the Trust shall look only to the assets of the Trust for
payment under such contract or claim; and neither the Trustees nor, when acting
in such capacity, any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Provided they
have exercised reasonable care and have acted under the reasonable belief that
their actions are in the best interest of the Trust, the Trustees and officers
of the Trust shall not be responsible or liable for any act or omission or for
neglect or wrongdoing of them or any officer, agent, employee, investment
adviser or independent contractor of the Trust, but nothing contained in this
Declaration or in the Delaware Act shall protect any Trustee or officer of the
Trust against liability to the Trust or to Shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
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Section 10.02. Indemnification.
- ------------- ---------------
(a) The Trust shall indemnify the Trustees and officers of the
Trust (each such person being an "indemnitee") against any liabilities and
expenses, including amounts paid in satisfaction of judgments, in compromise or
as fines and penalties, and reasonable counsel fees reasonably incurred by such
indemnitee in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, before any court or administrative
or investigative body in which he may be or may have been involved as a party or
otherwise (other than, except as authorized by the Trustees, as the plaintiff or
complainant) or with which he may be or may have been threatened, while acting
in any capacity set forth above in this Section 10.02 by reason of his having
acted in any such capacity, except with respect to any matter as to which he
shall not have acted in good faith in the reasonable belief that his action was
in the best interest of the Trust or, in the case of any criminal proceeding, as
to which he shall have had reasonable cause to believe that the conduct was
unlawful, provided, however, that no indemnitee shall be indemnified hereunder
against any liability to any Person or any expense of such indemnitee arising by
reason of (i) willful misfeasance, (ii) bad faith, (iii) gross negligence
(negligence in the case of Affiliated Indemnitees), or (iv) reckless disregard
of the duties involved in the conduct of his position (the conduct referred to
in such clauses (i) through (iv) being sometimes referred to herein as
"disabling conduct"). Notwithstanding the foregoing, with respect to any action,
suit or other proceeding voluntarily prosecuted by any indemnitee as plaintiff,
indemnification shall be mandatory only if the prosecution of such action, suit
or other proceeding by such indemnitee was authorized by a majority of the
Trustees.
(b) Notwithstanding the foregoing, no indemnification shall be
made hereunder unless there has been a determination (1) by a final decision on
the merits by a court or other body of competent jurisdiction before whom the
issue of entitlement to indemnification hereunder was brought that such
indemnitee is entitled to indemnification hereunder or, (2) in the absence of
such a decision, by (i) a majority vote of a quorum of those Trustees who are
neither Interested Persons of the Trust nor parties to the proceeding
("Disinterested Non-Party Trustees"), that the indemnitee is entitled to
indemnification hereunder, or (ii) if such quorum is not obtainable or even if
obtainable, if such majority so directs, independent legal counsel in a written
opinion conclude that the indemnitee should be entitled to indemnification
hereunder. All determinations to make advance payments in connection with the
expense of defending any proceeding shall be authorized and made in accordance
with the immediately succeeding paragraph (c) below.
(c) The Trust shall make advance payments in connection with the
expenses of defending any action with respect to which indemnification might be
sought hereunder if the Trust receives a written affirmation by the indemnitee
of the indemnitee's good faith belief that the standards of conduct necessary
for indemnification have been met and a written undertaking to reimburse the
Trust unless it is subsequently determined that he is entitled to such
indemnification and if a majority of the Trustees determine that the applicable
standards of conduct necessary for indemnification appear to have been met. In
addition, at least one of the following conditions must be met: (1) the
indemnitee shall provide adequate security for his undertaking, (2) the Trust
shall
15
<PAGE>
be insured against losses arising by reason of any lawful advances, or (3)
a majority of a quorum of the Disinterested Non-Party Trustees, or if a majority
vote of such quorum so direct, independent legal counsel in a written opinion,
shall conclude, based on a review of readily available facts (as opposed to a
full trial-type inquiry), that there is substantial reason to believe that the
indemnitee ultimately will be found entitled to indemnification.
(d) The rights accruing to any indemnitee under these provisions
shall not exclude any other right to which he may be lawfully entitled.
(e) Notwithstanding the foregoing, subject to any limitations
provided by the 1940 Act and this Declaration, the Trust shall have the power
and authority to indemnify Persons providing services to the Trust to the full
extent provided by law as if the Trust were a corporation organized under the
Delaware General Corporation Law provided that such indemnification has been
approved by a majority of the Trustees.
Section 10.03. No Bond Required of Trustees. No Trustee shall be obligated to
- -------------- ----------------------------
give any bond or other security for the performance of any of his duties
hereunder.
Section 10.04. No Duty of Investigation; Notice in Declarations, Etc. No
- ------------- ------------------------------------------------------
purchaser, lender, transfer agent or other Person dealing with the Trustees or
any officer, employee or agent of the Trust shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by the Trustees
or by said officer, employee or agent or be liable for the application of money
or property paid, loaned, or delivered to or on the order of the Trustees or of
said officer, employee or agent. Every obligation, contract, instrument,
certificate, Share, other security of the Trust or undertaking, and every other
act or thing whatsoever executed in connection with the Trust shall be
conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust. Every written obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust under any such instrument are not binding upon
any of the Trustees or Shareholders individually, but bind only the Trust
Property, and may contain any further recital which they may deem appropriate,
but the omission of such recital shall not operate to bind the Trustees
individually. The Trustees shall at all times maintain insurance for the
protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
Section 10.5. Reliance on Experts, Etc. Each Trustee, officer or employee of
- ------------ -------------------------
the Trust shall, in the performance of his duties, powers and discretions
hereunder be fully and completely justified and protected with regard to any act
or any failure to act resulting from reliance in good faith upon the books of
account or other records of the Trust, upon an opinion of counsel, or upon
reports made to the Trust by any of its officers or employees or by the
Investment Adviser, the Administrator, the Distributor, Transfer Agent, selected
dealers, accountants, appraisers or other experts or consultants
16
<PAGE>
selected with reasonable care by the Trustees, officers or employees of the
Trust, regardless of whether such counsel or expert may also be a Trustee.
ARTICLE XI
----------
MISCELLANEOUS
-------------
Section 11.01. Trust Not a Partnership. It is hereby expressly declared that a
- ------------- -----------------------
trust and not a partnership is created hereby. No Trustee hereunder shall have
any power to bind personally either the Trust's officers or any Shareholder.
All Persons extending credit to, contracting with, or having any claim against
the Trust or the Trustees shall look only to the assets of the Trust for payment
under such credit, contract, or claim; and neither the Shareholders nor the
Trustees, nor any of their agents, whether past, present, or future, shall be
personally liable therefore. Nothing in this Declaration shall protect a
Trustee against any liability to which the Trustee otherwise would be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of the office of Trustee
hereunder.
Section 11.02. Trustee Action. The exercise by the Trustees of their powers and
- ------------- --------------
discretions hereunder in good faith and with reasonable care under the
circumstances then prevailing shall be binding upon everyone interested.
Subject to the provisions of Article X hereof and to Section 11.01 of this
Article XI, the Trustees shall not be liable for errors of judgment or mistakes
of fact or law.
Section 11.03. Establishment of Record Dates. For the purpose of determining
- ------------- -----------------------------
the Shareholders who are entitled to receive payment of any dividend or of any
other distribution, the Trustees may from time to time fix a date, which shall
be before the date for the payment of such dividend or such other payment, as
the record date for determining the Shareholders having the right to receive
such dividend or distribution. Without fixing a record date, the Trustees may
for distribution purposes close the register or transfer books any time prior to
the payment of a distribution. The Trustees may fix in advance a date, to be
determined by the Trustees and no longer than that permitted by applicable law,
before the date of any Shareholders' meeting, or the date for the payment of any
dividends or other distributions, or the date for the allotment of rights, or
the date when any change or conversion or exchange of Shares shall go into
effect as a record date for the determination of the Shareholders entitled to
notice of, and to vote at, any such meeting, or entitled to receive payment of
such dividend or other distribution, or to receive any such allotment of rights,
or to exercise such rights in respect of any such change, conversion or exchange
of Shares.
Section 11.04. Termination of Trust.
- ------------- --------------------
(a) This Trust shall continue without limitation of time but
subject to the provisions of paragraph (b) of this Section 11.04.
17
<PAGE>
(b) The Trustees, subject to a majority Shareholder vote of the
Trust, and subject to a vote of a majority of the Trustees, may at any time,
sell and convert into money all of the assets of the Trust.
Upon making reasonable provision, in the determination of the
Trustees, for the payment of all liabilities of the Trust, by such assumption or
otherwise, the Trustees shall distribute the remaining proceeds ratably among
the holders of Shares then outstanding.
(c) The Trustees may take the actions specified in paragraph (b)
of this Section 11.04 without obtaining the approval of Shareholders if a
majority of the Trustees determines that the continuation of the Trust is not in
the best interests of the Trust or its Shareholders as a result of factors or
events adversely affecting the ability of the Trust to conduct its business and
operations in an economically viable manner. Such factors and events may include
the inability of the Trust to maintain its assets at an appropriate size,
changes in laws or regulations governing the Trust or affecting assets of the
type in which the Trust invests, or economic developments or trends having a
significant adverse impact on the business or operations of the Trust.
(d) Upon completion of the distribution of the remaining proceeds
as provided in paragraph (b) of this Section 11.04, the Trust shall terminate
and the Trustees and the Trust shall be discharged of any and all further
liabilities and duties hereunder and the right, title, and interest of all
parties with respect to the Trust shall be canceled and discharged.
Upon termination of the Trust, following completion of winding up
of the Trust's business, the Trustees shall cause a certificate of cancellation
of the Trust's certificate of trust to be filed in accordance with the Delaware
Act, which certificate of cancellation may be signed by any one Trustee.
Section 11.05. Filing of Copies; References; Headings. The original or a copy
- ------------- --------------------------------------
of this Declaration and the original or a copy of each amendment hereof or
Declaration supplemental hereto shall be kept at the office of the Trust where
it may be inspected by any Shareholder. Anyone dealing with the Trust may rely
on a certificate by an officer or Trustee of the Trust as to whether or not any
such amendments or supplements have been made and as to any matters in
connection with the Trust hereunder, and, with the same effect as if it were the
original, may rely on a copy certified by an officer or Trustee of the Trust to
be a copy of this Declaration or of any such amendment or supplemental
Declaration, and references to this Declaration, and all expressions such as or
similar to "herein," "hereof," and "hereunder" shall be deemed to refer to this
Declaration as amended or affected by any such supplemental Declaration. All
expressions such as or similar to "his," "he," and "him" shall be deemed to
include the feminine and neuter, as well as masculine, genders. Headings are
placed herein for convenience of reference only and, in case of any conflict,
the text of this Declaration, rather than the headings, shall control. This
Declaration may be executed in any number of counterparts each of which shall be
deemed an original.
18
<PAGE>
Section 11.06. Applicable Law. The trust set forth in this instrument is made
- ------------- --------------
in the State of Delaware, and the Trust and this Declaration, and the rights and
obligations of the Trustees and Shareholders hereunder, are to be governed by
and construed and administered according to the Delaware Act and the laws of
said State; provided, however, that there shall not be applicable to the Trust,
the Trustee or this Declaration (a) the provisions of Section 3540 of Title 12
of the Delaware Code or (b) any provisions of the laws (statutory or common) of
the State of Delaware (other than the Delaware Act) pertaining to trusts which
relate to or regulate (i) the filing with any court or governmental body or
agency of trustee accounts or schedules of trustee fees and charges, (ii)
affirmative requirements to post bonds for trustees, officers, agents, or
employees of a trust, (iii) the necessity for obtaining court or other
governmental approval concerning the acquisition, holding, or disposition of
real or personal property, (iv) fees or other sums payable to trustees,
officers, agents, or employees of a trust, (v) the allocation of receipts and
expenditures to income and principal, (vi) requirements relating to the titling,
storage, or other manner of holding of trust assets, or (vii) the establishment
of fiduciary or other standards or responsibilities or limitations on the acts
or powers of trustees, which are inconsistent with the limitations or
liabilities or authorities and powers of the Trustees set forth or referenced in
this Declaration. The Trust shall be of the type commonly called a "Delaware
business trust," and, without limiting the provisions hereof, the Trust may
exercise all powers or privileges afforded to trusts or actions that may be
engaged in by trusts under the Delaware Act, and the absence of a specific
reference herein to any such power, privilege, or action shall not imply that
the Trust may not exercise such power or privilege or take such actions.
Section 11.07. Amendments. Except as specifically provided herein, the
- ------------- ----------
Trustees, without Shareholder vote, may amend or otherwise supplement this
Declaration by making an amendment, a Declaration supplemental hereto, or an
amended and restated Declaration. Shareholders shall have the right to vote (i)
on any amendment which would affect their right to vote granted in Section 7.01
of the Article VII hereof, (ii) on any amendment to this Section 11.07, (iii) on
any amendment as may be required by law or by the Trust's registration statement
filed with the Commission, and (iv) on any amendment submitted to the
Shareholders by the Trustees. Notwithstanding anything else herein, any
amendment to Article X hereof shall not limit the rights to indemnification or
insurance provided therein with respect to action or omission of covered Persons
prior to such amendment.
Section 11.08. Derivative Actions. In addition to the requirements set forth in
- ------------- ------------------
Section 3816 of the Delaware Act, a Shareholder may bring a derivative action on
behalf of the Trust only if the following conditions are met:
(a) Shareholders eligible to bring such derivative action under
the Delaware Act who hold at least 10% of the Outstanding Shares of the Trust
shall join in the request for the Trustees to commence such action; and
(b) The Trustees must be afforded a reasonable amount of time to
consider such Shareholder request and to investigate the basis of such claim.
The Trustees shall be entitled to retain counsel or other advisers in
considering the merits of the request and shall require an
19
<PAGE>
undertaking by the Shareholders making such request to reimburse the Trust for
the expense of any such advisers in the event that the Trustees determine not to
bring such action.
Section 11.10. Fiscal Year. The fiscal year of the Trust shall end on a
- ------------- -----------
specified date as set forth in the Bylaws, provided, however, that the Trustees,
without Shareholder approval, may change the fiscal year of the Trust.
Section 11.11. Provisions in Conflict With Law. The provisions of this
- ------------- -------------------------------
Declaration are severable, and if the Trustees shall determine, with the advice
of counsel, that any of such provisions is in conflict with the 1940 Act, with
the regulated investment company provisions of the Internal Revenue Code or with
other applicable laws and regulations, the conflicting provision shall be deemed
never to have constituted a part of this Declaration; provided, however, that
such determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination. If any provision of this Declaration shall be held invalid
or improper, unenforceability shall attach only to such provision in such
jurisdiction and shall not in any manner affect such provisions in any other
jurisdiction or any other provision of this Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned, being the initial Trustee of
the Trust, has executed this instrument this 24th day of June, 1999.
----------------------------------,
as Trustee and not individually
20
<PAGE>
EXHIBIT 99.b
BYLAWS
OF
SAL TRUST PREFERRED FUND I
These Bylaws of SAL Trust Preferred Fund I (the "Trust"), a Delaware
business trust, are subject to the Trust's Declaration of Trust, dated June 24,
1999, as from time to time amended, supplemented, or restated (the
"Declaration"). Capitalized terms used herein which are defined in the
Declaration are used as therein defined.
ARTICLE I
---------
PRINCIPAL OFFICE
----------------
The principal office of the Trust shall be located in Birmingham,
Alabama or such other location as the Trustees, from time to time, may
determine. The Trust may establish and maintain such other offices and places of
business as the Trustees, from time to time, may determine.
ARTICLE II
----------
OFFICERS AND THEIR ELECTION
---------------------------
Section 2.01. Officers. The officers of the Trust shall be a Chief Executive
- ------------ --------
Officer ("President"), a Chief Financial Officer ("Treasurer"), a Secretary, and
such other officers as the Trustees from time to time may elect. The Trustees
may delegate to any officer or committee the power to appoint any subordinate
officers or agents. It shall not be necessary for any Trustee or officer to be a
holder of Shares in the Trust.
Section 2.02. Election of Officers. The Treasurer and Secretary shall be chosen
- ------------ --------------------
by the Trustees. The President shall be chosen by and from the Trustees. Two (2)
or more offices may be held by a single person except the offices of President
and Secretary. Subject to the provisions of Section 3 of Article II of these
Bylaws, the President, the Treasurer, and the Secretary shall each hold office
until their successors are chosen and qualified and all other officers shall
hold office at the pleasure of the Trustees.
Section 2.03. Resignations. Any officer of the Trust may resign, notwithstanding
- ------------ ------------
Section 2 of this Article II of these Bylaws, by filing a written resignation
with the President, the Trustees, or the Secretary, which resignation shall take
effect on being so filed or at such time as may be therein specified.
ARTICLE III
-----------
POWERS AND DUTIES OF OFFICERS AND TRUSTEES
------------------------------------------
Section 3.01. Management of the Trust; General. The business and affairs of the
Trust shall be managed by, or under the direction of, the Trustees, and the
Trustees shall have all powers necessary
1
<PAGE>
and desirable to carry out their responsibilities, so far as such powers are not
inconsistent with the laws of the State of Delaware, the Declaration, or with
these Bylaws.
Section 3.02. Executive and Other Committees. The Trustees may elect from their
- ------------ ------------------------------
own number an executive committee, which shall have any or all the powers of the
Trustees while the Trustees are not in session. The Trustees also may elect from
their own number other committees from time to time. The number composing such
committees and the powers conferred upon the same are to be determined by vote
of a majority of the Trustees. All members of such committees shall hold such
offices at the pleasure of the Trustees. The Trustees may abolish any such
committee at any time. Any committee to which the Trustees delegate any of their
powers or duties shall keep records of its meetings and shall report its actions
to the Trustees. The Trustees shall have power to rescind any action of any
committee, but no such rescission shall have retroactive effect.
Section 3.03. Compensation. Each Trustee and each committee member may
- ------------ ------------
receive such compensation for his services and reimbursement for his expenses as
may be fixed from time to time by resolution of the Trustees.
Section 3.04. Chairman of the Trustees. The Trustees shall appoint from among
- ------------ ------------------------
their number a Chairman who shall serve as such at the pleasure of the Trustees.
When present, he shall preside at all meetings of the Shareholders and the
Trustees, and he may appoint, subject to the approval of the Trustees, a Trustee
to preside at such meetings in his absence. He shall perform such other duties
as the Trustees from time to time may designate.
Section 3.05. President. The President shall be the chief executive officer of
- ------------ ---------
the Trust and, subject to the direction of the Trustees, shall have general
administration of the business and policies of the Trust. Except as the Trustees
otherwise may order, the President shall have the power to grant, issue,
execute, or sign such powers of attorney, proxies, agreements, or other
documents as may be deemed advisable or necessary in the furtherance of the
interest of the Trust. He also shall have the power to employ attorneys,
accountants, and other advisers and agents and counsel for the Trust. The
President shall perform such duties additional to all of the foregoing as the
Trustees from time to time may designate.
Section 3.06. Treasurer. The Treasurer shall be the principal financial and
- ------------ ---------
accounting officer of the Trust. He shall deliver all funds and securities of
the Trust which may come into his hands to such company as the Trustees shall
employ as Custodian in accordance with the Declaration and applicable provisions
of law. He shall make annual reports regarding the business and condition of the
Trust, which reports shall be preserved in Trust records, and he shall furnish
such other reports regarding the business and condition of the Trust as the
Trustees from time to time may require. The Treasurer shall perform such
additional duties as the Trustees from time to time may designate.
Section 3.07. Secretary. The Secretary shall record in books kept for the
- ------------ ---------
purpose all votes and proceedings of the Trustees and the Shareholders at their
respective meetings. He shall have the
2
<PAGE>
custody of the seal of the Trust. The Secretary shall perform such additional
duties as the Trustees from time to time may designate.
Section 3.08. Vice President. Any Vice President of the Trust shall perform such
- ------------ --------------
duties as the Trustees or the President from time to time may designate. At the
request or in the absence or disability of the President, the Vice President
(or, if there are two (2) or more Vice Presidents, then the senior of the Vice
Presidents present and able to act) may perform all the duties of the President
and, when so acting, shall have all the powers of and be subject to all the
restrictions upon the President.
Section 3.09. Assistant Treasurer. Any Assistant Treasurer of the Trust shall
- ------------ -------------------
perform such duties as the Trustees or the Treasurer from time to time may
designate, and, in the absence of the Treasurer, the senior Assistant Treasurer,
present and able to act, may perform all the duties of the Treasurer.
Section 3.10. Assistant Secretary. Any Assistant Secretary of the Trust shall
- ------------ -------------------
perform such duties as the Trustees or the Secretary from time to time may
designate, and, in the absence of the Secretary, the senior Assistant Secretary,
present and able to act, may perform all the duties of the Secretary.
Section 3.11. Subordinate Officers. The Trustees from time to time may appoint
- ------------ --------------------
such other officers or agents as the Trustees may deem advisable, each of whom
shall have such title, hold office for such period, have such authority, and
perform such duties as the Trustees may determine. The Trustees from time to
time may delegate to one (1) or more officers or committees of Trustees the
power to appoint any such subordinate officers or agents and to prescribe their
respective terms of office, authorities, and duties.
Section 3.12. Surety Bonds. The Trustees may require any officer or agent of the
- ------------ ------------
Trust to execute a bond (including, without limitation, any bond required by the
Investment Company Act of 1940, as amended ("the 1940 Act") and the rules and
regulations of the Securities and Exchange Commission ("Commission")) to the
Trust in such sum and with such surety or sureties as the Trustees may
determine, conditioned upon the faithful performance of such officer's or
agent's duties to the Trust including responsibility for negligence and for the
accounting of any of the Trust's property, funds, or securities that may come
into such officer's or agent's hands.
Section 3.13. Removal. Any officer of the Trust may be removed from office
- ------------ -------
whenever in the judgment of the Trustees the best interest of the Trust will be
served thereby, by the vote of a majority of the Trustees given at any regular
meeting or any special meeting of the Trustees. In addition, any officer or
agent appointed in accordance with the provisions of Section 11 hereof may be
removed, either with or without cause, by any officer upon whom such power of
removal shall have been conferred by the Trustees.
3
<PAGE>
Section 3.14. remuneration. The salaries or other compensation, if any, of the
- ------------ ------------
officers of the Trust shall be fixed from time to time by resolution of the
Trustees.
ARTICLE IV
----------
SHAREHOLDERS' MEETING
---------------------
Section 4.01. Special Meetings. A special meeting of the Shareholders shall be
- ------------ ----------------
called by the Secretary whenever (i) ordered by the Trustees or (ii) requested
in writing by the holder or holders of at least ten percent (10%) of the
Outstanding Shares entitled to vote. If the Secretary, when so ordered or
requested, refuses or neglects for more than thirty (30) days to call such
special meeting, the Trustees or the Shareholders so requesting, in the name of
the Secretary, may call the meeting by giving notice thereof in the manner
required when notice is given by the Secretary.
Section 4.02. Notices. Except as above provided, notices of any meeting of the
- ------------ -------
Shareholders shall be given by the Secretary by delivering or mailing, postage
prepaid, to each Shareholder entitled to vote at said meeting, written or
printed notification of such meeting at least fifteen (15) days before the
meeting, to such address as may be registered with the Trust by the Shareholder.
Notice of any Shareholder meeting need not be given to any Shareholder if a
written waiver of notice, executed before or after such meeting, is filed with
the record of such meeting, or to any Shareholder who shall attend such meeting
in person or by proxy. Notice of adjournment of a Shareholders' meeting to
another time or place need not be given, if such time and place are announced at
the meeting and reasonable notice is given to persons present at the meeting and
the adjourned meeting is held within a reasonable time after the date set for
the original meeting.
Section 4.03. Voting-Proxies. Subject to the provisions of the Declaration,
- ------------ --------------
Shareholders entitled to vote may vote either in person or by proxy, provided
Shareholder in writing and dated not more than eleven (11) months before the
meeting, unless this instrument specifically provides for a longer period or
(ii) the Trustees adopt by resolution an electronic, telephonic, computerized,
or other alternative to execution of a written instrument authorizing the proxy
to act, which authorization is received no more than eleven (11) months before
the meeting. Proxies shall be delivered to the Secretary of the Trust or other
persons responsible for recording the proceedings before being voted. A proxy
with respect to Shares held in the name of two (2) or more persons shall be
valid if executed by one (1) of them unless at or prior to exercise of such
proxy the Trust receives specific written notice to the contrary from any one
(1) of them. Unless otherwise specifically limited by their terms, proxies shall
entitle the holder thereof to vote at any adjournment of a meeting. A proxy
purporting to be exercised by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise and the burden or providing
invalidity shall rest on the challenger. At all meetings of the Shareholders,
unless the voting is conducted by inspectors, all questions relating to the
qualifications of voters, the validity or proxies, and the acceptance or
rejection of votes shall be decided by the Chairman of the meeting. Except as
otherwise provided herein or in the Declaration, as these Bylaws or such
Declaration may be amended or supplemented from time to time, all matters
relating to the giving, voting, or validity or proxies shall be governed by the
General Corporation Law of the
4
<PAGE>
State of Delaware relating to proxies, and judicial interpretations thereunder,
as if the Trust were a Delaware corporation and the Shareholders were
shareholders of a Delaware corporation.
Section 4.04. Place of Meeting. All special meetings of the Shareholders shall
- ------------ ----------------
be held at the principal place of business of the Trust or at such other place
in the United States as the Trustees may designate.
Section 4.05. Action Without a Meeting. Any action to be taken by Shareholders
- ------------ ------------------------
may be taken without a meeting if all Shareholders entitled to vote on the
matter consent to the action in writing and the written consents are filed with
the records of meetings of Shareholders of the Trust. Such consent shall be
treated for all purposes as a vote at a meeting of the Trustees held at the
principal place of business of the Trust.
ARTICLE V
---------
TRUSTEES' MEETINGS
------------------
Section 5.01. Special Meetings. Special meetings of the Trustees may be called
- ------------
orally or in writing by the Chairman of the Board of Trustees or any two (2)
other Trustees.
Section 5.02. Regular Meeting. Regular meetings of the Trustees may be held at
- ------------
such places and at such times as the Trustees from time to time may determine;
each Trustee present at such determination shall be deemed a party calling the
meeting and no call or notice will be required to such Trustee provided that any
Trustee who is absent when such determination is made shall be given notice of
the determination by the Chairman or any two (2) other Trustees, as provided for
in Section 4.04 of the Declaration.
Section 5.03. Quorum. A majority of Trustees shall constitute a quorum for the
- ------------ ------
transaction of business and an action of a majority of the quorum shall
constitute action of the Trustees.
Section 5.04. Notice. Except as otherwise provided, notice of any special
- ------------ ------
meeting of the Trustees shall be given by the party calling the meeting to each
Trustee, as provided for in Section 4.04 of the Declaration. A written notice
may be mailed, postage prepaid, addressed to him at his address as registered on
the books of the Trust or, if not so registered, at his last known address.
Section 5.05. Place of Meeting. All special meetings of the Trustees shall be
- ------------ ----------------
held at the principal place of business of the Trust or such other place as the
Trustees may designate. Any meeting may adjourn to any place.
Section 5.06. Special Action. When all the Trustees shall be present at any
- ------------ --------------
meeting, however called or wherever held, or shall assent to the holding of the
meeting without notice, or shall sign a written assent thereto filed with the
record of such meeting, the acts of such meeting shall be valid as if such
meeting had been regularly held.
5
<PAGE>
Section 5.07. Action By Consent. Any action by the Trustees may be taken without
- ------------ -----------------
a meeting if a written consent thereto is signed by all the Trustees and filed
with the records of the Trustees' meeting. Such consent shall be treated, for
all purposes, as a vote at a meeting of the Trustees held at the principal place
of business of the Trustees.
Section 5.08. Participation in Meetings By Conference Telephone. Trustees may
- ------------ -------------------------------------------------
participate in a meeting of Trustees by conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting. Any meeting conducted by telephone shall be deemed to
take place at and from the principal office of the Trust.
ARTICLE VI
----------
SHARES OF BENEFICIAL INTEREST
-----------------------------
Section 6.01. Beneficial Interest. The beneficial interest in the Trust at all
- ------------ -------------------
times shall be divided into such transferable Shares of one distinct Series. The
number of Shares is unlimited, and each Share shall be without par value and
shall represent an equal proportionate interest with each other Share, none
having priority or preference over another.
Section 6.02. Transfer of Shares. The Shares of the Trust shall be transferable,
- ------------ ------------------
so as to affect the rights of the Trust, only by transfer recorded on the books
of the Trust, in person or by attorney.
Section 6.03. Equitable Interest Not Recognized. The Trust shall be entitled to
- ------------ ---------------------------------
treat the holder of record of any Share or Shares of beneficial interest as the
holder in fact thereof, and shall not be bound to recognize any equitable or
other claim or interest in such Share or Shares on the part of any other person
except as otherwise may be expressly provided by law.
Section 6.04. Share Certificate. In lieu of issuing certificates for Shares, the
- ------------ -----------------
Trustees or the transfer or shareholder services agent either may issue receipts
therefor or may keep accounts upon the books of the Trust for the record holders
of such Shares, who in either case shall be deemed, for all purposes hereunder,
to be holders of certificates for such Shares as if they had accepted such
certificates and shall be held to have expressly assented and agreed to the
terms hereof.
ARTICLE VII
-----------
OWNERSHIP OF ASSETS OF THE TRUST
--------------------------------
The Trustees, acting for and on behalf of the Trust, shall be deemed
to hold legal and beneficial ownership of any income earned on securities held
by the Trust issued by any business entity formed, organized or existing under
the laws of any jurisdiction other than a state, commonwealth, possession,
territory, or colony of the United States or the laws of the United States.
6
<PAGE>
ARTICLE VIII
------------
INSPECTION OF BOOKS
-------------------
The Trustees from time to time shall determine whether and to
what extent, and at what times and places, and under what conditions and
regulations, the accounts and books of the Trust or any of them shall be open to
the inspection of the Shareholders; and no Shareholder shall have any right to
inspect any account or book or document of the Trust except as conferred by law
or otherwise by the Trustees or by resolution of the Shareholders.
ARTICLE IX
----------
INSURANCE OF OFFICERS, TRUSTEES, AND EMPLOYEES
----------------------------------------------
The Trust may purchase and maintain insurance on behalf of any
person or employee of the Trust, including any person or employee of the Trust
who is or was serving at the request of the Trust as a Trustee, officer, or
employee of a corporation, partnership, association, joint venture, trust, or
other enterprise, against any liability asserted against him and incurred by him
in any such capacity or arising out of his status as such, whether or not the
Trustees would have the power to indemnify him against such liability.
The Trust may not acquire or obtain a contract for insurance that
protects or purports to protect any Trustee or officer of the Trust against any
liability to the Trust or its Shareholders to which he otherwise would be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
ARTICLE X
---------
SEAL
----
The seal of the Trust shall be circular in form bearing the inscription:
"SAL TRUST PREFERRED FUND I
THE STATE OF DELAWARE"
The form of the seal shall be subject to alteration by the Trustees
and the seal may be used by causing the seal or a facsimile to be impressed or
affixed or printed or otherwise reproduced.
Any officer or Trustee of the Trust shall have authority to affix
the seal of the Trust to any document, instrument, or other paper executed and
delivered by or on behalf of the Trust; however, unless otherwise required by
the Trustees, the seal shall not be necessary to be placed on, and the seal's
absence shall not impair the validity of, any document, instrument, or other
paper executed by or on behalf of the Trust.
7
<PAGE>
ARTICLE XI
----------
FISCAL YEAR
-----------
The fiscal year of the Trust shall end on December 31 or on such
date as the Trustees from time to time shall determine.
ARTICLE XII
-----------
AMENDMENTS
----------
These Bylaws may be amended at any meeting of the Trustees of the
Trust by a majority vote.
ARTICLE XIII
------------
REPORT TO SHAREHOLDERS
----------------------
The Trustees at least semi-annually shall submit to the Shareholders
a written financial report of the Trust including financial statements which
shall be certified at least annually by independent public accountants.
ARTICLE XIV
-----------
HEADINGS
--------
Headings are placed in these Bylaws for convenience of reference
only and, in case of any conflict, the text of these Bylaws rather than the
headings shall control.
8
<PAGE>
Exhibit 99.g
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this __th day of August, 1999 by and between SAL Trust
Preferred Fund I, a Delaware business trust (the "Fund") and Sterne Agee Asset
Management, Inc., (the "Manager").
WITNESSETH
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Fund hereby employs the Manager to act as the investment adviser
for, and to manage the investment of the assets of the Fund in accordance with
the Fund's investment objective and policies and limitations, and to administer
the Fund's affairs to the extent requested by and subject to the supervision of
the Board of Trustees of the Fund for the period and upon the terms herein set
forth. The investment of the Fund's assets shall be subject to the Fund's
policies, restrictions and limitations with respect to securities investments as
set forth in the Fund's then current registration statement under the Investment
Company Act of 1940, and all applicable laws and the regulations of the
Securities and Exchange Commission relating to the management of registered
closed-end, non-diversified management investment companies.
The Manager accepts such employment and agrees during such period to render
such services, to furnish office facilities and equipment and clerical,
bookkeeping and administrative services (other than such services, if any,
provided by the Fund's transfer agent) for the Fund, to permit any of its
officers or employees to serve without compensation as trustees or officers of
the Fund if elected to such positions, and to assume the obligations herein set
forth for the compensation herein provided. The Manager shall, for all purposes
herein provided, be deemed to be an independent contractor and, unless otherwise
expressly provided or authorized, shall have no authority to act for not
represent the Fund in any way, nor otherwise be deemed an agent of the Fund.
2. For the services and facilities described in Section 1, the Fund will
pay to the Manager, at the end of each calendar quarter, an investment
management fee computed by applying an annual rate equal to .10% of the Fund's
net asset value as calculated quarterly. For the quarter and year in which this
Agreement becomes effective, or terminates, there shall be an appropriate
proration on the basis of the number of days that the Agreement shall have been
in effect during the quarter and year, respectively. The services of the
Manager to the Fund under this Agreement are not to be deemed exclusive, and the
Manager shall be free to render similar services or other services to others so
long as its services hereunder are not impaired thereby.
3. The Manager shall arrange for officers or employees of the Manager to
serve, without compensation from the Fund, as trustees, officers or agents of
the Fund, if duly elected
<PAGE>
or appointed to such positions, and subject to their individual consent and to
any limitations imposed by law.
4. Subject to applicable statutes and regulations, it is understood that
officers, trustees, or agents of the Fund are, or may be, interested in the
Manager as officers, directors, agents, shareholders or otherwise, and that the
officers, directors, shareholders and agents of the Manager may be interested in
the Fund otherwise than as trustees, officers or agents.
5. The Manager shall not be liable for any loss sustained by reason of
the purchase, sale or retention of any security, except loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the Manager
in the performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
6. The Manager may now or in the future manage other investment accounts
and funds, including those with investment objectives similar to the Fund.
7. This Agreement shall continue in effect until August __, 2001, unless
and until terminated by either party as hereinafter provided, and shall continue
in force from year to year thereafter, but only as long as such continuance is
specifically approved, at least annually, in the manner required by the
Investment Company Act of 1940.
This Agreement shall automatically terminate in the event of its
assignment, and may be terminated at any time without the payment of any penalty
by the Fund or by the Manager upon sixty (60) days' written notice to the other
party. The Fund may effect termination by action of the Board of Trustees or by
vote of a majority of the outstanding voting securities of the Fund, accompanied
by appropriate notice.
This Agreement may be terminated, at any time, without the payment of any
penalty, by the Board of Trustees of the Fund, or by vote of a majority of the
outstanding voting securities of the Fund, in the event that it shall have been
established by a court of competent jurisdiction that the Manager, or any
officer or director of the Manager, has taken any action which results in a
breach of the covenants of the Manager set forth herein.
Termination of this Agreement shall not affect the right of the Manager to
receive payments on any unpaid balance of the compensation, described in Section
2, earned prior to such termination.
8. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule, or otherwise, the remainder shall not be thereby
affected.
9. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for receipt of such notice.
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<PAGE>
10. The Fund's Certificate of Trust is on file with the State of Delaware.
This Agreement is executed on behalf of the Fund by the Fund's officers as
officers and not individually and the obligations imposed upon the Fund by this
Agreement are not binding upon any of the Fund's Trustees, officers or
shareholders individually but are binding only upon the assets and property of
the Fund.
IN WITNESS WHEREOF, the Fund and the Manager have caused this Agreement to
be executed on the day and year above written.
SAL TRUST PREFERRED FUND I
By: ____________________________________
President
Attest: __________________________
Secretary
STERNE AGEE ASSET MANAGEMENT, INC.
By: ____________________________________
President
Attest: __________________________
Secretary
3
<PAGE>
EXHIBIT 99.h
UNDERWRITING AGREEMENT
SAL TRUST PREFERRED FUND I
(a Delaware Business Trust)
860,000 Shares Fund Securities
$21,500,000
September __, 1999
STERNE, AGEE & LEACH, INC.
As representative of the several underwriters
named in Schedule I attached hereto
2100 AmSouth Harbert Building
1901 Sixth Avenue North, Suite 2100
Birmingham, Alabama 35203
Gentlemen:
SAL Trust Preferred Fund I, a Delaware business trust (the "Fund") proposes
to sell to the several underwriters (the "Underwriters") named in Schedule I
attached hereto for whom Sterne, Agee & Leach, Inc., a Delaware corporation, is
acting as representative (the "Representative") an aggregate of 860,000 shares
("Firm Shares") of the beneficial ownership of the Fund (the "Fund Securities").
The respective amounts of the Firm Shares to be so purchased by the several
Underwriters are set forth opposite their names in Schedule I hereto. The Fund
also proposes to sell at the Underwriters' option an aggregate of up to 86,000
additional shares (the "Option Shares") of Fund Securities to cover over-
allotments.
As Representative, you have advised the Fund (a) that you are authorized to
enter into this Agreement on behalf of the several Underwriters, and (b) that
the several Underwriters are willing, acting severally and not jointly, to
purchase the numbers of Firm Shares set forth opposite their respective names in
Schedule I, plus their pro rata portion of the Option Shares if you elect to
exercise the over-allotment option in whole or in part for the accounts of the
several Underwriters. The Firm Shares and the Option Shares are hereinafter
referred to collectively as the "Shares."
It is proposed that Sterne Agee Asset Management, Inc., a Delaware
corporation (the "Manager"), will act as the Fund's manager.
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Fund and the Manager.
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(a) The Fund represents and warrants to the several Underwriters as of the
date hereof as follows:
(i) A registration statement on Form N-2 (Registration Nos. 333-
82195; 811-09421) with respect to the Shares has been carefully prepared by the
Fund in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the Investment Company Act of 1940, as amended (the
"1940 Act"), and the rules and regulations thereunder (the "Rules and
Regulations") of the Securities and Exchange Commission (the
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<PAGE>
"Commission"). Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of Rule 430A
under the Act) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Fund to you. Such registration statement, herein referred to as the
"Registration Statement," which shall be deemed to include all information
omitted therefrom in reliance upon Rule 430A and contained in the Prospectus
referred to below, has been declared effective by the Commission under the Act
and no post-effective amendment to the Registration Statement has been filed as
of the date of this Agreement. The form of prospectus and statement of
additional information first filed by the Fund with the Commission pursuant to
Rule 497(b) and (h) and Rule 430A is herein referred to as the "Prospectus."
Each preliminary prospectus and statement of additional information included in
the Registration Statement prior to the time is becomes effective is herein
referred to as a "Preliminary Prospectus."
(ii) The Fund has been duly organized and is validly existing as a
business trust in good standing under the laws of the State of Delaware with the
power and authority to own, lease and operate its properties and conduct its
business as described in the Registration Statement; the Fund is duly qualified
as a foreign business trust to transact business and is in good standing in each
jurisdiction in which such qualification is required; and the Fund has no
subsidiaries.
(iii) The outstanding Fund Securities have been duly authorized and
validly issued and are fully paid and non-assessable; the Shares to be issued
and sold by the Fund have been duly authorized and when issued, and paid for as
contemplated herein will be validly issued, fully paid and non-assessable; and
no preemptive rights of stockholders exist with respect to any of the Shares or
the issue and sale thereof.
(iv) The Shares conform with the statements concerning them in the
Registration Statement.
(v) The Commission has not issued an order preventing or suspending
the use of any Preliminary Prospectus or the Prospectus relating to the proposed
offering of the Shares nor instituted proceedings for that purpose. The
Registration Statement contains and the Prospectus and any amendments or
supplements thereto will contain all statements which are required to be stated
therein by, and in all respects conforms or will conform, as the case may be, to
the requirements of the Act, the 1940 Act and the Rules and Regulations. Neither
the Registration Statement nor any amendment thereto, and neither the Prospectus
nor any supplement thereto, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Fund makes no representations or warranties as to information contained
in or omitted from the Registration Statement or the Prospectus, or any such
amendment or supplement, in reliance upon, and in conformity with, written
information furnished to the Fund by or on behalf of any Underwriter through the
Representative, specifically for use in the preparation thereof.
(vi) The Statement of Net Assets of the Fund, together with related
notes and schedules as set forth in the Registration Statement, presents fairly
the financial position of the Fund at the indicated date. Such financial
statements has been prepared in accordance with generally accepted principles of
accounting.
(vii) There is no action or proceeding pending or, to the knowledge
of the Fund, threatened against the Fund before any court or administrative
agency which might result in any material adverse change in the business,
condition or prospects of the Fund, except as set forth in the Registration
Statement.
(viii) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, 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 the Fund or the earnings, business affairs, management or business prospects
of the Fund, whether or not occurring in the ordinary course of business, and
there has not been any material transaction entered into by the Fund, other than
transaction in the ordinary course of business and changes and transactions
contemplated by the Registration Statement, as it may be
2
<PAGE>
amended or supplemented. The Fund has no material contingent obligations which
are not disclosed in the Registration Statement, as it may be amended or
supplemented.
(ix) The Fund is not in default under any agreement, lease,
contract, indenture or other instrument or obligation to which it is a party or
by which it or any of its properties is bound and which default is of material
significance in respect of the business or financial condition of the Fund. The
consummation of the transactions herein contemplated and the fulfillment of the
terms hereof will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust or other agreement or instrument to which the Fund is a party, or of the
Declaration of Trust of the Fund or any order, rule or regulation applicable to
the Fund of any court or of any regulatory body or administrative agency or
other governmental body having jurisdiction.
(x) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Fund of, and the consummation of the transactions contemplated by, this
Agreement, the Management Agreement (as hereinafter defined), the Custodian
Agreement (has hereinafter defined) the Trust Preferred Purchase Agreement (as
hereinafter defined) (except such additional steps as may be required by the
National Association of Securities Dealers, Inc. (the "NASD") the American Stock
Exchange, Inc., or may be necessary to qualify the Shares for public offering by
the Underwriter under state securities or Blue Sky laws, all of which will occur
as required) has been obtained or made and is in full force and effect and the
Shares have been approved for listing on the American Stock Exchange.
(xi) Subject to the exceptions noted above, the Fund holds all
material licenses, certificates and permits from governmental authorizes which
are necessary to the conduct of its business.
(xii) Arthur Andersen LLP, who has certified the financial statements
filed with the Commission as part of the Registration Statements, is an
independent public accountant as required by the Act, 1940 Act and the Rules and
Regulations.
(xiii) The Fund is duly registered under the 1940 Act as a closed-end,
non-diversified management investment company, and the notification of
registration of the Fund on Form N-8A (the "1940 Act Notification") has been
duly filed with the Commission and, at the time of filing thereof, conformed in
all material respects with the provisions of the 1940 Act and the rules and
regulations of the Commission thereunder, and did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. The Fund has not received any notice from the Commission pursuant
to Section 8(e) of the 1940 Act with respect to the 1940 Act Notification or the
Registration Statement.
(xiv) The Investment Management Agreement between the Fund and the
Manager (the "Management Agreement") has been duly authorized, executed and
delivered on behalf of the Fund, is a valid and binding obligation of the Fund
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization and moratorium laws and other laws affecting
enforcement of creditors' rights generally and to equitable principles that may
restrict the availability of remedies and such Management Agreement is in all
respects in full compliance with all applicable provisions of the 1940 Act and
the Investment Advisers Act of 1940, as amended (the "Advisers Act").
(xv) The Mutual Fund Custody Agreement (the"Custodian Agreement")
between the Fund and The Trust Company of Sterne, Agee & Leach, Inc. has been
duly authorized, executed and delivered on behalf of the Fund, is a valid and
binding obligation of the Fund enforceable in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization and moratorium laws and
other laws affecting enforcement of creditors' rights generally and to equitable
principles that may restrict the availability of remedies and such Custodian
Agreement is in all respects in full compliance with all applicable provisions
of the 1940 Act.
3
<PAGE>
(xvi) The three respective Trust Preferred Purchase Agreements by and
among the Fund and (i) FirstBancorp, Inc. and FirstBancorp Capital Statutory
Trust, a Connecticut statutory trust controlled thereby, (ii) First Southern
Bancorp, Inc. and First Southern Capital Statutory Trust, a Connecticut
statutory trust controlled thereby and (iii) Central Community Corporation and
Central Community Capital Statutory Trust, a Connecticut statutory trust
controlled thereby have each been duly authorized, executed and delivered on
behalf of the Fund, and each is a valid and binding obligation of the Fund.
(b) The Manager represents and warrants as follows:
(i) The Manager has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own its properties and conduct is business as
described in the Prospectus and the Manager is duly qualified to transact
business in all jurisdictions in which the conduct of its business requires such
qualification.
(ii) There is no action or proceeding pending or, to the knowledge
of the Manager, threatened against the Manager before any court or
administrative agency which might result in any material adverse change in the
business, condition or prospects of the Manager, except as set forth in the
Registration Statement.
(iii) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, 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 the Manager or the earnings, business affairs, management or business
prospects of the Manager, whether or not occurring in the ordinary course of
business, and there has not been any material transaction entered into by the
Manager other than transactions in the ordinary course of business and changes
and transactions contemplated by the Registration Statement, as it may be
amended or supplemented. The Manager has no material contingent obligations
which are not disclosed in the Registration Statement, as it may be amended or
supplemented.
(iv) The Manager is not in default under any agreement, lease,
contract, indenture or other instrument or obligation to which it is a party or
by which it or any of its properties is bound and which default is of material
significance in respect of the business or financial condition to the Manager.
The consummation of the transactions herein contemplated and the fulfillment of
the terms hereof will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under, any indenture, mortgage,
deed of trust or other agreement or instrument to which the Manager is a party,
or of the Certificate of Incorporation or By-Laws of the Manager or any order,
rule or regulation applicable to the Manager of any court or any regulatory body
or administrative agency or other governmental body having jurisdiction.
(v) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Manager of, and the consummation of the transactions contemplated by, this
Agreement or the Management Agreement (except such additional steps as may be
required by the NASD or may be necessary to qualify the Shares for public
offering by the Underwriters under state securities or Blue Sky laws, all of
which will occur as required) has been obtained or made and is in full force and
effect.
(vi) Subject to the exceptions noted above, the Manager holds all
material licenses, certificates and permits from governmental authorities which
are necessary to be conduct of it business.
(vii) The Manager is duly registered with the Commission under the
Advisers Act as an investment adviser, and there does not exist any proceeding
or any facts or circumstances the existence of which could lead to any
proceeding which would adversely affect the registration or good standing of the
Manager with the Commission. The Manager is not prohibited from performing its
obligations under the Management Agreement.
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<PAGE>
(viii) The Management Agreement has been duly authorized, executed and
delivered on behalf of the Manager, and is a valid and binding obligation of the
Manager in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization and moratorium laws and other laws affecting
enforcement of creditors' rights generally and to equitable principles that may
restrict the availability of remedies and such Management Agreement is in all
respects in full compliance with all applicable provisions of the 1940 Act and
the Advisers Act.
(ix) The Commission has not issued an order preventing or suspending
the use of any Preliminary Prospectus relating to the proposed offering of the
Shares nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and in all
respects conforms and will conform, as the case may be, to the requirements of,
the Act, the 1940 Act and the Rules and Regulations. Neither the Registration
Statement nor any amendment thereto contains, and neither the Prospectus nor any
supplement thereto will contain, any untrue statement of a material fact or
omits or will omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they are made, not misleading; provided, however, that the Manager
makes no representation or warranties as to information contained in or omitted
from the Registration Statement, or any such amendment or supplement, in
reliance upon, and in conformity with, written information furnished to the Fund
or the Manager by or on behalf of any Underwriter through the Representative,
specifically for use in the preparation thereof.
2. Purchase, Sale and Delivery of Firm Shares. On the basis of the
------------------------------------------
representations, warranties and covenants herein contained, and subject to the
conditions herein set forth, the Fund agrees to sell to the Underwriters and
each Underwriter agrees, severally and not jointly, to purchase, at a price of
$25.00 per share, the number of Firm Shares set forth opposite the name of each
Underwriter in Schedule I hereof, subject to adjustments in accordance with
Section 9 hereof.
Payment for the Firm Shares to be sold hereunder is to be made in New York
Clearing House funds by certified or banks cashier's checks drawn to the order
of the Fund against delivery of certificates therefor to the Representative for
the several accounts of the Underwriters. Such payment and delivery are to be
made at the offices of Sterne, Agee & Leach, Inc., 950 East Paces Ferry Road,
Atlanta, Georgia, at 10:00 a.m., Atlanta time, on the third business day after
the date of this Agreement or at such other time and date not later than three
business days thereafter as you and the Fund shall agree upon, such time and
date being herein referred to as the "Closing Date." The certificates for the
Firm Shares will be delivered in such denominations and in such registrations as
the Representative request in writing not later than the third full business day
prior to the Closing Date, and will be made available for inspection by the
Representative at least one business day prior to the Closing Date.
In addition, on the basis of the representation and warranties herein
contained and subject to the terms and conditions herein set forth, the Fund
hereby grants an option to the several Underwriters to purchase the Option
Shares at the price per share and pursuant to the same conditions, contingencies
and adjustments as set forth in the first paragraph of this Section 2. The
option granted hereby may be exercised in whole or in part (if in part, subject
to a maximum of one exercise, with the aggregate number of Shares purchased
through such option not to exceed the number of Option Shares set forth in the
opening paragraph of this Agreement), upon written notice given within 30 days
after the date of this Agreement, by you, as Representative of the several
Underwriters, to the Fund setting forth the number of Option Shares as to which
the several Underwriters are exercising the option, the names and denominations
in which the Option Shares are to be registered and the time and date at which
such certificates are to be delivered. The time and date at which certificates
for Option Shares are to be delivered shall be determined by the Representative,
but shall not be earlier than three nor later than 10 full business days after
the exercise of such option, nor in any event prior to the Closing Date (each
such time and date being herein referred to as the "Option Closing Date"). If
the date of exercise of the option is three or more business days before the
Closing Date, the notice of exercise shall set the Closing Date as the Option
Closing Date. The number of Option Shares to be purchased by each Underwriter
shall be in the same proportion to the total number of Option Shares being
purchased as the number of Firm Shares being purchased by such Underwriter bears
to 860,000, adjusted by you in such manner as to avoid
5
<PAGE>
fractional shares. The option with respect to the Option Shares granted
hereunder may be exercised only to cover over-allotments in the sale of the Firm
Shares by the Underwriters. You, as Representative of the several Underwriters,
may cancel such option at any time prior to its expiration by giving written
notice of such cancellation to the Fund. To the extent, if any, that the option
is exercised, payment for the Option Shares shall be made on the Option Closing
Date in New York Clearing House funds by certified or bank cashier's check drawn
to the order of the Fund against delivery of certificates therefor at the
offices of Sterne, Agee & Leach, Inc., 950 East Paces Ferry Road, Atlanta,
Georgia.
3. Offering by the Underwriters. It is understood that the several
----------------------------
Underwriters are to make a public offering of the Firm Shares as soon as the
Representative deem it advisable to do so. The Firm Shares are to be initially
offered to the public at the initial public offering price set forth in the
Prospectus. The Representative may from time to time thereafter change the
public offering price and other selling terms. To the extent, if at all, that
any Option Shares are purchased pursuant to Section 2 hereof, the Underwriters
will offer them to the public on the foregoing terms.
It is further understood that you will act as the Representative for the
Underwriters in the offering and sale of the Shares, in accordance with the
Master Agreement Among Underwriters which has been entered into by you and the
several other Underwriters.
4. Covenants of the Fund. The Fund covenants and agrees with the several
---------------------
Underwriters that:
(a) Pursuant to their respective Trust Preferred Purchase Agreements with
the Fund, the Fund will use the proceeds of the Offering to purchase cumulative
trust preferred securities of FirstBancorp, Inc. and FirstBancorp Capital
Statutory Trust, a Connecticut statutory trust controlled thereby; First
Southern Bancorp, Inc. and First Southern Capital Statutory Trust, a Connecticut
statutory trust controlled thereby; and Central Community Corporation and
Central Community Capital Statutory Trust, a Connecticut statutory trust
controlled thereby.
(b) The Fund will advise the Representative promptly of any request of the
Commission for amendment of the Registration Statement or for supplement to the
Prospectus or for any additional information, or of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or any order under Section 8(e) of the
1940 Act or of the institution of any proceedings for those purposes, and the
Fund will use its best efforts to prevent the issuance of any orders preventing
or suspending the use of the prospectus and to obtain as soon as possible the
lifting thereof, if issued.
(c) The Fund will cooperate with the Representative in endeavoring to
qualify the Shares for sale under the securities laws of such jurisdictions as
the Representative may reasonably have designated in writing and will make such
applications, file such documents, and furnish such information as may be
reasonable required for that purpose, provided the Fund shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or required to file
such a consent. The Fund will, from time to time, prepare and file such
statements, reports, and other documents, as are or may be required to continue
such qualifications in effect for so long a period as the Representative may
reasonably request for distribution of the Shares.
(d) The Fund will deliver to, or upon the order of, the Representative,
from time to time, as many copies of any Preliminary Prospectus as the
Representative may reasonably request. The Fund will deliver to, or upon the
order of, the Representative during the period when delivery of a Prospectus is
required under the Act, as many copies of the Prospectus in final form, or as
thereafter amended or supplemented, as the Representative may reasonably
request. The Fund will deliver to the Representative at or before the Closing
Date, four signed copies of the Registration Statement and all amendments
thereto including all exhibits filed therewith, and will deliver to the
Representative such number of copies of the 1940 Act Notification and the
Registration Statement, but without exhibits, and of all amendments thereto, as
the Representative may reasonably request.
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(e) If during the period in which a Prospectus is required by law to be
delivered by an Underwriter or dealer any event shall occur as a result of
which, in the judgment of the Fund or in the opinion of counsel for the
Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances existing
at the time the Prospectus is delivered to a purchaser, not misleading, or, if
it is necessary at any time to amend or supplement the Prospectus to comply with
any law, the Fund promptly will prepared and file with the Commission an
appropriate amendment or supplement to the Prospectus so that the Prospectus as
so amended or supplemented will not, in the light of the circumstances when it
is so delivered, be misleading, or so that the Prospectus will comply with the
law.
(f) The Fund will make generally available to its shareholders, as soon as
it is practicable to do so, but in any event not later than 15 months after the
effective date of the Registration Statement, an earnings statement (which 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
11(a) of the Act and Rule 158 under the Act and will advise you in writing when
such statement has been so made available.
(g) The Fund will, for a period of five years from the Closing Date,
deliver to the Representative copies of annual reports and copies of all other
documents, reports and information furnished by the Fund to its shareholders or
filed with any securities exchange pursuant to the requirements of such exchange
or with the Commission pursuant to the Act or the Securities Exchange Act of
1934, as amended.
(h) As soon as the Fund is advised thereof, it will advise the
Representative, and confirm the advice in writing, that the Registration
Statement shall have become effective.
(i) The Fund will use its best efforts to list, subject to notice of
issuance, the Shares on the American Stock Exchange or, if unavailable, the
Nasdaq/NMS.
5. Cost and Expenses. The costs, expenses and fees incident to the
-----------------
performance of the obligations of the Fund under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Fund; the fees and disbursements of counsel for the Fund; the cost of
printing and delivering to, as requested by the Underwriters, copies of the
Registration Statement, Preliminary Prospectuses, the Prospectus, the 1940 Act
Notification, this Agreement, any Underwriters' Selling Memorandum, any sales
literature to dealers or prospective purchasers, the Underwriters' Invitation
Letter, the Listing Application, any Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees and
expenses incident to securing any required review by the NASD of the terms of
the sale of the Shares; the listing fee of the AMEX or Nasdaq/NMS, as
applicable; and the expenses, including the fees and disbursements of counsel
for the Underwriter, incurred in connection with the qualification of the Shares
under state securities or Blue Sky laws and the review of the terms of the sale
of the Shares by the NASD will be paid for by the bank holding companies in
which the Fund will invest the proceeds of the Shares, to the extent provided in
the Trust Preferred Purchase Agreements.
6. Conditions of Obligations of the Underwriters. The several obligations
---------------------------------------------
of the Underwriters to purchase the Firm Shares on the Closing Date and the
Option Shares, if any, on the Option Closing Date are subject to the accuracy,
as of the Closing Date or the Option Closing Date, as the case may be, of the
representations and warranties of the Fund and the Manager contained herein, and
to the performance by the Fund and the manager of their obligations hereunder
and to the following additional conditions:
(a) No stop order suspending the effectiveness of the Registration
Statements shall have been issued and no proceeding for that purpose shall have
been taken or, to the knowledge of the Fund or the Manager, shall be
contemplated by the Commission.
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(b) The Representative shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Morgan, Lewis & Bockius
LLP counsel for the Fund, dated the Closing Date or the Option Closing Date, as
the case may be, addressed to the Underwriters to the effect that:
(i) The Fund has been duly organized and is validly existing as a
business trust in good standing under the laws of the State of Delaware with
corporate power and authority to own its properties and conduct its business as
described in the Prospectus; and the Fund is duly qualified to transact business
in all jurisdictions in which the conduct of its business requires such
qualification, or in which the failure to qualify would have a materially
adverse effect upon the business of the Fund.
(ii) The Shares have been duly authorized; all of the Shares conform
to the description thereof contained in the Prospectus; the certificates for the
Shares are in due and proper form; the Firm Shares and the Option Shares, if
any, to be sold by the Fund pursuant to this Agreement have been duly authorized
and will be validly issued, fully paid and non-assessable when issued and paid
for as contemplated by this Agreement.
(iii) The Registration Statement has become effective under the Act
and to the best of the knowledge of such counsel no stop order proceeding with
respect thereto have been instituted or are pending or threatened under the Act.
(iv) The Registration Statement, all Preliminary Prospectuses and
the Prospectus and any amendments or supplements thereto (other than the
financial statements, schedules and other financial information included
therein, as to which such counsel need express no opinion) and the 1940 Act
Notification comply as to form in all material respects with the requirements of
the Act or the 1940 Act, as applicable, and the applicable rules and regulations
thereunder; nothing has come to the attention of such counsel that would lead
them to believe that the Registration Statement, at the time it became
effective, or the Prospectus, at the time it was filed with the Commission
pursuant to Rule 497 of the Rules and Regulations or the Registration Statement
and the Prospectus at the Closing Date or the Option Closing Date, as the case
may be, (or, as of its date, any amendment or supplement thereto), contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading
(except that such counsel need express no view as to financial statements,
schedules and other financial information included therein, and such counsel may
state that their belief is based upon the procedures set forth therein, but is
without independent check and verification).
(v) The statements under the captions "The Fund's Investments,"
"Fund Shares" and "Tax Matters" in the Prospectus, to the extent that they
constitute matters of law or legal descriptions, are accurate, and fairly and
correctly present the information called for with respect to such matters.
(vi) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described in
the Registration Statement or the Prospectus which are not so filed or described
as required, and such contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized in all material
respects.
(vii) Such counsel knows of no material legal proceedings pending or
threatened against the Fund except as set forth in the Prospectus.
(viii) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provision of, or
constitute a default under, the Declaration of Trust of the Fund, or any
agreement or instrument known to such counsel to which the Fund is a party or by
which the Fund may be bound.
(ix) This Agreement has been duly authorized, executed and delivered
by the Fund and is the binding obligation of the Fund in accordance with its
terms.
8
<PAGE>
(x) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummations by the Fund of the transactions herein
contemplated (other than as may be required by the NASD, the American Stock
Exchange, Inc. or as required by state securities and Blue Sky laws as to which
such counsel need express no opinion) except such as have been obtained or made,
specifying the same.
(xi) The Management Agreement, the Custodian Agreement and the Trust
Preferred Purchase Agreements have each been duly authorized and approved by the
Fund and comply with all applicable provisions of the 1940 Act, and the
Management Agreement, the Custodian Agreement and the Trust Preferred Purchase
Agreements have each been duly executed and delivered by the Fund and constitute
the valid and binding agreements of the Fund enforceable in accordance with
their respective terms, subject to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws affecting enforcement of
creditors' rights generally and to equitable principles that may restrict the
availability of remedies.
(xii) The Fund is duly registered with the Commission under the 1940
Act as a closed-end, non-diversified management investment company, and all
required action has been taken by the Fund under the Act, the 1940 Act and the
Securities Exchange Act of 1934, as amended, to make the public offering and
consummate the sale of the Shares pursuant to this Agreement; and the provisions
of the Declaration of Trust of the Fund comply as to form in all material
respects with the requirements of the 1940 Act. The execution and delivery of
the Custodian Agreement, the Management Agreement and the Trust Preferred
Purchase Agreement and fulfillment of the terms thereof will not result in a
breach or violation of the terms and provisions of, or constitute a default
under, any agreement or instrument known to such counsel to which the Fund is a
party or of which its property is the subject nor will such action result in any
violation of the terms and provisions of the Declaration of Trust of the Fund or
any statute or any order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Fund or any of its properties.
In rendering such opinion Morgan, Lewis & Bockius LLP may rely upon
certificates of officers of the Fund and of public officials as to matters of
fact, and may rely as to matters governed by the laws of states other than the
Treatment of Business Trusts under Delaware Law, the laws of the District of
Columbia and Federal laws on local counsel in such jurisdictions, provided that
in each case Morgan, Lewis & Bockius LLP shall state that they believe that they
and the Underwriters are justified in relying on such other counsel.
(c) The Representative shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Ritchie & Rediker, L. L.
C., special counsel to the Manager, dated the Closing Date or the Option Closing
Date, as the case may be, addressed to the Underwriters to the effect that:
(i) The Manager has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own its properties and conduct its business as
described in the Prospectus; and the Manager is duly qualified to transact
business in all jurisdictions in which the conduct of its business requires such
qualification, or in which the failure to qualify would have a material adverse
effect upon its business.
(ii) Such counsel knows of no material legal proceedings pending or
threatened against the Manager except as set forth in the Prospectus.
(iii) This Agreement has been duly authorized, executed and delivered
by the Manager.
(iv) The Manager is duly registered as a manager under the Advisers
Act and is not prohibited by the Advisers Act or the 1940 Act, or the rules and
regulations under such Acts, from acting as Manager for the Fund as contemplated
by the Prospectus.
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<PAGE>
(v) The Management Agreement has been duly authorized, executed and
delivered on behalf of the Manager and constitutes a valid and binding agreement
of the Manager enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws
affecting availability of remedies; and neither the execution and delivery by
the Manager of this Agreement or the Management Agreement nor the performance by
the Manager of its obligations thereunder for hereunder will result in a breach
or violation of the terms and provisions of, or constitute a default under, any
agreement or instrument known to such counsel to which the Manager is a party or
of which its property is the subject nor will such action result in any
violation of the provisions of the Certificate Incorporation or By-Laws of the
Manager or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Manager or any of its
properties.
In rendering such opinion, Ritchie & Rediker, L.L.C. may rely upon
certificates of officers of the Manager and of public officials as to matters of
fact, and may rely as to matters governed by the laws of states other than
Alabama, the Delaware General Corporation Laws and Federal laws, on local
counsel in such jurisdictions, provided that in each case they shall state that
they believe that they and the Underwriters are justified in relying on such
other counsel.
(d) The Representative shall have received from Ritchie & Rediker, L.L.C.,
counsel for the Underwriters, an opinion dated the Closing Date or the Option
Closing Date, as the case may be, with respect to the organization and existence
of the Fund, the validity of the Shares and other matters as the Underwriters
may reasonably request. In rendering such opinion, Ritchie & Rediker, L.L.C. may
rely as to all matters governed other than by the laws of the State of Alabama
or Federal laws on the opinion of counsel referred to in paragraph (b) of this
Section 6. In addition, such opinion shall also include a statement to the
effect that nothing has come to the attention of such counsel which leads them
to believe that the Registration Statement, the Prospectus or any amendment or
supplement thereto contains an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading (except that such counsel need express no view
as to financial statements, schedules and other financial information included
therein). With respect to such statement, Ritchie & Rediker, L.L.C. may state
that their belief is based upon the procedures set forth therein, but is without
independent check and verification.
(e) The Representative shall have received at or prior to the Closing Date
from Ritchie & Rediker, L.L.C a memorandum or summary, in form and substance
satisfactory to the Representative, with respect to the qualification for
offering and sale by the Underwriters of the Shares under the state securities
or Blue Sky laws of such jurisdictions as the Representative may request.
(f) The Representative shall have received on the Closing Date or the
Option Closing Date, as the case may be, a signed letter from Arthur Andersen
LLP, dated the Closing Date or the Option Closing Date, as the case may be, in
form and substance satisfactory to the Representative, to the effect that:
(i) They are independent accountants with respect to the Fund
within the meaning of the Act, 1940 Act and the Rules and Regulations;
(ii) In their opinion, the Statement of Net Assets for the Fund
examined by them and included in the Registration Statement complies as to form
in all material respects with the applicable accounting requirements of the Act,
the 1940 Act and the Rules and Regulations; and
(iii) They have performed specified procedures, not constituting an
audit, including a reading of the latest available interim financial statements
of the Fund, a reading of the minute books of the Fund, inquiries of officials
of the Fund responsible for financial accounting matters and such other inquires
and procedures as may be specified in such letter, and on the basis of such
inquires and procedures nothing came to their attention that caused them to
believe that at the date of the latest available balance sheet read by such
accountants, or at a subsequent specified date not more than 5 business days
prior to the Closing Date or the Option Closing Date, as
10
<PAGE>
the case may be, there was any change in the capital stock or net assets of the
Fund as compared with amounts shown on the Statement of Net Assets included in
the Prospectus.
(g) The Fund and the Manager shall have furnished to the Representative
such further certificates and documents confirming the representations and
warranties contained herein and related matters as the Representative may
reasonably have requested.
(h) The Bank Holding Company Agreements shall have been duly executed and
shall be in effect, shall not have been terminated and shall be binding against
the Bank Holding Companies in accordance with their terms.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representative and to Ritchie & Rediker, L.L.C.,
counsel for the Underwriters.
If any of the conditions herein above provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representative by notifying the Fund of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be.
In such event, the Manager, the Fund and the Underwriters shall not be
under any obligation to each other (except to the extent provided in Sections 5
and 8 hereof).
7. Conditions of the Obligations of the Fund. The obligations of the Fund
-----------------------------------------
to sell and deliver the Shares required to be delivered as and when specified in
this Agreement are subject to the conditions that at the Closing Date or the
Option Closing Date, as the case may be, no stop order suspending the
effectiveness of the Registration Statement or order under Section 8(e) of the
1940 Act or under the Act shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. Indemnification.
---------------
(a) The Fund and the Manager, jointly and severally, agree to indemnify
and hold harmless each Underwriter within the meaning of the Act against any
losses, claims, damages or liabilities to which such Underwriter or such
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any breach of any
representation, warranty, agreement or covenant of the Fund herein contained
(ii) any untrue statement 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 the 1940 Act Notification,
(iii) 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,
or (iv) the Fund or the Manager not complying with the Act, the 1940 Act, the
Advisers Act, the Securities Exchange Act of 1934, as amended, or other
applicable United States securities laws and regulations; and will reimburse
each Underwriter and each such controlling person for any legal or other
expenses reasonably incurred by such Underwriter or such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that the Fund and Manager
will not be liable in any case to the extent that 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 such amendment or
supplement, or 1940 Act Notification, in reliance upon and in conformity with
written information furnished to the Fund by or through the Representative
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Fund or the Manager may otherwise
have.
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<PAGE>
(b) Each Underwriter will indemnify and hold harmless the Fund, its
Trustees and shareholders, each of its officers who have signed the Registration
Statement, the Manager, and each person, if any, who controls the Fund or the
Manager, within the meaning of the Act and the 1940 Act, against any losses,
claims, damages or liabilities to which the Fund or any such director, officer,
Manager, or controlling person may become subject, under the Act, the 1940 Act
or otherwise, insofar as such losses, claims, damages or liabilities (of actions
or proceedings 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, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or the 1940 Act Notification, or arise out of
or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made; and will reimburse any legal or other expenses reasonably incurred by the
Fund or any such director, officer, Manager, or controlling person in connection
with investigating or defending any such loss, claim, damage, liability, action
or proceeding; provided, however, that each Underwriter will be liable in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, or 1940 Act Notification, in reliance upon and in
conformity with written information furnished to the Fund by or through the
Representative specifically for use in the preparation thereof. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided in this Section
8(a) or (b) hereof shall be available to any party who shall fail to give notice
as provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
prejudiced by the failure to give such notice, but the failure to give such
notice shall not relieve the indemnifying party or parties from any liability
which it or they may have to the indemnified party for contribution or otherwise
than on account of the provisions of Section 8(a) or (b). In case any such
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party and shall
pay as incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its own expense. Notwithstanding the foregoing, the
indemnifying party shall pay as incurred the fees and expenses of the counsel
retained by the indemnified party in the event (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is understood
that the indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees
and expenses of more than one separate firm for all such indemnified parties.
Such firm shall be designated in writing by you in the case of parties
indemnified pursuant to Section 8(a) and by the Fund and the Manager in the case
of parties indemnified pursuant to Section 8(b). The indemnifying party shall
not be liable for any settlement of any proceeding effected without its written
consent but if settled with such consent or if there be a final judgement for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or
judgement.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under Section 8(a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Fund and the Manager on the one hand and
the Underwriters on the other from the offering of the Shares. If,
12
<PAGE>
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under Section 8(c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Fund and the Manager on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Fund and the Manager on
the one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Fund and the Manager bear to the total underwriting
fees and commissions received by the Underwriters, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the ommision or alleged commission to
state a material fact related to information suppled by the Fund, or the Manager
on the one had or the Underwriter on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Fund, the Manager and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this Section 8(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 8(d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 8(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter, and (ii) 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 in this Section
8(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto or
1940 Act Notification, each party against whom contribution may be sought under
this Section 8 hereby consents to the jurisdiction of any court having
jurisdiction over any other contributing party, agrees that process issuing from
such court may be served upon him or it by any other contributing party and
consents to the service of such process and agrees that any other contributing
party may join him or it as an additional defendant in any such proceeding in
which such other contributing party is a party.
9. Default by Underwriters. If on the Closing Date or the Option Closing
-----------------------
Date, as the case may be, any Underwriter shall fail to purchase and pay for the
portion of the Shares which such Underwriter has agreed to purchase and pay for
hereunder on such date (otherwise than by reason of any default on the part of
the Fund or the Manager), you, as Representative of the Underwriters, shall use
your best efforts to procure within 24 hours thereafter one or more of the other
Underwriters, or any others, to purchase from the Fund such amounts as may be
agreed upon and upon the terms set forth herein, the Firm Shares or Option
Shares, as the case may be, which the defaulting Underwriter or Underwriters
failed to purchase. If during such 24 hours you, as such Representative, shall
not have procured such other Underwriters, or any others, to purchase the Firm
Shares or Option Shares, as the case may be, agreed to be purchased by the
defaulting Underwriter or Underwriters, then (a) if the aggregate number of
shares with respect to which such default shall occur does not exceed 10% of the
Firm Shares or Option Shares, as the case may be, covered hereby, the other
Underwriters shall be obligated, severally, in proportion to the respective
numbers of Firm Shares or Option Shares, as the case may be, which they are
obligated to purchase hereunder, to purchase the Firm Shares or Option Shares,
as the case may be, which such defaulting Underwriter or Underwriters failed to
purchase, or (b) if the aggregate number of shares of Firm Shares or Option
Shares, as the case may be, with respect to which such default shall occur
exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the Fund or you as the Representative of the Underwriters will have the
right, by
13
<PAGE>
written notice given within the next 24-hour period to the parties to this
Agreement, to terminate this Agreement without liability on the part of the
nondefaulting Underwriters or of the Fund except to the extent provided in
Section 8 hereof. In the event of a default by any Underwriter or Underwriters,
as set forth in this Section 9, the Closing Date or Option Closing Date, as the
case may be, may be postponed for such period, not exceeding seven days, as you,
as Representative, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be affected, the term "Underwriter" includes any person
substituted for defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to have been duly given if mailed or transmitted by
any standard form of written telecommunication. Notices to the Underwriter shall
be directed to Sterne, Agee & Leach, Inc., 950 East Paces Ferry Road, Suite
1475, Atlanta, Georgia 30326-1119, Attention: Craig R. Heyward, Vice President;
notices to the Fund shall be directed to SAL Trust Preferred Fund I, 1901 Sixth
Avenue North, Suite 2100, Birmingham, Alabama 35203, Attention: James S.
Holbrook, Jr. and notices to the Adviser shall be directed to Sterne Agee Asset
Management, Inc., 800 Shades Creek Parkway, Suite 125, Birmingham, Alabama,
35209, Attention: Jerry Harris, President.
11. Termination. This Agreement may be terminated by you by notice to the
-----------
Fund as follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 A.M. on
the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change or
any development involving a prospective material adverse change in or affecting
the condition, financial or otherwise, of the Fund or the Manager or the
earnings, business affairs, management, or business prospects of the Fund or the
Manager, whether or not arising in the ordinary course of business, (ii) any
outbreak, escalation of hostilities or declaration of war or national emergency,
if the effect of such outbreak, escalation or declaration on the financial
markets of the United States would, in your reasonable judgment, make the
offering or delivery of the Shares impracticable or inadvisable, (iii) any
national or international calamity or crisis or change in economic or political
conditions if the effect of such calamity, crisis or change on the financial
markets of the United States would in your reasonable judgement make the
offering or delivery of the Shares impracticable, (iv) suspension of trading in
securities on the New York Stock Exchange, the American Stock Exchange, the
Nasdaq/NMS or other limitation on prices (other than limitations on hours or
numbers of days of trading) for securities on either of such exchanges or the
Nasdaq/NMS, (v) the enactment, publication, decree or other promulgation of any
federal or state statute, regulation, rule or order of any court or other
governmental authority which in your reasonable opinion materially and adversely
affects or will materially or adversely affect the business or operations of the
Fund, (vi) declaration of a banking moratorium by either federal, Texas, Florida
or New York State authorities, or (vii) the taking of any action by any federal,
state or local government or agency in respect of its monetary or fiscal affairs
which in your reasonable opinion has a material adverse effect on the securities
markets in the United States; or
(c) as provided in Section 6 and 9 of this Agreement.
This Agreement also may be terminated by you, by notice to the Fund, as to
any obligation of the Underwriters to purchase the Option Shares, upon the
occurrence at any time prior to the Option Closing Date of any of the events
described in subparagraph (b) above or as provided in Sections 6 and 9 of this
Agreement.
12. Successors. This Agreement has been and is made solely for the benefit
----------
of the Underwriters, the Fund and the Manager and their respective successors,
executors, administrators, heirs and assigns, and the officers, directors and
controlling persons referred to herein, and no other person will have any right
or obligation hereunder. The term "successors" shall not include any purchaser
of the Shares merely because of such purchase.
13. Miscellaneous. The reimbursement, indemnification and contribution
-------------
agreements contained in this Agreement and the representations, warranties and
covenants of the Fund, the Manager and the several Underwriters in this
Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any
14
<PAGE>
investigation made by or on behalf of any Underwriter or controlling person
thereof, or by or on behalf of the Fund or its directors or officers, and (c)
delivery of and payment for the Shares under this Agreement.
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.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Alabama.
15
<PAGE>
If the foregoing is in accordance with your understanding of our Agreement,
please sign and return to us a counterpart hereof, whereupon this instrument,
along with all counterparts, will become a single binding agreement between the
Underwriter and the Fund and the Manager in accordance with its terms.
Very truly yours,
SAL TRUST PREFERRED FUND I
By:______________________________________
James S. Holbrook, Jr.
President
STERNE AGEE ASSET MANAGEMENT, INC.
By:______________________________________
Jerry Harris
President
Confirmed and Accepted, as of the
date first above written:
As Representative of the Several
Underwriters listed on Schedule I
By: STERNE, AGEE & LEACH, INC.
By: __________________________
James S. Holbrook, Jr.
Chairman & CEO
16
<PAGE>
SCHEDULE I
Schedule of Underwriters
Underwriter Number of Firm Shares to be Purchased
Sterne, Agee & Leach, Inc. .....................................................
[other underwriters]............................................................
[To be completed]
17
<PAGE>
Exhibit 99.j
EXCHANGE TRADED FUND CUSTODY AGREEMENT
THIS AGREEMENT is made this ____ day of ________, 1999 by and between SAL
TRUST PREFERRED FUND I, a Delaware business trust (the "Fund"), and THE TRUST
COMPANY OF STERNE, AGEE & LEACH, INC., an Alabama state chartered trust company
("The Trust Company").
W I T N E S S E T H
WHEREAS, the Fund is registered as a closed-end, non-diversified,
management investment company under the Investment Company Act of 1940, as
amended ("the 1940 Act"); and
WHEREAS, the Fund desires to retain The Trust Company to serve as the
Fund's custodian and The Trust Company is willing to furnish such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints The Trust Company to act as
custodian of its portfolio securities, cash and other property on the terms set
forth in this Agreement. The Trust Company accepts such appointment and agrees
to furnish the services herein set forth in return for the compensation as
provided in Section 23 of this Agreement.
2. Delivery of Documents. The Fund has furnished The Trust Company with copies
properly certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Trustees authorizing the
appointment of The Trust Company as Custodian of the portfolio securities, cash
and other property of the Fund and approving this Agreement;
(b) Incumbency and signature certificates identifying and containing the
signatures of the Fund's officers and/or the persons authorized to sign Proper
Instructions, as hereinafter defined, on behalf of the Fund;
(c) The Fund's Declaration of Trust and all amendments thereto (such
Declaration of Trust as currently in effect and as it shall from time to time be
amended, are herein called the "Declaration");
(d) The Fund's By-Laws and all amendments thereto (such By-Laws, as
currently in effect and as they shall from time to time be amended, are herein
called the "By-Laws"),
(e) Resolutions of the Fund's Board of Trustees appointing the investment
manager of the Fund and resolutions of the Fund's Board of Trustees and the
Fund's Shareholders, if
<PAGE>
applicable, approving the proposed Investment Management Agreement between the
Fund and the advisor (the "Management Agreement");
(f) The Management Agreement
(g) The Fund's Notification of Registration filed pursuant to Section 8(a)
of the 1940 Act, as filed with the SEC; and
(h) The Fund's Registration Statement on Form N-2 under the 1940 Act and
the Securities Act of 1933, as amended ("the 1933 Act"), as filed with the SEC;
and
(i) The Fund's most recent prospectus and statement of additional
information including all amendments and supplements thereto (the "Prospectus").
Upon request the Fund will furnish The Trust Company with copies of all
amendments of or supplements to the foregoing, if any. The Fund will also
furnish The Trust Company upon request with a copy of the opinion of counsel for
the Fund with respect to the validity of the Shares and the status of such
Shares under the 1933 Act filed with the SEC, and any other applicable federal
law or regulation.
3. Definitions. As used in this Agreement, the following terms shall have the
following definitions:
(a) "Authorized Person" means the Fund's President, Treasurer and any
other person, whether or not any such person is an officer or employee of the
Fund, duly authorized by the Board of Trustees of the Fund to give Proper
Instructions on behalf of the Fund as set forth in resolutions of the Fund's
Board of Trustees.
(b) "Book-Entry System" means a book-entry system authorized by the U.S.
Department of Treasury, its successor or successors and its nominee or nominees.
(c) "Proper Instructions" means a writing signed or initialed by two or
more persons as the Board of Trustees shall have from time to time authorized.
Each such writing shall set forth the specific transaction or type of
transaction involved, including a specific statement of the purpose for which
such action is requested. Oral instructions will be considered Proper
Instructions if The Trust Company reasonably believes them to have been given by
a person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing.
Upon receipt of a certificate of the Secretary or an Assistant Secretary as to
the authorization by the Board of Trustees of the Fund accompanied by a detailed
description of procedures approved by the Board of Trustees, Proper Instructions
may include communications effected directly between electro-mechanical or
electronic devices provided that the Board of Trustees and The Trust Company are
satisfied that such procedures afford adequate safeguards for the Fund's assets.
For purposes of this Section,
<PAGE>
Proper Instructions shall include instructions received by The Trust Company
pursuant to any three-party agreement which requires a segregated asset account
in accordance with Section 9.
(d) "Property" means:
(i) any and all securities and other property of the Fund which the
Fund may from time to time deposit, or cause to be deposited, with The Trust
Company or which The Trust Company may from time to time hold for the Fund;
(ii) all income in respect of any such securities or other property;
(iii) all proceeds of the sales of any of such securities or other
property; and
(iv) all proceeds of the sale of securities issued by the Fund, which
are received by The Trust Company from time to time from or on behalf of the
Fund.
(e) "Securities Depository" shall mean The Depository Trust Company, a
clearing agency registered with the SEC or its successor or successors and its
nominee or nominees; and shall also mean any other registered clearing agency,
its successor or successors specifically identified in a certified copy of a
resolution of the Fund's Board of Trustees approving deposits by The Trust
Company therein.
4. Delivery and Registration of the Property. The Fund will deliver or cause
to be delivered to The Trust Company all securities and all monies owned by it,
including payments of interest, principal and capital distributions and cash
received for the issuance of its Shares, at any time during the period of this
Agreement, except for securities and monies to be delivered to any subcustodian
appointed pursuant to Section 7 hereof. The Trust Company will not be
responsible for such securities and such monies until actually received by it.
All securities delivered to The Trust Company or to any such subcustodian (other
than in bearer form) shall be registered in the name of the Fund or in the name
of a nominee of the Fund or in the name of The Trust Company or any nominee of
The Trust Company (with or without indication of fiduciary status) or in the
name of any subcustodian or any nominee of such subcustodian appointed pursuant
to Paragraph 7 hereof or shall be properly endorsed and in form for transfer
satisfactory to The Trust Company.
5. Voting Rights. With respect to all securities, however registered, it is
understood that the voting and other rights and powers shall be exercised by the
Fund. The Trust Company's only duty shall be to mail for delivery on the next
business day to the Fund any documents received, including proxy statements and
offering circulars, with any proxies for securities registered in a nominee name
executed by such nominee. Where any securities have fixed expiration dates, the
Fund understands that in order for The Trust Company to act, The Trust Company
must receive the Fund's instructions at its offices in Birmingham, addressed as
The Trust Company may from time to time request, by no later than noon
(Birmingham time) at least one business day prior to the last scheduled date to
act with respect thereto (or such earlier date or time as The Trust Company may
reasonably notify the Fund). Absent The Trust Company's timely receipt of such
instructions, such instruments will expire without liability to The Trust
Company.
<PAGE>
6. Receipt and Disbursement of Money.
(a) The Trust Company shall open and maintain a custody account for the
Fund, subject only to draft or order by The Trust Company acting pursuant to the
terms of this Agreement, and shall hold in such account, subject to the
provisions hereof, all cash received by it from or for the Fund other than cash
maintained by the Fund in a bank account established and used in accordance with
Rules 17f-2 and 17f-3 under the 1940 Act. Funds held by The Trust Company for
the Fund may be deposited by it to its credit at The Trust Company in the
Banking Department of The Trust Company or in such other banks or trust
companies as it may in its discretion deem necessary or desirable; provided,
however, that every such bank or trust company shall be qualified to act as a
custodian under the 1940 Act, and that each such bank or trust company shall be
approved by vote of a majority of the Board of Trustees of the Fund. Such funds
shall be deposited by The Trust Company in its capacity as Custodian and shall
be withdrawable by The Trust Company only in that capacity.
(b) Upon receipt of Proper Instructions (which may be continuing
instructions as deemed appropriate by the parties) The Trust Company shall make
payments of cash to, or for the account of, the Fund from such cash only (i) for
the purchase of securities for the Fund as provided in Section 13 hereof; (ii)
in the case of a purchase of securities effected through a Book-Entry System or
Securities Depository, in accordance with the conditions set forth in Section 8
hereof; (iii) for transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant to Proper
Instructions from the Fund; (iv) for the payment of dividends or other
distributions on shares declared pursuant to the governing documents of the
Fund, or for the payment of interest, taxes, administration, distribution or
management fees or expenses which are to be borne by the Fund under the terms of
this Agreement, any Management Agreement, or any administration agreement; (v)
for payments in connection with the conversion, exchange or surrender of
securities owned or subscribed to by the Fund and held by or to be delivered to
The Trust Company; (vi) to a subcustodian pursuant to Section 7 hereof; (vii)
for such common expenses incurred by the Fund in the ordinary course of its
business, including but not limited to printing and mailing expenses, legal
fees, accountants fees, exchange fees; or (viii) for any other proper purpose,
but only upon receipt of, in addition to Proper Instructions, a certified copy
of a resolution of the Board of Trustees signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the person or persons
to whom such payment is to be made.
(c) The Trust Company is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received as Custodian
for the Fund.
6A. Advances by Custodian. The Custodian may from time to time agree to
advance cash to the Fund, without interest, for the Fund's proper corporate
purposes. If the Custodian advances cash for any purpose, the Fund shall and
hereby does grant to the Custodian a security interest in Fund securities equal
in value to the amount of the cash advance but in no event shall the value
<PAGE>
of securities in which a security interest has been granted exceed 20% of the
value of the Fund's total assets at the time of the pledge; should the Fund fail
to repay the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to reasonably dispose of any securities in which it has a
security interest to the extent necessary to obtain reimbursement.
7. Receipt and Delivery of Securities.
(a) Except as provided by Section 8 hereof, The Trust Company shall hold
and physically segregate all securities and noncash Property received by it for
the Fund. All such securities and non-cash Property are to be held or disposed
of by The Trust Company for the Fund pursuant to the terms of this Agreement. In
the absence of Proper Instructions accompanied by a certified resolution
authorizing the specific transaction by the Fund's Board, The Trust Company
shall have no power or authority to withdraw, deliver, assign, hypothecate,
pledge or otherwise dispose of any such securities and investments, except in
accordance with the express terms provided for in this Agreement. In no case may
any director, officer, employee or agent of the Fund withdraw any securities.
(b) Promptly after the close of business on each day that a transfer to or
from the account of the Fund occurs, The Trust Company shall furnish the Fund
with confirmations and a summary of all transfers to or from the account of the
Fund during said day. Where securities are transferred to the account of the
Fund established at a Securities Depository or Book Entry System pursuant to
Section 8 hereof, The Trust Company shall also by book-entry or otherwise
identify as belonging to such Fund the quantity of securities in a fungible bulk
of securities registered in the name of The Trust Company (or its nominee) or
shown in The Trust Company's account on the books of a Securities Depository or
Book-Entry System. At least quarterly and from time to time, The Trust Company
shall furnish the Fund with a detailed statement of the Property held for the
Fund under this Agreement.
8. Use of Securities Depository or Book-Entry System. The Fund shall deliver
to The Trust Company a certified resolution of the Board of Trustees of the Fund
approving, authorizing and instructing The Trust Company on a continuous and
ongoing basis until instructed to the contrary by Proper Instructions actually
received by The Trust Company (i) to deposit in a Securities Depository or Book-
Entry System all securities of the Fund eligible for deposit therein and (ii) to
utilize a Securities Depository or Book-Entry System to the extent possible in
connection with the performance of its duties hereunder, including without
limitation settlements of purchases and sales of securities by the Fund.
Without limiting the generality of such use, it is agreed that the following
provisions shall apply thereto:
(a) Securities and any cash of the Fund deposited in a Securities
Depository or Book-Entry System will at all times (1) be represented in an
account of The Trust Company in the Securities Depository or Book Entry System
(the "Account") and (2) be segregated from any assets and cash controlled by The
Trust Company in other than a fiduciary or custodian capacity but may be
commingled with other assets held in such capacities. The Trust Company will
effect payment for securities and receive and deliver securities in accordance
with accepted industry
<PAGE>
practices as set forth in (b) below, unless the Fund has given The Trust Company
Proper Instructions to the contrary. The records of The Trust Company with
respect to securities of the Fund maintained in a Securities Depository or Book
Entry System shall identify by book-entry those securities belonging to the
Fund.
(b) The Trust Company shall pay for securities purchased for the account
of the Fund upon (i) receipt of advice from the Securities Depository or Book
Entry System that such securities have been transferred to the Account, and (ii)
the making of an entry on the records of The Trust Company to reflect such
payment and transfer for the account of the Fund. Upon receipt of Proper
Instructions, The Trust Company shall transfer securities sold for the account
of the Fund upon (i) receipt of advice from the Securities Depository or Book
Entry System that payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of The Trust Company to
reflect such transfer and payment for the account of the Fund. Copies of all
advices from the Securities Depository or Book Entry System of transfers of
securities for the account of the Fund shall identify the Fund, be maintained
for the Fund by The Trust Company and be provided to the Fund at its request.
Upon request, The Trust Company shall furnish the Fund confirmation of each
transfer to or from the account of the Fund in the form of a written advice or
notice and shall furnish to the Fund copies of daily transaction sheets
reflecting that day's transactions in a Securities Depository or Book Entry
System for the account of the Fund.
(c) The Trust Company shall provide the Fund with any report obtained by
The Trust Company on the Securities Depository or Book Entry System's accounting
system, internal accounting control and procedures for safeguarding securities
deposited in the Securities Depository or Book Entry System;
(d) All Books and records maintained by The Trust Company which relate to
the Fund participation in a Securities Depository or Book-Entry System will at
all times during The Trust Company's regular business hours be open to the
inspection of the Fund's duly authorized employees or agents, and the Fund will
be furnished with all information in respect of the services rendered to it as
it may require.
(e) Anything to the contrary in this Agreement notwithstanding, The Trust
Company shall be liable to the Fund for any loss or damage to the Fund resulting
from any negligence, misfeasance or misconduct of The Trust Company or any of
its agents or of any of its or their employees in connection with its or their
use of the Securities Depository or Book Entry Systems or from failure of The
Trust Company or any such agent to enforce effectively such rights as it may
have against such Securities Depository or Book Entry System; at the election of
the Fund, it shall be entitled to be subrogated to the rights of The Trust
Company with respect to any claim against the Securities Depository or Book
Entry System or any other person which The Trust Company may have as a
consequence of any such loss or damage if and to the extent that the Fund has
not been made whole for any such loss or damage.
<PAGE>
9. Segregated Account. The Trust Company shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for and on
behalf of the Fund, into which account or accounts may be transferred cash
and/or securities upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board of Trustees signed by an officer of
the Fund and certified by the Secretary or an Assistant Secretary, setting forth
the purpose or purposes of such segregated account and declaring such purposes
to be proper trust purposes.
10. Instructions Consistent with the Declaration, etc.
(a) Unless otherwise provided in this Agreement, The Trust Company shall
act only upon Proper Instructions. The Trust Company may assume that any Proper
Instruction received hereunder are not in any way inconsistent with any
provision of the Declaration or By-Laws or any vote or resolution of the Fund's
Board of Trustees. The Trust Company shall be entitled to rely upon any Proper
Instructions actually received by The Trust Company pursuant to this Agreement.
The Fund agrees that The Trust Company shall incur no liability in acting in
good faith upon Proper Instructions given to The Trust Company, except to the
extent such liability was incurred as a result of The Trust Company's negligence
or willful misconduct. In accord with instructions from the Fund, as required by
accepted industry practice or as The Trust Company may elect in effecting the
execution of Fund instructions, advances of cash or other Property made by The
Trust Company, arising from the purchase, sale, redemption, transfer or other
disposition of Property of the Fund, or in connection with the disbursement of
funds to any party, or in payment of fees, expenses, claims or liabilities owed
to The Trust Company by the Fund, or to any other party which has secured
judgment in a court of law against the Fund which creates an overdraft in the
accounts or overdelivery of Property, shall be deemed a loan by The Trust
Company to the Fund, payable on demand, bearing interest at such rate
customarily charged by The Trust Company for similar loans.
(b) The Fund agrees that test arrangements, authentication methods or
other security devices to be used with respect to instructions which the Fund
may give by telephone, telex, facsimile transmission, bank wire or other
teleprocess, or through an electronic instruction system, shall be processed in
accordance with terms and conditions for the use of such arrangements, methods
or devices as The Trust Company may put into effect and modify from time to
time. The Fund shall safeguard any test keys, identification codes or other
security devices which The Trust Company makes available to the Fund and agrees
that the Fund shall be responsible for any loss, liability or damage incurred by
The Trust Company or by the Fund as a result of The Trust Company's acting in
accordance with instructions from any unauthorized person using the proper
security device except to the extent such loss, liability or damage was incurred
as a result of The Trust Company's negligence or willful misconduct. The Trust
Company may electronically record, but shall not be obligated to so record, any
instructions given by telephone and any other telephone discussions with respect
to the Fund. In the event that the Fund uses The Trust Company's electronic
communications or information system, the Fund agrees that The Trust Company is
not responsible for the consequences of the failure of that system to perform
for any reason, beyond the reasonable control of The Trust Company, or the
failure of any communications carrier, utility, or communications network. In
the event that system is inoperable, the Fund agrees that it
<PAGE>
will accept the communication of transaction instructions by telephone,
facsimile transmission on equipment compatible to The Trust Company's facsimile
receiving equipment or by letter, at no additional charge to the Fund.
(c) The Trust Company shall transmit promptly to the Fund all written
information (including, without limitation, pendency of maturities of securities
and expirations of rights in connection therewith received by The Trust Company
from issuers of the securities being held for the Fund. With respect to tender
or exchange offers, The Trust Company shall transmit promptly by facsimile to
the Fund all written information received by The Trust Company from issuers of
the securities whose tender or exchange is sought and from the party (or his
agents) making the tender or exchange offer. If the Fund desires to take action
with respect to any tender offer, exchange offer or any other similar
transaction, the Fund shall notify The Trust Company at least three business
days prior to the date on which The Trust Company is to take such action or upon
the date such notification is first received by the Fund, if later. If any
Property registered in the name of a nominee of The Trust Company is called for
partial redemption by the issuer of such property, The Trust Company is
authorized to allot the called portion to the respective beneficial holders of
the Property in such manner deemed to be fair and equitable by The Trust Company
in its sole discretion.
11. Transactions not Requiring Instructions. The Trust Company is authorized
to take the following action without Proper Instructions:
(a) Collection of Income and Other Payments. The Trust Company shall:
(i) collect and receive on a timely basis for the account of the
Fund, all income and other payments and distributions included or to be included
in the Property of the Fund, and promptly advise the Fund of such receipt and
shall credit such income, as collected, to the Fund. From time to time, The
Trust Company may elect, but shall not be obligated, to credit the account with
interest, dividends or principal payments on payable or contractual settlement
date, in anticipation of receiving same from a payor, central depository, broker
or other agent employed by the Fund or The Trust Company. Any such crediting and
posting shall be at the Fund's sole risk, and The Trust Company shall be
authorized to reverse any such advance posting in the event it does not receive
good funds from any such payor, central depository, broker or agent of the
Customer. The Trust Company agrees to promptly notify the Fund of the reversal
of any such advance posting.
(ii) endorse and deposit for collection in the name of the Fund,
checks, drafts, or other orders for the payment of money on the same day as
received;
(iii) present for payment and collect the amount payable upon all
securities which may mature or be redeemed, or otherwise become payable on the
date such securities become payable;
<PAGE>
(iv) take any action which may be necessary and proper in connection
with the collection and receipt of such income and other payments and the
endorsement for collection of checks, drafts and other negotiable instruments;
(v) to effect an exchange of the securities where the par value is
changed, and to surrender securities at maturity or upon an earlier redemption,
or when securities otherwise become payable, against payment therefore in
accordance with accepted industry practice. If any Property registered in the
name of a nominee of The Trust Company is called for partial redemption by the
issuer of such property, The Trust Company is authorized to allot the called
portion to the respective beneficial holders of the Property in such manner
deemed to be fair and equitable by The Trust Company in its sole discretion.
12. Transactions Requiring Instructions. In addition to the actions requiring
Proper Instructions set forth herein, upon receipt of Proper Instructions and
not otherwise, The Trust Company, directly or through the use of a Securities
Depository or Book-Entry System, shall:
(a) Execute and deliver to such persons as may be designated in such
Proper Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any securities may be
exercised;
(b) Deliver any securities held for the Fund against receipt of other
securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
issuer of securities or corporation, or the exercise of any conversion
privilege;
(c) Deliver any securities held for the Fund to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
issuer of securities or corporation, against receipt of such certificates of
deposit, interim receipts or other instruments or documents, and cash, if any,
as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Fund and take
such other steps as shall be stated in said instructions to be for the purpose
of effectuating any duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund;
(e) Surrender, in connection with their exercise, warrants, rights or
similar securities, provided that in each case, the new securities and cash, if
any, are to be delivered to The Trust Company;
(f) Deliver securities upon receipt of payment in connection with any
repurchase agreement related to such securities entered into by the Fund;
(g) Deliver securities pursuant to any other proper corporate purpose, but
only upon receipt of, in addition to Proper Instructions, a certified copy of a
resolution of the Board of
<PAGE>
Trustees signed by an officer of the Funds and certified by the Secretary or an
Assistant Secretary, specifying the securities to be delivered, setting forth
the purpose for which such delivery is to be made, declaring such purpose to be
a proper trust purpose, and naming the person or persons to whom delivery of
such securities shall be made.
13. Purchase of Securities. Promptly after the purchase of securities by the
investment manager, the Fund shall deliver to The Trust Company (as Custodian)
Proper Instructions specifying with respect to such purchase: (a) the name of
the issuer, (b) the number of shares, (c) the total amount payable upon such
purchase and (d) the Fund name. The Trust Company shall upon receipt of
securities purchased by or for the Fund registered in the name of the Fund or in
the name of a nominee of The Trust Company or of the Fund, pay out of the monies
held for the account of the Fund the total amount payable to the person from
whom or the broker through whom the purchase was made, provided that the same
conforms to the total amount payable as set forth in such Proper Instructions.
Except as specifically stated otherwise in this Agreement, in any and every case
where payment for purchase of securities for the account of the Fund is made by
The Trust Company in advance of receipt of the securities purchased in the
absence of specific written instructions from the Fund to so pay in advance, The
Trust Company shall be absolutely liable to the Fund for such securities to the
same extent as if the securities had been received by The Trust Company.
14. Sale of Securities. Promptly after each sale of securities by the Fund at
the instruction of the investment advisor, the Fund shall deliver to The Trust
Company (as Custodian) Proper Instructions, specifying with respect to each such
sale; (a) the name of the issuer, (b) the number of shares sold, and accrued
interest, if any, (c) the date of sale, (d) the sale price, (e) the total amount
payable to the Fund upon such sale and (f) the Fund name. The Trust Company
shall deliver the securities upon receipt of the total amount payable to the
Fund upon such sale, provided that the same conforms to the total amount payable
as set forth in such Proper Instructions. Subject to the foregoing, The Trust
Company may accept payment in such form as shall be satisfactory to it, and may
deliver securities and arrange for payment in accordance with the customs
prevailing among dealers in securities.
15. Authorized Shares. The Fund has an unlimited number of authorized shares.
16. Records. The books and records pertaining to the Fund which are in the
possession of The Trust Company shall be the property of the Fund. Such books
and records shall be prepared and maintained as required by the 1940 Act, as
amended, and other applicable securities laws and rules and regulations. The
Fund, or the Fund's authorized representative, shall have access to such books
and records at all times during The Trust Company's normal business hours, and
such books and records shall be surrendered to the Fund promptly upon request.
Upon reasonable request of the Fund, copies of any such books and records shall
be provided by The Trust Company to the Fund or the Fund's authorized
representative at the Fund's expense.
17. Cooperation with Accountants. The Trust Company shall cooperate with the
Fund's independent certified public accountants and shall take all reasonable
action in the performance
<PAGE>
of its obligations under this Agreement to assure that the necessary information
is made available to such accountants for the expression of their unqualified
opinion, including but not limited to the opinion included in the Fund's Form N-
2, Form N-SAR and other reports to the securities and Exchange Commission and
with respect to any other requirement of such Commission.
18. Reports to Fund by Independent Public Accountants. The Trust Company shall
provide the Fund, at such times as the Fund may reasonably require, with reports
by independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, including securities
deposited and/or maintained in a Securities Depository or Book Entry System,
relating to the services provided by The Trust Company under this Contract; such
reports shall be of sufficient scope and in sufficient detail, as may reasonably
be required by the Fund to provide reasonable assurance that any material
inadequacies would be disclosed by such examination, and, if there are no such
inadequacies, the reports shall so state.
19. Confidentiality. The Trust Company agrees on behalf of itself and its
employees to treat confidentially and as the proprietary information of the Fund
all records and other information relative to the Fund and its prior, present or
potential Shareholders and relative to the managers and its prior, present or
potential customers, and not to use such records and information for any purpose
other than performance of its responsibilities and duties hereunder, except
after prior notification to and approval in writing by the Fund, which approval
shall not be unreasonably withheld and may not be withheld where The Trust
Company may be exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Fund. Nothing contained herein,
however, shall prohibit The Trust Company from advertising or soliciting the
public generally with respect to other products or services, regardless of
whether such advertisement or solicitation may include prior, present or
potential Shareholders of the Fund.
20. Equipment Failures. In the event of equipment failures beyond The Trust
Company's control, The Trust Company shall, at no additional expense to the
Fund, take reasonable steps to minimize service interruptions but shall not have
liability with respect thereto. The Trust Company shall enter into and shall
maintain in effect with appropriate parties one or more agreements making
reasonable provisions for back up emergency use of electronic data processing
equipment to the extent appropriate equipment is available.
21. Right to Receive Advice.
(a) If The Trust Company shall be in doubt as to any action to be taken or
omitted by it, it may request, and shall receive, from the Fund clarification or
advice.
(b) If The Trust Company shall be in doubt as to any question of law
involved in any action to be taken or omitted by The Trust Company, it may
request advice at its own cost from counsel of its own choosing (who may be
counsel for the Fund or The Trust Company, at the option of The Trust Company).
<PAGE>
(c) In case of conflict between directions or advice received by The Trust
Company pursuant to subparagraph (a) of this paragraph and advice received by
The Trust Company pursuant to subparagraph (b) of this paragraph, U.S. Trust
shall be entitled to rely on and follow the advice received pursuant to the
latter provision alone.
(d) The Trust Company shall be protected in any action or inaction which
it takes or omits to take in reliance on any directions or advice received
pursuant to subparagraphs (a) or (b) of this section which The Trust Company,
after receipt of any such directions or advice, in good faith believes to be
consistent with such directions or advice. However, nothing in this paragraph
shall be construed as imposing upon The Trust Company any obligation (i) to seek
such directions or advice, or (ii) to act in accordance with such directions or
advice when received, unless, under the terms of another provision of this
Agreement, the same is a condition to The Trust Company's properly taking or
omitting to take such action. Nothing in this subsection shall excuse The Trust
Company when an action or omission on the part of The Trust Company constitutes
willful misfeasance, bad faith, negligence or reckless disregard by The Trust
Company of its duties under this Agreement.
22. Compliance with Governmental Rule and Regulations. The Fund assumes full
responsibility for insuring that the contents of each Prospectus of the Fund
complies with all applicable requirements of the 1933 Act, the 1940 Act, and any
laws, rules and regulations of governmental authorities having jurisdiction.
23. Compensation. As compensation for the services rendered by The Trust
Company during the term of this Agreement, the Fund will pay to The Trust
Company, in addition to reimbursement of its out-of-pocket expenses, quarterly
fees as outlined in Exhibit A.
24. Indemnification. The Fund, as sole owner of the Property, agrees to
indemnify and hold harmless The Trust Company and its nominees from all taxes,
charges, expenses, assessments, claims, and liabilities (including, without
limitation, liabilities arising under the 1933 Act, the Securities Exchange Act
of 1934, the 1940 Act, and any state and foreign securities and blue sky laws,
all as or to be amended from time to time) and expenses, including (without
limitation) attorney's fees and disbursements (hereafter "liabilities and
expenses"), arising directly or indirectly from any action or thing which The
Trust Company takes or does or omits to take or do (i) at the request or on the
direction of or in reliance on the advice of the Fund, or (ii) upon Proper
Instructions, provided, that neither The Trust Company nor any of its nominees
or subcustodians shall be indemnified against any liability to the Fund or to
its Shareholders (or any expenses incident to such liability) arising out of (x)
The Trust Company's or such nominee's or subcustodian's own willful misfeasance,
bad faith, negligence or reckless disregard of its duties under this Agreement
or any agreement between The Trust Company and any nominee or subcustodian or
(y) The Trust Company's own negligent failure to perform its duties under this
Agreement. The Trust Company similarly agrees to indemnify and hold harmless the
Fund from all liabilities and expenses arising directly or indirectly from The
Trust Company's or such nominee's or sub-custodian's willful misfeasance, bad
faith, negligence or reckless disregard in performing its duties under this
Agreement. In the event of any advance of cash for any purpose
<PAGE>
made by The Trust Company resulting from orders or Proper Instructions of the
Fund, or in the event that The Trust Company or its nominee or subcustodian
shall incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Agreement, except such as
may arise from its or its nominee's or subcustodian's own negligent action,
negligent failure to act, willful misconduct, or reckless disregard, the Fund
shall promptly reimburse The Trust Company for such advance of cash or such
taxes, charges, expenses, assessments, claims or liabilities.
25. Responsibility of The Trust Company. In the performance of its duties
hereunder, The Trust Company shall be obligated to exercise care and diligence
and to act in good faith to insure the accuracy and completeness of all services
performed under this Agreement. The Trust Company shall be responsible for its
own negligent failure or that of any subcustodian it shall appoint to perform
its duties under this Agreement but to the extent that duties, obligations and
responsibilities are not expressly set forth in this Agreement, The Trust
Company shall not be liable for any act or omission which does not constitute
willful misfeasance, bad faith, or negligence on the part of The Trust Company
or such subcustodian or reckless disregard of such duties, obligations and
responsibilities. Without limiting the generality of the foregoing or of any
other provision of this Agreement, The Trust Company in connection with its
duties under this Agreement shall, so long as and to the extent it is in the
exercise of reasonable care, not be under any duty or obligation to inquire into
and shall not be liable for or in respect of (a) the validity or invalidity or
authority or lack thereof of any advice, direction, notice or other instrument
which conforms to the applicable requirements of this Agreement, if any, and
which The Trust Company believes to be genuine, (b) the validity of the issue of
any securities purchased or sold by the Fund, the legality of the purchase or
sale thereof or the propriety of the amount paid or received therefor, (c) the
legality of the issue or sale of any Shares, or the sufficiency of the amount to
be received therefor, (d) the legality of the redemption of any Shares, or the
propriety of the amount to be paid therefor, (e) the legality of the declaration
or payment of any dividend or distribution on Shares, of (f) delays or errors or
loss of data occurring by reason of circumstances beyond The Trust Company's
control, including acts of civil or military authority, national emergencies,
labor difficulties, fire, mechanical breakdown (except as provided in Section
20), flood or catastrophe, acts of God, insurrection, war, riots, or failure of
the mail, transportation, communication or power supply.
26. Collection of Income. The Trust Company shall collect on a timely basis
all income and other payments with respect to registered securities held
hereunder to which the Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis all
income and other payments with respect to bearer securities if, on the date of
payment by the issuer, such securities are held by The Trust Company or its
agent thereof and shall credit such income, as collected, to the Fund's
custodian account. Without limiting the generality of the foregoing, The Trust
Company shall detach and present for payment all coupons and other income items
requiring presentation as and when they become due and shall collect interest
when due on securities held hereunder. Income due the Fund on securities loaned
pursuant to the provisions of Section 9 shall be the responsibility of the Fund.
The Trust
<PAGE>
Company will have no duty or responsibility in connection therewith, other than
to provide the Fund with such information or data as may be necessary to assist
the Fund in arranging for the timely delivery to the Custodian of the income to
which the Fund is properly entitled.
27. Ownership Certificates for Tax Purposes. The Trust Company shall execute
ownership and other certificates and affidavits for all federal and state tax
purposes in connection with receipt of income or other payments with respect to
securities of the Fund held by it and in connection with transfers of
securities.
28. Effective Period: Termination and Amendment.
This Agreement shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however, that The Trust Company shall not act under Section 8 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Trustees of the Fund has approved the initial use of
a particular Securities Depository or Book Entry System and the receipt of an
annual certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has reviewed the use by the Fund of such Securities Depository and/or
Book Entry System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended; provided further, however, that the Fund shall
not amend or terminate this Agreement in contravention of any applicable federal
or state regulations, or any provision of the Declaration of Trust, and further
provided, that the Fund may at any time by action of its Board of Trustees (i)
substitute another bank or trust company for The Trust Company by giving notice
as described above to The Trust Company, or (ii) immediately terminate this
Agreement in the event of the appointment of a conservator or receiver for The
Trust Company or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Agreement, the Fund shall pay to The Trust Company
such compensation as may be due as of the date of such termination and shall
likewise reimburse The Trust Company for its costs, expenses and disbursements.
29. Successor Custodian.
If a successor custodian shall be appointed by the Board of Trustees of the
Fund, The Trust Company shall, upon termination, deliver to such successor
custodian at the office of the custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder and shall transfer to an
account of the successor custodian all of the Fund's securities held in a
Securities Depository or Book Entry System.
If no such successor custodian shall be appointed, The Trust Company shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at
<PAGE>
the office of the Custodian and transfer such securities, funds and other
properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
The Trust Company on or before the date when such termination shall become
effective, then The Trust Company shall have the right to deliver to a bank or
trust company, which is a "bank" as defined in the 1940 Act, of its own
selection having an aggregate capital, surplus, and undivided profits, as shown
by its last published report, of not less than $25,000,000, all securities,
funds and other properties held by The Trust Company and all instruments held by
The Trust Company relative thereto and all other property held by it under this
Agreement and to transfer to an account of such successor custodian all of the
Fund's securities held in any Securities Depository or Book Entry System.
Thereafter, such bank or trust company shall be the successor of the Custodian
under this Contract.
In the event that securities, funds and other properties remain in the
possession of The Trust Company after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, The Trust Company shall
be entitled to fair compensation for its services during such period as The
Trust Company retains possession of such securities, funds and other properties
and the provisions of this Contract relating to the duties and obligations of
The Trust Company shall remain in full force and effect.
30. Notices. All notices and other communications (collectively referred to as
"Notice" or "Notices") in this section hereunder shall be in writing and shall
be first sent by telegram, cable, telex, or facsimile sending device and
thereafter by overnight mail for delivery on the next business day. Notices
shall be addressed (a) if to The Trust Company, at the The Trust Company's
address, 800 Shades Creek Parkway, Suite 125, Birmingham, Alabama 35209,
facsimile number (205) 414-3310; (b) if to the Fund, at the Fund's address, 1901
Sixth Avenue North, Suite 2100, Birmingham, Alabama 35203, facsimile number
(205) 226-3207; or (c) if to neither of the foregoing, at such other address as
shall have been notified to the sender of any such Notice or other
communication. Notices sent by overnight mail shall be deemed to have been given
the next business day. Notices sent by messenger shall be deemed to have been
given on the day delivered, and notices sent by confirming telegram, cable,
telex or facsimile sending device shall be deemed to have been given
immediately. All postage, cable, telegram, telex and facsimile sending device
charges arising from the sending of a Notice hereunder shall be paid by the
sender.
31. Further Action. Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
32. Amendments. This Agreement or any part hereof may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of such change or waiver is sought.
<PAGE>
33. Miscellaneous. This Agreement embodies the entire Agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in Alabama and
governed by Alabama law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
THE TRUST COMPANY OF STERNE,
AGEE & LEACH, INC.
Attest: By:
William W. Keith, President
SAL TRUST PREFERRED FUND I
Attest: By:
James S. Holbrook, Jr., President
<PAGE>
EXHIBIT A
CUSTODY SERVICE FEE
Administration and Maintenance Fee:
Transaction Fees:
$______ Per Book Entry Transaction
$______ Per Physical Transaction
$______ Per Wire Transfer
THE TRUST COMPANY OF STERNE,
AGEE & LEACH, INC.
Attest: By:
William W. Keith, President
Date:
SAL TRUST PREFERRED FUND I
Attest: By:
James S. Holbrook, Jr., President
Date:
<PAGE>
EXHIBIT 99.k.1
TRUST PREFERRED PURCHASE AGREEMENT
----------------------------------
This TRUST PREFERRED PURCHASE AGREEMENT (this "Agreement") made as of the
____ day of September, 1999, by and among SAL TRUST PREFERRED FUND I, a Delaware
statutory business trust (the "Fund"), FIRSTBANCORP, INC.,a Florida corporation
(the "Company") which serves as a holding company for Gulf Coast National Bank
and First National Bank of the Florida Keys (the "Banks") and FIRSTBANCORP
CAPITAL STATUTORY TRUST, a Connecticut statutory business trust (the "Bank
Trust"), hereinafter the Fund , the Company and the Bank Trust are collectively
referred to as the "parties".
WHEREAS, the Fund has been organized for the purpose of purchasing through
this Agreement (and similar agreements with two other banks) privately placed
cumulative trust preferred securities from three statutory business trusts
organized by three respective community bank holding companies, including the
Company; and
WHEREAS, the purchase of the trust preferred securities is being funded by
a public offering of shares of the Fund.
NOW, THEREFORE, based upon the foregoing and mutual covenants herein
contained, and for other good and sufficient consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Offering. Sterne Agee, & Leach, Inc. ("Sterne Agee") pursuant to and
--------
subject to the terms and conditions of the Underwriting Agreement dated of even
date herewith ("Underwriting Agreement"), is underwriting on a firm commitment
basis a public offering ("Offering") of 860,000 (or, if the over-allotment
option is exercised, 946,000) shares of the Fund ("Fund Shares"). The Fund is
sponsored by Sterne Agee and is registered as a closed-end investment company
under the Investment Company Act of 1940, as amended (the "1940 Act") and the
Offering will be made pursuant to the Securities Act of 1933, as amended ("1933
Act"). The proceeds of the Offering will be invested solely in 860,000 (or, if
the over-allotment option is exercised, 946,000) shares of ___% cumulative
trust preferred securities issued, in the aggregate, by three Connecticut
statutory trusts formed by three respective community bank holding companies,
including the Company, for the purpose of issuing such ___% cumulative trust
preferred securities. Such ___% cumulative trust preferred securities shall have
a liquidation value of $25 per share or, in the aggregate, $21,500,000 (or, if
the over-allotment option is exercised, $23,650,000) and shall be purchased by
the Fund for a purchase price of $25 per share or, in the aggregate, $21,500,000
(or, if the over-allotment option is exercised, $23,650,000). The ___%
cumulative trust preferred securities are being sold to the Fund by the three
Connecticut statutory trusts pursuant to three trust preferred securities
purchase agreements dated of even date herewith by and among the Fund and each
of the three community bank holding companies and each of their Connecticut
statutory trusts. The ___% cumulative trust preferred securities will be
guaranteed by the bank holding companies as provided in the applicable guaranty
agreements. The bank holdings companies will also issue to themselves all of the
____% cumulative trust common securities of their respective Connecticut
statutory trust. The proceeds of these ___% cumulative trust preferred
securities and the ____% cumulative trust common securities will be used by each
of the Connecticut statutory trusts to purchase subordinated debentures of their
respective bank holding companies issued pursuant to an indenture agreement and
a subordinated debenture purchase agreement.
More specifically, the Company has formed, as sponsor, the Bank Trust,
pursuant to the Trust Agreement dated September 1999, to be amended as of the
Closing Date ("Trust Agreement") by and among the Company, as sponsor of the
Bank Trust, State Street Bank and Trust Company, as property trustee of the Bank
Trust (the "Property Trustee"), and _______________ and ______________ as
administrators of the Bank Trust (the "Administrative Trustees"). Simultaneously
with the consummation of the Offering, the Bank Trust will sell and the Fund
will purchase, pursuant to this Agreement, 280,000 shares (or, if the over-
allotment option is exercised, 308,000 shares) of the ___% cumulative trust
preferred securities of the Bank Trust ("Preferred Securities") which are
coupled with the Preferred Securities Guarantee (as defined below)
(collectively, the Preferred Securities and the Preferred Securities Guarantee
shall be hereinafter referred to as the "Fund Purchased Securities") for an
aggregate purchase price of $7,000,000 (or, if the over-allotment option
<PAGE>
is exercised, $7,700,000). The Preferred Securities and hence the Fund Purchased
Securities will have a liquidation value in the aggregate of $7,000,000 (or, if
the over-allotment option is exercised, $7,700,000) as provided in the Trust
Agreement and this Agreement. The Bank Trust will also issue ______ shares of
____% cumulative trust common securities of the Bank Trust ("Common Securities")
to the Company pursuant to that certain Common Securities Purchase Agreement
dated as of the Closing Date ("Common Purchase Agreement"). The Preferred
Securities will be guaranteed by the Company pursuant to that certain Preferred
Securities Guarantee Agreement by and between the Company and State Street Bank
and Trust Company, as the guarantee trustee ("Guarantee Trustee") for the
benefit of the Fund, and dated as of the Closing Date (the "Preferred Securities
Guarantee"). The proceeds of the Fund Purchased Securities and the Common
Securities will be used by the Bank Trust to purchase ____% Subordinated
Debentures of the Company due September __, 2029 ("Subordinated Debentures")
with a liquidation value of $7,000,000 (or, if the over-allotment option is
exercised, $7,700,000) pursuant to that certain Subordinated Debentures Purchase
Agreement by and between the Company and the Bank Trust dated as of the Closing
Date ("Debenture Purchase Agreement"), and the Indenture by and between the
Company and State Street Bank and Trust Company, as indenture trustee (the
"Indenture Trustee"), dated as of the Closing Date ("Indenture"). The coupon on
the Preferred Securities and the Subordinated Debentures will be equal to the
dividend yield on the Fund Shares and the debt service on the Subordinated
Debentures will be paid from the Company to the Bank Trust and then from the
Bank Trust to the Fund, all as expressly provided in the Indenture, Trust
Agreement and this Agreement. The Fund will then, in turn, pay the Fund's net
income, after any unrecovered expenses, to the holders of the Fund Shares in
accordance with the terms of the Offering. For its services in connection with
the Offering and on behalf of the Company, the Company will pay Sterne Agee
$350,000 upon the Closing Date (and, if the over-allotment option is exercised,
an additional $1.25 per share purchased under the Option). Certain agreements
between the Company and Sterne Agee have been incorporated in that certain
Agreement by and between the Company and Sterne Agee dated of even date herewith
(the "Company/Sterne Agee Agreement").
The Company/Sterne Agee Agreement, the Trust Agreement, the Common Purchase
Agreement, the Preferred Securities Guarantee, the Debenture Purchase Agreement,
the Indenture and this Agreement are hereinafter referred to collectively as the
"Operative Agreements".
2. Definitions. All capitalized terms not otherwise defined herein shall
-----------
have the same meaning as given such terms in the Underwriting Agreement.
3. Acquisition of Preferred Securities and the Preferred Securities
----------------------------------------------------------------
Guarantee and Option.
- --------------------
(a) Purchase Shares. On the basis of the representations, warranties
---------------
and covenants herein contained, and subject to the conditions herein set forth,
the Bank Trust and the Company agree to sell to the Fund and the Fund agrees to
purchase 280,000 shares ("Firm Shares") of the Fund Purchased Securities which
have a liquidation value (as provided in the Trust Agreement) of $25 per share
($7,000,000 in the aggregate) at a purchase price of $25 per share ($7,000,000
in the aggregate). Accordingly, upon such purchase, the Company agrees to issue
Subordinated Debentures to the Bank Trust in consideration of the proceeds of
the Firm Shares and the Common Shares.
Payment for the Firm Shares to be sold hereunder is to be made by wire
transfer to the Bank Trust against delivery of certificates for the Fund
Purchased Securities to the Fund. Such payment and delivery are to be made at
the offices of the Fund, 1901 Sixth Avenue North, Suite 2100, Birmingham,
Alabama at the Closing Date. The certificates for the Firm Shares will be made
available for inspection by the Fund at least one business day prior to the
Closing Date.
(b) Over-Allotment Option. In addition, on the basis of the
---------------------
representations, warranties and covenants herein contained, and subject to the
terms and conditions herein set forth, the Bank Trust and the Company hereby
grant to the Fund an option to purchase an additional 28,000 shares ("Option
Shares") of the Fund Purchased Securities which have a liquidation value (as
provided in the Trust Agreement) of $25 per share ($700,000 in the aggregate) at
a purchase price of $25.00 per share ($700,000 in the aggregate). The option
granted hereby may be exercised in whole or in part (if in part, subject to a
maximum of one exercise) upon written notice given within 30 days after the date
of this Agreement setting forth the number of Option Shares as to which the Fund
is exercising the
2
<PAGE>
option and the time and date at which the certificate is to be delivered, but
may be exercised only if and at the same time and to the same extent as the
Underwriters exercise their over-allotment option under the Underwriting
Agreement and further limited to the Company's pro rata share of the over-
allotment option exercised by the Underwriters pursuant to the Underwriting
Agreement based upon the Company's pro rata share of the Offering. The time and
date at which certificates for Option Shares are to be delivered shall be the
same date as the Option Closing Date under the Underwriting Agreement. If the
date of exercise of the option is three or more business days before the Closing
Date, the notice of exercise shall set the Closing Date as the Option Closing
Date. The option with respect to the Option Shares granted hereunder may be
exercised only to cover the over-allotment option granted to the Underwriters
pursuant to the Underwriting Agreement in connection with the sale of Fund
Shares in the Offering. The Fund may cancel such option at any time prior to its
expiration by giving written notice of such cancellation to the Bank Trust and
the Company. To the extent, if any, that the option is exercised, payment for
the Option Shares shall be made on the Option Closing Date by wire transfer to
the order of the Company against delivery of certificates therefor.
4. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to the Fund that as of the date of this Agreement:
(a) With respect to any and all information in the Registration
Statement and the Prospectus as of the date hereof regarding the Company, the
Bank Trust, the Preferred Securities, the Common Securities, the Subordinated
Debentures and the Operative Agreements (the "Company Information"), neither the
Registration Statement nor any amendment thereto, and neither the Prospectus
(which includes the Statement of Additional Information for purposes of this
Agreement) nor any supplement thereto, contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading regarding the Company Information; provided, however, that
the Company makes no representations or warranties as to (i) information
contained in or omitted from the Registration Statement or the Prospectus, or
any such amendment or supplement, in reliance upon, and in conformity with,
written information furnished by the Fund or to the Fund by or on behalf of any
Underwriter through the Representative specifically for use in the preparation
thereof, (ii) any description of taxation relating specifically to the Fund
Shares (plus any description of taxation relating to the Subordinated Debentures
or Preferred Securities not covered by the opinion referenced in Section 7(b)
hereof), (iii) information relating to the other two banks participating in the
Offering and (iv) the Fund or its management or operations or the Fund Shares
(the items in the foregoing clauses (i) through (iv) do not constitute "Company
Information").
(b) The Company and each subsidiary of the Company (as used herein,
the term "subsidiary" includes any corporation, national or state bank, federal
savings bank, joint venture or partnership in which the Company or any
subsidiary of the Company has a 50% or greater or other controlling ownership
interest) is duly organized and validly existing and in good standing under the
laws of the respective jurisdictions of their organization or incorporation, as
the case may be, with full power and authority (corporate, partnership and
other, as the case may be) to own their properties and conduct their businesses
as now conducted and are duly qualified or authorized to do business and are in
good standing in all jurisdictions wherein the nature of their business or the
character of property owned or leased may require them to be qualified or
authorized to do business, except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries taken as a whole ("Material Adverse Effect"). The Company
has been legally constituted and is validly existing in good standing as a
registered bank holding company under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"), and the rules and, to the extent applicable,
regulations thereunder. Each subsidiary bank of the Company has been duly
incorporated and is a validly existing banking corporation under the laws of the
jurisdiction of its incorporation. The Company and its subsidiaries hold all
licenses, consents and approvals, and have satisfied all eligibility and other
similar requirements imposed by federal and state regulatory bodies,
administrative agencies or other governmental bodies, agencies or officials, in
each case as material to the conduct of the respective businesses in which they
are engaged as disclosed in the Registration Statement or the Prospectus.
3
<PAGE>
(c) The outstanding stock of each of the Company's corporate
subsidiaries is duly authorized, validly issued, fully paid and nonassessable
(except, to the extent permitted by the National Bank Act, the stock of the
Company's national bank subsidiaries). All of the outstanding stock of each of
the Company's corporate subsidiaries owned beneficially and of record by the
Company is owned clear of any lien, encumbrance, pledge, equity or claim of any
kind other than the lien on the stock of the Bank disclosed in the Financial
Statements. Neither the Company nor any of its subsidiaries is a partner or
joint venturer in any partnership or joint venture.
(d) The Company has all requisite legal right, power and authority to
execute, deliver, and perform the Operative Agreements to which it is a party.
All necessary corporate proceedings of the Company have been duly taken to
authorize the execution, delivery, and performance by the Company of the
Operative Agreements to which it is a party. The Operative Agreements to which
it is a party have been duly authorized, executed, and delivered by the Company,
and are the legal, valid, and binding obligation of the Company, and are
enforceable as to the Company in accordance with their terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the rights of creditors generally, and subject, as to enforceability,
to general principles of equity (regardless of whether enforcement is sought in
a proceeding in equity or at law). To the Company's knowledge, no consent,
authorization, approval, order, license, certificate, or permit of or from, or
declaration or filing with, any federal, state, local, or other governmental
authority or any court or other tribunal is required by the Company for the
execution, delivery, or performance by the Company of the Operative Agreements
(other than such which have been obtained or made). No consent of any party to
any contract, agreement, instrument, lease, license, arrangement, or
understanding to which the Company is a party, or to which any of its properties
or assets is subject, is required for the execution, delivery, or performance of
the Operative Agreements (other than such which have been obtained or made), and
the execution, delivery, and performance of the Operative Agreements will not
violate, result in a breach of, conflict with, result in the creation or
imposition of any lien, charge, or encumbrance upon any properties or assets of
the Company pursuant to the terms of, or, with or without the giving of notice
or the passage of time or both, entitle any party to terminate or call a default
under, any such contract, agreement, instrument, lease, license, arrangement, or
understanding, or violate, result in a breach of, or conflict with any term of
the certificate of incorporation (or other charter document) or bylaws of the
Company or any of its subsidiaries, or violate, result in a breach of, or
conflict with, any law, rule, regulation, order, judgment, or decree binding on
the Company or any of its subsidiaries or to which any of their operations,
businesses, properties, or assets are subject, other than any such breach,
violation or occurrence that would not have a Material Adverse Effect.
(e) There is not any pending or, to the best of the Company's
knowledge, any threatened action, suit, claim or proceeding against the Company,
or any of its officers or any of its properties, assets or rights before any
court, government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its officers or properties or otherwise
which (i) might result in any Material Adverse Effect to the Company or might
materially and adversely affect its properties, assets or rights or (ii) might
prevent consummation of the transactions contemplated by the Operative
Agreements.
(f) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities. The Preferred Securities Guarantee and the
Subordinated Debentures have been duly authorized for issuance and sale to the
Fund and the Bank Trust, respectively, and the Preferred Securities of the Bank
Trust have been duly authorized for issuance and sale to the Fund pursuant to
this Agreement and, when issued and delivered by the Company against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable, and will be sold free and clear
of any pledge, lien, security interest, encumbrance, claim or equitable
interest; and no preemptive right, co-sale right, registration right, right of
first refusal or other similar right of stockholders exists with respect to any
of the Preferred Securities Guarantee and the Subordinated Debentures of the
Company or Preferred Securities of the Bank Trust or the issuance and sale
thereof other than those that have been expressly waived prior to the date
hereof and those that will automatically expire upon the consummation of the
transactions contemplated in the Operative Agreements. No further approval or
authorization
4
<PAGE>
of any stockholder or Board of Directors of the Company or any Administrative
Trustees, Property Trustee or beneficiary of the Bank Trust (other than the
Fund) or the Guarantee Trustee, the Indenture Trustee or other applicable
regulatory body such as the Federal Reserve, the Florida State Banking
Commission or the Federal Deposit Insurance Corporation is required for the
issuance and sale of the Preferred Securities Guarantee, the Subordinated
Debentures or the Preferred Securities to be issued at the Closing Date or
Option Closing Date, as the case may be, under the Operative Agreements except
as may be required under the 1933 Act, 1940 Act or under state or other
securities or Blue Sky laws and except for the actual ministerial actions
required to issue and authenticate such securities.
(g) Osburn, Henning and Company which has examined certain of the
financial statements of the Company, its subsidiaries and their acquireds,
together with the related schedules and notes which are filed with the
Commission as a part of the Registration Statement and which are included in the
Prospectus, are independent accountants within the meaning of generally accepted
accounting principles and, to the Company's knowledge, independent accountants
within the meaning of the 1933 Act and the Rules and Regulations thereunder. The
audited consolidated financial statements of the Company and its subsidiaries,
together with the related schedules and notes as of and for the years ended
December 31, 1997 and 1998 (the "Audited Financial Statements"), and the
Company's unaudited balance sheet and statement of income and notes thereto as
of and for the six (6) months ended June 30, 1999 (the "Interim Financial
Statements") forming part of the Registration Statement and Prospectus,
(collectively, the "Financial Statements"), fairly present in accordance with
generally accepted accounting principles the financial position and the results
of operations and changes in financial position and cash flow of the Company and
its subsidiaries at the respective dates and for the respective periods to which
they apply and have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
except as may be otherwise stated therein and except, in the case of the Interim
Financial Statements, the absence of notes thereto and subject to normal year
end adjustments. All of the financial and statistical data with respect to the
Company set forth in the Prospectus under the captions "Risk Factors", "Bank
Holding Companies", "FirstBancorp, Inc. Selected Consolidated Financial Data"
and "Supervision and Regulation of the Bank Holding Companies" fairly present
the information set forth therein on the basis stated in the Prospectus.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, neither the Company nor any
subsidiary has sustained any material loss or interference with its business or
properties from fire, flood, hurricane, earthquake, accident or other calamity,
whether or not covered by insurance or for any labor dispute or court or
governmental action, order or decree, which is not disclosed in the Prospectus;
and subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) neither the Company nor any of
its subsidiaries has incurred any material liabilities or obligations, direct or
contingent, or entered into any material transaction not within the ordinary
course of business, and (ii) there has not been any change in the capital stock,
partnership interest, joint venture interest, long-term debt or obligations
under capital leases of the Company or its subsidiaries, taken as a whole, or
any issuance of options, warrants or rights to purchase the capital stock of the
Company, or any material adverse change, or any development involving a
prospective material adverse change in the management, business, prospects,
financial position, net worth or results of operations of the Company or its
subsidiaries, taken as a whole, except in each case as described in or
contemplated by the Prospectus.
(i) Except as set forth in the Financial Statements or the
Registration Statement and Prospectus, (i) the Company and its subsidiaries have
good and marketable title to all properties and assets owned by them, free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest, other than such as would not have a Material Adverse Effect and other
than ordinary course liens purchase money liens and property subject to leases,
and other than liens disclosed in the Financial Statements, (ii) the agreements
to which the Company and its subsidiaries are a party are valid agreements,
enforceable by the Company and its subsidiaries, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights,
generally or by general equitable principles and, to the best of the Company's
knowledge, the other contracting party or parties thereto are not in material
breach or material default under any of such agreements, and (iii) the Company
and its subsidiaries have valid and enforceable leases for all
5
<PAGE>
properties as leased by them, except as the enforcement thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles. The Company and its subsidiaries own or lease all such
properties as are necessary to its operations as now conducted or as currently
proposed to be conducted.
(j) The Company and its subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown thereon as due, and there is no tax deficiency that has been or, to
the best of the Company's knowledge, might be asserted against the Company or
any of its subsidiaries that might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company or its subsidiaries; and all material tax liabilities
are adequately provided for on the books of the Company in accordance with
generally accepted accounting principles.
(k) The Company and its subsidiaries maintain insurance with insurers
of recognized financial responsibility of the types and in the amounts generally
deemed adequate for their respective businesses and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, errors and omissions, insurance covering real and personal
property owned or leased by the Company and its subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect; and the Company has
no reason to believe that it will not be able to renew its or its subsidiaries
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company (other than the cost of such insurance subject to usual or
applicable increases).
(l) To the best of the Company's knowledge, no labor disturbance by
the employees of the Company or its subsidiaries exist or is imminent that might
be expected to result in a Material Adverse Effect. No collective bargaining
agreement exists with any of the Company's or its subsidiaries' employees and,
to the best of the Company's knowledge, no such agreement is imminent.
(m) The Company and its subsidiaries own or possess adequate rights to
use all patents, patent rights, inventions, trade secrets, knowhow, trademarks,
service marks, trade names and copyrights which are necessary to conduct its
businesses as described in the Registration Statement and Prospectus; the
Company and its subsidiaries have not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of the
Company and it subsidiaries by others with respect to any patent, patent rights,
inventions, trade secrets, knowhow, trademarks, service marks, trade names or
copyrights; and neither the Company nor its subsidiaries have received any
notice of, and have any knowledge of, any infringement of or conflict with
asserted rights of others with respect to any patent, patent rights, inventions,
trade secrets, knowhow, trademarks, service marks, trade names or copyrights
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company.
5. Representations and Warranties of the Bank Trust. The Bank Trust
------------------------------------------------
represents and warrants to the Fund that as of the date of this Agreement:
(a) The Bank Trust has been duly formed and is validly existing as a
statutory trust under the Connecticut Statutory Trust Act, Chapter 615 of Title
34 of the Connecticut General Statutes, Section 500, et seq. (the "Act").
-- ---
(b) The Trust Agreement constitutes a valid and binding obligation of
the Property Trustee enforceable against the Property Trustee in accordance with
the terms thereof.
6
<PAGE>
(c) The Trust Agreement constitutes a valid and binding obligation of
the Depositor and the Administrative Trustees, enforceable against the Depositor
and the Administrative Trustees in accordance with its terms.
(d) The Bank Trust has the requisite trust power and authority to (a)
execute and deliver, and to perform its obligations under, the Operative
Agreements to which it is a party, and (b) perform its obligations under such
Operative Agreements.
(e) Each of the Operative Agreements to which the Bank Trust is a
party constitutes a valid and binding obligation of the Bank Trust, enforceable
against the Bank Trust in accordance with the terms thereof.
(f) The Preferred Securities have been duly authorized by the Bank
Trust under the Trust Agreement, and the Preferred Securities, when duly issued,
executed and authenticated to the Fund in accordance with the Trust Agreement
and this Agreement, will be validly issued, fully paid and nonassessable and
will evidence undivided beneficial interests in the assets of the Trust and will
be entitled to the benefits of the Trust Agreement.
(g) The Common Securities have been duly authorized by the Bank Trust
Agreement, and the Common Securities, when duly issued, executed and
authenticated to the Company in accordance with the Trust Agreement and the
Common Purchase Agreement and delivered and paid for in accordance therewith,
will be, validly issued, fully paid and nonassessable and will evidence
beneficial undivided interests in the assets of the Bank Trust and will be
entitled to the benefits of the Trust Agreement.
(h) Neither the execution, delivery or performance by the Bank Trust
of the Operative Agreements to which it is a party, the consummation by the Bank
Trust of the transactions contemplated thereby, nor compliance by the Bank Trust
with any of the terms and provisions thereof, (a) violates the Trust Agreement,
or, to the best of the Bank Trust's knowledge, contravenes or will contravene
any provision of, or constitutes a default under, or results in any breach of,
or results in the creation of any lien (other than as permitted under the
Operative Agreements to which it is a party) upon property of the Bank Trust
under, any indenture, mortgage, chattel mortgage, deed of trust, conditional
sales contract, bank loan or credit agreement, license or other agreement or
instrument, in each case known to the Bank Trust, to which it is a party or by
which it is bound or (b) violates any applicable Connecticut law governing the
Bank Trust, or, to the best of the Bank Trust's knowledge, any judgment or order
of any court or other tribunal, in each case known to the Bank Trust, applicable
to or binding on it.
(i) No consent, approval, order or authorization of, giving of notice
to, or registration with, or taking of any other action in respect of, any
Connecticut governmental authority regulating the Bank Trust is required for the
execution, delivery, validity or performance of, or the carrying out by, the
Bank Trust of any of the transactions contemplated by the Operative Agreements,
other than any such consent, approval, order, authorization, registration,
notice or action as has been duly obtained, given or taken.
(j) The Fund, as the beneficial holder of the Preferred Securities,
will be entitled to the same limitation of personal liability extended to
shareholders of domestic corporations organized under the laws of the State.
6. Conditions to the Fund's Obligations. The obligations of the Fund to
------------------------------------
purchase the Fund Purchased Securities under this Agreement (and consequently,
the several Underwriters to purchase the Fund Shares under the Underwriting
Agreement) shall be subject to the continuing accuracy in all material respects
of all representations and warranties of the Company and the Bank Trust
contained in the Operative Agreements, as of the date hereof and as of the
Closing Date (or the Option Closing Date as the case may be), and to the
delivery of the following:
7
<PAGE>
(a) The Company shall provide the Fund at the Closing Date or the
Option Closing Date, as the case may be, with a legal opinion from Smith,
Mackinnon, Greeley, Bowdoin & Edwards, P.A. addressed to SAL Trust Preferred
Fund I, in the form attached hereto as Exhibit A.
(b) The Company shall provide the Fund at the Closing Date or the
Option Closing Date, as the case may be, with a legal opinion from Bingham Dana
LLP addressed to SAL Trust Preferred Fund I and to the Company, in the form as
attached hereto as Exhibit B.
(c) The Company shall provide the Fund at the Closing Date or the
Option Closing Date, as the case may be, with a legal opinion from Bingham Dana
LLP addressed to SAL Trust Preferred Fund I, in the form attached hereto as
Exhibit C.
(d) The Company shall provide the Fund, as of the Closing Date or the
Option Closing Date, as the case may be, with a customary cold-comfort letter
addressed to SAL Trust Preferred Fund I from its independent certified public
accountants in accordance with FASB standards with respect to the Financial
Statements and any and all other financial data relating to the Company or the
Bank contained in the Registration Statement or Prospectus which letters are
reasonably acceptable to the Fund and the basic content of which is agreed to by
the independent certified public accountants.
(e) On the Closing Date, the Company shall have delivered to the Fund
copies of the manually signed Operative Agreements other than this Agreement and
the Company/Sterne Agee Agreement which shall be executed by each of the parties
and originals of which shall be delivered to each party on the same date as the
Underwriting Agreement. A certificate of the Company's secretary shall confirm
the continued validity of the Operative Agreements on the Closing Date (with
respect only to this Agreement and the Company/Sterne Agee Agreement) and the
Option Closing Date.
(f) The Company shall provide the Fund, as of the Closing Date or the
Option Closing Date, as the case may be, a certificate from the president of the
Company as to the Company and a certificate from the Bank Trust as to the Bank
Trust to the effect that all of the representations and warranties made by the
Company and the Bank Trust, respectively, in this Agreement are true and correct
as of such date.
(g) The Fund shall have executed a purchase agreement substantially
similar to this Agreement with each of the other two bank holding companies
contemplated in the Offering and, as of the Closing Date, the Fund shall not
have terminated either of such purchase agreements.
7. Conditions to Company and Bank Trust Obligations. The obligations of
------------------------------------------------
the Company and the Bank Trust under the Operative Agreements shall be subject
to the continuing accuracy in all material respects of all representations and
warranties made by Sterne Agee or the Fund in the Operative Agreements or by the
Fund in the Underwriting Agreement as of the date hereof and as of the Closing
Date and to the delivery to the Company of the following:
(a) All legal opinions delivered by the Fund's counsel and the Bank
Trust's counsel in connection with the Offering shall also be addressed and
delivered to the Company. The opinion of counsel to the Fund shall include
customary opinions with respect to the registered offering, including without
limitation legal sufficiency and effectiveness of the registration statement,
organization and existence of the Fund, and compliance with securities laws
including the 1940 Act and 1933 Act.
(b) An opinion letter of Morgan, Lewis & Bockius, LLP addressed to the
Company to the effect that the interest payments on the Subordinated Debentures
are tax-deductible to the Company.
8
<PAGE>
8. Expenses. Offering Participation; Offering Expenses.
-------- -----------------------------------------
(a) The Company acknowledges that Sterne Agee has incurred significant
time and expenditures in connection with the structuring of the Offering and
based thereon, each of the Company and Fund hereby agree to use their best
reasonable efforts to complete the Offering in a timely manner but in no event
later than September 30, 1999 unless the parties agree otherwise; provided,
however, that the Company and Bank Trust shall not be required to consummate the
Offering (including any issuance and sale of Fund Purchased Securities or
Subordinated Debentures) if (i) the Company's first year's interest expense
based upon the coupon rate of the Subordinated Debentures plus (ii) the
Company's expenses under paragraph (c) below shall exceed 10.25% of $7,000,000
or $717,500.
(b) The Company will bear all of its own expenses necessary for the
participation of the Company in the Offering ("Company Expenses") including, but
not limited to, its own legal counsel and accountants, the formation and
administration of the Bank Trust, the creation and issuance by the Company of
the Subordinated Debentures to the Bank Trust, the creation and issuance by the
Bank Trust of the Preferred Securities to the Fund and any tax or other legal
opinions issued to the Banks regarding the tax effects and the issuance of the
Preferred Securities including any such legal opinions issued by counsel to the
Fund.
(c) The Company shall further bear all of its pro rata share
(allocated based on relative Offering proceeds) of the Fund's costs and expenses
incident to the issuance, offer, sale and delivery of the Fund Shares ("Fund
Expenses") including all expenses and fees incident to the filing of the
Registration Statement with the SEC and the NASD, AMEX, NYSE or other exchange,
as applicable, and including all filing fees incident to qualification of the
Offering with the NASD Regulation, Inc., reasonable fees and disbursements of
counsel and accountants for the Fund and fees and disbursements of counsel to
Sterne Agee, Ritchie & Rediker, L.L.C. (provided, however, that the Company's
reimbursement of fees and disbursements for Ritchie & Rediker, L.L.C., shall not
exceed $13,333.33 and paid directly to Sterne Agee), costs for preparing,
printing and mailing (including printing and service fees of the financial
printer and any mailing service provider) the Registration Statement and as many
copies of the underwriting documents, Prospectuses and Preliminary Prospectus as
Sterne Agee may deem necessary and related exhibits including all amendments and
supplements to the Registration Statement, all fees relating to the listing of
the Fund Shares on AMEX and/or such other market(s) upon which the Fund and
Sterne Agee determine to list the Fund Shares, and all costs associated with the
Fund's "road show" including Sterne Agee's out-of-pocket expenses and expenses
associated with presentations by the Fund and/or the Company and preparation of
visual materials associated therewith; provided, however, the Fund Expenses
shall not exceed two percent (2%) of the Company's pro rata share of the
proceeds of the Offering. The financial printer shall be as set forth on the
Summary of Terms. Fund Expenses shall be payable as reimbursement to the Fund by
the 15/th/ day following the date upon which each and any invoice is presented
to the Company by the Fund; provided, however, that the Fund shall not present
any invoice or group of invoices to the Company more than one time per month.
Notwithstanding the foregoing or any other provision to the contrary contained
herein, in the event the Offering is terminated for any reason other than as
provided in subparagraph (d) below, the Fund Expenses to be borne by the Company
shall not exceed $50,000 for the Company excluding the costs and fees of the
financial printer and any mailing service provider as referred to above relating
to the printing and mailing of the Registration Statement and Prospectus in
connection with the Offering.
(d) Further notwithstanding the foregoing or any other provisions to
the contrary contained herein, if, as a result of the failure of the Company to
use its best reasonable efforts to consummate closing of the Offering by
September 30, 1999 (and Sterne Agee has not failed to use its best reasonable
efforts to complete the Offering) and the Offering is at anytime thereafter
abandoned by Sterne Agee, then, within fifteen (15) days following such
abandonment, the Company shall reimburse Sterne Agee its pro rata share
(allocated based on relative expected Offering proceeds) of Sterne Agee's actual
out-of-pocket expenses (but excluding expenses of the Fund addressed in
subparagraph (c) above) incurred in Sterne Agee's capacity as the underwriter of
the Offering and sponsor of the Fund up to a maximum of $20,000; provided,
however, this subparagraph (d) in no way affects or limits the Company's
9
<PAGE>
obligations to pay its pro rata share of the costs and expenses incident to the
issuance, offer, sale and delivery of the Fund Shares referred to in
subparagraph (c) above.
9. Operating Expenses. For so long as the Fund is a holder of Preferred
------------------
Securities, the Company shall bear all of its pro rata share (allocated based on
relative Offering proceeds as adjusted from time to time for any redemptions) of
the annual operating costs and expenses incident to the operation of the Fund
(if and to the extent reasonable, appropriate and customary to a registrant such
as the Fund making an offering such as the Offering), including but not limited
to, filings with the SEC, NASD, any applicable state securities commissions or
any applicable securities exchanges of any annual, semi-annual or other periodic
filings, attorney's fees, accounting fees, fees of the Board of Trustees of the
Fund and custodian, fees of the investment manager, insurance including
liability insurance for the Board of Trustees, transfer agent fees and other
administrative fees; provided, that such aggregate costs and expenses shall not
exceed $185,000 per annum, as adjusted each year for changes in the cost of
living as reflected in the Consumer Price Index of All Urban Consumers, U.S.
City Average, ALL ITEMS. No such adjustment shall in any year result in a
reduction of the then current limitation. Sterne Agee and the Fund shall use
reasonable efforts to maintain all such expenses at a minimum. If more than 20%
of the Fund's assets consist of investments other than any or all of the
Preferred Securities or the Subordinated Debentures and the ___% cumulative
trust preferred securities or the ___% subordinated debentures of the other two
bank holding companies purchased by the Fund with the proceeds of the Offering,
then the Company's obligation hereunder shall be reduced by such percentage of
the Fund's assets consisting of such other investments.
10. Affirmative Covenants. So long as the Fund is a holder of any Firm
---------------------
Shares or Option Shares:
(a) Fulfillment of Obligations. The Company, its subsidiaries and the
--------------------------
Bank Trust shall observe and comply with all of the terms, conditions,
restrictions and covenants to be observed or performed by either of them under
their respective organizational documents and the Operative Agreements to which
either of them is a party.
(b) Accounts and Reports. The Company and the Bank Trust will
--------------------
maintain a standard system of accounts, records and accounting controls and
systems in accordance with generally accepted accounting principles consistently
applied. Subject to applicable back regulatory requirements, the Company will
provide the Fund with a copy of the following documents within fifteen (15) days
following the filing or completion thereof by either the Company or its
auditors: (i) regularly prepared audited financial statements, (ii) quarterly
and annual financial statements filed with applicable bank regulatory agencies
and (iii) annual reports to shareholders, if applicable.
(c) Payment of Taxes. The Company shall, and shall cause its
----------------
subsidiaries to, pay and discharge all lawful taxes, assessments and
governmental charges or levies imposed upon them or upon their income or
property before the same shall become in default, as well as all lawful claims
for labor, material and supplies which, if not paid when due, might become a
lien or charge upon their property or any part thereof; provided, however, that
-------- -------
the Company or its subsidiaries shall not be required to pay and discharge any
such tax, assessment, charge, levy or claim so long as the validity thereof is
being contested in good faith by appropriate proceedings and an adequate reserve
therefor has been established on their books if required under GAAP.
(d) Conduct of Business; Compliance with Laws. The Company shall
-----------------------------------------
keep, and shall cause its Subsidiaries including the Bank Trust to keep their
properties in such repair, working order and condition and will from time to
time make such repairs, renewals, replacements, additions and improvements
thereto so that the business carried on in connection therewith may be properly
conducted at all times in a commercially reasonable manner and in material
compliance with all applicable statutes, rules and regulations and material
obligations; and the Company shall, and shall cause its subsidiaries to,
otherwise comply with all applicable statutes, rules, regulations and other
material obligations.
(e) General Insurance. The Company shall keep all of its insurable
-----------------
properties and all of the insurable properties of its subsidiaries now or
hereafter owned adequately insured at all times against loss or damage
10
<PAGE>
by fire or other casualty to the extent customary with respect to like
properties of companies conducting similar businesses; maintain public
liability, workman's compensation and other liability coverage (including so-
called errors and omissions, products or service liability coverage) insuring
the Company and its subsidiaries to the extent customary with respect to
companies conducting similar businesses, all by financially sound and reputable
insurance companies and, upon request of the Fund, furnish to the Fund
satisfactory evidence of the same.
(f) Inspection. Subject to the Fund's execution of confidentiality
----------
agreements and other reasonable precautions that the Company and Bank Trust may
request from time to time, the Fund may make reasonable inspection of the
properties, books and other records of the Company, its subsidiaries and the
Bank Trust and may interview directors, officers, employees and independent
accountants regarding the affairs of the Company, its subsidiaries and the Bank
Trust, in any reasonable manner and at such reasonable times as may be
reasonably requested, for the purpose of determining the Company's and the Bank
Trust's continuing ability to honor their obligations under the Firm Shares or
Option Shares. Any such examinations shall be conducted under the supervision of
appropriate officers and personnel of the Company and Bank Trust and subject to
applicable bank regulatory requirements. The Company and Bank Trust do not
hereby waive or release their respective proprietary or other interest or rights
or other protections under applicable law relating to any information obtained
by the Fund through such investigations.
(g) Corporate Existence. The Company shall maintain and cause each of
-------------------
its subsidiaries and the Bank Trust to maintain their respective statutory
existence, rights and franchises in full force and effect, except as otherwise
permitted under the Indenture.
(h) Further Assurances.
------------------
(i) The Company will cure promptly or will cause any or all of
its subsidiaries or the Bank Trust to cure promptly any defects in the
creation and issuance of the Firm Shares or Option Shares or the
Subordinated Debentures, and in the execution and delivery of the
Operative Agreements. The Company at its expense, will promptly
execute and deliver or will cause any or all of its subsidiaries or
the Bank Trust to execute and deliver promptly to the Fund, following
receipt of a reasonable request in writing from the Fund, all such
other and further documents, agreements and instruments in compliance
with or pursuant to its covenants and agreements herein, and will make
any recordings, file any notices, and obtain any consents as may be
necessary or appropriate in connection therewith.
(ii) The Fund will cure promptly any defects in the creation and
issuance of the Fund Shares, and in the execution and delivery of the
Operative Agreements. The Fund at its expense, will promptly execute
and deliver promptly to the Company, following receipt of a reasonable
request in writing from the Company, all such other and further
documents, agreements and instruments in compliance with or pursuant
to its covenants and agreements herein, and will make any recordings,
file any notices, and obtain any consents as may be necessary or
appropriate in connection therewith.
(i) Bank Trust Trustee. The Company shall at all times use reasonable
------------------
efforts to cause the Bank Trust to maintain State Street Bank and Trust or
another qualified bank or trust company reasonably acceptable to the Fund as the
Property Trustee, Indenture Trustee and Guarantee Trustee and as otherwise
required by the Indenture.
11. Representations and Covenants of the Fund. The Fund represents,
-----------------------------------------
warrants and covenants to the Company and the Bank Trust as follows:
(a) The Fund has been duly organized under the laws of the State of
Delaware as a business trust and is validly existing and in good standing as a
business trust under the laws of the State of Delaware, with full power and
authority to own its properties, and to conduct its business as such business is
proposed to be conducted and to
11
<PAGE>
carry out the transactions contemplated hereby. The Fund has all requisite
authority to execute and deliver this Agreement and any other Operative
Agreement to which it is a party and this Agreement and such Operative
Agreements when so executed and delivered shall be legal, valid and binding
obligations of the Fund, as applicable, enforceable in accordance with their
terms, except that such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the rights and remedies of
creditors generally, or the application of principal of equity, whether applied
in a proceeding at law or in equity. The representation and warranties of the
Fund in Section 1.(a) of the Underwriting Agreement are true and correct.
(b) The Fund, by acceptance of Firm Shares or Option Shares, as the
case may be, represents that it has purchased such shares, not with a view to,
or for sale in connection with, any distribution thereof in violation of the
1933 Act.
(c) The Fund has had an opportunity to ask questions of and receive
answers from the Company, or any person or persons acting on their behalf,
concerning the terms and conditions of the investment represented by the
purchase of the Firm Shares or Option Shares, as the case may be, and concerning
the business of the Company and the transactions contemplated hereby, and all
such questions have been answered to the full satisfaction of the Fund.
(d) The investment manger of the Fund has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of an investment in the Firm Shares or Option Shares, as
the case may be. The Fund acknowledges and agrees that the Fund Purchased
Securities shall be subject to the terms of those certain Operative Agreements
relating thereto, including the Indenture, Trust Agreement and Preferred
Securities Guarantee.
(e) The Fund is aware of the fact that the Firm Shares or Option
Shares, as the case may be, have not been registered under the 1933 Act or any
state securities laws, and that the Firm Shares or Option Shares, as the case
may be, purchased in accordance with this Agreement may not be sold,
transferred, or otherwise disposed of in the absence of registration under the
1933 Act and applicable state securities laws or an opinion of counsel,
satisfactory to the Company, to the effect that such registration is not
required due to the availability of registration exemptions.
(f) It is agreed and acknowledged that all certificates, representing
the Firm Shares or Option Shares, as the case may be, if any, shall contain the
following legend until such time as such shares shall be registered pursuant to
the 1933 Act or comply with Rule 144(k) promulgated under the 1933 Act:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH
NOR APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION NOR BY THE SECURITIES REGULATORY AUTHORITY OF ANY STATE AND SUCH
REGISTRATION IS NOT CONTEMPLATED. THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE TRANSFERRED IN WHOLE OR IN PART OR OTHERWISE
ASSIGNED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
The Fund understands that the certificates will also bear such legends and
be subject to such transfer restrictions as set forth in the Trust Agreement.
12. Closing Deliveries. In connection with the purchase of the Firm
------------------
Shares or Option Shares, as the case may be, by the Fund hereunder, the
following deliveries and other matters shall take place either on or before the
Closing Date or the Option Closing Date, as the case may be:
12
<PAGE>
(a) The Company shall deliver to the Fund all of the documents
referred to in Section 6 of this Agreement and the Company shall receive
delivery of all documents referred to in Section 7 of this Agreement.
(b) The Fund shall receive a certificate from the secretary of the
Company (certified by the president of the Company) enclosing true and correct
copies of the resolutions of the Board of Directors of the Company authorizing
the Company to enter into the Operative Agreements and sell to the Fund the Firm
Securities and the Option Securities, as the case may be, certified copies of
the Articles of Incorporation of the Company and its subsidiaries, copies of
certificates of good standing for the Company and its subsidiaries, a
representation that there have been no amendments to or documents affecting or
altering the Articles of Incorporation of the Company or its subsidiaries since
date of the certified copies thereof, attaching a true and correct form of the
Preferred Securities, the Common Securities and Subordinated Debentures and
certifying that the officers executing this certificate are duly elected
officers of the Company.
(c) Each of the Operative Agreements shall be executed and delivered
and all performance required on or before such date shall have been performed in
all material respects.
(d) The Company shall duly issue and deliver certificates to the Fund
for the Firm Shares or the Option Shares, as the case may be, to be purchased by
the Fund and the applicable Guarantee.
(e) The Company, the Bank Trust and the Fund shall execute a cross-
receipt affirming that the Company has received the proceeds from the sale of
Subordinated Debentures to the Bank Trust, the Bank Trust has received the
proceeds from the sale of Fund Purchased Securities to the Fund, the Fund has
received the certificates representing ownership of the Fund Purchased
Securities, and the Bank Trust has received certificates representing the
Subordinated Debentures.
13. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless the Fund
against any losses, claims, damages, liabilities or expenses (including
reasonable attorney's fees and reasonable costs of investigation), joint or
several, to which the Fund may become subject under the 1940 Act, the 1933 Act,
the Securities Exchange Act of 1934, as amended ("Exchange Act"), or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any breach of
representation, warranty, agreement or covenant of the Company herein contained,
(ii) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and the Company agrees to reimburse the Fund for any legal or other
expenses reasonably incurred by it in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
-------- -------
Company shall only be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission regarding
the Company Information (as defined in Section 4(a)) made in the Registration
Statement, such Preliminary Prospectus or the Prospectus, or any such amendment
or supplement thereto; provided that the Company had an opportunity to review
-------------
and comment on the Company Information prior to filing with the SEC and the
Company Information conforms thereto and, provided further, that the indemnity
----------------
agreement provided in this Section 13(a) with respect to any Preliminary
Prospectus shall not inure to the benefit of the Fund if any Underwriter from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of material fact or
omission or alleged omission to state therein a material fact purchased Fund
Shares, failed to deliver a copy of the Prospectus in which such untrue
statement or alleged untrue statement or omission or alleged
13
<PAGE>
omission was corrected to such person within the time required by the 1933 Act,
the 1940 Act and the Rules and Regulations thereunder.
The indemnity agreement in this Section 13(a) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer and
trustee of the Fund and each person, if any, who controls the Fund within the
meaning of the 1940 Act, the 1933 Act or the Exchange Act. This indemnity
agreement shall be in addition to any liabilities which the Company may
otherwise have.
(b) The Fund agrees to indemnify and hold harmless the Company and the
Bank Trust against any losses, claims, damages or liabilities, or expenses
(including reasonable costs of investigation) joint or several, to which the
Company or Bank Trust may become subject under the 1933 Act, the 1940 Act, the
Exchange Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any breach of any representation, warranty, agreement or covenant of the Fund
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein 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 (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 13(b) to the extent that such
untrue statements or alleged untrue statement or omission or alleged omission
did not constitute "Company Information" subject to indemnification by the
Company to the Fund as provided in the foregoing paragraph (a), and agrees to
reimburse the Company for any legal or other expenses reasonably incurred by the
Company in connection with investigating or defending any such loss, claim,
damage, liability or action.
The indemnity agreement in this Section 13(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer and
director of the Company, each officer and trustee of the Bank Trust and each
person, if any, who controls the Company or the Bank Trust within the meaning of
the 1940 Act, 1933 Act or the Exchange Act. This indemnity agreement shall be
in addition to any liabilities which the Fund may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
13 of notice of the commencement of any action for which such party is
indemnified hereunder, such indemnified party shall, if a claim in respect
thereof is to be made against any indemnifying party under this Section 13,
notify the indemnifying party in writing of the commencement thereof but the
unintentional omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party hereunder or
otherwise than under this Section 13 except to the extent that the indemnifying
party is materially prejudiced thereby. In case any such action is brought
against any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
-------- -------
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
upon advice of counsel that there may be legal defenses available to it which
are inconsistent to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise 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 the indemnifying party's
election so to assume the defense of such action and approval by the indemnified
party of counsel, which approval shall not be unreasonably withheld, the
indemnifying party will not be liable to such indemnified party under this
Section 13 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 separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the
14
<PAGE>
expenses of more than one separate counsel approved by the indemnifying party
representing all the indemnified parties under Section 13(a) or 13(b) hereof 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 (no more than fifteen (15) days) after notice of
commencement of the action is given to indemnifying party by indemnified party
or (iii) the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. In no event shall
any indemnifying party be liable in respect of any amounts paid in settlement of
any action unless the indemnifying party shall have approved the terms of such
settlement; provided that such consent shall not be unreasonably withheld. 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 or indemnification
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made and would otherwise be
covered pursuant to this Section 13 but it is judicially determined (by the
entry of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 13 provided for indemnification in such case, all the parties
hereto shall contribute to the aggregate losses, claims, damages, liabilities or
expense subject to indemnification under this Section 13 (including reasonable
costs of investigation) to which they may be subject (after contribution from
others), provided, however, that (i) no person guilty of a fraudulent
-------- -------
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation, and (ii) no person shall be required to contribute an amount
greater than the amount for which such party would otherwise have been required
to indemnify under this Section 13. The contribution agreement in this Section
13(d) shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each officer and trustee of the Fund, each officer and director of
the Company, each officer and trustee of the Bank Trust and each person, if any,
who controls the Fund or the Company within the meaning of the 1940 Act, 1933
Act or the Exchange Act.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who are represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 13, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 13 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the 1933 Act, the 1940 Act
and the Exchange Act.
14. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Alabama, without regard to principles
of conflicts of law.
15. Binding Agreement; Assignment. This Agreement and the right of the
-----------------------------
parties hereunder shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns, heirs, estates and legal
representatives. No rights or obligations under this Agreement may be assigned
without the written consent of the parties hereto.
16. Entire Agreement; Amendment. This Agreement and the documents
---------------------------
delivered pursuant hereto, constitute the entire Agreement and understanding
among the parties hereto and supersede and revoke any prior agreement or
understanding relating to the subject matter of this Agreement. No change,
amendment, termination or attempted waiver of any of the provisions hereof shall
be binding upon the other parties unless reduced to writing and signed by the
party against whom such change, amendment, termination or waiver is sought to be
enforced.
17. Counterparts. This Agreement may be executed in two or more
-------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
15
<PAGE>
18. Captions. The Captions used in this Agreement are inserted for
---------
convenience only and shall not constitute a part hereof.
19. Third Party Rights. It is the intention of the parties that nothing
------------------
in this Agreement shall be deemed to create any right in favor of or with
respect to any Person not a party to this Agreement.
20. Survival. The representations, warranties, covenants and agreements
--------
made herein or in any certificate or document executed in connection herewith
shall survive the execution and delivery thereof for the period of the statute
of limitations applicable thereto, including any periods of waiver or extension
thereof, and all certificates delivered at the Closing Date or the Option
Closing Date, as the case may be, which reconfirm the representations and
warranties herein as of such date shall be deemed to constitute a representation
and warranty made herein by such party.
21. Partial Invalidity. If any provision of this Agreement is found by
------------------
any competent authority to be void or unenforceable, such provision shall be
modified, if possible, so as to effect the intent of the parties expressed
herein, or if it cannot be so modified, it shall be deemed to be deleted from
this Agreement and the remaining provisions of this Agreement shall continue in
full force and effect.
22. Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand, claim
or other communication if addressed to the intended recipient as set forth below
shall be deemed to be duly given either when personally delivered or two days
after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one day after it is delivered to a commercial overnight
courier that retains receipts for deliveries:
If to the Company:
FirstBancorp, Inc.
3838 Pamiami Trail North
Post Box Office 413040
Naples, Florida 34103
Attn: Jerry J. Williams, President and CEO
If to the Bank Trust
FirstBancorp Capital Statutory Trust
3838 Pamiami Trail North
Post Box Office 413040
Naples, Florida 34103
Attn: Jerry J. Williams, President and CEO
With copy (if to Company or Bank Trust) to:
Smith, Mackinnon, Greeley, Bowdoin & Edwards, P.A.
Citrus Center
255 South Orange Avenue
Suite 800
Orlando, Florida 32801
Attn: Jack P. Greeley
16
<PAGE>
If to the Fund:
SAL TRUST PREFERRED FUND I
1901 Sixth Avenue North
Birmingham, Alabama 35203
Attn: James S. Holbrook, Jr.
With copy to:
Thomas Harman, Esq.
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036-5969
and to:
William K. Holbrook, Esq.
Ritchie & Rediker, L.L.C.
312 North 23/rd/ Street
Birmingham, Alabama 35203
Any party may give any notice, request, demand, claim, or other communication
hereunder using any other means, but no such notice, request, demand, claim, or
other communication shall be deemed to have been duly given unless and until it
is actually received by the party for whom it is intended. Any party may change
the address to which such notices, requests, demands, claims, or other
communications are to be delivered by giving the other parties notice in the
manner herein set forth.
23. Termination. This Agreement shall continue until there are no Firm
-----------
Shares or Option Shares, as the case may be, outstanding or until this Agreement
is terminated by the written agreement of the parties, which ever first occurs.
Further, this Agreement shall automatically terminate and be of no further force
and effect in the event that the Underwriting Agreement is for any reason
terminated.
[Signatures on Next Page]
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
ATTEST: SAL TRUST PREFERRED FUND I
________________________ By: _________________________
Secretary Name: James S. Holbrook, Jr.
Title: President
ATTEST: FIRSTBANCORP, INC.
____________________________ By: _____________________________
Secretary Name: Jerry J. Williams
Title: President
ATTEST: FIRSTBANCORP CAPITAL STATUTORY TRUST
____________________________ By: _____________________________
Secretary Name: Jerry J. Williams
Title: Administrative Trustee
18
<PAGE>
EXHIBIT A
---------
[Form of Legal Opinion of Smith, Mackinnon, Greeley, Bowdoin & Edwards, P.A. for
the Company]
1. The Company has been incorporated and its status is active as a corporation
under the laws of the State of Florida with all requisite corporate power and
authority to own, lease and operate its properties and to conduct its business
as now being conducted and as described in the Registration Statement and
Prospectus, and to counsel's knowledge is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions where the
failure to so qualify would have a materially adverse effect upon the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries taken as a whole (a "Material Adverse
Effect"), excluding any such qualification required as a result of the formation
of the Bank Trust and the consummation of the Offering (as to which no opinion
is expressed).
2. Based solely on a letter dated ________ ___, 1999 from _________ of the
Board of Governors of the Federal Reserve System, the Company is registered as a
bank holding company under the Bank Holding Company Act of 1956, as amended.
3. Each of the Company's subsidiaries has been incorporated and its status is
active as a corporation under the laws of the state of its incorporation and
Gulf Coast National Bank and First National Bank of the Florida Keys are each
further validly existing as a state-chartered bank under the laws of the State
of Florida with corporate power and authority to own its properties and conduct
its business as now conducted, and to counsel's knowledge is duly qualified or
authorized to do business and is in good standing in all other jurisdictions
where the failure to so qualify would have a Material Adverse Effect. All of the
outstanding shares of capital stock of each of the Company's subsidiaries are
owned of record and, to counsel's knowledge, beneficially, by the Company,
except for _________ shares of __________ which are owned of record by
_________. To our knowledge, neither the Company nor any of its subsidiaries
have issued or are parties to outstanding options or warrants or other rights to
purchase, agreements or other obligations to issue, or other rights to convert
any obligations into any, shares of capital stock in any of the Company's
subsidiaries, other than __________.
. Under the laws of the State of Florida, the Company's Articles of
Incorporation and its Bylaws, the Company has corporate power and authority to
execute and deliver, and to perform its obligations under, the Operative
Agreements to which it is party and to issue, sell and deliver the Subordinated
Debentures to the Bank Trust pursuant to the Debenture Purchase Agreement and
the Indenture against payment of the consideration set forth in the Debenture
Purchase Agreement upon which time (assuming due authentication of the
Subordinated Debentures by the Trustee in accordance with the Indenture) the
Subordinated Debentures will be validly issued to the Bank Trust and will
constitute valid and binding obligations of the Company to the Bank Trust which
shall be entitled to the benefits of the Indenture and shall be enforceable by
the Bank Trust against the Company in accordance with its terms and subject to
the terms of the Indenture and the Operative Agreements to which the Company is
party (including, without limitation, the Preferred Securities Guarantee), and
the Operative Agreements to which the Company is party have been duly
authorized, executed and delivered by the Company and constitute the legal and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer, fraudulent conveyance or other laws affecting creditors'
rights generally, including, without limitation, the United States Bankruptcy
Code and applicable state laws.
5. There are no preemptive rights or, to the knowledge of such counsel, other
rights to subscribe for or to purchase, the Subordinated Debentures pursuant to
the Company's Articles of Incorporation, Bylaws or the Material Agreements
["Material Agreements" to constitute agreements specifically identified and
listed on a schedule]. The terms of the Subordinated Debentures materially
conform to the descriptions thereof set forth in the Prospectus (including the
Statement of Additional Information), insofar as such statements constitute
descriptions of contracts, agreements or other legal documents, with due regard
to the fact that such description is a summary of certain material aspects of
the Subordinated Debentures and that additional terms of the Subordinated
Debentures are contained in the
A-1
<PAGE>
Indenture and other Operative Agreements provided to you and the Fund and their
respective counsel which are not included in such description.
6. No consent, approval, authorization or order of any court or governmental
agency or body is required on the part of the Company for the performance of the
Operative Agreements by the Company or the consummation by the Company of the
transactions contemplated (other than as may be required under applicable bank
regulation, as to which we express no opinion). The performance of the Operative
Agreements by the Company and the consummation by the Company of the
transactions contemplated thereby will not conflict with or result in a material
breach or violation by the Company of any of the terms or provisions of, or
constitute a material default by the Company under, any Material Agreement, a
violation or breach of the Articles of Incorporation or bylaws of the Company,
or any material breach or violation of any statute, judgment, decree, order,
rule or regulation known to such counsel of any court or governmental agency or
body applicable to the Company or any of its subsidiaries or their properties;
other than any such breach or violation that will not have a Material Adverse
Effect, and other than as may occur under applicable bank regulation, as to
which we express no opinion.
7. Except as disclosed in the Registration Statement or the Prospectus, to our
knowledge, there is not pending or threatened against the Company any legal or
governmental action, suit, or proceeding to which the Company or any of its
subsidiaries is a party, or to which the property of the Company or any of its
subsidiaries is subject, before or brought by any court or governmental agency
or body that would have a Material Adverse Effect if determined adversely, other
than as set forth in _________ [insert reference to list of litigation].
8. To the knowledge of such counsel, neither the Company nor any of its
subsidiaries is in material violation of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company and its subsidiaries
and material to the Company and its subsidiaries taken as a whole or any decree
of any court or governmental agency or body having jurisdiction over the Company
or any of its subsidiaries, other than any such violations that are not
reasonably expected to have a Material Adverse Effect.
Although we have not undertaken, except as otherwise expressly indicated in this
letter, to independently verify the accuracy or completeness or fairness of the
statements in the Registration Statement, we have participated in the
preparation of portions of the Registration Statement and the Prospectus
relating to the Company and the Operative Agreements, including review and
discussion of the contents thereof with representatives of the Company and its
independent certified public accountants and with representatives of the Fund,
the Underwriters and the other Bank Holding Companies and the Fund's, the
Underwriters' and the other Bank Holding Companies' respective counsel, and on
the basis of the foregoing and the Documents (and relying as to materiality to a
large extent upon the opinions and representations of officers and other
representatives of the Company), we advise you that nothing has come to our
attention that has caused us to believe that the Company Information contained
in the Registration Statement at the time the Registration Statement became
effective, contained an untrue statement of a material fact or omitted to state
a material fact necessary to make the statements therein not misleading or that
the Prospectus, as of its date and as of the date hereof, contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading (except that we express no opinion as to
the financial statements and the notes thereto and any other financial and
statistical data included in the Registration Statement or the Prospectus).
A-2
<PAGE>
EXHIBIT B
---------
[Form of Legal Opinion of Bingham Dana for the Bank Trust]
The Operative Agreement to which the Bank Trust is a party each as set
forth in the opinion shall be herein referred to as the "Operative Documents".
1. The Bank Trust has been duly formed and is validly existing as a statutory
trust under the Connecticut Statutory Trust Act, Chapter 615 of Title 34 of the
Connecticut General Statutes, Section 500, et seq. (the "Act").
-- ---
2. The Trust Agreement constitutes a valid and binding obligation of the
Property Trustee enforceable against the Property Trustee in accordance with the
terms thereof.
3. The Trust Agreement constitutes a valid and binding obligation of the
Depositor and the Administrative Trustees, enforceable against the Depositor and
the Administrative Trustees in accordance with its terms.
4. The Bank Trust has the requisite trust power and authority to (a) execute
and deliver, and to perform its obligations under, the Operative Documents, and
(b) perform its obligations under such Operative Documents.
5. Each of the Operative Documents to which the Bank Trust is a party
constitutes a valid and binding obligation of the Bank Trust, enforceable
against the Bank Trust in accordance with the terms thereof.
6. The Preferred Securities have been duly authorized by the Bank Trust under
the Trust Agreement, and the Preferred Securities, when duly issued, executed
and authenticated to the Fund in accordance therewith, will be validly issued,
fully paid and nonassessable and will evidence undivided beneficial interests in
the assets of the Bank Trust and will be entitled to the benefits of the Trust
Agreement.
7. The Common Securities have been duly authorized by the Trust Agreement, and
the Common Securities, when duly issued, executed and authenticated to the
Company in accordance with the Trust Agreement and the Common Purchase Agreement
and delivered and paid for in accordance therewith, will be, validly issued,
fully paid and nonassessable and will evidence beneficial undivided interests in
the assets of the Bank Trust and will be entitled to the benefits of the Trust
Agreement.
8. Neither the execution, delivery or performance by the Bank Trust of the
Operative Documents, the consummation by the Bank Trust of the transactions
contemplated thereby, nor compliance by the Bank Trust with any of the terms and
provisions thereof, (a) violates the Trust Agreement, or, to the best of our
knowledge, contravenes or will contravene any provision of, or constitutes a
default under, or results in any breach of, or results in the creation of any
lien (other than as permitted under the Operative Documents) upon property of
the Bank Trust under, any indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract, bank loan or credit agreement, license or other
agreement or instrument, in each case known to us, to which it is a party or by
which it is bound or (b) violates any applicable Connecticut law governing the
Bank Trust, or, to the best of our knowledge, any judgment or order of any court
or other tribunal, in each case known to us, applicable to or binding on it.
9. No consent, approval, order or authorization of, giving of notice to, or
registration with, or taking of any other action in respect of, any Connecticut
governmental authority regulating the Bank Trust is required for the execution,
delivery, validity or performance of, or the carrying out by, the Bank Trust of
any of the transactions contemplated by the Operative Documents, other than any
such consent, approval, order, authorization, registration, notice or action as
has been duly obtained, given or taken.
10. The Fund, as the beneficial holder of the Preferred Securities, will be
entitled to the same limitation of personal liability extended to shareholders
of domestic corporations organized under the laws of the State.
B-1
<PAGE>
EXHIBIT C
---------
[Form of Legal Opinion of Bingham Dana LLP for State Street]
The Operative Agreements to which State Street is party as well as certain
other documents each set forth in the opinion are herein referred to as the
"Operative Documents".
1. State Street is a state chartered trust company, validly formed under the
laws of the Commonwealth of Massachusetts, is authorized to transact the
business of banking under the laws of the State and has the requisite corporate
and trust power and authority (a) to execute, deliver and perform its
obligations under the Operative Documents to which it is a party in its
individual capacity and (b) as Property Trustee, Indenture Trustee and Guarantee
Trustee, as the case may be, to execute, deliver and perform its obligations (on
behalf of the Bank Trust) under the Operative Documents to which the Property
Trustee (on behalf of the Bank Trust), Indenture Trustee and the Guarantee
Trustee, as the case may be, is a party.
2. State Street, individually, and in its capacity as Property Trustee,
Guarantee Trustee and Indenture Trustee, as the case may be, has duly
authorized, executed and delivered the Operative Documents to which the Property
Trustee, Indenture Trustee and the Guarantee Trustee, as the case may be, is
party. Each of the Indenture and the Guarantee constitutes a valid and binding
obligation of State Street, individually and in its capacity as Indenture
Trustee and as Guarantee Trustee, as the case may be, enforceable in accordance
with the terms thereof.
3. The Debentures delivered on the date hereof have been duly authenticated by
the Indenture Trustee in accordance with the terms of the Indenture.
4. Neither the execution, delivery or performance by State Street or the
Trustees, as the case may be, of the Operative Documents, the consummation by
State Street or the Trustees, as the case may be, of the transactions
contemplated thereby, nor compliance by State Street or the Trustees, as the
case may be, with any of the terms and provisions thereof, (a) requires any
approval of its stockholders, or, to the best of our knowledge, any consent or
approval of or the giving of notice to any holders of any indebtedness or
obligations (or any trustees for such holders) of it known to us, (b) violates
its charter documents or by-laws, or, to the best of our knowledge, contravenes
or will contravene any provision of, or constitutes a default under, or results
in any breach of, or results in the creation of any lien (other than as
permitted under the Operative Documents) upon its property under, any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan
or credit agreement, license or other agreement or instrument, in each case
known to us, to which it is a party or by which it is bound or (c) violates any
applicable State law governing the banking or trust powers of State Street or
the Trustees, as the case may be, or, to the best of our knowledge, any judgment
or order of any court or other tribunal, in each case known to us, applicable to
or binding on it. No consent, approval, order or authorization of, giving of
notice to, or registration with, or taking of any other action in respect of,
any State governmental authority regulating the banking or trust powers of State
Street or the Trustees, as the case may be, is required for the execution,
delivery, validity or performance of, or the carrying out by, State Street or
the Trustees, as the case may be, of any of the transactions contemplated by the
Operative Documents, other than any such consent, approval, order,
authorization, registration, notice or action as has been duly obtained, given
or taken.
C-2
<PAGE>
TRUST PREFERRED PURCHASE AGREEMENT
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This TRUST PREFERRED PURCHASE AGREEMENT (this "Agreement") made as of the
____ day of September, 1999, by and among SAL TRUST PREFERRED FUND I, a Delaware
business trust (the "Fund"), FIRST SOUTHERN BANCORP, INC., a Florida corporation
(the "Company") which serves as a holding company for First Southern Bank (the
"Bank") and FIRST SOUTHERN BANCORP CAPITAL STATUTORY TRUST, a Connecticut
statutory trust (the "Bank Trust"), hereinafter the Fund, the Company and the
Bank Trust are collectively referred to as the "parties".
WHEREAS, the Fund has been organized for the purpose of purchasing through
this Agreement (and similar agreements with two other banks) privately placed
cumulative trust preferred securities from three statutory trusts organized by
three respective community bank holding companies, including the Company; and
WHEREAS, the purchase of the trust preferred securities is being funded by
a public offering of shares of the Fund.
NOW, THEREFORE, based upon the foregoing and mutual covenants herein
contained, and for other good and sufficient consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Offering. Sterne, Agee & Leach, Inc. ("Sterne Agee") pursuant to and
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subject to the terms and conditions of the Underwriting Agreement dated of even
date herewith ("Underwriting Agreement"), is underwriting on a firm commitment
basis a public offering ("Offering") of 860,000 (or, if the over-allotment
option is exercised, 946,000) shares of the Fund ("Fund Shares"). The Fund is
sponsored by Sterne Agee and is registered as a closed-end investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), and the
Offering will be made pursuant to the Securities Act of 1933, as amended ("1933
Act"). The proceeds of the Offering will be invested solely in 860,000 (or, if
the over-allotment option is exercised, 946,000) shares of ___% cumulative
trust preferred securities issued, in the aggregate, by three Connecticut
statutory trusts formed by three respective community bank holding companies,
including the Company, for the purpose of issuing such ___% cumulative trust
preferred securities. Such ___% cumulative trust preferred securities shall
have a liquidation value of $25 per share or, in the aggregate, $21,500,000 (or,
if the over-allotment option is exercised, $23,650,000) and shall be purchased
by the Fund for a purchase price of $25 per share or, in the aggregate,
$21,500,000 (or, if the over-allotment option is exercised, $23,650,000). The
___% cumulative trust preferred securities are being sold to the Fund by the
three Connecticut statutory trusts pursuant to three trust preferred securities
purchase agreements dated of even date herewith by and among the Fund and each
of the three community bank holding companies and each of their Connecticut
statutory trusts. The ___% cumulative trust preferred securities will be
guaranteed by the bank holding companies as provided in the applicable guaranty
agreements. The bank holdings companies will also issue to themselves all of
the ____% cumulative trust common securities of their respective Connecticut
statutory trust. The proceeds of these ___% cumulative trust preferred
securities and the ____% cumulative trust common securities will be used by each
of the Connecticut statutory trusts to purchase subordinated debentures of their
respective bank holding companies issued pursuant to an indenture agreement and
a subordinated debenture purchase agreement.
More specifically, the Company has formed, as sponsor, the Bank Trust,
pursuant to the Trust Agreement dated September 1999, to be amended as of the
Closing Date ("Trust Agreement") by and among the Company, as sponsor of the
Bank Trust, State Street Bank and Trust Company, as property trustee of the Bank
Trust (the "Property Trustee"), and _______________ and ______________ as
administrators of the Bank Trust (the "Administrative Trustees").
Simultaneously with the consummation of the Offering, the Bank Trust will sell
and the Fund will purchase, pursuant to this Agreement, 280,000 shares (or, if
the over-allotment option is exercised, 308,000 shares) of the ___% cumulative
trust preferred securities of the Bank Trust ("Preferred Securities") which are
coupled with the Preferred Securities Guarantee (as defined below)
(collectively, the Preferred Securities and the Preferred Securities Guarantee
shall be hereinafter referred to as the "Fund Purchased Securities") for an
aggregate purchase price of $7,000,000 (or, if the over-allotment option is
exercised, $7,700,000). The Preferred Securities and hence the Fund Purchased
Securities will have a liquidation value in the aggregate of $7,000,000 (or, if
the over-allotment
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option is exercised, $7,700,000) as provided in the Trust Agreement and this
Agreement. The Bank Trust will also issue ______ shares of ____% cumulative
trust common securities of the Bank Trust ("Common Securities") to the Company
pursuant to that certain Common Securities Purchase Agreement dated as of the
Closing Date ("Common Purchase Agreement"). The Preferred Securities will be
guaranteed by the Company pursuant to that certain Preferred Securities
Guarantee Agreement by and between the Company and State Street Bank and Trust
Company, as the guarantee trustee ("Guarantee Trustee") for the benefit of the
Fund, and dated as of the Closing Date (the "Preferred Securities Guarantee").
The proceeds of the Fund Purchased Securities and the Common Securities will be
used by the Bank Trust to purchase ____% Subordinated Debentures of the Company
due September __, 2029 ("Subordinated Debentures") with a liquidation value of
$7,000,000 (or, if the over-allotment option is exercised, $7,700,000)
pursuant to that certain Subordinated Debentures Purchase Agreement by and
between the Company and the Bank Trust dated as of the Closing Date ("Debenture
Purchase Agreement"), and the Indenture by and between the Company and State
Street Bank and Trust Company, as indenture trustee (the "Indenture Trustee"),
dated as of the Closing Date ("Indenture"). The coupon on the Preferred
Securities and the Subordinated Debentures will be equal to the dividend yield
on the Fund Shares and the debt service on the Subordinated Debentures will be
paid from the Company to the Bank Trust and then from the Bank Trust to the
Fund, all as expressly provided in the Indenture, Trust Agreement and this
Agreement. The Fund will then, in turn, pay the Fund's net income, after any
unrecovered expenses, to the holders of the Fund Shares in accordance with the
terms of the Offering. For its services in connection with the Offering and on
behalf of the Company, the Company will pay Sterne Agee $350,000 upon the
Closing Date (and, if the over-allotment option is exercised, an additional
$1.25 per share purchased under the Option). Certain agreements between the
Company and Sterne Agee have been incorporated in that certain Agreement by and
between the Company and Sterne Agee dated of even date herewith (the
"Company/Sterne Agee Agreement").
The Company/Sterne Agee Agreement, the Trust Agreement, the Common Purchase
Agreement, the Preferred Securities Guarantee, the Debenture Purchase Agreement,
the Indenture and this Agreement are hereinafter referred to collectively as the
"Operative Agreements".
2. Definitions. All capitalized terms not otherwise defined herein
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shall have the same meaning as given such terms in the Underwriting Agreement.
3. Acquisition of Preferred Securities and the Preferred Securities
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Guarantee and Option.
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(a) Purchase Shares. On the basis of the representations, warranties
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and covenants herein contained, and subject to the conditions herein set forth,
the Bank Trust and the Company agree to sell to the Fund and the Fund agrees to
purchase 280,000 shares ("Firm Shares") of the Fund Purchased Securities which
have a liquidation value (as provided in the Trust Agreement) of $25 per share
($7,000,000 in the aggregate) at a purchase price of $25 per share ($7,000,000
in the aggregate). Accordingly, upon such purchase, the Company agrees to issue
Subordinated Debentures to the Bank Trust in consideration of the proceeds of
the Firm Shares and the Common Shares.
Payment for the Firm Shares to be sold hereunder is to be made by wire
transfer to the Bank Trust against delivery of certificates for the Fund
Purchased Securities to the Fund. Such payment and delivery are to be made at
the offices of the Fund, 1901 Sixth Avenue North, Suite 2100, Birmingham,
Alabama at the Closing Date. The certificates for the Firm Shares will be made
available for inspection by the Fund at least one business day prior to the
Closing Date.
(b) Over-Allotment Option. In addition, on the basis of the
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representations, warranties and covenants herein contained, and subject to the
terms and conditions herein set forth, the Bank Trust and the Company hereby
grant to the Fund an option to purchase an additional 28,000 shares ("Option
Shares") of the Fund Purchased Securities which have a liquidation value (as
provided in the Trust Agreement) of $25 per share ($700,000 in the aggregate) at
a purchase price of $25.00 per share ($700,000 in the aggregate). The option
granted hereby may be exercised in whole or in part (if in part, subject to a
maximum of one exercise) upon written notice given within 30 days after the date
of this Agreement setting forth the number of Option Shares as to which the Fund
is exercising the
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option and the time and date at which the certificate is to be delivered, but
may be exercised only if and at the same time and to the same extent as the
Underwriters exercise their over-allotment option under the Underwriting
Agreement and further limited to the Company's pro rata share of the over-
allotment option exercised by the Underwriters pursuant to the Underwriting
Agreement based upon the Company's pro rata share of the Offering. The time and
date at which certificates for Option Shares are to be delivered shall be the
same date as the Option Closing Date under the Underwriting Agreement. If the
date of exercise of the option is three or more business days before the Closing
Date, the notice of exercise shall set the Closing Date as the Option Closing
Date. The option with respect to the Option Shares granted hereunder may be
exercised only to cover the over-allotment option granted to the Underwriters
pursuant to the Underwriting Agreement in connection with the sale of Fund
Shares in the Offering. The Fund may cancel such option at any time prior to its
expiration by giving written notice of such cancellation to the Bank Trust and
the Company. To the extent, if any, that the option is exercised, payment for
the Option Shares shall be made on the Option Closing Date by wire transfer to
the order of the Company against delivery of certificates therefor.
4. Representations and Warranties of the Company. The Company represents
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and warrants to the Fund that as of the date of this Agreement:
(a) With respect to any and all information in the Registration
Statement and the Prospectus as of the date hereof regarding the Company, the
Bank Trust, the Preferred Securities, the Common Securities, the Subordinated
Debentures and the Operative Agreements (the "Company Information"), neither the
Registration Statement nor any amendment thereto, and neither the Prospectus
(which includes the Statement of Additional Information for purposes of this
Agreement) nor any supplement thereto, contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading regarding the Company Information; provided, however, that
the Company makes no representations or warranties as to (i) information
contained in or omitted from the Registration Statement or the Prospectus, or
any such amendment or supplement, in reliance upon, and in conformity with,
written information furnished by the Fund or to the Fund by or on behalf of any
Underwriter through the Representative specifically for use in the preparation
thereof, (ii) any description of taxation relating specifically to the Fund
Shares (plus any description of taxation relating to the Subordinated Debentures
or Preferred Securities not covered by the opinion referenced in Section 7(b)
hereof), (iii) information relating to the other two banks participating in the
Offering and (iv) the Fund or its management or operations or the Fund Shares
(the items in the foregoing clauses (i) through (iv) do not constitute "Company
Information").
(b) The Company and each subsidiary of the Company (as used herein,
the term "subsidiary" includes any corporation, national or state bank, federal
savings bank, joint venture or partnership in which the Company or any
subsidiary of the Company has a 50% or greater or other controlling ownership
interest) is duly organized and validly existing and in good standing under the
laws of the respective jurisdictions of their organization or incorporation, as
the case may be, with full power and authority (corporate, partnership and
other, as the case may be) to own their properties and conduct their businesses
as now conducted and are duly qualified or authorized to do business and are in
good standing in all jurisdictions wherein the nature of their business or the
character of property owned or leased may require them to be qualified or
authorized to do business, except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries taken as a whole ("Material Adverse Effect"). The Company
has been legally constituted and is validly existing in good standing as a
registered bank holding company under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"), and the rules and, to the extent applicable,
regulations thereunder. Each subsidiary bank of the Company has been duly
incorporated and is a validly existing banking corporation under the laws of the
jurisdiction of its incorporation. The Company and its subsidiaries hold all
licenses, consents and approvals, and have satisfied all eligibility and other
similar requirements imposed by federal and state regulatory bodies,
administrative agencies or other governmental bodies, agencies or officials, in
each case as material to the conduct of the respective businesses in which they
are engaged as disclosed in the Registration Statement or the Prospectus.
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(c) The outstanding stock of each of the Company's corporate
subsidiaries is duly authorized, validly issued, fully paid and nonassessable
(except, to the extent permitted by the National Bank Act, the stock of the
Company's national bank subsidiaries). All of the outstanding stock of each of
the Company's corporate subsidiaries owned beneficially and of record by the
Company is owned clear of any lien, encumbrance, pledge, equity or claim of any
kind other than the lien on the stock of the Bank disclosed in the Financial
Statements. Neither the Company nor any of its subsidiaries is a partner or
joint venturer in any partnership or joint venture.
(d) The Company has all requisite legal right, power and authority to
execute, deliver, and perform the Operative Agreements to which it is a party.
All necessary corporate proceedings of the Company have been duly taken to
authorize the execution, delivery, and performance by the Company of the
Operative Agreements to which it is a party. The Operative Agreements to which
it is a party have been duly authorized, executed, and delivered by the Company,
and are the legal, valid, and binding obligation of the Company, and are
enforceable as to the Company in accordance with their terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the rights of creditors generally, and subject, as to enforceability,
to general principles of equity (regardless of whether enforcement is sought in
a proceeding in equity or at law). To the Company's knowledge, no consent,
authorization, approval, order, license, certificate, or permit of or from, or
declaration or filing with, any federal, state, local, or other governmental
authority or any court or other tribunal is required by the Company for the
execution, delivery, or performance by the Company of the Operative Agreements
(other than such which have been obtained or made). No consent of any party to
any contract, agreement, instrument, lease, license, arrangement, or
understanding to which the Company is a party, or to which any of its properties
or assets is subject, is required for the execution, delivery, or performance of
the Operative Agreements (other than such which have been obtained or made), and
the execution, delivery, and performance of the Operative Agreements will not
violate, result in a breach of, conflict with, result in the creation or
imposition of any lien, charge, or encumbrance upon any properties or assets of
the Company pursuant to the terms of, or, with or without the giving of notice
or the passage of time or both, entitle any party to terminate or call a default
under, any such contract, agreement, instrument, lease, license, arrangement, or
understanding, or violate, result in a breach of, or conflict with any term of
the certificate of incorporation (or other charter document) or bylaws of the
Company or any of its subsidiaries, or violate, result in a breach of, or
conflict with, any law, rule, regulation, order, judgment, or decree binding on
the Company or any of its subsidiaries or to which any of their operations,
businesses, properties, or assets are subject, other than any such breach,
violation or occurrence that would not have a Material Adverse Effect.
(e) There is not any pending or, to the best of the Company's
knowledge, any threatened action, suit, claim or proceeding against the Company,
or any of its officers or any of its properties, assets or rights before any
court, government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its officers or properties or otherwise
which (i) might result in any Material Adverse Effect to the Company or might
materially and adversely affect its properties, assets or rights or (ii) might
prevent consummation of the transactions contemplated by the Operative
Agreements.
(f) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities. The Preferred Securities Guarantee and
the Subordinated Debentures have been duly authorized for issuance and sale to
the Fund and the Bank Trust, respectively, and the Preferred Securities of the
Bank Trust have been duly authorized for issuance and sale to the Fund pursuant
to this Agreement and, when issued and delivered by the Company against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable, and will be sold free and clear
of any pledge, lien, security interest, encumbrance, claim or equitable
interest; and no preemptive right, co-sale right, registration right, right of
first refusal or other similar right of stockholders exists with respect to any
of the Preferred Securities Guarantee and the Subordinated Debentures of the
Company or Preferred Securities of the Bank Trust or the issuance and sale
thereof other than those that have been expressly waived prior to the date
hereof and those that will automatically expire upon the consummation of the
transactions contemplated in the Operative Agreements. No further approval or
authorization
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of any stockholder or Board of Directors of the Company or any Administrative
Trustees, Property Trustee or beneficiary of the Bank Trust (other than the
Fund) or the Guarantee Trustee, the Indenture Trustee or other applicable
regulatory body such as the Federal Reserve, the Florida State Banking
Commission or the Federal Deposit Insurance Corporation is required for the
issuance and sale of the Preferred Securities Guarantee, the Subordinated
Debentures or the Preferred Securities to be issued at the Closing Date or
Option Closing Date, as the case may be, under the Operative Agreements except
as may be required under the 1933 Act, 1940 Act or under state or other
securities or Blue Sky laws and except for the actual ministerial actions
required to issue and authenticate such securities.
(g) McGladrey & Pullen, LLP which has examined certain of the
financial statements of the Company, its subsidiaries and their acquireds,
together with the related schedules and notes which are filed with the
Commission as a part of the Registration Statement and which are included in the
Prospectus, are independent accountants within the meaning of generally accepted
accounting principles and, to the Company's knowledge, independent accountants
within the meaning of the 1933 Act and the Rules and Regulations thereunder.
The audited consolidated financial statements of the Company and its
subsidiaries, together with the related schedules and notes as of and for the
years ended December 31, 1997 and 1998 (the "Audited Financial Statements"), and
the Company's unaudited balance sheet and statement of income and notes thereto
as of and for the six (6) months ended June 30, 1999 (the "Interim Financial
Statements") forming part of the Registration Statement and Prospectus,
(collectively, the "Financial Statements"), fairly present in accordance with
generally accepted accounting principles the financial position and the results
of operations and changes in financial position and cash flow of the Company and
its subsidiaries at the respective dates and for the respective periods to which
they apply and have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
except as may be otherwise stated therein and except, in the case of the Interim
Financial Statements, the absence of notes thereto and subject to normal year
end adjustments. All of the financial and statistical data with respect to the
Company set forth in the Prospectus under the captions "Risk Factors", "Bank
Holding Companies", "First Southern Bancorp, Inc. Selected Consolidated
Financial Data" and "Supervision and Regulation of the Bank Holding Companies"
fairly present the information set forth therein on the basis stated in the
Prospectus.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, neither the Company nor any
subsidiary has sustained any material loss or interference with its business or
properties from fire, flood, hurricane, earthquake, accident or other calamity,
whether or not covered by insurance or for any labor dispute or court or
governmental action, order or decree, which is not disclosed in the Prospectus;
and subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) neither the Company nor any of
its subsidiaries has incurred any material liabilities or obligations, direct or
contingent, or entered into any material transaction not within the ordinary
course of business, and (ii) there has not been any change in the capital stock,
partnership interest, joint venture interest, long-term debt or obligations
under capital leases of the Company or its subsidiaries, taken as a whole, or
any issuance of options, warrants or rights to purchase the capital stock of the
Company, or any material adverse change, or any development involving a
prospective material adverse change in the management, business, prospects,
financial position, net worth or results of operations of the Company or its
subsidiaries, taken as a whole, except in each case as described in or
contemplated by the Prospectus.
(i) Except as set forth in the Financial Statements or the
Registration Statement and Prospectus, (i) the Company and its subsidiaries have
good and marketable title to all properties and assets owned by them, free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest, other than such as would not have a Material Adverse Effect and other
than ordinary course liens purchase money liens and property subject to leases,
and other than liens disclosed in the Financial Statements, (ii) the agreements
to which the Company and its subsidiaries are a party are valid agreements,
enforceable by the Company and its subsidiaries, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights,
generally or by general equitable principles and, to the best of the Company's
knowledge, the other contracting party or parties thereto are not in material
breach or material default under any of such agreements, and (iii) the Company
and its subsidiaries have valid and enforceable leases for all
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properties as leased by them, except as the enforcement thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles. The Company and its subsidiaries own or lease all such
properties as are necessary to its operations as now conducted or as currently
proposed to be conducted.
(j) The Company and its subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown thereon as due, and there is no tax deficiency that has been or, to
the best of the Company's knowledge, might be asserted against the Company or
any of its subsidiaries that might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company or its subsidiaries; and all material tax liabilities
are adequately provided for on the books of the Company in accordance with
generally accepted accounting principles.
(k) The Company and its subsidiaries maintain insurance with insurers
of recognized financial responsibility of the types and in the amounts generally
deemed adequate for their respective businesses and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, errors and omissions, insurance covering real and personal
property owned or leased by the Company and its subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect; and the Company has
no reason to believe that it will not be able to renew its or its subsidiaries
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company (other than the cost of such insurance subject to usual or
applicable increases).
(l) To the best of the Company's knowledge, no labor disturbance by
the employees of the Company or its subsidiaries exist or is imminent that might
be expected to result in a Material Adverse Effect. No collective bargaining
agreement exists with any of the Company's or its subsidiaries' employees and,
to the best of the Company's knowledge, no such agreement is imminent.
(m) The Company and its subsidiaries own or possess adequate rights
to use all patents, patent rights, inventions, trade secrets, knowhow,
trademarks, service marks, trade names and copyrights which are necessary to
conduct its businesses as described in the Registration Statement and
Prospectus; the Company and its subsidiaries have not received any notice of,
and has no knowledge of, any infringement of or conflict with asserted rights of
the Company and it subsidiaries by others with respect to any patent, patent
rights, inventions, trade secrets, knowhow, trademarks, service marks, trade
names or copyrights; and neither the Company nor its subsidiaries have received
any notice of, and have any knowledge of, any infringement of or conflict with
asserted rights of others with respect to any patent, patent rights, inventions,
trade secrets, knowhow, trademarks, service marks, trade names or copyrights
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company.
5. Representations and Warranties of the Bank Trust. The Bank Trust
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represents and warrants to the Fund that as of the date of this Agreement:
(a) The Bank Trust has been duly formed and is validly existing as a
statutory trust under the Connecticut Statutory Trust Act, Chapter 615 of Title
34 of the Connecticut General Statutes, Section 500, et seq. (the "Act").
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(b) The Trust Agreement constitutes a valid and binding obligation of
the Property Trustee enforceable against the Property Trustee in accordance with
the terms thereof.
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(c) The Trust Agreement constitutes a valid and binding obligation of
the Depositor and the Administrative Trustees, enforceable against the Depositor
and the Administrative Trustees in accordance with its terms.
(d) The Bank Trust has the requisite trust power and authority to (a)
execute and deliver, and to perform its obligations under, the Operative
Agreements to which it is a party, and (b) perform its obligations under such
Operative Agreements.
(e) Each of the Operative Agreements to which the Bank Trust is a
party constitutes a valid and binding obligation of the Bank Trust, enforceable
against the Bank Trust in accordance with the terms thereof.
(f) The Preferred Securities have been duly authorized by the Bank
Trust under the Trust Agreement, and the Preferred Securities, when duly issued,
executed and authenticated to the Fund in accordance with the Trust Agreement
and this Agreement, will be validly issued, fully paid and nonassessable and
will evidence undivided beneficial interests in the assets of the Trust and will
be entitled to the benefits of the Trust Agreement.
(g) The Common Securities have been duly authorized by the Trust
Agreement, and the Common Securities, when duly issued, executed and
authenticated to the Company in accordance with the Trust Agreement and the
Common Purchase Agreement and delivered and paid for in accordance therewith,
will be, validly issued, fully paid and nonassessable and will evidence
beneficial undivided interests in the assets of the Bank Trust and will be
entitled to the benefits of the Trust Agreement.
(h) Neither the execution, delivery or performance by the Bank Trust
of the Operative Agreements to which it is a party, the consummation by the Bank
Trust of the transactions contemplated thereby, nor compliance by the Bank Trust
with any of the terms and provisions thereof, (a) violates the Trust Agreement,
or, to the best of the Bank Trust's knowledge, contravenes or will contravene
any provision of, or constitutes a default under, or results in any breach of,
or results in the creation of any lien (other than as permitted under the
Operative Agreements to which it is a party) upon property of the Bank Trust
under, any indenture, mortgage, chattel mortgage, deed of trust, conditional
sales contract, bank loan or credit agreement, license or other agreement or
instrument, in each case known to the Bank Trust, to which it is a party or by
which it is bound or (b) violates any applicable Connecticut law governing the
Bank Trust, or, to the best of the Bank Trust's knowledge, any judgment or order
of any court or other tribunal, in each case known to the Bank Trust, applicable
to or binding on it.
(i) No consent, approval, order or authorization of, giving of notice
to, or registration with, or taking of any other action in respect of, any
Connecticut governmental authority regulating the Bank Trust is required for the
execution, delivery, validity or performance of, or the carrying out by, the
Bank Trust of any of the transactions contemplated by the Operative Agreements,
other than any such consent, approval, order, authorization, registration,
notice or action as has been duly obtained, given or taken.
(j) The Fund, as the beneficial holder of the Preferred Securities,
will be entitled to the same limitation of personal liability extended to
shareholders of domestic corporations organized under the laws of the State.
6. Conditions to the Fund's Obligations. The obligations of the Fund to
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purchase the Fund Purchased Securities under this Agreement (and consequently,
the several Underwriters to purchase the Fund Shares under the Underwriting
Agreement) shall be subject to the continuing accuracy in all material respects
of all representations and warranties of the Company and the Bank Trust
contained in the Operative Agreements, as of the date hereof and as of the
Closing Date (or the Option Closing Date as the case may be), and to the
delivery of the following:
(a) The Company shall provide the Fund at the Closing Date or the
Option Closing Date, as the case may be, with a legal opinion from Greenberg
Traurig, P.A. addressed to SAL Trust Preferred Fund I, in the
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form attached hereto as Exhibit A (together with a legal opinion from Stuzin &
Camner as to certain bank regulatory matters as indicated in Exhibit A).
(b) The Company shall provide the Fund at the Closing Date or the
Option Closing Date, as the case may be, with a legal opinion from Bingham Dana
LLP addressed to SAL Trust Preferred Fund I and to the Company, in the form as
attached hereto as Exhibit B.
(c) The Company shall provide the Fund at the Closing Date or the
Option Closing Date, as the case may be, with a legal opinion from Bingham Dana
LLP addressed to SAL Trust Preferred Fund I, in the form attached hereto as
Exhibit C.
(d) The Company shall provide the Fund, as of the Closing Date or the
Option Closing Date, as the case may be, with a customary cold-comfort letter
addressed to SAL Trust Preferred Fund I from its independent certified public
accountants in accordance with FASB standards with respect to the Financial
Statements and any and all other financial data relating to the Company or the
Bank contained in the Registration Statement or Prospectus which letters are
reasonably acceptable to the Fund and the basic content of which is agreed to by
the independent certified public accountants.
(e) On the Closing Date, the Company shall have delivered to the Fund
copies of the manually signed Operative Agreements other than this Agreement and
the Company/Sterne Agee Agreement which shall be executed by each of the parties
and originals of which shall be delivered to each party on the same date as the
Underwriting Agreement. A certificate of the Company's secretary shall confirm
the continued validity of the Operative Agreements on the Closing Date (with
respect only to this Agreement and the Company/Sterne Agee Agreement) and the
Option Closing Date.
(f) The Company shall provide the Fund, as of the Closing Date or the
Option Closing Date, as the case may be, a certificate from the president of the
Company as to the Company and a certificate from the Bank Trust as to the Bank
Trust to the effect that all of the representations and warranties made by the
Company and the Bank Trust, respectively, in this Agreement are true and correct
as of such date.
(g) The Fund shall have executed a purchase agreement substantially
similar to this Agreement with each of the other two bank holding companies
contemplated in the Offering and, as of the Closing Date, the Fund shall not
have terminated either of such purchase agreements.
7. Conditions to Company and Bank Trust Obligations. The obligations of
------------------------------------------------
the Company and the Bank Trust under the Operative Agreements shall be subject
to the continuing accuracy in all material respects of all representations and
warranties made by Sterne Agee or the Fund in the Operative Agreements or by the
Fund in the Underwriting Agreement as of the date hereof and as of the Closing
Date and to the delivery to the Company of the following:
(a) All legal opinions delivered by the Fund's counsel and the Bank
Trust's counsel in connection with the Offering shall also be addressed and
delivered to the Company. The opinion of counsel to the Fund shall include
customary opinions with respect to the registered offering, including without
limitation legal sufficiency and effectiveness of the registration statement,
organization and existence of the Fund, and compliance with securities laws
including the 1940 Act and 1933 Act.
(b) An opinion letter of Morgan, Lewis & Bockius LLP addressed to the
Company to the effect that the interest payments on the Subordinated Debentures
are tax-deductible to the Company.
8
<PAGE>
8. Expenses. Offering Participation; Offering Expenses.
-------- -----------------------------------------
(a) The Company acknowledges that Sterne Agee has incurred
significant time and expenditures in connection with the structuring of the
Offering and based thereon, each of the Company and Fund hereby agree to use
their best reasonable efforts to complete the Offering in a timely manner but in
no event later than September 30, 1999 unless the parties agree otherwise;
provided, however, that the Company and Bank Trust shall not be required to
consummate the Offering (including any issuance and sale of Fund Purchased
Securities or Subordinated Debentures) if (i) the Company's first year's
interest expense based upon the coupon rate of the Subordinated Debentures plus
(ii) the Company's expenses under paragraph (c) below shall exceed 10.25% of
$7,000,000 or $717,500.
(b) The Company will bear all of its own expenses necessary for the
participation of the Company in the Offering ("Company Expenses") including, but
not limited to, its own legal counsel and accountants, the formation and
administration of the Bank Trust, the creation and issuance by the Company of
the Subordinated Debentures to the Bank Trust, the creation and issuance by the
Bank Trust of the Preferred Securities to the Fund and any tax or other legal
opinions issued to the Banks regarding the tax effects and the issuance of the
Preferred Securities including any such legal opinions issued by counsel to the
Fund.
(c) The Company shall further bear all of its pro rata share
(allocated based on relative Offering proceeds) of the Fund's costs and expenses
incident to the issuance, offer, sale and delivery of the Fund Shares ("Fund
Expenses") including all expenses and fees incident to the filing of the
Registration Statement with the SEC and the NASD, AMEX, NYSE or other exchange,
as applicable, and including all filing fees incident to qualification of the
Offering with the NASD Regulation, Inc., reasonable fees and disbursements of
counsel and accountants for the Fund and fees and disbursements of counsel to
Sterne Agee, Ritchie & Rediker, L.L.C. (provided, however, that the Company's
reimbursement of fees and disbursements for Ritchie & Rediker, L.L.C., shall not
exceed $13,333.33 and paid directly to Sterne Agee), costs for preparing,
printing and mailing (including printing and service fees of the financial
printer and any mailing service provider) the Registration Statement and as many
copies of the underwriting documents, Prospectuses and Preliminary Prospectus as
Sterne Agee may deem necessary and related exhibits including all amendments and
supplements to the Registration Statement, all fees relating to the listing of
the Fund Shares on AMEX and/or such other market(s) upon which the Fund and
Sterne Agee determine to list the Fund Shares, and all costs associated with the
Fund's "road show" including Sterne Agee's out-of-pocket expenses and expenses
associated with presentations by the Fund and/or the Company and preparation of
visual materials associated therewith; provided, however, the Fund Expenses
shall not exceed two percent (2%) of the Company's pro rata share of the
proceeds of the Offering. The financial printer shall be as set forth on the
Summary of Terms. Fund Expenses shall be payable as reimbursement to the Fund
by the 15/th/ day following the date upon which each and any invoice is
presented to the Company by the Fund; provided, however, that the Fund shall not
present any invoice or group of invoices to the Company more than one time per
month. Notwithstanding the foregoing or any other provision to the contrary
contained herein, in the event the Offering is terminated for any reason other
than as provided in subparagraph (d) below, the Fund Expenses to be borne by the
Company shall not exceed $50,000 for the Company excluding the costs and fees of
the financial printer and any mailing service provider as referred to above
relating to the printing and mailing of the Registration Statement and
Prospectus in connection with the Offering.
(d) Further notwithstanding the foregoing or any other provisions to
the contrary contained herein, if, as a result of the failure of the Company to
use its best reasonable efforts to consummate closing of the Offering by
September 30, 1999 (and Sterne Agee has not failed to use its best reasonable
efforts to complete the Offering) and the Offering is at anytime thereafter
abandoned by Sterne Agee, then, within fifteen (15) days following such
abandonment, the Company shall reimburse Sterne Agee its pro rata share
(allocated based on relative expected Offering proceeds) of Sterne Agee's actual
out-of-pocket expenses (but excluding expenses of the Fund addressed in
subparagraph (c) above) incurred in Sterne Agee's capacity as the underwriter
of the Offering and sponsor of the Fund up to a maximum of $20,000; provided,
however, this subparagraph (d) in no way affects or limits the Company's
9
<PAGE>
obligations to pay its pro rata share of the costs and expenses incident to the
issuance, offer, sale and delivery of the Fund Shares referred to in
subparagraph (c) above.
9. Operating Expenses. For so long as the Fund is a holder of Preferred
------------------
Securities, the Company shall bear all of its pro rata share (allocated based on
relative Offering proceeds as adjusted from time to time for any redemptions) of
the annual operating costs and expenses incident to the operation of the Fund
(if and to the extent reasonable, appropriate and customary to a registrant such
as the Fund making an offering such as the Offering), including but not limited
to, filings with the SEC, NASD, any applicable state securities commissions or
any applicable securities exchanges of any annual, semi-annual or other periodic
filings, attorney's fees, accounting fees, fees of the Board of Trustees of the
Fund and custodian, fees of the investment manager, insurance including
liability insurance for the Board of Trustees, transfer agent fees and other
administrative fees; provided, that such aggregate costs and expenses shall not
exceed $185,000 per annum, as adjusted each year for changes in the cost of
living as reflected in the Consumer Price Index of All Urban Consumers, U.S.
City Average, ALL ITEMS. No such adjustment shall in any year result in a
reduction of the then current limitation. Sterne Agee and the Fund shall use
reasonable efforts to maintain all such expenses at a minimum. If more than 20%
of the Fund's assets consist of investments other than any or all of the
Preferred Securities or the Subordinated Debentures and the ___% cumulative
trust preferred securities or the ___% subordinated debentures of the other two
bank holding companies purchased by the Fund with the proceeds of the Offering,
then the Company's obligation hereunder shall be reduced by such percentage of
the Fund's assets consisting of such other investments.
10. Affirmative Covenants. So long as the Fund is a holder of any Firm
---------------------
Shares or Option Shares:
(a) Fulfillment of Obligations. The Company, its subsidiaries and the
--------------------------
Bank Trust shall observe and comply with all of the terms, conditions,
restrictions and covenants to be observed or performed by either of them under
their respective organizational documents and the Operative Agreements to which
either of them is a party.
(b) Accounts and Reports. The Company and the Bank Trust will
--------------------
maintain a standard system of accounts, records and accounting controls and
systems in accordance with generally accepted accounting principles consistently
applied. Subject to applicable bank regulatory requirements, the Company will
provide the Fund with a copy of the following documents within fifteen (15) days
following the filing or completion thereof by either the Company or its
auditors: (i) regularly prepared audited financial statements, (ii) quarterly
and annual financial statements filed with applicable bank regulatory agencies
and (iii) annual reports to shareholders, if applicable.
(c) Payment of Taxes. The Company shall, and shall cause its
----------------
subsidiaries to, pay and discharge all lawful taxes, assessments and
governmental charges or levies imposed upon them or upon their income or
property before the same shall become in default, as well as all lawful claims
for labor, material and supplies which, if not paid when due, might become a
lien or charge upon their property or any part thereof; provided, however, that
-------- -------
the Company or its subsidiaries shall not be required to pay and discharge any
such tax, assessment, charge, levy or claim so long as the validity thereof is
being contested in good faith by appropriate proceedings and an adequate reserve
therefor has been established on their books if required under GAAP.
(d) Conduct of Business; Compliance with Laws. The Company shall
-----------------------------------------
keep, and shall cause its Subsidiaries including the Bank Trust to keep their
properties in such repair, working order and condition and will from time to
time make such repairs, renewals, replacements, additions and improvements
thereto so that the business carried on in connection therewith may be properly
conducted at all times in a commercially reasonable manner and in material
compliance with all applicable statutes, rules and regulations and material
obligations; and the Company shall, and shall cause its subsidiaries to,
otherwise comply with all applicable statutes, rules, regulations and other
material obligations.
(e) General Insurance. The Company shall keep all of its insurable
-----------------
properties and all of the insurable properties of its subsidiaries now or
hereafter owned adequately insured at all times against loss or damage
10
<PAGE>
by fire or other casualty to the extent customary with respect to like
properties of companies conducting similar businesses; maintain public
liability, workman's compensation and other liability coverage (including so-
called errors and omissions, products or service liability coverage) insuring
the Company and its subsidiaries to the extent customary with respect to
companies conducting similar businesses, all by financially sound and reputable
insurance companies and, upon request of the Fund, furnish to the Fund
satisfactory evidence of the same.
(f) Inspection. Subject to the Fund's execution of confidentiality
----------
agreements and other reasonable precautions that the Company and Bank Trust may
request from time to time, the Fund may make reasonable inspection of the
properties, books and other records of the Company, its subsidiaries and the
Bank Trust and may interview directors, officers, employees and independent
accountants regarding the affairs of the Company, its subsidiaries and the Bank
Trust, in any reasonable manner and at such reasonable times as may be
reasonably requested, for the purpose of determining the Company's and the Bank
Trust's continuing ability to honor their obligations under the Firm Shares or
Option Shares. Any such examinations shall be conducted under the supervision of
appropriate officers and personnel of the Company and Bank Trust and subject to
applicable bank regulatory requirements. The Company and Bank Trust do not
hereby waive or release their respective proprietary or other interest or rights
or other protections under applicable law relating to any information obtained
by the Fund through such investigations.
(g) Corporate Existence. The Company shall maintain and cause each of
-------------------
its subsidiaries and the Bank Trust to maintain their respective statutory
existence, rights and franchises in full force and effect, except as otherwise
permitted under the Indenture.
(h) Further Assurances.
------------------
(i) The Company will cure promptly or will cause any or all of
its subsidiaries or the Bank Trust to cure promptly any defects in the
creation and issuance of the Firm Shares or Option Shares or the
Subordinated Debentures, and in the execution and delivery of the
Operative Agreements. The Company at its expense, will promptly
execute and deliver or will cause any or all of its subsidiaries or
the Bank Trust to execute and deliver promptly to the Fund, following
receipt of a reasonable request in writing from the Fund, all such
other and further documents, agreements and instruments in compliance
with or pursuant to its covenants and agreements herein, and will make
any recordings, file any notices, and obtain any consents as may be
necessary or appropriate in connection therewith.
(ii) The Fund will cure promptly any defects in the creation and
issuance of the Fund Shares, and in the execution and delivery of the
Operative Agreements. The Fund at its expense, will promptly execute
and deliver promptly to the Company, following receipt of a reasonable
request in writing from the Company, all such other and further
documents, agreements and instruments in compliance with or pursuant
to its covenants and agreements herein, and will make any recordings,
file any notices, and obtain any consents as may be necessary or
appropriate in connection therewith.
(i) Bank Trust Trustee. The Company shall at all times use reasonable
------------------
efforts to cause the Bank Trust to maintain State Street Bank and Trust or
another qualified bank or trust company reasonably acceptable to the Fund as the
Property Trustee, Indenture Trustee and Guarantee Trustee and as otherwise
required by the Indenture.
11. Representations and Covenants of the Fund. The Fund represents,
-----------------------------------------
warrants and covenants to the Company and the Bank Trust as follows:
(a) The Fund has been duly organized under the laws of the State of
Delaware as a business trust and is validly existing and in good standing as a
business trust under the laws of the State of Delaware, with full power and
authority to own its properties, and to conduct its business as such business is
proposed to be conducted and to
11
<PAGE>
carry out the transactions contemplated hereby. The Fund has all requisite
authority to execute and deliver this Agreement and any other Operative
Agreement to which it is a party and this Agreement and such Operative
Agreements when so executed and delivered shall be legal, valid and binding
obligations of the Fund, as applicable, enforceable in accordance with their
terms, except that such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the rights and remedies of
creditors generally, or the application of principal of equity, whether applied
in a proceeding at law or in equity. The representations and warranties of the
Fund in Section 1.(a) of the Underwriting Agreement are true and correct.
(b) The Fund, by acceptance of Firm Shares or Option Shares, as the
case may be, represents that it has purchased such shares, not with a view to,
or for sale in connection with, any distribution thereof in violation of the
1933 Act.
(c) The Fund has had an opportunity to ask questions of and receive
answers from the Company, or any person or persons acting on their behalf,
concerning the terms and conditions of the investment represented by the
purchase of the Firm Shares or Option Shares, as the case may be, and concerning
the business of the Company and the transactions contemplated hereby, and all
such questions have been answered to the full satisfaction of the Fund.
(d) The investment manger of the Fund has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of an investment in the Firm Shares or Option Shares, as
the case may be. The Fund acknowledges and agrees that the Fund Purchased
Securities shall be subject to the terms of those certain Operative Agreements
relating thereto, including the Indenture, Trust Agreement and Preferred
Securities Guarantee.
(e) The Fund is aware of the fact that the Firm Shares or Option
Shares, as the case may be, have not been registered under the 1933 Act or any
state securities laws, and that the Firm Shares or Option Shares, as the case
may be, purchased in accordance with this Agreement may not be sold,
transferred, or otherwise disposed of in the absence of registration under the
1933 Act and applicable state securities laws or an opinion of counsel,
satisfactory to the Company, to the effect that such registration is not
required due to the availability of registration exemptions.
(f) It is agreed and acknowledged that all certificates, representing
the Firm Shares or Option Shares, as the case may be, if any, shall contain the
following legend until such time as such shares shall be registered pursuant to
the 1933 Act or comply with Rule 144(k) promulgated under the 1933 Act:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH
NOR APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION NOR BY THE SECURITIES REGULATORY AUTHORITY OF ANY STATE AND SUCH
REGISTRATION IS NOT CONTEMPLATED. THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE TRANSFERRED IN WHOLE OR IN PART OR OTHERWISE
ASSIGNED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
The Fund understands that the certificates will also bear such legends and
be subject to such transfer restrictions as set forth in the Trust Agreement.
12. Closing Deliveries. In connection with the purchase of the Firm
------------------
Shares or Option Shares, as the case may be, by the Fund hereunder, the
following deliveries and other matters shall take place either on or before the
Closing Date or the Option Closing Date, as the case may be:
12
<PAGE>
(a) The Company shall deliver to the Fund all of the documents
referred to in Section 6 of this Agreement and the Company shall receive
delivery of all documents referred to in Section 7 of this Agreement.
(b) The Fund shall receive a certificate from the secretary of the
Company (certified by the president of the Company) enclosing true and correct
copies of the resolutions of the Board of Directors of the Company authorizing
the Company to enter into the Operative Agreements and sell to the Fund the Firm
Securities and the Option Securities, as the case may be, certified copies of
the Articles of Incorporation of the Company and its subsidiaries, copies of
certificates of good standing for the Company and its subsidiaries, a
representation that there have been no amendments to or documents affecting or
altering the Articles of Incorporation of the Company or its subsidiaries since
date of the certified copies thereof, attaching a true and correct form of the
Preferred Securities, the Common Securities and Subordinated Debentures and
certifying that the officers executing this certificate are duly elected
officers of the Company.
(c) Each of the Operative Agreements shall be executed and delivered
and all performance required on or before such date shall have been performed in
all material respects.
(d) The Company shall duly issue and deliver certificates to the Fund
for the Firm Shares or the Option Shares, as the case may be, to be purchased by
the Fund and the applicable Guarantee.
(e) The Company, the Bank Trust and the Fund shall execute a cross-
receipt affirming that the Company has received the proceeds from the sale of
Subordinated Debentures to the Bank Trust, the Bank Trust has received the
proceeds from the sale of Fund Purchased Securities to the Fund, the Fund has
received the certificates representing ownership of the Fund Purchased
Securities, and the Bank Trust has received certificates representing the
Subordinated Debentures.
13. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless the Fund
against any losses, claims, damages, liabilities or expenses (including
reasonable attorney's fees and reasonable costs of investigation), joint or
several, to which the Fund may become subject under the 1940 Act, the 1933 Act,
the Securities Exchange Act of 1934, as amended ("Exchange Act"), or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any breach of
representation, warranty, agreement or covenant of the Company herein contained,
(ii) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and the Company agrees to reimburse the Fund for any legal or other
expenses reasonably incurred by it in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
-------- -------
Company shall only be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission regarding
the Company Information (as defined in Section 4(a)) made in the Registration
Statement, such Preliminary Prospectus or the Prospectus, or any such amendment
or supplement thereto; provided that the Company had an opportunity to review
-------------
and comment on the Company Information prior to filing with the SEC and the
Company Information conforms thereto and; provided further, that the indemnity
----------------
agreement provided in this Section 13(a) with respect to any Preliminary
Prospectus shall not inure to the benefit of the Fund if any Underwriter, from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of material fact or
omission or alleged omission to state therein a material fact purchased Fund
Shares, failed to deliver a copy of the Prospectus in which such untrue
statement or alleged untrue statement or omission or alleged
13
<PAGE>
omission was corrected to such person within the time required by the 1933 Act,
the 1940 Act and the Rules and Regulations thereunder.
The indemnity agreement in this Section 13(a) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer and
trustee of the Fund and each person, if any, who controls the Fund within the
meaning of the 1940 Act, the 1933 Act or the Exchange Act. This indemnity
agreement shall be in addition to any liabilities which the Company may
otherwise have.
(b) The Fund agrees to indemnify and hold harmless the Company and
the Bank Trust against any losses, claims, damages or liabilities, or expenses
(including reasonable costs of investigation) joint or several, to which the
Company or Bank Trust may become subject under the 1933 Act, the 1940 Act, the
Exchange Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any breach of any representation, warranty, agreement or covenant of the Fund
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein 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 (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 13(b) to the extent that such
untrue statements or alleged untrue statement or omission or alleged omission
did not constitute "Company Information" subject to indemnification by the
Company to the Fund as provided in the foregoing paragraph (a), and agrees to
reimburse the Company for any legal or other expenses reasonably incurred by the
Company in connection with investigating or defending any such loss, claim,
damage, liability or action.
The indemnity agreement in this Section 13(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer and
director of the Company, each officer and trustee of the Bank Trust and each
person, if any, who controls the Company or the Bank Trust within the meaning of
the 1940 Act, 1933 Act or the Exchange Act. This indemnity agreement shall be
in addition to any liabilities which the Fund may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
13 of notice of the commencement of any action for which such party is
indemnified hereunder, such indemnified party shall, if a claim in respect
thereof is to be made against any indemnifying party under this Section 13,
notify the indemnifying party in writing of the commencement thereof but the
unintentional omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party hereunder or
otherwise than under this Section 13 except to the extent that the indemnifying
party is materially prejudiced thereby. In case any such action is brought
against any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
-------- -------
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
upon advice of counsel that there may be legal defenses available to it which
are inconsistent to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise 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 the indemnifying party's
election so to assume the defense of such action and approval by the indemnified
party of counsel, which approval shall not be unreasonably withheld, the
indemnifying party will not be liable to such indemnified party under this
Section 13 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 separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the
14
<PAGE>
expenses of more than one separate counsel approved by the indemnifying party
representing all the indemnified parties under Section 13(a) or 13(b) hereof 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 (no more than fifteen (15) days) after notice of
commencement of the action is given to indemnifying party by indemnified party
or (iii) the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. In no event shall
any indemnifying party be liable in respect of any amounts paid in settlement of
any action unless the indemnifying party shall have approved the terms of such
settlement; provided that such consent shall not be unreasonably withheld. 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 or indemnification
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made and would otherwise be
covered pursuant to this Section 13 but it is judicially determined (by the
entry of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 13 provided for indemnification in such case, all the parties
hereto shall contribute to the aggregate losses, claims, damages, liabilities or
expense subject to indemnification under this Section 13 (including reasonable
costs of investigation) to which they may be subject (after contribution from
others), provided, however, that (i) no person guilty of a fraudulent
-------- -------
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation, and (ii) no person shall be required to contribute an amount
greater than the amount for which such party would otherwise have been required
to indemnify under this Section 13. The contribution agreement in this Section
13(d) shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each officer and trustee of the Fund, each officer and director of
the Company, each officer and trustee of the Bank Trust and each person, if any,
who controls the Fund or the Company within the meaning of the 1940 Act, 1933
Act or the Exchange Act.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who are represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 13, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 13 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the 1933 Act, the 1940 Act
and the Exchange Act.
14. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Alabama, without regard to principles
of conflicts of law.
15. Binding Agreement; Assignment. This Agreement and the right of the
-----------------------------
parties hereunder shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns, heirs, estates and legal
representatives. No rights or obligations under this Agreement may be assigned
without the written consent of the parties hereto.
16. Entire Agreement; Amendment. This Agreement and the documents
---------------------------
delivered pursuant hereto, constitute the entire Agreement and understanding
among the parties hereto and supersede and revoke any prior agreement or
understanding relating to the subject matter of this Agreement. No change,
amendment, termination or attempted waiver of any of the provisions hereof shall
be binding upon the other parties unless reduced to writing and signed by the
party against whom such change, amendment, termination or waiver is sought to be
enforced.
17. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
15
<PAGE>
18. Captions. The Captions used in this Agreement are inserted for
---------
convenience only and shall not constitute a part hereof.
19. Third Party Rights. It is the intention of the parties that nothing
------------------
in this Agreement shall be deemed to create any right in favor of or with
respect to any Person not a party to this Agreement.
20. Survival. The representations, warranties, covenants and agreements
--------
made herein or in any certificate or document executed in connection herewith
shall survive the execution and delivery thereof for the period of the statute
of limitations applicable thereto, including any periods of waiver or extension
thereof, and all certificates delivered at the Closing Date or the Option
Closing Date, as the case may be, which reconfirm the representations and
warranties herein as of such date shall be deemed to constitute a representation
and warranty made herein by such party.
21. Partial Invalidity. If any provision of this Agreement is found by
------------------
any competent authority to be void or unenforceable, such provision shall be
modified, if possible, so as to effect the intent of the parties expressed
herein, or if it cannot be so modified, it shall be deemed to be deleted from
this Agreement and the remaining provisions of this Agreement shall continue in
full force and effect.
22. Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand, claim
or other communication if addressed to the intended recipient as set forth below
shall be deemed to be duly given either when personally delivered or two days
after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one day after it is delivered to a commercial overnight
courier that retains receipts for deliveries:
If to the Company:
First Southern Bank, Inc.
9955 West Glades Road
Boca Raton, Florida 33434
Attn: Robert H. Santom, President
If to the Bank Trust:
First Southern Bancorp Capital Statutory Trust
9955 West Glades Road
Boca Raton, Florida 33434
Attn: Robert H. Santom, President
With copy (if to Company or Bank Trust) to:
Greenberg Traurig, P.A.
515 East Las Olas Boulevard
Suite 1500
Fort Lauderdale, Florida 33301
Attn: Brian J. Sherr, Esq.
If to the Fund:
SAL TRUST PREFERRED FUND I
1901 Sixth Avenue North
Birmingham, Alabama 35203
Attn: James S. Holbrook, Jr.
16
<PAGE>
With copy to:
Thomas S. Harman, Esq.
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036-5969
and to:
William K. Holbrook, Esq.
Ritchie & Rediker, L.L.C.
312 North 23/rd/ Street
Birmingham, Alabama 35203
Any party may give any notice, request, demand, claim, or other communication
hereunder using any other means, but no such notice, request, demand, claim, or
other communication shall be deemed to have been duly given unless and until it
is actually received by the party for whom it is intended. Any party may change
the address to which such notices, requests, demands, claims, or other
communications are to be delivered by giving the other parties notice in the
manner herein set forth.
23. Termination. This Agreement shall continue until there are no Firm
-----------
Shares or Option Shares, as the case may be, outstanding or until this Agreement
is terminated by the written agreement of the parties, which ever first occurs.
Further, this Agreement shall automatically terminate and be of no further force
and effect in the event that the Underwriting Agreement is for any reason
terminated.
[Signatures on Next Page]
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
ATTEST: SAL TRUST PREFERRED FUND I
____________________________ By: _____________________________
Secretary Name: James S. Holbrook, Jr.
Title: President
ATTEST: FIRST SOUTHERN BANCORP, INC.
____________________________ By: _____________________________
Secretary Name: Robert H. Santom
Title: President
ATTEST: FIRST SOUTHERN BANCORP CAPITAL
STATUTORY TRUST
____________________________ By: _____________________________
Secretary Name: Robert H. Santom
Title: Administrative Trustee
18
<PAGE>
EXHIBIT A
---------
[Form of Legal Opinion of Greenberg Traurig]
[The following opinions of Greenberg Traurig will be subject to results of
diligence and customary assumptions and qualifications. Any opinions relating
to regulation of banks or bank holding companies may be given instead by
separate bank regulatory counsel to the Company ("Bank Counsel").]
1. The Company has been incorporated and its status is active as a corporation
under the laws of the State of Florida with all requisite corporate power and
authority to own, lease and operate its properties and to conduct its business
as now being conducted and as described in the Registration Statement and
Prospectus, and to counsel's knowledge is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions where the
failure to so qualify would have a materially adverse effect upon the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries taken as a whole (a "Material Adverse
Effect"), excluding any such qualification required as a result of the formation
of the Bank Trust and the consummation of the Offering (as to which no opinion
is expressed).
2. [Based solely on a letter dated ________ ___, 1999 from _________ of the
Board of Governors of the Federal Reserve System,] the Company is registered as
a bank holding company under the Bank Holding Company Act of 1956, as amended.
[Bank Counsel to provide this opinion.]
3. Each of the Company's subsidiaries has been incorporated and its status is
active as a corporation under the laws of the state of its incorporation (and
First Southern Bank is further validly existing as a state-chartered bank under
the laws of the State of Florida) [Bank Counsel to cover prior parenthetical],
with corporate power and authority to own its properties and conduct its
business as now conducted, and to counsel's knowledge is duly qualified or
authorized to do business and is in good standing in all other jurisdictions
where the failure to so qualify would have a Material Adverse Effect. All of
the outstanding shares of capital stock of each of the Company's subsidiaries
are owned of record and, to counsel's knowledge, beneficially, by the Company,
except for _________ shares of __________ which are owned of record by
_________. To our knowledge, neither the Company nor any of its subsidiaries
have issued or are parties to outstanding options or warrants or other rights to
purchase, agreements or other obligations to issue, or other rights to convert
any obligations into any, shares of capital stock in any of the Company's
subsidiaries, other than __________.
4. Under the laws of the State of Florida, the Company's Articles of
Incorporation and its Bylaws, the Company has corporate power and authority to
execute and deliver, and to perform its obligations under, the Operative
Agreements to which it is party and to issue, sell and deliver the Subordinated
Debentures to the Bank Trust pursuant to the Debenture Purchase Agreement and
the Indenture against payment of the consideration set forth in the Debenture
Purchase Agreement upon which time (assuming due authentication of the
Subordinated Debentures by the Trustee in accordance with the Indenture) the
Subordinated Debentures will be validly issued to the Bank Trust and will
constitute valid and binding obligations of the Company to the Bank Trust which
shall be entitled to the benefits of the Indenture and shall be enforceable by
the Bank Trust against the Company in accordance with its terms and subject to
the terms of the Indenture and the Operative Agreements to which the Company is
party (including, without limitation, the Preferred Securities Guarantee), and
the Operative Agreements to which the Company is party have been duly
authorized, executed and delivered by the Company and constitute the legal and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer, fraudulent conveyance or other laws affecting creditors'
rights generally, including, without limitation, the United States Bankruptcy
Code and applicable state laws.
5. There are no preemptive rights or, to the knowledge of such counsel, other
rights to subscribe for or to purchase, the Subordinated Debentures pursuant to
the Company's Articles of Incorporation, bylaws or the Material
A-1
<PAGE>
Agreements ["Material Agreements" to constitute agreements specifically
identified and listed on a schedule]. The terms of the Subordinated Debentures
materially conform to the descriptions thereof set forth in the Prospectus
(including the Statement of Additional Information), insofar as such statements
constitute descriptions of contracts, agreements or other legal documents, with
due regard to the fact that such description is a summary of certain material
aspects of the Subordinated Debentures and that additional terms of the
Subordinated Debentures are contained in the Indenture and other Operative
Agreements provided to you and the Fund and their respective counsel which are
not included in such description.
6. No consent, approval, authorization or order of any court or governmental
agency or body is required on the part of the Company for the performance of the
Operative Agreements by the Company or the consummation by the Company of the
transactions contemplated (other than as may be required under applicable bank
regulation, as to which we express no opinion). [Bank Counsel to also cover
prior sentence as to bank regulation.] The performance of the Operative
Agreements by the Company and the consummation by the Company of the
transactions contemplated thereby will not conflict with or result in a material
breach or violation by the Company of any of the terms or provisions of, or
constitute a material default by the Company under, any Material Agreement, a
violation or breach of the Articles of Incorporation or bylaws of the Company,
or any material breach or violation of any statute, judgment, decree, order,
rule or regulation known to such counsel of any court or governmental agency or
body applicable to the Company or any of its subsidiaries or their properties;
other than any such breach or violation that will not have a Material Adverse
Effect, and other than as may occur under applicable bank regulation, as to
which we express no opinion. [Bank Counsel to address no-violation under bank
regulation.]
7. Except as disclosed in the Registration Statement or the Prospectus, to our
knowledge, there is not pending or threatened against the Company any legal or
governmental action, suit, or proceeding to which the Company or any of its
subsidiaries is a party, or to which the property of the Company or any of its
subsidiaries is subject, before or brought by any court or governmental agency
or body that would have a Material Adverse Effect if determined adversely, other
than as set forth in _________ [insert reference to list of litigation].
8. To the knowledge of such counsel, neither the Company nor any of its
subsidiaries is in material violation of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company and its subsidiaries
and material to the Company and its subsidiaries taken as a whole or any decree
of any court or governmental agency or body having jurisdiction over the Company
or any of its subsidiaries, other than any such violations that are not
reasonably expected to have a Material Adverse Effect.
Although we have not undertaken, except as otherwise expressly indicated in this
letter, to independently verify the accuracy or completeness or fairness of the
statements in the Registration Statement, we have participated in the
preparation of portions of the Registration Statement and the Prospectus
relating to the Company and the Operative Agreements, including review and
discussion of the contents thereof with representatives of the Company and its
independent certified public accountants and with representatives of the Fund,
the Underwriters and the other Bank Holding Companies and the Fund's, the
Underwriters' and the other Bank Holding Companies' respective counsel, and on
the basis of the foregoing and the Documents (and relying as to materiality to a
large extent upon the opinions and representations of officers and other
representatives of the Company), we advise you that nothing has come to our
attention that has caused us to believe that the Company Information contained
in the Registration Statement at the time the Registration Statement became
effective, contained an untrue statement of a material fact or omitted to state
a material fact necessary to make the statements therein not misleading or that
the Prospectus, as of its date and as of the date hereof, contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading (except that we express no opinion as to
the financial statements and the notes thereto and any other financial and
statistical data included in the Registration Statement or the Prospectus).
A-2
<PAGE>
EXHIBIT B
---------
[Form of Legal Opinion of Bingham Dana for Bank Trust]
The Operative Agreements to which the Bank Trust is a party each as set
forth in the opinion shall be herein referred to as the "Operative Documents".
1. The Bank Trust has been duly formed and is validly existing as a statutory
trust under the Connecticut Statutory Trust Act, Chapter 615 of Title 34 of the
Connecticut General Statutes, Section 500, et seq. (the "Act").
-- ---
2. The Trust Agreement constitutes a valid and binding obligation of the
Property Trustee enforceable against the Property Trustee in accordance with the
terms thereof.
3. The Trust Agreement constitutes a valid and binding obligation of the
Depositor and the Administrative Trustees, enforceable against the Depositor and
the Administrative Trustees in accordance with its terms.
4. The Bank Trust has the requisite trust power and authority to (a) execute
and deliver, and to perform its obligations under, the Operative Documents, and
(b) perform its obligations under such Operative Documents.
5. Each of the Operative Documents to which the Bank Trust is a party
constitutes a valid and binding obligation of the Bank Trust, enforceable
against the Bank Trust in accordance with the terms thereof.
6. The Preferred Securities have been duly authorized by the Bank Trust under
the Trust Agreement, and the Preferred Securities, when duly issued, executed
and authenticated to the Fund in accordance therewith, will be validly issued,
fully paid and nonassessable and will evidence undivided beneficial interests in
the assets of the Bank Trust and will be entitled to the benefits of the Trust
Agreement.
7. The Common Securities have been duly authorized by the Trust Agreement, and
the Common Securities, when duly issued, executed and authenticated to the
Company in accordance with the Trust Agreement and the Common Purchase Agreement
and delivered and paid for in accordance therewith, will be, validly issued,
fully paid and nonassessable and will evidence beneficial undivided interests in
the assets of the Bank Trust and will be entitled to the benefits of the Trust
Agreement.
8. Neither the execution, delivery or performance by the Bank Trust of the
Operative Documents, the consummation by the Bank Trust of the transactions
contemplated thereby, nor compliance by the Bank Trust with any of the terms and
provisions thereof, (a) violates the Trust Agreement, or, to the best of our
knowledge, contravenes or will contravene any provision of, or constitutes a
default under, or results in any breach of, or results in the creation of any
lien (other than as permitted under the Operative Documents) upon property of
the Bank Trust under, any indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract, bank loan or credit agreement, license or other
agreement or instrument, in each case known to us, to which it is a party or by
which it is bound or (b) violates any applicable Connecticut law governing the
Bank Trust, or, to the best of our knowledge, any judgment or order of any court
or other tribunal, in each case known to us, applicable to or binding on it.
9. No consent, approval, order or authorization of, giving of notice to, or
registration with, or taking of any other action in respect of, any Connecticut
governmental authority regulating the Bank Trust is required for the execution,
delivery, validity or performance of, or the carrying out by, the Bank Trust of
any of the transactions contemplated by the Operative Documents, other than any
such consent, approval, order, authorization, registration, notice or action as
has been duly obtained, given or taken.
10. The Fund, as the beneficial holder of the Preferred Securities, will be
entitled to the same limitation of personal liability extended to shareholders
of domestic corporations organized under the laws of the State.
B-1
<PAGE>
EXHIBIT C
---------
[Form of Legal Opinion of Bingham Dana LLP for State Street]
The Operative Agreements to which State Street is party as well as certain
other documents each set forth in the opinion are herein referred to as the
"Operative Documents".
1. State Street is a state chartered trust company, validly formed under the
laws of the Commonwealth of Massachusetts, is authorized to transact the
business of banking under the laws of the State and has the requisite corporate
and trust power and authority (a) to execute, deliver and perform its
obligations under the Operative Documents to which it is a party in its
individual capacity and (b) as Property Trustee, Indenture Trustee and Guarantee
Trustee, as the case may be, to execute, deliver and perform its obligations (on
behalf of the Bank Trust) under the Operative Documents to which the Property
Trustee (on behalf of the Bank Trust), Indenture Trustee and the Guarantee
Trustee, as the case may be, is a party.
2. State Street, individually, and in its capacity as Property Trustee,
Guarantee Trustee and Indenture Trustee, as the case may be, has duly
authorized, executed and delivered the Operative Documents to which the Property
Trustee, Indenture Trustee and the Guarantee Trustee, as the case may be, is
party. Each of the Indenture and the Guarantee constitutes a valid and binding
obligation of State Street, individually and in its capacity as Indenture
Trustee and as Guarantee Trustee, as the case may be, enforceable in accordance
with the terms thereof.
3. The Debentures delivered on the date hereof have been duly authenticated by
the Indenture Trustee in accordance with the terms of the Indenture.
4. Neither the execution, delivery or performance by State Street or the
Trustees, as the case may be, of the Operative Documents, the consummation by
State Street or the Trustees, as the case may be, of the transactions
contemplated thereby, nor compliance by State Street or the Trustees, as the
case may be, with any of the terms and provisions thereof, (a) requires any
approval of its stockholders, or, to the best of our knowledge, any consent or
approval of or the giving of notice to any holders of any indebtedness or
obligations (or any trustees for such holders) of it known to us, (b) violates
its charter documents or by-laws, or, to the best of our knowledge, contravenes
or will contravene any provision of, or constitutes a default under, or results
in any breach of, or results in the creation of any lien (other than as
permitted under the Operative Documents) upon its property under, any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan
or credit agreement, license or other agreement or instrument, in each case
known to us, to which it is a party or by which it is bound or (c) violates any
applicable State law governing the banking or trust powers of State Street or
the Trustees, as the case may be, or, to the best of our knowledge, any judgment
or order of any court or other tribunal, in each case known to us, applicable to
or binding on it. No consent, approval, order or authorization of, giving of
notice to, or registration with, or taking of any other action in respect of,
any State governmental authority regulating the banking or trust powers of State
Street or the Trustees, as the case may be, is required for the execution,
delivery, validity or performance of, or the carrying out by, State Street or
the Trustees, as the case may be, of any of the transactions contemplated by the
Operative Documents, other than any such consent, approval, order,
authorization, registration, notice or action as has been duly obtained, given
or taken.
C-1
<PAGE>
TRUST PREFERRED PURCHASE AGREEMENT
----------------------------------
This TRUST PREFERRED PURCHASE AGREEMENT (this "Agreement") made as of the
____ day of September, 1999, by and among SAL TRUST PREFERRED FUND I, a Delaware
statutory business trust (the "Fund"), CENTRAL COMMUNITY CORPORATION, a Delaware
corporation (the "Company") which serves as a holding company for First State
Bank Central Texas (the "Bank") and CENTRAL COMMUNITY CORPORATION CAPITAL
STATUTORY TRUST, a Connecticut statutory business trust (the "Bank Trust"),
hereinafter the Fund , the Company and the Bank Trust are collectively referred
to as the "parties".
WHEREAS, the Fund has been organized for the purpose of purchasing through
this Agreement (and similar agreements with two other banks) privately placed
cumulative trust preferred securities from three statutory trusts organized by
three respective community bank holding companies, including the Company; and
WHEREAS, the purchase of the trust preferred securities is being funded by
a public offering of shares of the Fund.
NOW, THEREFORE, based upon the foregoing and mutual covenants herein
contained, and for other good and sufficient consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Offering. Sterne, Agee & Leach, Inc. ("Sterne Agee") pursuant to and
--------
subject to the terms and conditions of the Underwriting Agreement dated of even
date herewith ("Underwriting Agreement"), is underwriting on a firm commitment
basis a public offering ("Offering") of 860,000 (or, if the over-allotment
option is exercised, 946,000) shares of the Fund ("Fund Shares"). The Fund is
sponsored by Sterne Agee and is registered as a closed-end investment company
under the Investment Company Act of 1940, as amended (the "1940 Act") and the
Offering will be made pursuant to the Securities Act of 1933, as amended ("1933
Act"). The proceeds of the Offering will be invested solely in 860,000 (or, if
the over-allotment option is exercised, 946,000) shares of ___% cumulative
trust preferred securities issued, in the aggregate, by three Connecticut
statutory trusts formed by three respective community bank holding companies,
including the Company, for the purpose of issuing such ___% cumulative trust
preferred securities. Such ___% cumulative trust preferred securities shall
have a liquidation value of $25 per share or, in the aggregate, $21,500,000 (or,
if the over-allotment option is exercised, $23,650,000) and shall be purchased
by the Fund for a purchase price of $25 per share or, in the aggregate,
$21,500,000 (or, if the over-allotment option is exercised, $23,650,000). The
___% cumulative trust preferred securities are being sold to the Fund by the
three Connecticut statutory trusts pursuant to three trust preferred securities
purchase agreements dated of even date herewith by and among the Fund and each
of the three community bank holding companies and each of their Connecticut
statutory trusts. The ___% cumulative trust preferred securities will be
guaranteed by the bank holding companies as provided in the applicable guaranty
agreements. The bank holdings companies will also issue to themselves all of
the ____% cumulative trust common securities of their respective Connecticut
statutory trust. The proceeds of these ___% cumulative trust preferred
securities and the ____% cumulative trust common securities will be used by each
of the Connecticut statutory trusts to purchase subordinated debentures of their
respective bank holding companies issued pursuant to an indenture agreement and
a subordinated debenture purchase agreement.
More specifically, the Company has formed, as sponsor, the Bank Trust,
pursuant to the Trust Agreement dated September 1999, to be amended as of the
Closing Date ("Trust Agreement") by and among the Company, as sponsor of the
Bank Trust, State Street Bank and Trust Company, as property trustee of the Bank
Trust (the "Property Trustee"), and _______________ and ______________ as
administrators of the Bank Trust (the "Administrative Trustees").
Simultaneously with the consummation of the Offering, the Bank Trust will sell
and the Fund will purchase, pursuant to this Agreement, 280,000 shares (or, if
the over-allotment option is exercised, 308,000 shares) of the ___% cumulative
trust preferred securities of the Bank Trust ("Preferred Securities") which are
coupled with the Preferred Securities Guarantee (as defined below)
(collectively, the Preferred Securities and the Preferred Securities Guarantee
shall be hereinafter referred to as the "Fund Purchased Securities") for an
aggregate purchase price of $7,000,000 (or, if the over-allotment option
<PAGE>
is exercised, $7,700,000). The Preferred Securities and hence the Fund Purchased
Securities will have a liquidation value in the aggregate of $7,000,000 (or, if
the over-allotment option is exercised, $7,700,000) as provided in the Trust
Agreement and this Agreement. The Bank Trust will also issue ______ shares of
____% cumulative trust common securities of the Bank Trust ("Common Securities")
to the Company pursuant to that certain Common Securities Purchase Agreement
dated as of the Closing Date ("Common Purchase Agreement"). The Preferred
Securities will be guaranteed by the Company pursuant to that certain Preferred
Securities Guarantee Agreement by and between the Company and State Street Bank
and Trust Company, as the guarantee trustee ("Guarantee Trustee") for the
benefit of the Fund, and dated as of the Closing Date (the "Preferred Securities
Guarantee"). The proceeds of the Fund Purchased Securities and the Common
Securities will be used by the Bank Trust to purchase ____% Subordinated
Debentures of the Company due September __, 2029 ("Subordinated Debentures")
with a liquidation value of $7,000,000 (or, if the over-allotment option is
exercised, $7,700,000) pursuant to that certain Subordinated Debentures Purchase
Agreement by and between the Company and the Bank Trust dated as of the Closing
Date ("Debenture Purchase Agreement"), and the Indenture by and between the
Company and State Street Bank and Trust Company, as indenture trustee (the
"Indenture Trustee"), dated as of the Closing Date ("Indenture"). The coupon on
the Preferred Securities and the Subordinated Debentures will be equal to the
dividend yield on the Fund Shares and the debt service on the Subordinated
Debentures will be paid from the Company to the Bank Trust and then from the
Bank Trust to the Fund, all as expressly provided in the Indenture, Trust
Agreement and this Agreement. The Fund will then, in turn, pay the Fund's net
income, after any unrecovered expenses, to the holders of the Fund Shares in
accordance with the terms of the Offering. For its services in connection with
the Offering and on behalf of the Company, the Company will pay Sterne Agee
$350,000 upon the Closing Date (and, if the over-allotment option is exercised,
an additional $1.25 per share purchased under the Option). Certain agreements
between the Company and Sterne Agee have been incorporated in that certain
Agreement by and between the Company and Sterne Agee dated of even date herewith
(the "Company/Sterne Agee Agreement").
The Company/Sterne Agee Agreement, the Trust Agreement, the Common Purchase
Agreement, the Preferred Securities Guarantee, the Debenture Purchase Agreement,
the Indenture and this Agreement are hereinafter referred to collectively as the
"Operative Agreements".
2. Definitions. All capitalized terms not otherwise defined herein shall
-----------
have the same meaning as given such terms in the Underwriting Agreement.
3. Acquisition of Preferred Securities and the Preferred Securities
----------------------------------------------------------------
Guarantee and Option.
- --------------------
(a) Purchase Shares. On the basis of the representations, warranties
---------------
and covenants herein contained, and subject to the conditions herein set forth,
the Bank Trust and the Company agree to sell to the Fund and the Fund agrees to
purchase 280,000 shares ("Firm Shares") of the Fund Purchased Securities which
have a liquidation value (as provided in the Trust Agreement) of $25 per share
($7,000,000 in the aggregate) at a purchase price of $25 per share ($7,000,000
in the aggregate). Accordingly, upon such purchase, the Company agrees to issue
Subordinated Debentures to the Bank Trust in consideration of the proceeds of
the Firm Shares and the Common Shares.
Payment for the Firm Shares to be sold hereunder is to be made by wire
transfer to the Bank Trust against delivery of certificates for the Fund
Purchased Securities to the Fund. Such payment and delivery are to be made at
the offices of the Fund, 1901 Sixth Avenue North, Suite 2100, Birmingham,
Alabama at the Closing Date. The certificates for the Firm Shares will be made
available for inspection by the Fund at least one business day prior to the
Closing Date.
(b) Over-Allotment Option. In addition, on the basis of the
---------------------
representations, warranties and covenants herein contained, and subject to the
terms and conditions herein set forth, the Bank Trust and the Company hereby
grant to the Fund an option to purchase an additional 28,000 shares ("Option
Shares") of the Fund Purchased Securities which have a liquidation value (as
provided in the Trust Agreement) of $25 per share ($700,000 in the aggregate) at
a purchase price of $25.00 per share ($700,000 in the aggregate). The option
granted hereby may be exercised in whole or in part (if in part, subject to a
maximum of one exercise) upon written notice given within 30 days after the date
of this Agreement setting forth the number of Option Shares as to which the Fund
is exercising the
2
<PAGE>
option and the time and date at which the certificate is to be delivered, but
may be exercised only if and at the same time and to the same extent as the
Underwriters exercise their over-allotment option under the Underwriting
Agreement and further limited to the Company's pro rata share of the over-
allotment option exercised by the Underwriters pursuant to the Underwriting
Agreement based upon the Company's pro rata share of the Offering. The time and
date at which certificates for Option Shares are to be delivered shall be the
same date as the Option Closing Date under the Underwriting Agreement. If the
date of exercise of the option is three or more business days before the Closing
Date, the notice of exercise shall set the Closing Date as the Option Closing
Date. The option with respect to the Option Shares granted hereunder may be
exercised only to cover the over-allotment option granted to the Underwriters
pursuant to the Underwriting Agreement in connection with the sale of Fund
Shares in the Offering. The Fund may cancel such option at any time prior to its
expiration by giving written notice of such cancellation to the Bank Trust and
the Company. To the extent, if any, that the option is exercised, payment for
the Option Shares shall be made on the Option Closing Date by wire transfer to
the order of the Company against delivery of certificates therefor.
4. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to the Fund that as of the date of this Agreement:
(a) With respect to any and all information in the Registration
Statement and the Prospectus as of the date hereof regarding the Company, the
Bank Trust, the Preferred Securities, the Common Securities, the Subordinated
Debentures and the Operative Agreements (the "Company Information"), neither the
Registration Statement nor any amendment thereto, and neither the Prospectus
(which includes the Statement of Additional Information for purposes of this
Agreement) nor any supplement thereto, contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading regarding the Company Information; provided, however, that
the Company makes no representations or warranties as to (i) information
contained in or omitted from the Registration Statement or the Prospectus, or
any such amendment or supplement, in reliance upon, and in conformity with,
written information furnished by the Fund or to the Fund by or on behalf of any
Underwriter through the Representative specifically for use in the preparation
thereof, (ii) any description of taxation relating specifically to the Fund
Shares (plus any description of taxation relating to the Subordinated Debentures
or Preferred Securities not covered by the opinion referenced in Section 7(b)
hereof), (iii) information relating to the other two banks participating in the
Offering and (iv) the Fund or its management or operations or the Fund Shares
(the items in the foregoing clauses (i) through (iv) do not constitute "Company
Information").
(b) The Company and each subsidiary of the Company (as used herein,
the term "subsidiary" includes any corporation, national or state bank, federal
savings bank, joint venture or partnership in which the Company or any
subsidiary of the Company has a 50% or greater or other controlling ownership
interest) is duly organized and validly existing and in good standing under the
laws of the respective jurisdictions of their organization or incorporation, as
the case may be, with full power and authority (corporate, partnership and
other, as the case may be) to own their properties and conduct their businesses
as now conducted and are duly qualified or authorized to do business and are in
good standing in all jurisdictions wherein the nature of their business or the
character of property owned or leased may require them to be qualified or
authorized to do business, except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries taken as a whole ("Material Adverse Effect"). The Company
has been legally constituted and is validly existing in good standing as a
registered bank holding company under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"), and the rules and, to the extent applicable,
regulations thereunder. Each subsidiary bank of the Company has been duly
incorporated and is a validly existing banking corporation under the laws of the
jurisdiction of its incorporation. The Company and its subsidiaries hold all
licenses, consents and approvals, and have satisfied all eligibility and other
similar requirements imposed by federal and state regulatory bodies,
administrative agencies or other governmental bodies, agencies or officials, in
each case as material to the conduct of the respective businesses in which they
are engaged as disclosed in the Registration Statement or the Prospectus.
3
<PAGE>
(c) The outstanding stock of each of the Company's corporate
subsidiaries is duly authorized, validly issued, fully paid and nonassessable
(except, to the extent permitted by the National Bank Act, the stock of the
Company's national bank subsidiaries). All of the outstanding stock of each of
the Company's corporate subsidiaries owned beneficially and of record by the
Company is owned clear of any lien, encumbrance, pledge, equity or claim of any
kind other than the lien on the stock of the Bank disclosed in the Financial
Statements. Neither the Company nor any of its subsidiaries is a partner or
joint venturer in any partnership or joint venture.
(d) The Company has all requisite legal right, power and authority to
execute, deliver, and perform the Operative Agreements to which it is a party.
All necessary corporate proceedings of the Company have been duly taken to
authorize the execution, delivery, and performance by the Company of the
Operative Agreements to which it is a party. The Operative Agreements to which
it is a party have been duly authorized, executed, and delivered by the Company,
and are the legal, valid, and binding obligation of the Company, and are
enforceable as to the Company in accordance with their terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the rights of creditors generally, and subject, as to enforceability,
to general principles of equity (regardless of whether enforcement is sought in
a proceeding in equity or at law). To the Company's knowledge, no consent,
authorization, approval, order, license, certificate, or permit of or from, or
declaration or filing with, any federal, state, local, or other governmental
authority or any court or other tribunal is required by the Company for the
execution, delivery, or performance by the Company of the Operative Agreements
(other than such which have been obtained or made). No consent of any party to
any contract, agreement, instrument, lease, license, arrangement, or
understanding to which the Company is a party, or to which any of its properties
or assets is subject, is required for the execution, delivery, or performance of
the Operative Agreements (other than such which have been obtained or made), and
the execution, delivery, and performance of the Operative Agreements will not
violate, result in a breach of, conflict with, result in the creation or
imposition of any lien, charge, or encumbrance upon any properties or assets of
the Company pursuant to the terms of, or, with or without the giving of notice
or the passage of time or both, entitle any party to terminate or call a default
under, any such contract, agreement, instrument, lease, license, arrangement, or
understanding, or violate, result in a breach of, or conflict with any term of
the certificate of incorporation (or other charter document) or bylaws of the
Company or any of its subsidiaries, or violate, result in a breach of, or
conflict with, any law, rule, regulation, order, judgment, or decree binding on
the Company or any of its subsidiaries or to which any of their operations,
businesses, properties, or assets are subject, other than any such breach,
violation or occurrence that would not have a Material Adverse Effect.
(e) There is not any pending or, to the best of the Company's
knowledge, any threatened action, suit, claim or proceeding against the Company,
or any of its officers or any of its properties, assets or rights before any
court, government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its officers or properties or otherwise
which (i) might result in any Material Adverse Effect to the Company or might
materially and adversely affect its properties, assets or rights or (ii) might
prevent consummation of the transactions contemplated by the Operative
Agreements.
(f) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities. The Preferred Securities Guarantee and
the Subordinated Debentures have been duly authorized for issuance and sale to
the Fund and the Bank Trust, respectively, and the Preferred Securities of the
Bank Trust have been duly authorized for issuance and sale to the Fund pursuant
to this Agreement and, when issued and delivered by the Company against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable, and will be sold free and clear
of any pledge, lien, security interest, encumbrance, claim or equitable
interest; and no preemptive right, co-sale right, registration right, right of
first refusal or other similar right of stockholders exists with respect to any
of the Preferred Securities Guarantee and the Subordinated Debentures of the
Company or Preferred Securities of the Bank Trust or the issuance and sale
thereof other than those that have been expressly waived prior to the date
hereof and those that will automatically expire upon the consummation of the
transactions contemplated in the Operative Agreements. No further approval or
authorization
4
<PAGE>
of any stockholder or Board of Directors of the Company or any Administrative
Trustees, Property Trustee or beneficiary of the Bank Trust (other than the
Fund) or the Guarantee Trustee, the Indenture Trustee or other applicable
regulatory body such as the Federal Reserve, the Florida State Banking
Commission or the Federal Deposit Insurance Corporation is required for the
issuance and sale of the Preferred Securities Guarantee, the Subordinated
Debentures or the Preferred Securities to be issued at the Closing Date or
Option Closing Date, as the case may be, under the Operative Agreements except
as may be required under the 1933 Act, 1940 Act or under state or other
securities or Blue Sky laws and except for the actual ministerial actions
required to issue and authenticate such securities.
(g) Ernst & Young LLP which has examined certain of the financial
statements of the Company, its subsidiaries and their acquireds, together with
the related schedules and notes which are filed with the Commission as a part of
the Registration Statement and which are included in the Prospectus, are
independent accountants within the meaning of generally accepted accounting
principles and, to the Company's knowledge, independent accountants within the
meaning of the 1933 Act and the Rules and Regulations thereunder. The audited
consolidated financial statements of the Company and its subsidiaries, together
with the related schedules and notes as of and for the years ended December 31,
1997 and 1998 (the "Audited Financial Statements"), and the Company's unaudited
balance sheet and statement of income and notes thereto as of and for the six
(6) months ended June 30, 1999 (the "Interim Financial Statements") forming part
of the Registration Statement and Prospectus, (collectively, the "Financial
Statements"), fairly present in accordance with generally accepted accounting
principles the financial position and the results of operations and changes in
financial position and cash flow of the Company and its subsidiaries at the
respective dates and for the respective periods to which they apply and have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved except as may be otherwise
stated therein and except, in the case of the Interim Financial Statements, the
absence of notes thereto and subject to normal year end adjustments. All of the
financial and statistical data with respect to the Company set forth in the
Prospectus under the captions "Risk Factors", "Bank Holding Companies", "Central
Community Corporation Selected Consolidated Financial Data" and "Supervision and
Regulation of the Bank Holding Companies" fairly present the information set
forth therein on the basis stated in the Prospectus.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, neither the Company nor any
subsidiary has sustained any material loss or interference with its business or
properties from fire, flood, hurricane, earthquake, accident or other calamity,
whether or not covered by insurance or for any labor dispute or court or
governmental action, order or decree, which is not disclosed in the Prospectus;
and subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) neither the Company nor any of
its subsidiaries has incurred any material liabilities or obligations, direct or
contingent, or entered into any material transaction not within the ordinary
course of business, and (ii) there has not been any change in the capital stock,
partnership interest, joint venture interest, long-term debt or obligations
under capital leases of the Company or its subsidiaries, taken as a whole, or
any issuance of options, warrants or rights to purchase the capital stock of the
Company, or any material adverse change, or any development involving a
prospective material adverse change in the management, business, prospects,
financial position, net worth or results of operations of the Company or its
subsidiaries, taken as a whole, except in each case as described in or
contemplated by the Prospectus.
(i) Except as set forth in the Financial Statements or the
Registration Statement and Prospectus, (i) the Company and its subsidiaries have
good and marketable title to all properties and assets owned by them, free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest, other than such as would not have a Material Adverse Effect and other
than ordinary course liens purchase money liens and property subject to leases,
and other than liens disclosed in the Financial Statements, (ii) the agreements
to which the Company and its subsidiaries are a party are valid agreements,
enforceable by the Company and its subsidiaries, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights,
generally or by general equitable principles and, to the best of the Company's
knowledge, the other contracting party or parties thereto are not in material
breach or material default under any of such agreements, and (iii) the Company
and its subsidiaries have valid and enforceable leases for all
5
<PAGE>
properties as leased by them, except as the enforcement thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles. The Company and its subsidiaries own or lease all such
properties as are necessary to its operations as now conducted or as currently
proposed to be conducted.
(j) The Company and its subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown thereon as due, and there is no tax deficiency that has been or, to
the best of the Company's knowledge, might be asserted against the Company or
any of its subsidiaries that might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company or its subsidiaries; and all material tax liabilities
are adequately provided for on the books of the Company in accordance with
generally accepted accounting principles.
(k) The Company and its subsidiaries maintain insurance with insurers
of recognized financial responsibility of the types and in the amounts generally
deemed adequate for their respective businesses and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, errors and omissions, insurance covering real and personal
property owned or leased by the Company and its subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect; and the Company has
no reason to believe that it will not be able to renew its or its subsidiaries
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company (other than the cost of such insurance subject to usual or
applicable increases).
(l) To the best of the Company's knowledge, no labor disturbance by
the employees of the Company or its subsidiaries exist or is imminent that might
be expected to result in a Material Adverse Effect. No collective bargaining
agreement exists with any of the Company's or its subsidiaries' employees and,
to the best of the Company's knowledge, no such agreement is imminent.
(m) The Company and its subsidiaries own or possess adequate rights
to use all patents, patent rights, inventions, trade secrets, knowhow,
trademarks, service marks, trade names and copyrights which are necessary to
conduct its businesses as described in the Registration Statement and
Prospectus; the Company and its subsidiaries have not received any notice of,
and has no knowledge of, any infringement of or conflict with asserted rights of
the Company and it subsidiaries by others with respect to any patent, patent
rights, inventions, trade secrets, knowhow, trademarks, service marks, trade
names or copyrights; and neither the Company nor its subsidiaries have received
any notice of, and have any knowledge of, any infringement of or conflict with
asserted rights of others with respect to any patent, patent rights, inventions,
trade secrets, knowhow, trademarks, service marks, trade names or copyrights
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company.
5. Representations and Warranties of the Bank Trust. The Bank Trust
------------------------------------------------
represents and warrants to the Fund that as of the date of this Agreement:
(a) The Bank Trust has been duly formed and is validly existing as a
statutory trust under the Connecticut Statutory Trust Act, Chapter 615 of Title
34 of the Connecticut General Statutes, Section 500, et seq. (the "Act").
-- ---
(b) The Trust Agreement constitutes a valid and binding obligation of
the Property Trustee enforceable against the Property Trustee in accordance with
the terms thereof.
6
<PAGE>
(c) The Trust Agreement constitutes a valid and binding obligation of
the Depositor and the Administrative Trustees, enforceable against the Depositor
and the Administrative Trustees in accordance with its terms.
(d) The Bank Trust has the requisite trust power and authority to (a)
execute and deliver, and to perform its obligations under, the Operative
Agreements to which it is a party, and (b) perform its obligations under such
Operative Agreements.
(e) Each of the Operative Agreements to which the Bank Trust is a
party constitutes a valid and binding obligation of the Bank Trust, enforceable
against the Bank Trust in accordance with the terms thereof.
(f) The Preferred Securities have been duly authorized by the Bank
Trust under the Trust Agreement, and the Preferred Securities, when duly issued,
executed and authenticated to the Fund in accordance with the Trust Agreement
and this Agreement, will be validly issued, fully paid and nonassessable and
will evidence undivided beneficial interests in the assets of the Trust and will
be entitled to the benefits of the Trust Agreement.
(g) The Common Securities have been duly authorized by the Trust
Agreement, and the Common Securities, when duly issued, executed and
authenticated to the Company in accordance with the Trust Agreement and the
Common Purchase Agreement and delivered and paid for in accordance therewith,
will be, validly issued, fully paid and nonassessable and will evidence
beneficial undivided interests in the assets of the Bank Trust and will be
entitled to the benefits of the Trust Agreement.
(h) Neither the execution, delivery or performance by the Bank Trust
of the Operative Agreements to which it is a party, the consummation by the Bank
Trust of the transactions contemplated thereby, nor compliance by the Bank Trust
with any of the terms and provisions thereof, (a) violates the Trust Agreement,
or, to the best of the Bank Trust's knowledge, contravenes or will contravene
any provision of, or constitutes a default under, or results in any breach of,
or results in the creation of any lien (other than as permitted under the
Operative Agreements to which it is a party) upon property of the Bank Trust
under, any indenture, mortgage, chattel mortgage, deed of trust, conditional
sales contract, bank loan or credit agreement, license or other agreement or
instrument, in each case known to the Bank Trust, to which it is a party or by
which it is bound or (b) violates any applicable Connecticut law governing the
Bank Trust, or, to the best of the Bank Trust's knowledge, any judgment or order
of any court or other tribunal, in each case known to the Bank Trust, applicable
to or binding on it.
(i) No consent, approval, order or authorization of, giving of notice
to, or registration with, or taking of any other action in respect of, any
Connecticut governmental authority regulating the Bank Trust is required for the
execution, delivery, validity or performance of, or the carrying out by, the
Bank Trust of any of the transactions contemplated by the Operative Agreements,
other than any such consent, approval, order, authorization, registration,
notice or action as has been duly obtained, given or taken.
(j) The Fund, as the beneficial holder of the Preferred Securities,
will be entitled to the same limitation of personal liability extended to
shareholders of domestic corporations organized under the laws of the State.
6. Conditions to the Fund's Obligations. The obligations of the Fund to
------------------------------------
purchase the Fund Purchased Securities under this Agreement (and consequently,
the several Underwriters to purchase the Fund Shares under the Underwriting
Agreement) shall be subject to the continuing accuracy in all material respects
of all representations and warranties of the Company and the Bank Trust
contained in the Operative Agreements, as of the date hereof and as of the
Closing Date (or the Option Closing Date as the case may be), and to the
delivery of the following:
(a) The Company shall provide the Fund at the Closing Date or the
Option Closing Date, as the case may be, with a legal opinion from J. David
Stanford addressed to SAL Trust Preferred Fund I, in the form attached hereto as
Exhibit A.
7
<PAGE>
(b) The Company shall provide the Fund at the Closing Date or the
Option Closing Date, as the case may be, with a legal opinion from Bingham Dana
LLP addressed to SAL Trust Preferred Fund I and to the Company, in the form as
attached hereto as Exhibit B.
(c) The Company shall provide the Fund at the Closing Date or the
Option Closing Date, as the case may be, with a legal opinion from Bingham Dana
LLP addressed to SAL Trust Preferred Fund I, in the form attached hereto as
Exhibit C.
(d) The Company shall provide the Fund, as of the Closing Date or the
Option Closing Date, as the case may be, with a customary cold-comfort letter
addressed to SAL Trust Preferred Fund I from its independent certified public
accountants in accordance with FASB standards with respect to the Financial
Statements and any and all other financial data relating to the Company or the
Bank contained in the Registration Statement or Prospectus which letters are
reasonably acceptable to the Fund and the basic content of which is agreed to by
the independent certified public accountants.
(e) On the Closing Date, the Company shall have delivered to the Fund
copies of the manually signed Operative Agreements other than this Agreement and
the Company/Sterne Agee Agreement which shall be executed by each of the parties
and originals of which shall be delivered to each party on the same date as the
Underwriting Agreement. A certificate of the Company's secretary shall confirm
the continued validity of the Operative Agreements on the Closing Date (with
respect only to this Agreement and the Company/Sterne Agee Agreement) and the
Option Closing Date.
(f) The Company shall provide the Fund, as of the Closing Date or the
Option Closing Date, as the case may be, a certificate from the president of the
Company as to the Company and a certificate from the Bank Trust as to the Bank
Trust to the effect that all of the representations and warranties made by the
Company and the Bank Trust, respectively, in this Agreement are true and correct
as of such date.
(g) The Fund shall have executed a purchase agreement substantially
similar to this Agreement with each of the other two bank holding companies
contemplated in the Offering and, as of the Closing Date, the Fund shall not
have terminated either of such purchase agreements.
7. Conditions to Company and Bank Trust Obligations. The obligations of
------------------------------------------------
the Company and the Bank Trust under the Operative Agreements shall be subject
to the continuing accuracy in all material respects of all representations and
warranties made by Sterne Agee or the Fund in the Operative Agreements or by the
Fund in the Underwriting Agreement as of the date hereof and as of the Closing
Date and to the delivery to the Company of the following:
(a) All legal opinions delivered by the Fund's counsel and the Bank
Trust's counsel in connection with the Offering shall also be addressed and
delivered to the Company. The opinion of counsel to the Fund shall include
customary opinions with respect to the registered offering, including without
limitation legal sufficiency and effectiveness of the registration statement,
organization and existence of the Fund, and compliance with securities laws
including the 1940 Act and 1933 Act.
(b) An opinion letter of Morgan, Lewis & Bockius LLP addressed to the
Company to the effect that the interest payments on the Subordinated Debentures
are tax-deductible to the Company.
8. Expenses. Offering Participation; Offering Expenses.
-------- -----------------------------------------
(a) The Company acknowledges that SALI has incurred significant time
and expenditures in connection with the structuring of the Offering and based
thereon, hereby agrees to use its best efforts to complete the Offering in a
timely manner in accordance with the terms and conditions of this Letter of
Intent and the Summary of
8
<PAGE>
Terms attached hereto, but in no event later than September 30, 1999; provided,
however, that the Company shall not required to consummate the Offering if the
coupon (interest expense) of the Offering shall exceed 9.25%.
(b) The Company shall bear all of its pro rata share (allocated based
on relative Offering proceeds) of the costs and expenses incident to the
issuance, offer, sale and delivery of the Securities including all expenses and
fees incident to the filing of the Registration Statement with the SEC and the
NASD, as applicable, and including all filing fees incident to qualification of
the Offering with the NASD Regulation, Inc., the costs including reasonable
counsel fees (whether fees of counsel to Offeror or SALI) of qualification under
state securities laws, reasonable fees and disbursements of counsel and
accountants for the Offeror, costs for preparing and printing the Registration
Statement, and cost of printing as many copies of the underwriting documents,
Prospectuses and Preliminary Prospectus as SALI may deem necessary and related
exhibits including all amendments and supplements to the Registration Statement,
all fees relating to the listing of the Securities on NASDAQ/NMS and/or such
other market(s) upon which the Offeror and SALI determine to list the Securities
and all costs associated with the Offeror's "road show" including SALI's out-of-
pocket expenses and expenses associated with presentations by the Offeror and/or
the Company and preparation of visual materials associated therewith which costs
and expenses shall be payable as reimbursement to the Offeror by the 25/th/ day
of each month for all invoices presented to the Company by the Offeror by the
20/th/ day of each month. The financial printer shall be as set forth on Summary
of Terms. SALI agrees to pay all fees and expenses of its counsel in connection
with or on account of the Offering other than counsel fees relating to blue-sky
filings. To the extent blue-sky work is undertaken by counsel to SALI, it shall
be separately billed to SALI and reimbursed to SALI by the Company in its pro
rata amount. Notwithstanding the foregoing or any other provision to the
contrary contained herein, the expenses of the Offering to be borne by the
Company shall not exceed eight percent (8%) of the Company's pro rata share of
the proceeds of the Offering. Further notwithstanding the foregoing or any other
provisions to the contrary contained herein, if, as a result of the failure of
the Company to use its best reasonable efforts to consummate closing of the
Offering by September 30, 1999 and the Offering is at anytime thereafter
abandoned by SALI, then, within fifteen (15) days following such abandonment,
the Company shall reimburse SALI for its pro rata share of all actual out-of-
pocket expenses of SALI including attorneys' fees in its capacity as the
underwriter of the Offering and sponsor of the Offeror up to a maximum of
$50,000; provided, however, this sentence in no way affects or limits the
Company's obligations to pay its pro rata share of the costs and expenses
incident to the issuance, offer, sale and delivery of the Securities referred to
in above sentences of this paragraph.
9. Operating Expenses. For so long as the Fund is a holder of
------------------
Preferred Securities, the Company shall bear all of its pro rata share
(allocated based on relative Offering proceeds as adjusted from time to time for
any redemptions) of the annual operating costs and expenses incident to the
operation of the Fund (if and to the extent reasonable, appropriate and
customary to a registrant such as the Fund making an offering such as the
Offering), including but not limited to, filings with the SEC, NASD, any
applicable state securities commissions or any applicable securities exchanges
of any annual, semi-annual or other periodic filings, attorney's fees,
accounting fees, fees of the Board of Trustees of the Fund and custodian, fees
of the investment manager, insurance including liability insurance for the Board
of Trustees, transfer agent fees and other administrative fees; provided, that
such aggregate costs and expenses shall not exceed $185,000 per annum, as
adjusted each year for changes in the cost of living as reflected in the
Consumer Price Index of All Urban Consumers, U.S. City Average, ALL ITEMS. No
such adjustment shall in any year result in a reduction of the then current
limitation. Sterne Agee and the Fund shall use reasonable efforts to maintain
all such expenses at a minimum. If more than 20% of the Fund's assets consist of
investments other than any or all of the Preferred Securities or the
Subordinated Debentures and the ___% cumulative trust preferred securities or
the ____% subordinated debentures of the other two bank holding companies
purchased by the Fund with the proceeds of the Offering, then the Company's
obligation hereunder shall be reduced by such percentage of the Fund's assets
consisting of such other investments.
9
<PAGE>
10. Affirmative Covenants. So long as the Fund is a holder of any Firm
---------------------
Shares or Option Shares:
(a) Fulfillment of Obligations. The Company, its subsidiaries and the
--------------------------
Bank Trust shall observe and comply with all of the terms, conditions,
restrictions and covenants to be observed or performed by either of them under
their respective organizational documents and the Operative Agreements to which
either of them is a party.
(b) Accounts and Reports. The Company and the Bank Trust will
--------------------
maintain a standard system of accounts, records and accounting controls and
systems in accordance with generally accepted accounting principles consistently
applied. Subject to applicable bank regulatory requirements, the Company will
provide the Fund with a copy of the following documents within fifteen (15) days
following the filing or completion thereof by either the Company or its
auditors: (i) regularly prepared audited financial statements, (ii) quarterly
and annual financial statements filed with applicable bank regulatory agencies
and (iii) annual reports to shareholders, if applicable.
(c) Payment of Taxes. The Company shall, and shall cause its
----------------
subsidiaries to, pay and discharge all lawful taxes, assessments and
governmental charges or levies imposed upon them or upon their income or
property before the same shall become in default, as well as all lawful claims
for labor, material and supplies which, if not paid when due, might become a
lien or charge upon their property or any part thereof; provided, however, that
-------- -------
the Company or its subsidiaries shall not be required to pay and discharge any
such tax, assessment, charge, levy or claim so long as the validity thereof is
being contested in good faith by appropriate proceedings and an adequate reserve
therefor has been established on their books if required under GAAP.
(d) Conduct of Business; Compliance with Laws. The Company shall
-----------------------------------------
keep, and shall cause its Subsidiaries including the Bank Trust to keep their
properties in such repair, working order and condition and will from time to
time make such repairs, renewals, replacements, additions and improvements
thereto so that the business carried on in connection therewith may be properly
conducted at all times in a commercially reasonable manner and in material
compliance with all applicable statutes, rules and regulations and material
obligations; and the Company shall, and shall cause its subsidiaries to,
otherwise comply with all applicable statutes, rules, regulations and other
material obligations.
(e) General Insurance. The Company shall keep all of its insurable
-----------------
properties and all of the insurable properties of its subsidiaries now or
hereafter owned adequately insured at all times against loss or damage by fire
or other casualty to the extent customary with respect to like properties of
companies conducting similar businesses; maintain public liability, workman's
compensation and other liability coverage (including so-called errors and
omissions, products or service liability coverage) insuring the Company and its
subsidiaries to the extent customary with respect to companies conducting
similar businesses, all by financially sound and reputable insurance companies
and, upon request of the Fund, furnish to the Fund satisfactory evidence of the
same.
(f) Inspection. Subject to the Fund's execution of confidentiality
----------
agreements and other reasonable precautions that the Company and Bank Trust may
request from time to time, the Fund may make reasonable inspection of the
properties, books and other records of the Company, its subsidiaries and the
Bank Trust and may interview directors, officers, employees and independent
accountants regarding the affairs of the Company, its subsidiaries and the Bank
Trust, in any reasonable manner and at such reasonable times as may be
reasonably requested, for the purpose of determining the Company's and the Bank
Trust's continuing ability to honor their obligations under the Firm Shares or
Option Shares. Any such examinations shall be conducted under the supervision of
appropriate officers and personnel of the Company and Bank Trust and subject to
applicable bank regulatory requirements. The Company and Bank Trust do not
hereby waive or release their respective proprietary or other interest or rights
or other protections under applicable law relating to any information obtained
by the Fund through such investigations.
10
<PAGE>
(g) Corporate Existence. The Company shall maintain and cause each of
-------------------
its subsidiaries and the Bank Trust to maintain their respective statutory
existence, rights and franchises in full force and effect, except as otherwise
permitted under the Indenture.
(h) Further Assurances.
------------------
(i) The Company will cure promptly or will cause any or all of
its subsidiaries or the Bank Trust to cure promptly any defects in the
creation and issuance of the Firm Shares or Option Shares or the
Subordinated Debentures, and in the execution and delivery of the
Operative Agreements. The Company at its expense, will promptly
execute and deliver or will cause any or all of its subsidiaries or
the Bank Trust to execute and deliver promptly to the Fund, following
receipt of a reasonable request in writing from the Fund, all such
other and further documents, agreements and instruments in compliance
with or pursuant to its covenants and agreements herein, and will make
any recordings, file any notices, and obtain any consents as may be
necessary or appropriate in connection therewith.
(ii) The Fund will cure promptly any defects in the creation and
issuance of the Fund Shares, and in the execution and delivery of the
Operative Agreements. The Fund at its expense, will promptly execute
and deliver promptly to the Company, following receipt of a reasonable
request in writing from the Company, all such other and further
documents, agreements and instruments in compliance with or pursuant
to its covenants and agreements herein, and will make any recordings,
file any notices, and obtain any consents as may be necessary or
appropriate in connection therewith.
(i) Bank Trust Trustee. The Company shall at all times use reasonable
------------------
efforts to cause the Bank Trust to maintain State Street Bank and Trust or
another qualified bank or trust company reasonably acceptable to the Fund as the
Property Trustee, Indenture Trustee and Guarantee Trustee and as otherwise
required by the Indenture.
11. Representations and Covenants of the Fund. The Fund represents,
-----------------------------------------
warrants and covenants to the Company and the Bank Trust as follows:
(a) The Fund has been duly organized under the laws of the State of
Delaware as a business trust and is validly existing and in good standing as a
business trust under the laws of the State of Delaware, with full power and
authority to own its properties, and to conduct its business as such business is
proposed to be conducted and to carry out the transactions contemplated hereby.
The Fund has all requisite authority to execute and deliver this Agreement and
any other Operative Agreement to which it is a party and this Agreement and such
Operative Agreements when so executed and delivered shall be legal, valid and
binding obligations of the Fund, as applicable, enforceable in accordance with
their terms, except that such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the rights and
remedies of creditors generally, or the application of principal of equity,
whether applied in a proceeding at law or in equity. The representations and
warranties of the Fund in Section 1.(a) of the Underwriting Agreement are true
and correct.
(b) The Fund, by acceptance of Firm Shares or Option Shares, as the
case may be, represents that it has purchased such shares, not with a view to,
or for sale in connection with, any distribution thereof in violation of the
1933 Act.
(c) The Fund has had an opportunity to ask questions of and receive
answers from the Company, or any person or persons acting on their behalf,
concerning the terms and conditions of the investment represented by the
purchase of the Firm Shares or Option Shares, as the case may be, and concerning
the business of the Company and the transactions contemplated hereby, and all
such questions have been answered to the full satisfaction of the Fund.
11
<PAGE>
(d) The investment manger of the Fund has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of an investment in the Firm Shares or Option Shares, as
the case may be. The Fund acknowledges and agrees that the Fund Purchased
Securities shall be subject to the terms of those certain Operative Agreements
relating thereto, including the Indenture, Trust Agreement and Preferred
Securities Guarantee.
(e) The Fund is aware of the fact that the Firm Shares or Option
Shares, as the case may be, have not been registered under the 1933 Act or any
state securities laws, and that the Firm Shares or Option Shares, as the case
may be, purchased in accordance with this Agreement may not be sold,
transferred, or otherwise disposed of in the absence of registration under the
1933 Act and applicable state securities laws or an opinion of counsel,
satisfactory to the Company, to the effect that such registration is not
required due to the availability of registration exemptions.
(f) It is agreed and acknowledged that all certificates, representing
shares of the Firm Shares or Option Shares, as the case may be, if any, shall
contain the following legend until such time as such shares shall be registered
pursuant to the 1933 Act or comply with Rule 144(k) promulgated under the 1933
Act:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH
NOR APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION NOR BY THE SECURITIES REGULATORY AUTHORITY OF ANY STATE AND SUCH
REGISTRATION IS NOT CONTEMPLATED. THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE TRANSFERRED IN WHOLE OR IN PART OR OTHERWISE
ASSIGNED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
The Fund understands that the certificates will also bear such legends and
be subject to such transfer restrictions as set forth in the Trust Agreement.
12. Closing Deliveries. In connection with the purchase of the Firm
------------------
Shares or Option Shares, as the case may be, by the Fund hereunder, the
following deliveries and other matters shall take place either on or before the
Closing Date or the Option Closing Date, as the case may be:
(a) The Company shall deliver to the Fund all of the documents
referred to in Section 6 of this Agreement and the Company shall receive
delivery of all documents referred to in Section 7 of this Agreement.
(b) The Fund shall receive a certificate from the secretary of the
Company (certified by the president of the Company) enclosing true and correct
copies of the resolutions of the Board of Directors of the Company authorizing
the Company to enter into the Operative Agreements and sell to the Fund the Firm
Securities and the Option Securities, as the case may be, certified copies of
the Articles of Incorporation of the Company and its subsidiaries, copies of
certificates of good standing for the Company and its subsidiaries, a
representation that there have been no amendments to or documents affecting or
altering the Articles of Incorporation of the Company or its subsidiaries since
date of the certified copies thereof, attaching a true and correct form of the
Preferred Securities, the Common Securities and Subordinated Debentures and
certifying that the officers executing this certificate are duly elected
officers of the Company.
(c) Each of the Operative Agreements executed and delivered and all
performance required on or before such date shall have been performed in all
material respects.
(d) The Company shall duly issue and deliver certificates to the Fund
for the Firm Shares or the Option Shares, as the case may be, to be purchased by
the Fund and the applicable Guarantee.
12
<PAGE>
(e) The Company, the Bank Trust and the Fund shall execute a cross-
receipt affirming that the Company has received the proceeds from the sale of
Subordinated Debentures to the Bank Trust, the Bank Trust has received the
proceeds from the sale of Fund Purchased Securities to the Fund, the Fund has
received the certificates representing ownership of the Fund Purchased
Securities, and the Bank Trust has received certificates representing the
Subordinated Debentures.
13. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless the Fund
against any losses, claims, damages, liabilities or expenses (including
reasonable attorney's fees and reasonable costs of investigation), joint or
several, to which the Fund may become subject under the 1940 Act, the 1933 Act,
the Securities Exchange Act of 1934, as amended ("Exchange Act"), or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any breach of
representation, warranty, agreement or covenant of the Company herein contained,
(ii) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and the Company agrees to reimburse the Fund for any legal or other
expenses reasonably incurred by it in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
-------- -------
Company shall only be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission regarding
the Company Information (as defined in Section 4(a)) made in the Registration
Statement, such Preliminary Prospectus or the Prospectus, or any such amendment
or supplement thereto; provided that the Company had an opportunity to review
-------------
and comment on the Company Information prior to filing with the SEC and the
Company Information conforms thereto and, provided further, that the indemnity
----------------
agreement provided in this Section 13(a) with respect to any Preliminary
Prospectus shall not inure to the benefit of the Fund if any Underwriter from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of material fact or
omission or alleged omission to state therein a material fact purchased Fund
Shares, failed to deliver a copy of the Prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected to such person within the time required by the 1933 Act, the 1940 Act
and the Rules and Regulations thereunder.
The indemnity agreement in this Section 13(a) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer and
trustee of the Fund and each person, if any, who controls the Fund within the
meaning of the 1940 Act, the 1933 Act or the Exchange Act. This indemnity
agreement shall be in addition to any liabilities which the Company may
otherwise have.
(b) The Fund agrees to indemnify and hold harmless the Company and
the Bank Trust against any losses, claims, damages or liabilities, or expenses
(including reasonable costs of investigation) joint or several, to which the
Company or Bank Trust may become subject under the 1933 Act, the 1940 Act, the
Exchange Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any breach of any representation, warranty, agreement or covenant of the Fund
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein 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 (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to
13
<PAGE>
make the statements therein, in the light of the circumstances under which they
were made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 13(b) to the extent that such untrue statements or alleged untrue
statement or omission or alleged omission did not constitute "Company
Information" subject to indemnification by the Company to the Fund as provided
in the foregoing paragraph (a), and agrees to reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 13(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer and
director of the Company, each officer and trustee of the Bank Trust and each
person, if any, who controls the Company or the Bank Trust within the meaning of
the 1940 Act, 1933 Act or the Exchange Act. This indemnity agreement shall be
in addition to any liabilities which the Fund may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
13 of notice of the commencement of any action for which such party is
indemnified hereunder, such indemnified party shall, if a claim in respect
thereof is to be made against any indemnifying party under this Section 13,
notify the indemnifying party in writing of the commencement thereof but the
unintentional omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party hereunder or
otherwise than under this Section 13 except to the extent that the indemnifying
party is materially prejudiced thereby. In case any such action is brought
against any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
-------- -------
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
upon advice of counsel that there may be legal defenses available to it which
are inconsistent to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise 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 the indemnifying party's
election so to assume the defense of such action and approval by the indemnified
party of counsel, which approval shall not be unreasonably withheld, the
indemnifying party will not be liable to such indemnified party under this
Section 13 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 separate counsel 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 indemnifying party representing all the
indemnified parties under Section 13(a) or 13(b) hereof 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 (no more than fifteen (15) days) after notice of commencement
of the action is given to indemnifying party by indemnified party or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall any
indemnifying party be liable in respect of any amounts paid in settlement of any
action unless the indemnifying party shall have approved the terms of such
settlement; provided that such consent shall not be unreasonably withheld. 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 or indemnification
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made and would otherwise be
covered pursuant to this Section 13 but it is judicially determined (by the
entry of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 13 provided for indemnification in such case, all the parties
hereto shall contribute to the aggregate losses, claims, damages, liabilities or
expense subject to indemnification under this Section 13 (including reasonable
14
<PAGE>
costs of investigation) to which they may be subject (after contribution from
others), provided, however, that (i) no person guilty of a fraudulent
-------- -------
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation, and (ii) no person shall be required to contribute an amount
greater than the amount for which such party would otherwise have been required
to indemnify under this Section 13. The contribution agreement in this Section
13(d) shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each officer and trustee of the Fund, each officer and director of
the Company, each officer and trustee of the Bank Trust and each person, if any,
who controls the Fund or the Company or the Bank Trust within the meaning of the
1940 Act, 1933 Act or the Exchange Act.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who are represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 13, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 13 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the 1933 Act, the 1940 Act
and the Exchange Act.
14. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Alabama, without regard to principles
of conflicts of law.
15. Binding Agreement; Assignment. This Agreement and the right of the
-----------------------------
parties hereunder shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns, heirs, estates and legal
representatives. No rights or obligations under this Agreement may be assigned
without the written consent of the parties hereto.
16. Entire Agreement; Amendment. This Agreement and the documents
---------------------------
delivered pursuant hereto, constitute the entire Agreement and understanding
among the parties hereto and supersede and revoke any prior agreement or
understanding relating to the subject matter of this Agreement. No change,
amendment, termination or attempted waiver of any of the provisions hereof shall
be binding upon the other parties unless reduced to writing and signed by the
party against whom such change, amendment, termination or waiver is sought to be
enforced.
17. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
18. Captions. The Captions used in this Agreement are inserted for
--------
convenience only and shall not constitute a part hereof.
19. Third Party Rights. It is the intention of the parties that nothing
------------------
in this Agreement shall be deemed to create any right in favor of or with
respect to any Person not a party to this Agreement.
20. Survival. The representations, warranties, covenants and agreements
--------
made herein or in any certificate or document executed in connection herewith
shall survive the execution and delivery thereof for the period of the statute
of limitations applicable thereto, including any periods of waiver or extension
thereof, and all certificates delivered at the Closing Date or the Option
Closing Date, as the case may be, which reconfirm the representations and
warranties herein as of such date shall be deemed to constitute a representation
and warranty made herein by such party.
21. Partial Invalidity. If any provision of this Agreement is found by
------------------
any competent authority to be void or unenforceable, such provision shall be
modified, if possible, so as to effect the intent of the parties expressed
herein, or if it cannot be so modified, it shall be deemed to be deleted from
this Agreement and the remaining provisions of this Agreement shall continue in
full force and effect.
15
<PAGE>
22. Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand, claim
or other communication if addressed to the intended recipient as set forth below
shall be deemed to be duly given either when personally delivered or two days
after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one day after it is delivered to a commercial overnight
courier that retains receipts for deliveries:
If to the Company:
Central Community Corporation
5550 South West HK Dodgen Loop
Temple, Texas 76501
Attn: Don Grobowsky, Chairman of the Board & CEO
If to the Bank Trust:
Central Community Corporation Capital Statutory Trust
5550 South West HK Dodgen Loop
Temple, Texas 76501
Attn: Don Grobowsky, Chairman of the Board
With copy (if to Company or Bank Trust) to:
J. David Stanford
80 South Main
Post Box Office 1145
Salado, Texas 76571
Attn: J. David Stanford
If to the Fund:
SAL TRUST PREFERRED FUND I
1901 Sixth Avenue North
Birmingham, Alabama 35203
Attn: James S. Holbrook, Jr.
With copy to:
Thomas Harman, Esq.
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036-5969
and to:
William K. Holbrook, Esq.
Ritchie & Rediker, L.L.C.
312 North 23/rd/ Street
Birmingham, Alabama 35203
16
<PAGE>
Any party may give any notice, request, demand, claim, or other communication
hereunder using any other means, but no such notice, request, demand, claim, or
other communication shall be deemed to have been duly given unless and until it
is actually received by the party for whom it is intended. Any party may change
the address to which such notices, requests, demands, claims, or other
communications are to be delivered by giving the other parties notice in the
manner herein set forth.
23. Termination. This Agreement shall continue until there are no Firm
-----------
Shares or Option Shares, as the case may be, outstanding or until this Agreement
is terminated by the written agreement of the parties, which ever first occurs.
Further, this Agreement shall automatically terminate and be of no further force
and effect in the event that the Underwriting Agreement is for any reason
terminated.
[Signatures on Next Page]
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
ATTEST: SAL TRUST PREFERRED FUND I
_________________________ By: ____________________________
Secretary Name: James S. Holbrook, Jr.
Title: President
ATTEST: CENTRAL COMMUNITY CORPORATION
____________________________ By: _____________________________
Secretary Name: Don Grobowsky
Title: Chairman of the Board
ATTEST: CENTRAL COMMUNITY CORPORATION CAPITAL
STATUTORY TRUST
____________________________ By: _____________________________
Secretary Name: Don Grobowsky
Title: Administrative Trustee
18
<PAGE>
EXHIBIT A
---------
[Form of Legal Opinion of J. David Stanford for the Company]
1. The Company has been incorporated and its status is active as a corporation
under the laws of the State of Delaware with all requisite corporate power and
authority to own, lease and operate its properties and to conduct its business
as now being conducted and as described in the Registration Statement and
Prospectus, and to counsel's knowledge is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions where the
failure to so qualify would have a materially adverse effect upon the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries taken as a whole (a "Material Adverse
Effect"), excluding any such qualification required as a result of the formation
of the Bank Trust and the consummation of the Offering (as to which no opinion
is expressed).
2. The Company is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended.
3. Each of the Company's subsidiaries has been incorporated and its status is
active as a corporation under the laws of the state of its incorporation and
First State Bank Central Texas is further validly existing as a state-chartered
bank under the laws of the State of Texas, with corporate power and authority
to own its properties and conduct its business as now conducted, and to
counsel's knowledge is duly qualified or authorized to do business and is in
good standing in all other jurisdictions where the failure to so qualify would
have a Material Adverse Effect. All of the outstanding shares of capital stock
of each of the Company's subsidiaries are owned of record and, to counsel's
knowledge, beneficially, by the Company. To our knowledge, neither the
Company nor any of its subsidiaries have issued or are parties to outstanding
options or warrants or other rights to purchase, agreements or other obligations
to issue, or other rights to convert any obligations into any, shares of capital
stock in any of the Company's subsidiaries.
4. Under the laws of the State of Delaware, the Company's Articles of
Incorporation and its Bylaws, the Company has corporate power and authority to
execute and deliver, and to perform its obligations under, the Operative
Agreements to which it is party and to issue, sell and deliver the Subordinated
Debentures to the Bank Trust pursuant to the Debenture Purchase Agreement and
the Indenture against payment of the consideration set forth in the Debenture
Purchase Agreement upon which time (assuming due authentication of the
Subordinated Debentures by the Trustee in accordance with the Indenture) the
Subordinated Debentures will be validly issued to the Bank Trust and will
constitute valid and binding obligations of the Company to the Bank Trust which
shall be entitled to the benefits of the Indenture and shall be enforceable by
the Bank Trust against the Company in accordance with its terms and subject to
the terms of the Indenture and the Operative Agreements to which the Company is
party (including, without limitation, the Preferred Securities Guarantee), and
the Operative Agreements to which the Company is party have been duly
authorized, executed and delivered by the Company and constitute the legal and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer, fraudulent conveyance or other laws affecting creditors'
rights generally, including, without limitation, the United States Bankruptcy
Code and applicable state laws.
5. There are no preemptive rights or, to the knowledge of such counsel, other
rights to subscribe for or to purchase, the Subordinated Debentures pursuant to
the Company's Articles of Incorporation, Bylaws or the Material Agreements
["Material Agreements" to constitute agreements specifically identified and
listed on a schedule]. The terms of the Subordinated Debentures materially
conform to the descriptions thereof set forth in the
A-1
<PAGE>
Prospectus (including the Statement of Additional Information), insofar as such
statements constitute descriptions of contracts, agreements or other legal
documents, with due regard to the fact that such description is a summary of
certain material aspects of the Subordinated Debentures and that additional
terms of the Subordinated Debentures are contained in the Indenture and other
Operative Agreements provided to you and the Fund and their respective counsel
which are not included in such description.
6. No consent, approval, authorization or order of any court or governmental
agency or body is required on the part of the Company for the performance of the
Operative Agreements by the Company or the consummation by the Company of the
transactions contemplated (other than as may be required under applicable bank
regulation, as to which we express no opinion). The performance of the
Operative Agreements by the Company and the consummation by the Company of the
transactions contemplated thereby will not conflict with or result in a material
breach or violation by the Company of any of the terms or provisions of, or
constitute a material default by the Company under, any Material Agreement, a
violation or breach of the Articles of Incorporation or Bylaws of the Company,
or any material breach or violation of any statute, judgment, decree, order,
rule or regulation known to such counsel of any court or governmental agency or
body applicable to the Company or any of its subsidiaries or their properties;
other than any such breach or violation that will not have a Material Adverse
Effect, and other than as may occur under applicable bank regulation, as to
which we express no opinion.
7. Except as disclosed in the Registration Statement or the Prospectus, to our
knowledge, there is not pending or threatened against the Company any legal or
governmental action, suit, or proceeding to which the Company or any of its
subsidiaries is a party, or to which the property of the Company or any of its
subsidiaries is subject, before or brought by any court or governmental agency
or body that would have a Material Adverse Effect if determined adversely.
8. To the knowledge of such counsel, neither the Company nor any of its
subsidiaries is in material violation of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company and its subsidiaries
and material to the Company and its subsidiaries taken as a whole or any decree
of any court or governmental agency or body having jurisdiction over the Company
or any of its subsidiaries, other than any such violations that are not
reasonably expected to have a Material Adverse Effect.
Although we have not undertaken, except as otherwise expressly indicated in this
letter, to independently verify the accuracy or completeness or fairness of the
statements in the Registration Statement, we have participated in the
preparation of portions of the Registration Statement and the Prospectus
relating to the Company and the Operative Agreements, including review and
discussion of the contents thereof with representatives of the Company and its
independent certified public accountants and with representatives of the Fund,
the Underwriters and the other Bank Holding Companies and the Fund's, the
Underwriters' and the other Bank Holding Companies' respective counsel, and on
the basis of the foregoing and the Documents (and relying as to materiality to a
large extent upon the opinions and representations of officers and other
representatives of the Company), we advise you that nothing has come to our
attention that has caused us to believe that the Company Information contained
in the Registration Statement at the time the Registration Statement became
effective, contained an untrue statement of a material fact or omitted to state
a material fact necessary to make the statements therein not misleading or that
the Prospectus, as of its date and as of the date hereof, contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading (except that we express no opinion as to
the financial statements and the notes thereto and any other financial and
statistical data included in the Registration Statement or the Prospectus).
A-2
<PAGE>
EXHIBIT B
---------
[Form of Legal Opinion of Bingham Dana for Bank Trust]
The Operative Agreement to which the Bank Trust is a party each as set
forth in the opinion shall be herein referred to as the "Operative Documents".
1. The Bank Trust has been duly formed and is validly existing as a statutory
trust under the Connecticut Statutory Trust Act, Chapter 615 of Title 34 of the
Connecticut General Statutes, Section 500, et seq. (the "Act").
-- ---
2. The Trust Agreement constitutes a valid and binding obligation of the
Property Trustee enforceable against the Property Trustee in accordance with the
terms thereof.
3. The Trust Agreement constitutes a valid and binding obligation of the
Depositor and the Administrative Trustees, enforceable against the Depositor and
the Administrative Trustees in accordance with its terms.
4. The Bank Trust has the requisite trust power and authority to (a) execute
and deliver, and to perform its obligations under, the Operative Documents, and
(b) perform its obligations under such Operative Documents.
5. Each of the Operative Documents to which the Bank Trust is a party
constitutes a valid and binding obligation of the Bank Trust, enforceable
against the Bank Trust in accordance with the terms thereof.
6. The Preferred Securities have been duly authorized by the Bank Trust under
the Trust Agreement, and the Preferred Securities, when duly issued, executed
and authenticated to the Fund in accordance therewith, will be validly issued,
fully paid and nonassessable and will evidence undivided beneficial interests in
the assets of the Bank Trust and will be entitled to the benefits of the Trust
Agreement.
7. The Common Securities have been duly authorized by the Trust Agreement, and
the Common Securities, when duly issued, executed and authenticated to the
Company in accordance with the Trust Agreement and the Common Purchase Agreement
and delivered and paid for in accordance therewith, will be, validly issued,
fully paid and nonassessable and will evidence beneficial undivided interests in
the assets of the Bank Trust and will be entitled to the benefits of the Trust
Agreement.
8. Neither the execution, delivery or performance by the Bank Trust of the
Operative Documents, the consummation by the Bank Trust of the transactions
contemplated thereby, nor compliance by the Bank Trust with any of the terms and
provisions thereof, (a) violates the Trust Agreement, or, to the best of our
knowledge, contravenes or will contravene any provision of, or constitutes a
default under, or results in any breach of, or results in the creation of any
lien (other than as permitted under the Operative Documents) upon property of
the Bank Trust under, any indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract, bank loan or credit agreement, license or other
agreement or instrument, in each case known to us, to which it is a party or by
which it is bound or (b) violates any applicable Connecticut law governing the
Bank Trust, or, to the best of our knowledge, any judgment or order of any court
or other tribunal, in each case known to us, applicable to or binding on it.
9. No consent, approval, order or authorization of, giving of notice to, or
registration with, or taking of any other action in respect of, any Connecticut
governmental authority regulating the Bank Trust is required for the execution,
delivery, validity or performance of, or the carrying out by, the Bank Trust of
any of the transactions contemplated by the Operative Documents, other than any
such consent, approval, order, authorization, registration, notice or action as
has been duly obtained, given or taken.
10. The Fund, as the beneficial holder of the Preferred Securities, will be
entitled to the same limitation of personal liability extended to shareholders
of domestic corporations organized under the laws of the State.
B-1
<PAGE>
EXHIBIT C
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[Form of Legal Opinion of Bingham Dana LLP for State Street]
The Operative Agreements to which State Street is party as well as certain
other documents each set forth in the opinion are herein referred to as the
"Operative Documents".
1. State Street is a state chartered trust company, validly formed under the
laws of the Commonwealth of Massachusetts, is authorized to transact the
business of banking under the laws of the State and has the requisite corporate
and trust power and authority (a) to execute, deliver and perform its
obligations under the Operative Documents to which it is a party in its
individual capacity and (b) as Property Trustee, Indenture Trustee and Guarantee
Trustee, as the case may be, to execute, deliver and perform its obligations (on
before of the Bank Trust) under the Operative Documents to which the Property
(on behalf of the Bank Trust), Indenture Trustee and the Guarantee Trustee, as
the case may be, is a party.
2. State Street, individually, and in its capacity as Property Trustee,
Guarantee Trustee and Indenture Trustee, as the case may be, has duly
authorized, executed and delivered the Operative Documents to which the Property
Trustee, Indenture Trustee and the Guarantee Trustee, as the case may be, is
party. Each of the Indenture and the Guarantee constitutes a valid and binding
obligation of State Street, individually and in its capacity as Indenture
Trustee and as Guarantee Trustee, as the case may be, enforceable in accordance
with the terms thereof.
3. The Debentures delivered on the date hereof have been duly authenticated by
the Indenture Trustee in accordance with the terms of the Indenture.
4. Neither the execution, delivery or performance by State Street or the
Trustees, as the case may be, of the Operative Documents, the consummation by
State Street or the Trustees, as the case may be, of the transactions
contemplated thereby, nor compliance by State Street or the Trustees, as the
case may be, with any of the terms and provisions thereof, (a) requires any
approval of its stockholders, or, to the best of our knowledge, any consent or
approval of or the giving of notice to any holders of any indebtedness or
obligations (or any trustees for such holders) of it known to us, (b) violates
its charter documents or by-laws, or, to the best of our knowledge, contravenes
or will contravene any provision of, or constitutes a default under, or results
in any breach of, or results in the creation of any lien (other than as
permitted under the Operative Documents) upon its property under, any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan
or credit agreement, license or other agreement or instrument, in each case
known to us, to which it is a party or by which it is bound or (c) violates any
applicable State law governing the banking or trust powers of State Street or
the Trustees, as the case may be, or, to the best of our knowledge, any judgment
or order of any court or other tribunal, in each case known to us, applicable to
or binding on it. No consent, approval, order or authorization of, giving of
notice to, or registration with, or taking of any other action in respect of,
any State governmental authority regulating the banking or trust powers of State
Street or the Trustees, as the case may be, is required for the execution,
delivery, validity or performance of, or the carrying out by, State Street or
the Trustees, as the case may be, of any of the transactions contemplated by the
Operative Documents, other than any such consent, approval, order,
authorization, registration, notice or action as has been duly obtained, given
or taken.
C-1
<PAGE>
EXHIBIT 99.k.2
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GUARANTEE AGREEMENT
-------------------
PREFERRED SECURITIES GUARANTEE AGREEMENT
BY AND BETWEEN
[ISSUER]
AND
STATE STREET BANK AND TRUST COMPANY
[ DATE ]
- -------------------------------------------------------------------------------
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I................................................................. 1
DEFINITIONS AND INTERPRETATION............................................ 1
SECTION 1.1. Definitions and Interpretation......................... 1
ARTICLE II................................................................ 5
THE HOLDERS............................................................... 5
SECTION 2.1. Lists of Holders of Securities......................... 5
SECTION 2.2. Events of Default; Waiver.............................. 5
SECTION 2.3. Event of Default; Notice............................... 5
ARTICLE III............................................................... 6
POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE.................. 6
SECTION 3.1. Powers and Duties of the Preferred Guarantee Trustee... 6
SECTION 3.2. Certain Rights of Preferred Guarantee Trustee.......... 8
SECTION 3.3. Not Responsible for Recitals or Issuance of Guarantee.. 10
ARTICLE IV................................................................ 11
PREFERRED GUARANTEE TRUSTEE............................................... 11
SECTION 4.1. Preferred Guarantee Trustee; Eligibility............... 11
SECTION 4.2. Appointment, Removal and Resignation of Preferred
Guarantee Trustees................................................... 11
ARTICLE V................................................................. 12
GUARANTEE................................................................. 12
SECTION 5.1. Guarantee.............................................. 12
SECTION 5.2. Waiver of Notice and Demand............................ 13
SECTION 5.3. Obligations Not Affected............................... 13
SECTION 5.4. Rights of Holders...................................... 14
SECTION 5.5. Guarantee of Payment................................... 14
SECTION 5.6. Subrogation............................................ 15
SECTION 5.7. Independent Obligations................................ 15
ARTICLE VI................................................................ 15
LIMITATION OF TRANSACTIONS; SUBORDINATION................................. 15
SECTION 6.1. Limitation of Transactions............................. 15
SECTION 6.2. Ranking................................................ 16
ARTICLE VII............................................................... 16
TERMINATION............................................................... 16
SECTION 7.1. Termination............................................ 16
ARTICLE VIII.............................................................. 16
INDEMNIFICATION........................................................... 16
SECTION 8.1. Exculpation............................................ 16
SECTION 8.2. Indemnification........................................ 17
ARTICLE IX................................................................ 17
MISCELLANEOUS............................................................. 17
SECTION 9.1. Successors and Assigns................................. 17
SECTION 9.2. Amendments............................................. 17
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 9.3. Notices................................................ 18
SECTION 9.4. Benefit................................................ 19
SECTION 9.5. Governing Law.......................................... 19
</TABLE>
ii
<PAGE>
GUARANTEE AGREEMENT
-------------------
PREFERRED SECURITIES GUARANTEE AGREEMENT
----------------------------------------
THIS PREFERRED SECURITIES GUARANTEE AGREEMENT (this "Preferred Securities
Guarantee"), dated as of [ DATE ], is executed and delivered by [ISSUER], a
--------
[ State ] corporation (the "Guarantor"), and STATE STREET BANK AND TRUST
- ---------
COMPANY, a state chartered trust company organized under the laws of the
Commonwealth of Massachusetts, as trustee (the "Preferred Guarantee Trustee"),
for the benefit of the Holders (as defined herein) from time to time of the
Preferred Securities (as defined herein) of [ISSUER] Capital Statutory Trust, a
Connecticut statutory trust (the "Trust").
RECITALS
--------
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the "Trust
Agreement"), dated as of [ DATE ], among the trustees of the Trust named
--------
therein, the Guarantor, as sponsor, and the holders from time to time of
undivided beneficial interests in the assets of the Trust, the Trust is issuing
on the date hereof preferred securities, having an aggregate liquidation amount
of [ ] (the "Preferred Securities");
WHEREAS, as incentive for the Holders to purchase the Preferred Securities,
the Guarantor desires irrevocably and unconditionally to agree, to the extent
set forth in this Preferred Securities Guarantee, to pay to the Holders of the
Preferred Securities the Guarantee Payments (as defined herein) and to make
certain other payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.
ARTICLE I.
DEFINITIONS AND INTERPRETATION
SECTION 1.1. Definitions and Interpretation.
In this Preferred Securities Guarantee, unless the context otherwise
requires:
(a) capitalized terms used in this Preferred Securities Guarantee but
not defined in the preamble above have the respective meanings assigned to
them in this Section 1.1;
<PAGE>
(b) terms defined in the Trust Agreement as at the date of execution
of this Preferred Securities Guarantee have the same meaning when used in
this Preferred Securities Guarantee;
(c) a term defined anywhere in this Preferred Securities Guarantee
has the same meaning throughout;
(d) all references to "the Preferred Securities Guarantee" or "this
Preferred Securities Guarantee" are to this Preferred Securities Guarantee
as modified, supplemented or amended from time to time;
(e) all references in this Preferred Securities Guarantee to Articles
and Sections are to Articles and Sections of this Preferred Securities
Guarantee, unless otherwise specified;
(f) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than a day on which federal or state
banking institutions in [ City/State ] are authorized or required by law,
--------------
executive order or regulation to close or a day on which the Corporate Trust
Office of the Preferred Guarantee Trustee is closed for business.
"Corporate Trust Office" means the office of the Preferred Guarantee
Trustee at which the corporate trust business of the Preferred Guarantee Trustee
shall, at any particular time, be principally administered, which office at the
date of execution of this Agreement is located at 225 Franklin Street, Boston,
Massachusetts 02110, Attention: Vice President, Corporate Trust Division.
"Covered Person" means any Holder of Preferred Securities.
"Debentures" means the ____% Subordinated Debentures due [ , 2029], of
------------
the Debenture Issuer held by the Property Trustee of the Trust.
"Debenture Issuer" means the Guarantor.
"Event of Default" means a default by the Guarantor on any of its payment
or other obligations under this Preferred Securities Guarantee.
"Guarantor" means [ISSUER], a [ State ] corporation.
---------
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<PAGE>
"Guarantee Payments" means the following payments or distributions, without
duplication, required to be made under the Trust Agreement with respect to the
Preferred Securities, to the extent not paid or made by the Trust: (i) any
accrued and unpaid Distributions (as defined in the Trust Agreement) that are
required to be paid on such Preferred Securities, to the extent the Trust shall
have funds on hand at such time legally available therefor, (ii) the redemption
price, including all accrued and unpaid Distributions to the date of redemption
(the "Redemption Price"), to the extent the Trust has funds on hand at such time
legally available therefor, with respect to any Preferred Securities called for
redemption by the Trust, and (iii) upon a voluntary or involuntary dissolution,
winding-up or termination of the Trust (other than in connection with the
distribution of Debentures to the Holders in exchange for Preferred Securities
as provided in the Trust Agreement), the lesser of (a) the aggregate of the
liquidation amount and all accrued and unpaid Distributions on the Preferred
Securities to the date of payment, to the extent the Trust shall have funds
available therefor (the "Liquidation Distribution"), and (b) the amount of
assets of the Trust remaining available for distribution to Holders in
liquidation of the Trust.
"Holder" shall mean any holder, as registered on the books and records of
the Trust, of any Preferred Securities; provided, however, that, in determining
whether the holders of the requisite percentage of Preferred Securities have
given any request, notice, consent or waiver hereunder, "Holder" shall not
include the Guarantor or any Affiliate of the Guarantor.
"Indemnified Person" means the Preferred Guarantee Trustee, any Affiliate
of the Preferred Guarantee Trustee, or any officers, directors, shareholders,
members, partners, employees, representatives, nominees, custodians or agents of
the Preferred Guarantee Trustee.
"Indenture" means the Indenture dated as of __________ __, 1999, among the
Debenture Issuer and State Street Bank and Trust Company, as trustee, and any
indenture supplemental thereto pursuant to which certain subordinated debt
securities of the Debenture Issuer are to be issued to the Property Trustee of
the Trust.
"Liquidation Distribution" has the meaning provided therefor in the
definition of Guarantee Payments.
"Majority in liquidation amount of the Preferred Securities" means the
holders of more than 50% of the liquidation amount (including the stated amount
that would be paid on redemption, liquidation or otherwise, plus accrued and
unpaid Distributions to the date upon which the voting percentages are
determined) of all of the Preferred Securities.
-3-
<PAGE>
"Officers' Certificate" means, with respect to any Person, a certificate
signed by two authorized officers of such Person. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definition relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company,
limited liability company, trust, unincorporated association, or government
or any agency or political subdivision thereof, or any other entity of
whatever nature.
"Preferred Guarantee Trustee" means State Street Bank and Trust
Company, until a Successor Preferred Guarantee Trustee has been appointed
and has accepted such appointment pursuant to the terms of this Preferred
Securities Guarantee and thereafter means each such Successor Preferred
Guarantee Trustee.
"Redemption Price" has the meaning provided therefor in the definition
of Guarantee Payments.
"Responsible Officer" means, with respect to the Preferred Guarantee
Trustee, any officer within the Corporate Trust Office of the Preferred
Guarantee Trustee, including any vice-president, any assistant vice-
president, any assistant secretary, the treasurer, any assistant treasurer
or other officer of the Corporate Trust Office of the Preferred Guarantee
Trustee customarily performing functions similar to those performed by any
of the above designated officers and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of that officer's knowledge of and familiarity with the
particular subject.
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<PAGE>
"Successor Preferred Guarantee Trustee" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred
Guarantee Trustee under Section 4.1.
ARTICLE II.
THE HOLDERS
SECTION 2.1. Lists of Holders of Securities.
The Guarantor shall provide the Preferred Guarantee Trustee with a list, in
such form as the Preferred Guarantee Trustee may reasonably require (but in any
event the Securities Register required under Section 5.5(a) of the Trust
Agreement shall be sufficient), of the names and addresses of the Holders of the
Preferred Securities ("List of Holders") as of the date (i) within 1 Business
Day after January 1 and June 30 of each year, and (ii) at any other time within
30 days of receipt by the Guarantor of a written request for a List of Holders
as of a date no more than 15 days before such List of Holders is given to the
Preferred Guarantee Trustee; provided, that the Guarantor shall not be obligated
to provide such List of Holders at any time the List of Holders does not differ
from the most recent List of Holders given to the Preferred Guarantee Trustee by
the Guarantor. The Preferred Guarantee Trustee may destroy any List of Holders
previously given to it on receipt of a new List of Holders.
SECTION 2.2. Events of Default; Waiver.
The Holders of a Majority in liquidation amount of Preferred Securities
may, by vote, on behalf of the Holders of all of the Preferred Securities, waive
any past Event of Default and its consequences. Upon such waiver, any such
Event of Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured, for every purpose of this
Preferred Securities Guarantee, but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
SECTION 2.3. Event of Default; Notice.
(a) The Preferred Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Preferred Securities, notices of all Events
of Default actually known to a Responsible Officer of the Preferred
Guarantee Trustee, unless such defaults have been cured before the giving
of such notice; provided, that the Preferred Guarantee Trustee shall be
protected in withholding such notice if and so long as a Responsible
Officer of the Preferred Guarantee Trustee in
-5-
<PAGE>
good faith determines that the withholding of such notice is in the
interests of the Holders of the Preferred Securities.
(b) The Preferred Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default unless the Preferred Guarantee Trustee
shall have received written notice thereof, or of which a Responsible
Officer of the Preferred Guarantee Trustee charged with the administration
of the Trust Agreement shall have obtained actual knowledge thereof.
ARTICLE III.
POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE
SECTION 3.1. Powers and Duties of the Preferred Guarantee Trustee.
(a) This Preferred Securities Guarantee shall be held by the
Preferred Guarantee Trustee for the benefit of the Holders of the Preferred
Securities, and the Preferred Guarantee Trustee shall not transfer this
Preferred Securities Guarantee to any Person except (i) a Holder of
Preferred Securities exercising his or her rights pursuant to Section
5.4(b), if ordered to do so by a court of competent jurisdiction or (ii) to
a Successor Preferred Guarantee Trustee on acceptance by such Successor
Preferred Guarantee Trustee of its appointment to act as Successor
Preferred Guarantee Trustee. The right, title and interest of the Preferred
Guarantee Trustee shall automatically vest in any Successor Preferred
Guarantee Trustee, and such vesting and cessation of title shall be
effective whether or not conveyancing documents have been executed and
delivered pursuant to the appointment of such Successor Preferred Guarantee
Trustee.
(b) If an Event of Default actually known to a Responsible Officer of
the Preferred Guarantee Trustee has occurred and is continuing, the
Preferred Guarantee Trustee shall enforce this Preferred Securities
Guarantee for the benefit of the Holders of the Preferred Securities.
(c) The Preferred Guarantee Trustee, before the occurrence of any
Event of Default and after the curing of all Events of Default that may
have occurred, shall undertake to perform only such duties as are
specifically set forth in this Preferred Securities Guarantee, and no
implied covenants shall be read into this Preferred Securities Guarantee
against the Preferred Guarantee Trustee. In case an Event of Default has
occurred (that has not been cured or waived pursuant to Section 2.2) and is
actually known to a Responsible Officer of the
-6-
<PAGE>
Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall exercise
such of the rights and powers vested in it by this Preferred Securities
Guarantee, and use the same degree of care and skill in its exercise
thereof, as a prudent person would exercise or use under the circumstances
in the conduct of his or her own affairs.
(d) No provision of this Preferred Securities Guarantee shall be
construed to relieve the Preferred Guarantee Trustee from liability for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) prior to the occurrence of any Event of Default and after
the curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Preferred Guarantee
Trustee shall be determined solely by the express provisions of this
Preferred Securities Guarantee, and the Preferred Guarantee Trustee
shall not be liable except for the performance of such duties and
obligations as are specifically set forth in this Preferred Securities
Guarantee, and no implied covenants or obligations shall be read into
this Preferred Securities Guarantee against the Preferred Guarantee
Trustee; and
(B) in the absence of bad faith on the part of the Preferred
Guarantee Trustee, the Preferred Guarantee Trustee may conclusively
rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions
furnished to the Preferred Guarantee Trustee and conforming to the
requirements of this Preferred Securities Guarantee; but in the case
of any such certificates or opinions that by any provision hereof are
specifically required to be furnished to the Preferred Guarantee
Trustee, the Preferred Guarantee Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Preferred Securities Guarantee;
(ii) Preferred Guarantee Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer of the
Preferred Guarantee Trustee, unless it shall be proved that the
Preferred Guarantee Trustee was negligent in ascertaining the
pertinent facts upon which such judgment was made;
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<PAGE>
(iii) the Preferred Guarantee Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good faith
in accordance with the direction of the Holders of not less than a
Majority in liquidation amount of the Preferred Securities relating to
the time, method and place of conducting any proceeding for any remedy
available to the Preferred Guarantee Trustee, or exercising any trust
or power conferred upon the Preferred Guarantee Trustee under this
Preferred Securities Guarantee; and
(iv) no provision of this Preferred Securities Guarantee shall
require the Preferred Guarantee Trustee to expend or risk its own
funds or otherwise incur personal financial liability in the
performance of any of its duties or in the exercise of any of its
rights or powers, if the Preferred Guarantee Trustee shall have
reasonable grounds for believing that the repayment of such funds or
liability is not reasonably assured to it under the terms of this
Preferred Securities Guarantee or indemnity, reasonably satisfactory
to the Preferred Guarantee Trustee, against such risk or liability is
not reasonably assured to it.
SECTION 3.2. Certain Rights of Preferred Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) the Preferred Guarantee Trustee may conclusively rely, and
shall be fully protected in acting or refraining from acting upon, any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document believed by
it to be genuine and to have been signed, sent or presented by the
proper party or parties;
(ii) Any direction or act of the Guarantor contemplated by this
Preferred Securities Guarantee shall be sufficiently evidenced by an
Officers' Certificate;
(iii) whenever, in the administration of this Preferred
Securities Guarantee, the Preferred Guarantee Trustee shall deem it
desirable that a matter be proved or established before taking,
suffering or omitting any action hereunder, the Preferred Guarantee
Trustee (unless other evidence is herein specifically prescribed) may,
in the absence of bad faith on its part, request and conclusively rely
upon an Officers' Certificate which, upon receipt of such request,
shall be promptly delivered by the Guarantor;
-8-
<PAGE>
(iv) the Preferred Guarantee Trustee shall have no duty to see
to any recording, filing or registration of any instrument (or any
rerecording, refiling or registration thereof);
(v) the Preferred Guarantee Trustee may consult with counsel,
and the written advice or opinion of such counsel with respect to
legal matters shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in
good faith and in accordance with such advice or opinion. Such counsel
may be counsel to the Guarantor or any of its Affiliates and may
include any of its employees. The Preferred Guarantee Trustee shall
have the right at any time to seek instructions concerning the
administration of this Preferred Securities Guarantee from any court
of competent jurisdiction;
(vi) the Preferred Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by
this Preferred Securities Guarantee at the request or direction of any
Holder, unless such Holder shall have provided to the Preferred
Guarantee Trustee such security and indemnity, reasonably satisfactory
to the Preferred Guarantee Trustee, against the costs, expenses
(including attorneys' fees and expenses and the expenses of the
Preferred Guarantee Trustee's agents, nominees or custodians) and
liabilities that might be incurred by it in complying with such
request or direction, including such reasonable advances as may be
requested by the Preferred Guarantee Trustee and such exercise shall
not be inconsistent with the terms of this Preferred Securities
Guarantee or contrary to law; provided that, nothing contained in this
Section 3.2(a)(vi) shall be taken to relieve the Preferred Guarantee
Trustee, upon the occurrence of an Event of Default, of its obligation
to exercise the rights and powers vested in it by this Preferred
Securities Guarantee;
(vii) the Preferred Guarantee Trustee shall not be bound to make
any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Preferred Guarantee
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit;
(viii) the Preferred Guarantee Trustee may execute any of the
trusts or powers hereunder or perform any duties
-9-
<PAGE>
hereunder either directly or by or through agents, nominees,
custodians or attorneys, and the Preferred Guarantee Trustee shall not
be responsible for any misconduct or negligence on the part of any
agent or attorney appointed with due care by it hereunder;
(ix) any action taken by the Preferred Guarantee Trustee or its
agents hereunder shall bind the Holders of the Preferred Securities,
and the signature of the Preferred Guarantee Trustee or its agents
alone shall be sufficient and effective to perform any such action. No
third party shall be required to inquire as to the authority of the
Preferred Guarantee Trustee to so act or as to its compliance with any
of the terms and provisions of this Preferred Securities Guarantee,
both of which shall be conclusively evidenced by the Preferred
Guarantee Trustee's or its agent's taking such action;
(x) whenever in the administration of this Preferred Securities
Guarantee the Preferred Guarantee Trustee shall deem it desirable to
receive instructions with respect to enforcing any remedy or right or
taking any other action hereunder, the Preferred Guarantee Trustee (i)
may request instructions from the Holders of a Majority in liquidation
amount of the Preferred Securities, (ii) may refrain from enforcing
such remedy or right or taking such other action until such
instructions are received, and (iii) shall be protected in
conclusively relying on or acting in accordance with such instructions
not inconsistent with the Preferred Securities Guarantee.
(b) No provision of this Preferred Securities Guarantee shall be
deemed to impose any duty or obligation on the Preferred Guarantee Trustee
to perform any act or acts or exercise any right, power, duty or obligation
conferred or imposed on it in any jurisdiction in which it shall be
illegal, or in which the Preferred Guarantee Trustee shall be unqualified
or incompetent in accordance with applicable law, to perform any such act
or acts or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Preferred Guarantee Trustee
shall be construed to be a duty.
SECTION 3.3. Not Responsible for Recitals or Issuance of Guarantee.
The Recitals contained in this Guarantee shall be taken as the statements
of the Guarantor, and the Preferred Guarantee Trustee does not
-10-
<PAGE>
assume any responsibility for their correctness. The Preferred Guarantee Trustee
makes no representation as to the validity or sufficiency of this Preferred
Securities Guarantee.
ARTICLE IV.
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1. Preferred Guarantee Trustee; Eligibility.
(a) There shall at all times be a Preferred Guarantee Trustee which
shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the
laws of the United States of America or any State or Territory thereof
or of the District of Columbia having a combined capital and surplus
of at least $50,000,000, and subject to supervision or examination by
Federal, State, Territorial or District of Columbia authority. If such
corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the supervising or examining
authority referred to above, then, for the purposes of this Section
4.1 (a)(ii), the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in
its most recent report of condition so published.
(b) If at any time the Preferred Guarantee Trustee shall cease to be
eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee
shall immediately resign in the manner and with the effect set out in
Section 4.2(c).
SECTION 4.2. Appointment, Removal and Resignation of Preferred Guarantee
Trustees.
(a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may be
appointed or removed without cause at any time by the Guarantor.
(b) The Preferred Guarantee Trustee shall not be removed in
accordance with Section 4.2(a) until a Successor Preferred Guarantee
Trustee has been appointed and has accepted such appointment by written
instrument executed by such Successor Preferred Guarantee Trustee and
delivered to the Guarantor.
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(c) The Preferred Guarantee Trustee appointed to office shall hold
office until a Successor Preferred Guarantee Trustee shall have been
appointed or until its removal or resignation. The Preferred Guarantee
Trustee may resign from office (without need for prior or subsequent
accounting) by an instrument in writing executed by the Preferred Guarantee
Trustee and delivered to the Guarantor, which resignation shall not take
effect until a Successor Preferred Guarantee Trustee has been appointed and
has accepted such appointment by instrument in writing executed by such
Successor Preferred Guarantee Trustee and delivered to the Guarantor and
the resigning Preferred Guarantee Trustee.
(d) If no Successor Preferred Guarantee Trustee shall have been
appointed and accepted appointment as provided in this Section 4.2 within
60 days after delivery to the Guarantor of an instrument of resignation,
the resigning Preferred Guarantee Trustee may petition any court of
competent jurisdiction for appointment of a Successor Preferred Guarantee
Trustee. Such court may thereupon, after prescribing such notice, if any,
as it may deem proper, appoint a Successor Preferred Guarantee Trustee.
(e) No Preferred Guarantee Trustee shall be liable for the acts or
omissions to act of any Successor Preferred Guarantee Trustee.
(f) Upon termination of this Preferred Securities Guarantee or
removal or resignation of the Preferred Guarantee Trustee pursuant to this
Section 4.2, the Guarantor shall pay to the Preferred Guarantee Trustee all
amounts accrued to the date of such termination, removal or resignation.
ARTICLE V.
GUARANTEE
SECTION 5.1. Guarantee.
Subject to the terms of this Preferred Securities Guarantee (including
without limitation Section 6.2 hereof), 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
as provided in the Trust Agreement, 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.
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SECTION 5.2. Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of this Preferred
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the Trust or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands, other than as provided herein.
SECTION 5.3. Obligations Not Affected.
The obligations, covenants, agreements and duties of the Guarantor under
this Preferred Securities Guarantee shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be
performed or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution or
any other sums payable under the terms of the Preferred Securities or the
extension of time for the performance of any other obligation under,
arising out of, or in connection with, the Preferred Securities (other than
an extension of time for payment of Distributions, Redemption Price,
Liquidation Distribution or other sum payable that results from the
extension of any interest payment period on the Debentures or any extension
of the maturity date or other applicable payment date of the Debentures
permitted by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Holders pursuant to the terms of the Preferred
Securities, or any action on the part of the Trust granting indulgence or
extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or
readjustment of debt of, or other similar proceedings affecting, the Trust
or any of the assets of the Trust;
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(e) any invalidity of, or defect or deficiency in, the Preferred
Securities (but Guarantor shall not be required to make payments on any
Preferred Securities not intended to be issued under the Trust Agreement or
to persons that are not holders of Preferred Securities);
(f) any failure or omission to receive any regulatory approval or
consent required in connection with the Preferred Securities (or the common
equity securities issued by the Trust), including the failure to receive
any approval of the Board of Governors of the Federal Reserve System
required for the redemption of the Preferred Securities;
(g) the settlement or compromise of any obligation guaranteed hereby
or hereby incurred unless such settlement by its terms applies to the
Guarantor's obligations hereunder; 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,
subject, however, to the terms hereof.
There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of
the foregoing.
SECTION 5.4. Rights of Holders.
(a) The Holders of a Majority in liquidation amount of the Preferred
Securities shall have the right to direct the time, method and place of
conducting of any proceeding for any remedy available to the Preferred
Guarantee Trustee in respect of this Preferred Securities Guarantee or
exercising any trust or power conferred upon the Preferred Guarantee
Trustee under this Preferred Securities Guarantee.
(b) Any Holder of Preferred Securities may institute a legal
proceeding directly against the Guarantor to enforce its rights under this
Preferred Securities Guarantee, without first instituting a legal
proceeding against the Trust, the Preferred Guarantee Trustee or any other
Person.
SECTION 5.5. Guarantee of Payment.
This Preferred Securities Guarantee creates a guarantee of payment and not
of collection.
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SECTION 5.6. Subrogation.
The Guarantor shall be subrogated to all (if any) rights of the Holders of
Preferred Securities against the Trust in respect of any amounts paid to such
Holders by the Guarantor under this Preferred Securities Guarantee; provided,
however, that the Guarantor shall not (except to the extent required by
mandatory provisions of law) be entitled to enforce or exercise any right that
it may acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Preferred Securities
Guarantee, if, at the time of any such payment, any amounts are due and unpaid
to the Holders of Preferred Securities under this Preferred Securities
Guarantee. If any amount shall be paid to the Guarantor in violation of the
preceding sentence, the Guarantor agrees to hold such amount in trust for the
Holders and to pay over such amount to the Holders.
SECTION 5.7. Independent Obligations.
The Guarantor acknowledges that its obligations hereunder are independent
of the obligations of the Trust with respect to the Preferred Securities, and
that the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Preferred Securities Guarantee
notwithstanding the occurrence of any event referred to in subsections (a)
through (h), inclusive, of Section 5.3 hereof.
ARTICLE VI.
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1. Limitation of Transactions.
So long as any Preferred Securities remain outstanding, if there shall have
occurred and be continuing an Event of Default under this Preferred Securities
Guarantee, an Event of Default under the Trust Agreement or during an Extended
Interest Payment Period (as defined in the Indenture), then during such period
(a) the Guarantor shall not declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock (other than as a
result of a reclassification of its capital stock for another class of its
capital stock) and (b) the Guarantor shall not 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.
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SECTION 6.2. Ranking.
This Preferred Securities Guarantee will constitute an unsecured obligation
of the Guarantor and will rank (i) subordinate and junior in right of payment to
all other liabilities of the Guarantor, (ii) pari passu with the most senior
preferred securities or preference stock now or hereafter issued by the
Guarantor and with any guarantee now or hereafter entered into by the Guarantor
in respect of any preferred securities or preference stock of any Affiliate of
the Guarantor, and (iii) senior to the Guarantor's common stock.
ARTICLE VII.
TERMINATION
SECTION 7.1. Termination.
This Preferred Securities Guarantee shall terminate upon (i) full payment
of the Redemption Price of all Preferred Securities, (ii) upon full payment of
the amounts payable in accordance with the Trust Agreement upon liquidation of
the Trust, (iii) upon distribution of the Debentures to the Holders of the
Preferred Securities or other satisfaction in full of the amounts payable under
the Trust Agreement to the holders of Preferred Securities. Notwithstanding the
foregoing, this Preferred Securities Guarantee shall continue to be effective or
shall be reinstated, as the case may be, if at any time any Holder of Preferred
Securities must restore payment of any sums paid under the Preferred Securities
or under this Preferred Securities Guarantee.
ARTICLE VIII.
INDEMNIFICATION
SECTION 8.1. Exculpation.
(a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Guarantor or any Covered Person for any
loss, damage or claim incurred by reason of any act or omission performed
or omitted by such Indemnified Person in good faith in accordance with this
Preferred Securities Guarantee and in a manner that such Indemnified Person
reasonably believed to be within the scope of the authority conferred on
such Indemnified Person by this Preferred Securities Guarantee or by law,
except that an Indemnified Person shall be liable for any such loss, damage
or claim incurred by reason of such Indemnified Person's negligence or
willful misconduct with respect to such acts or omissions.
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(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information,
opinions, reports or statements presented to the Guarantor by any Person as
to matters the Indemnified Person reasonably believes are within such other
Person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Guarantor, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, profits, losses, or any other facts pertinent to the existence
and amount of assets from which Distributions to Holders of Preferred
Securities might properly be paid.
SECTION 8.2. Indemnification.
The Guarantor agrees to indemnify each Indemnified Person for, and to hold
each Indemnified Person harmless against, any loss, liability or expense
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 (other than any costs or expenses incurred in the ordinary course of
administration of this Agreement in the absence of an Event of Default
hereunder). The obligation to indemnify as set forth in this Section 8.2 shall
survive the termination of this Preferred Securities Guarantee.
ARTICLE IX.
MISCELLANEOUS
SECTION 9.1. Successors and Assigns.
All guarantees and agreements contained in this Preferred Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Preferred Securities then outstanding.
SECTION 9.2. Amendments.
Except with respect to any changes that do not materially adversely affect
the rights of Holders (in which case no consent of Holders will be required),
this Preferred Securities Guarantee may only be amended with the prior approval
of the Holders of at least a Majority in liquidation amount of the Preferred
Securities. The provisions of Article VI of the Trust Agreement with respect to
meetings of Holders of the Preferred Securities apply to the giving of such
approval.
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SECTION 9.3. Notices.
All notices provided for in this Preferred Securities Guarantee shall be in
writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by registered or certified mail, as follows:
(a) If given to the Preferred Guarantee Trustee, at the Preferred
Guarantee Trustee's mailing address set forth below (or such other address
as the Preferred Guarantee Trustee may give notice of to the Holders of the
Preferred Securities):
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State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: Vice President, Corporate Trust Division
(b) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to
the Holders of the Preferred Securities):
[ISSUER]
[ Address ]
----------------
[ ]
----------------
[ ]
----------------
Attention: [ ]
-------------------------
(c) If given to any Holder of Preferred Securities, at the address set
forth on the books and records of the Trust.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused
delivery or cannot be delivered because of a changed address of which no
notice was given, such notice or other document shall be deemed to have
been delivered on the date of such refusal or inability to deliver.
SECTION 9.4. Benefit.
This Preferred Securities Guarantee is solely for the benefit of the
Holders of the Preferred Securities and, subject to Section 3.1(a), is not
separately transferable from the Preferred Securities.
SECTION 9.5. Governing Law.
THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF [ ISSUER ].
--------------
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This Preferred Securities Guarantee is executed as of the day and year
first above written.
[ ISSUER ]
as Guarantor
By:
-----------------------------------
Name: [ ]
Title:
STATE STREET BANK AND TRUST COMPANY,
as Preferred Guarantee Trustee
By:
-----------------------------------
Name: Paul D. Allen
Title: Vice President
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EXHIBIT 99.k.3
[ISSUER]
AND
STATE STREET BANK AND TRUST COMPANY,
AS INDENTURE TRUSTEE
INDENTURE
% SUBORDINATED DEBENTURES DUE [ DATE ]
DATED AS OF [ DATE ].
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I............................................................................................... 2
DEFINITIONS............................................................................................. 2
SECTION 1.1. Definitions of Terms............................................................ 2
ARTICLE II.............................................................................................. 9
ISSUE, DESCRIPTION, TERMS, CONDITIONS................................................................... 9
REGISTRATION AND EXCHANGE OF THE DEBENTURES............................................................. 9
SECTION 2.1. Designation and Principal Amount................................................ 9
SECTION 2.2. Maturity........................................................................ 9
SECTION 2.3. Form and Payment................................................................ 9
SECTION 2.4. Interest........................................................................ 10
SECTION 2.5. Execution and Authentications................................................... 11
SECTION 2.6. Debenture Transfer Procedures and Restrictions; Restrictive Legends.
[Brian Walsh's proposed additional transfer restrictions to be discussed.]..................... 12
SECTION 2.7. Registration of Transfer and Exchange........................................... 12
SECTION 2.8. Intentionally Deleted........................................................... 13
SECTION 2.9. Mutilated, Destroyed, Lost or Stolen Debentures................................. 13
SECTION 2.10. Cancellation.................................................................... 14
SECTION 2.11. Benefit of Indenture............................................................ 15
SECTION 2.12. Authentication Agent............................................................ 15
ARTICLE III............................................................................................. 16
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.............................................................................................. 19
EXTENSION OF INTEREST PAYMENT PERIOD.................................................................... 19
SECTION 4.1. Extension of Interest Payment Period............................................ 19
SECTION 4.2. Notice of Extension............................................................. 19
SECTION 4.3. Limitation on Transactions...................................................... 20
ARTICLE V............................................................................................... 20
PARTICULAR COVENANTS OF THE COMPANY..................................................................... 20
SECTION 5.1. Payment of Principal and Interest............................................... 20
SECTION 5.2. Maintenance of Agency........................................................... 21
SECTION 5.3. Paying Agents................................................................... 21
SECTION 5.4. Appointment to Fill Vacancy in Office of Trustee................................ 22
SECTION 5.5. Compliance with Consolidation Provisions........................................ 22
SECTION 5.6. Limitation on Transactions...................................................... 23
SECTION 5.7. Covenants as to the Trust....................................................... 23
SECTION 5.8. Covenants as to Purchases....................................................... 23
</TABLE>
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ARTICLE VI.............................................................................................. 24
DEBENTUREHOLDERS' LISTS AND REPORTS..................................................................... 24
BY THE COMPANY AND THE TRUSTEE.......................................................................... 24
SECTION 6.1. Company to Furnish Trustee Names and............................................ 24
Addresses of Debentureholders.................................................................. 24
SECTION 6.2. Preservation of Information Communications with Debentureholders................ 24
SECTION 6.3. Reports by the Company.......................................................... 24
ARTICLE VII............................................................................................. 24
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS............................................................ 24
ON EVENT OF DEFAULT..................................................................................... 24
SECTION 7.1. Events of Default............................................................... 24
SECTION 7.2. Collection of Indebtedness and Suits for Enforcement by Trustee................. 26
SECTION 7.3. Application of Moneys Collected................................................. 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..................................................... 30
SECTION 7.7. Undertaking to Pay Costs........................................................ 30
ARTICLE VIII............................................................................................ 31
FORM OF DEBENTURE AND ORIGINAL ISSUE.................................................................... 31
SECTION 8.1. Form of Debenture............................................................... 31
SECTION 8.2. Original Issue of Debentures.................................................... 31
ARTICLE IX.............................................................................................. 31
CONCERNING THE TRUSTEE.................................................................................. 31
SECTION 9.1. Certain Duties and Responsibilities of the Trustee.............................. 31
SECTION 9.2. Notice of Defaults.............................................................. 33
SECTION 9.3. Certain Rights of Trustee....................................................... 33
SECTION 9.4. Trustee Not Responsible for Recitals, Etc....................................... 34
SECTION 9.5. May Hold Debentures............................................................. 35
SECTION 9.6. Moneys Held in Trust............................................................ 35
SECTION 9.7. Compensation and Reimbursement.................................................. 35
SECTION 9.8. Reliance on Officers' Certificate............................................... 36
SECTION 9.9. Corporate Trustee Required; Eligibility......................................... 36
SECTION 9.10. Resignation and Removal; Appointment of Successor............................... 36
SECTION 9.11. Acceptance of Appointment by Successor.......................................... 38
SECTION 9.12. Merger, Conversion, Consolidation or Succession to Business..................... 38
ARTICLE X............................................................................................... 39
CONCERNING THE DEBENTUREHOLDERS,........................................................................ 39
SECTION 10.1. Evidence of Action by Holders................................................... 39
SECTION 10.2. Proof of Execution by Debentureholders.......................................... 40
SECTION 10.3. Who May Be Deemed Owners........................................................ 40
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SECTION 10.4. Certain Debentures Owned by Company Disregarded................................ 40
SECTION 10.5. Actions Binding on Future Debentureholders..................................... 41
ARTICLE XI.............................................................................................. 41
SUPPLEMENTAL INDENTURES................................................................................. 41
SECTION 11.1. Supplemental Indentures Without the Consent of Debentureholders................ 41
SECTION 11.2. Supplemental Indentures with Consent of Debentureholders....................... 42
SECTION 11.3. Effect of Supplemental Indentures.............................................. 43
SECTION 11.4. Debentures Affected by Supplemental Indentures................................. 43
SECTION 11.5. Execution of Supplemental Indentures........................................... 43
ARTICLE XII............................................................................................. 44
SUCCESSOR CORPORATION................................................................................... 44
SECTION 12.1. Company May Consolidate, Etc................................................... 44
SECTION 12.2. Successor Corporation Substituted.............................................. 44
SECTION 12.3. Evidence of Consolidation, Etc. to Trustee..................................... 45
ARTICLE XIII............................................................................................ 45
SATISFACTION AND DISCHARGE.............................................................................. 45
SECTION 13.1. Satisfaction and Discharge of Indenture........................................ 45
SECTION 13.2. Discharge of Obligations....................................................... 46
SECTION 13.3. Deposited Moneys to Be Held in Trust........................................... 46
SECTION 13.4. Payment of Monies Held by Paying Agents........................................ 46
SECTION 13.5. Repayment to Company........................................................... 46
ARTICLE XIV............................................................................................. 47
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS......................................... 47
SECTION 14.1. No Recourse.................................................................... 47
ARTICLE XV.............................................................................................. 47
MISCELLANEOUS PROVISIONS................................................................................ 47
SECTION 15.1. Effect on Successors and Assigns............................................... 47
SECTION 15.2. Actions by Successor........................................................... 47
SECTION 15.3. Surrender of Company Powers.................................................... 48
SECTION 15.4. Notices........................................................................ 48
SECTION 15.5. Governing Law.................................................................. 48
SECTION 15.6. Treatment of Debentures as Debt................................................ 48
SECTION 15.7. Compliance Certificates and Opinions........................................... 48
SECTION 15.8. Payments on Business Days...................................................... 49
SECTION 15.9. Counterparts................................................................... 49
SECTION 15.10. Separability................................................................... 49
SECTION 15.11. Assignment..................................................................... 49
SECTION 15.12. Acknowledgment of Rights....................................................... 49
ARTICLE XVI............................................................................................. 50
SUBORDINATION OF DEBENTURES............................................................................. 50
</TABLE>
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SECTION 16.1. Agreement to Subordinate........................................................ 50
SECTION 16.2. Default on Senior Debt, Subordinated Debt or Additional Senior Obligations...... 50
SECTION 16.3. Liquidation; Dissolution; Bankruptcy............................................ 51
SECTION 16.4. Subrogation..................................................................... 52
SECTION 16.5. Trustee to Effectuate Subordination............................................. 53
SECTION 16.6. Notice by the Company........................................................... 53
SECTION 16.7. Rights of the Trustee; Holders of Senior Indebtedness........................... 54
SECTION 16.8. Subordination May Not Be Impaired............................................... 55
</TABLE>
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<PAGE>
INDENTURE
---------
INDENTURE, dated as of [ Date ], between [ [ISSUER] ], a
--------- --------------
corporation organized and existing under the laws of the State of [ ] (the
______
"Company") and STATE STREET BANK AND TRUST COMPANY, a state chartered trust
company organized under the laws of the Commonwealth of Massachusetts, as
trustee (the "Trustee").
RECITALS
WHEREAS, for its lawful corporate purposes, the Company has duly authorized
the execution and delivery of this Indenture to provide for the issuance of
securities to be known as its ____% Subordinated Debentures due _____, 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, [Issuer] Capital Statutory Trust, a Connecticut statutory trust
(the "Trust"), has privately placed pursuant to a Trust Preferred Purchase
Agreement dated as of (date) between the Trust and SAL Trust
----
Preferred Fund I, a Delaware business trust, as Purchaser [$___________] million
aggregate liquidation amount of its Preferred Securities (as defined herein) and
proposes to invest the proceeds from such private placement, together with the
proceeds of the issuance and sale by the Trust to the Company of [ $ ]
---
aggregate liquidation amount of its Common Securities (as defined herein), in
[$_____] aggregate principal amount of the Debentures to be issued hereunder to
the Trust;
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 Trust, it is mutually covenanted and agreed as follows for the
equal and ratable benefit of the Trust (and other future holders of the
Debentures, if any):
1
<PAGE>
ARTICLE I.
DEFINITIONS
SECTION 1.1. Definitions of Terms.
The terms defined in this Section 1.1 (except as in this Indenture
otherwise expressly provided or unless the context otherwise requires) for all
purposes of this Indenture and of any indenture supplemental hereto shall have
the respective meanings specified in this Section 1.1 and shall include the
plural as well as the singular. All accounting terms used herein and not
expressly defined shall have the meanings assigned to such terms in accordance
with Generally Accepted Accounting Principles.
"Additional Interest" shall have the meaning set forth in Section 2.4.
"Additional Senior Obligations" means all Debt and other indebtedness of
the Company whether incurred on or prior to the date of this Indenture or
thereafter incurred, including, without limitation, for claims in respect of
derivative products such as interest and foreign exchange rate contracts,
commodity contracts and similar arrangements; provided, however, that Additional
Senior Obligations does not include claims in respect of Senior Debt or
Subordinated Debt or obligations which, by their terms, are expressly stated to
be not superior in right of payment to the Debentures or to rank pari passu in
right of payment with the Debentures. For purposes of this definition, "claim"
shall have the meaning assigned thereto in Section 101(4) of the United States
Bankruptcy Code of 1978, as amended.
"Administrative Trustees" shall have the meaning set forth in the Trust
Agreement.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities or other ownership interests of the
specified Person; (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person; (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person; (d) a partnership in which the specified Person is a
general partner; (e) any officer or director of the specified Person; and (f) if
the specified Person is an individual, any entity of which the specified Person
is an officer, director or general partner.
"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 enacted for the relief of debtors.
2
<PAGE>
"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
[[Issuer] City/State ], 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 Event" means the receipt by the Trust of an Opinion of Counsel
experienced in such matters (which may be counsel to the Company) that the
Company cannot, or within 90 days after the date of the Opinion of such Counsel
will not, be permitted by the applicable regulatory authorities, due to a change
in law, regulation, policy or guideline or interpretation or application of law
or regulation, policy or guideline, to account for the Preferred Securities as
Tier 1 capital under the capital guidelines or policies of the Federal Reserve
[and other applicable federal or state banking regulations].
"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 Preferred Securities; provided,
however, that upon the occurrence of an Event of Default, the rights of holders
of Common Securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise are subordinated to the rights of holders
of Preferred Securities.
"Company" means [Issuer], a corporation duly organized and existing under
the laws of the State of [____], 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,
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which office at the date hereof is located at 225 Franklin Street, Boston,
Massachusetts 02110.
"Coupon Rate" shall have the meaning set forth in Section 2.4.
"Custodian" means any receiver, trustee, assignee, liquidator, or similar
official under any Bankruptcy Law.
"Debentures" shall have the meaning set forth in the Recitals hereto.
"Debentureholder," "holder of Debentures," "registered holder," or other
similar term, means the Person or Persons in whose name or names a particular
Debenture shall be registered on the books of the Company or the Trustee kept
for that purpose in accordance with the terms of this Indenture.
"Debenture Register" shall have the meaning set forth in Section 2.7(a).
"Debt" means with respect to any Person, whether or not unsecured or
secured by recourse 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 to trade creditors arising in the ordinary course of business); (v)
every capital lease obligation of such Person; (vi) every obligation of the type
referred to in clauses (i) through (v) of another Person and all dividends of
another Person the payment of which, in either case, such Person has guaranteed
or is responsible or liable, directly or indirectly, as obligor or otherwise and
(vii) any such indebtedness or obligations of others secured by lien, security
interest or other encumbrence on the Person's assets..
"Default" means any event, act or condition that with notice or lapse of
time, or both, would constitute an Event of Default.
"Deferred Interest" shall have the meaning set forth in Section 4.1.
"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.
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"Federal Reserve" means the Board of Governors of the Federal Reserve
System.
"Fund" means SAL Trust Preferred Fund I, the initial holder of the
Preferred Securities.
"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 a
Board Resolution or in an indenture supplemental hereto with respect to the
Debentures as the fixed date on which an installment of interest with respect to
the Debentures is due and payable.
"Investment Company Act," means the Investment Company Act of 1940, as
amended, as in effect at the date of execution of this instrument.
"Investment Company Event" means the receipt by the Trust of an Opinion of
Counsel, rendered by a law firm experienced in such matters (which may be
counsel to the Company), 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
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regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law"), the Trust is or shall be considered an
"investment company" that is required to be registered under the Investment
Company Act, which Change in 1940 Act Law becomes effective on or after the date
of original issuance of the Preferred Securities under the Trust Agreement.
"Maturity Date" means the date on which the Debentures mature and on which
the principal shall be due and payable together with all accrued and unpaid
interest thereon including Compounded Interest and Additional Interest, if any,
as provided herein.
"Ministerial Action" shall have the meaning set forth in Section 3.2.
"Officers' Certificate" means a certificate signed by the President or a
Vice President and by the Treasurer or an Assistant Treasurer or the Controller
or an Assistant Controller or the Secretary or an Assistant Secretary of the
Company that is delivered to the Trustee in accordance with the terms hereof.
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 legal counsel, who may
be an employee of or counsel for the Company, that is delivered to the Trustee
in accordance with the terms hereof. Each such opinion shall include the
statements provided for in Section 15.7, if and to the extent required by the
provisions thereof.
"Outstanding," when used with reference to the Debentures, means, subject
to the provisions of Section 10.4, as of any particular time, all Debentures
theretofore authenticated and delivered by the Trustee under this Indenture,
except (a) Debentures theretofore canceled by the Trustee or any paying agent,
or delivered to the Trustee or any paying agent for cancellation or that have
previously been canceled; (b) Debentures or portions thereof for the payment or
redemption of which moneys or Governmental Obligations in the necessary amount
shall have been deposited in trust with the Trustee or 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 provision satisfactory to the Trustee
shall have been made for giving such notice; and (c) Debentures in lieu of or in
substitution for which other Debentures shall have been authenticated and
delivered pursuant to the terms of Section 2.5.
"Person" means any individual, corporation, partnership, joint-venture,
joint-stock company, unincorporated organization or government or any agency or
political subdivision thereof.
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"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 mutilated, lost, destroyed or stolen Debenture
shall be deemed to evidence the same debt as the mutilated, lost, destroyed or
stolen Debenture.
"Preferred Securities" means undivided beneficial interests in the assets
of the Trust which rank pari passu with Common Securities issued by the Trust;
provided, however, that upon the occurrence of an Event of Default, the rights
of holders of Common Securities to payment in respect of distributions and
payments upon liquidation, redemption and otherwise are subordinated to the
rights of holders of Preferred Securities.
"Preferred Securities Guarantee" means any guarantee that the Company may
enter into with the Trustee or other Persons that operates directly or
indirectly for the benefit of holders of Preferred Securities.
"Property Trustee" has the meaning set forth in the Trust Agreement.
"Responsible Officer" when used with respect to the Trustee means the
Chairman of the Board of Directors, the President, any Vice President, the
Secretary, the Treasurer, any trust officer, any corporate trust officer or any
other officer or assistant officer of the Trustee customarily performing
functions similar to those performed by the Persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred
because of his or her knowledge of and familiarity with the particular subject.
"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
or any of its subsidiaries; (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
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accrued liabilities to trade creditors 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) any Debt which constitutes Subordinated Debt.
"Senior Indebtedness" shall have the meaning set forth in Section 16.1.
"Special Event" means a Tax Event, a Capital Event or an Investment Company
Event.
"Subordinated Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of this Indenture or thereafter
incurred, which is by its terms expressly provided to be junior and subordinate
to other Debt of the Company (other than the Debentures).
"Subsidiary" means, with respect to any Person, (i) any corporation at
least a majority of whose outstanding Voting Stock shall at the time be owned,
directly or indirectly, by such Person or by one or more of its Subsidiaries or
by such Person and one or more of its Subsidiaries; (ii) any general
partnership, joint venture or similar entity, at least a majority of whose
outstanding partnership or similar interests shall at the time be owned by such
Person, or by one or more of its Subsidiaries, or by such Person and one or more
of its Subsidiaries; and (iii) any limited partnership of which such Person or
any of its Subsidiaries is a general partner.
"Tax Event" means the receipt by the Trust of an Opinion of Counsel,
rendered by a law firm experienced in such matters (which may be counsel to the
Company), to the effect that, as a result of any amendment to, or change
(including any announced prospective change) in the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or which pronouncement or
decision is announced on or after the date of issuance of the Preferred
Securities under the Trust Agreement, there is more than an insubstantial risk
that (i) the Trust is, or shall be within 90 days after the date of such Opinion
of Counsel, subject to United States federal income tax with respect to income
received or accrued on the Debentures; (ii) interest payable by the Company on
the Debentures is not, or within 90 days after the date of such Opinion of
Counsel, shall not be, deductible by the Company, in whole or in part, for
United States federal income tax purposes; or (iii) the Trust is, or shall be
within 90 days
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after the date of such Opinion of Counsel, subject to more than a de minimis
amount of other taxes, duties, assessments or other governmental charges. The
Trust or the Company shall request and receive 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 [Issuer] Capital Statutory Trust, a Connecticut statutory
trust.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated
[ Date ], of the Trust.
------
"Trustee" means State Street Bank and Trust Company and, subject to the
provisions of Article IX, shall also include its successors and assigns, and, if
at any time there is more than one Person acting in such capacity hereunder,
"Trustee" shall mean each such Person.
"Trust Securities" means the Common Securities and Preferred Securities,
collectively.
"Voting Stock," as applied to stock of any Person, means shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person having ordinary voting power for the election of a majority of
the directors (or the equivalent) of such Person, other than shares, interests,
participations or other equivalents having such power only by reason of the
occurrence of a contingency.
ARTICLE II.
ISSUE, DESCRIPTION, TERMS, CONDITIONS
REGISTRATION AND EXCHANGE OF THE DEBENTURES
SECTION 2.1. Designation and Principal Amount.
There is hereby authorized Debentures designated the "____% Subordinated
Debentures due __________ __, 2029," limited in aggregate principal amount to
[$_______], which amount shall be as set forth in any written order of the
Company for the authentication and delivery of Debentures pursuant to Section
2.5.
SECTION 2.2. Maturity.
The Maturity Date shall be the Scheduled Maturity Date.
SECTION 2.3. Form and Payment.
The Debentures shall be issued in fully registered certificated form
without interest coupons. Principal and interest on the Debentures issued in
certificated
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form shall be payable, the transfer of such Debentures shall be registrable and
such Debentures shall be exchangeable for Debentures bearing identical terms and
provisions at the office or agency of the Trustee; provided, however, that
payment of interest may be made at the option of the Company by check mailed to
the holder at such address as shall appear in the Debenture Register or by wire
transfer to an account maintained by the holder as specified in the Debenture
Register, provided that the holder provides proper transfer instructions by the
regular record date. Notwithstanding the foregoing, so long as the holder of any
Debentures is the Property Trustee, the payment of the principal of and interest
(including Compounded Interest and Additional Interest, if any) on such
Debentures held by the Property Trustee shall be made at such place and to such
account as may be designated by the Property Trustee.
SECTION 2.4. Interest.
(a) Each Debenture shall bear interest at the rate of _____% per
annum (the "Coupon Rate") from the original date of issuance until the
principal thereof becomes due and payable, and on any overdue principal and
(to the extent that payment of such interest is enforceable under
applicable law) on any overdue installment of interest at the Coupon Rate,
compounded quarterly, payable (subject to the provisions of Article IV)
quarterly in arrears on March 31, June 30, September 30 and December 31 of
each year (each, an "Interest Payment Date") commencing on [ Date ], 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. Except as provided
in the following sentence, the amount of interest payable for any period
shorter than a full quarterly period for which interest is computed, shall
be computed on the basis of the actual number of days elapsed in such
period. In the event that any date on which interest is payable on the
Debentures is not a Business Day, then payment of interest payable on such
date shall be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the next succeeding day which is a Business Day,
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 solely by reason of such parties' receipt of payments on the
Debentures or their holding of the Debentures, then, in any case, the
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Company shall pay as additional interest ("Additional Interest") on the
Debentures held by the Property Trustee, such additional amounts as shall
be required so that the net amounts received and retained by the Trust and
the Property Trustee after paying such taxes, duties, assessments or other
governmental charges shall be equal to the amounts the Trust and the
Property Trustee would have received had no such taxes, duties, assessments
or other government charges been imposed.
SECTION 2.5. Execution and Authentications.
(a) The Debentures shall be signed on behalf of the Company by its
Chairman, President or one of its Vice Presidents, under its corporate seal
attested by its Secretary or one of its Assistant Secretaries. Signatures
may be in the form of a manual or facsimile signature. Upon written notice
from the Company's President or Chief Financial Officer, the Trustee is
authorized to affix facsimile signatures of the Company's appropriate
officers to Debentures on behalf of the Company. The Company may use the
facsimile signature of any Person who shall have been a Chairman, President
or Vice President thereof, or of any Person who shall have been a Secretary
or Assistant Secretary thereof, notwithstanding the fact that at the time
the Debentures shall be authenticated and delivered or disposed of such
Person shall have ceased to be the Chairman, President or a Vice President,
or the Secretary or an Assistant Secretary, of the 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 or usage. Each Debenture shall be dated the date of its
authentication by the Trustee.
(b) A Debenture shall not be valid until authenticated manually by an
authorized signatory of the Trustee, or by an Authenticating Agent. Such
signature shall be conclusive evidence that the Debenture so authenticated
has been duly authenticated and delivered hereunder and that the holder is
entitled to the benefits of this Indenture.
(c) At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Debentures executed by
the Company to the Trustee for authentication, together with a written
order of the Company for the authentication and delivery of such Debentures
signed by its 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.
(d) In authenticating such Debentures and accepting the additional
responsibilities under this Indenture in relation to such Debentures, the
Trustee shall be entitled to receive, and (subject to Section 9. 1) shall
be fully protected in relying upon, an Opinion of Counsel stating that the
form and
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terms thereof have been established in conformity with the provisions of
this Indenture.
(e) The Trustee shall not be required to authenticate such Debentures
if the issue of such Debentures pursuant to this Indenture shall affect the
Trustee's own rights, duties or immunities under the Debentures and this
Indenture or otherwise in a manner that is not reasonably acceptable to the
Trustee.
SECTION 2.6. Debenture Transfer Procedures and Restrictions;
Restrictive Legends.
(a) Each Debenture shall bear the following legend on the face thereof
except as otherwise provided in paragraph (b):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT.
(b) Upon written request therefor accompanied by an Opinion of Counsel
meeting the requirements of this paragraph, the Trustee shall exchange or
transfer any Debenture bearing the legend set forth in paragraph (a) for a
Debenture of like tenor and principal amount bearing such legend. Any such
exchange or transfer shall be effected in accordance with this Section 2.6
and Section 2.7. Such Opinion of Counsel shall be reasonably satisfactory
to Company and rendered by non-in-house securities counsel reasonably
acceptable to the Company, and shall state that in such counsel's opinion,
either (i) such Security is eligible for resale, citing the applicable
exemption(s) from registration under the Securities Act (or any successor
provision) or (ii) such Security is being surrendered in connection with a
transfer being made pursuant to (1) a registration statement that is
effective under the Securities Act or (2) Rule 144k under the Securities
Act, and therefore the legend set forth in paragraph (a) may be removed.
SECTION 2.7. Registration of Transfer and Exchange.
Debentures may be exchanged upon presentation thereof at the
office or agency of the Company designated for such purpose in
[ City/State ], for other Debentures and for a like aggregate principal
------------
amount, upon payment of a sum sufficient to cover any tax or other
governmental charge in relation thereto, all as provided in this Section
2.7 and subject to compliance with Section 2.6. In respect of any
Debentures so surrendered for exchange, the Company shall execute, the
Trustee shall authenticate and such office or agency shall deliver in
exchange therefor the Debenture or Debentures that the Debentureholder
making the exchange shall be entitled to receive,
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bearing numbers not contemporaneously outstanding.
(a) The Company shall keep, or cause to be kept, at its office or
agency designated for such purpose in [ City/State ], 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 initially will be the Trustee.
The registrar thereafter may be appointed as authorized by Board Resolution
(the "Debenture Registrar"). Upon surrender for transfer of any Debenture
at the office or agency of the Company designated for such purpose, the
Company shall execute, the Trustee shall authenticate and such office or
agency shall 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 and subject to compliance with
Section 2.6, shall be accompanied (if so required by the Company or the
Debenture Registrar) by a written instrument or instruments of transfer, in
form satisfactory to the Company or the Debenture Registrar, duly executed
by the registered holder or by such holder's duly authorized attorney in
writing.
(b) No service charge shall be made for any exchange or registration
of transfer of Debentures, or issue of new Debentures in case of partial
redemption, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge in relation thereto, other than
exchanges pursuant to Section 2.8, Section 3.5(b) and Section 11.4 not
involving any transfer.
(c) 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.
SECTION 2.8. Intentionally Deleted.
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
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exchange and substitution for the mutilated Debenture, or in lieu of and in
substitution for the Debenture so destroyed, lost or stolen. In every case
the applicant for a substituted Debenture shall furnish to the Company and
the Trustee such security or indemnity as may be required by them to save
each of them harmless, and, in every case of destruction, loss or theft,
the applicant shall also furnish to the Company and the Trustee evidence to
their satisfaction of the destruction, loss or theft of the applicant's
Debenture and of the ownership thereof. The Trustee may authenticate any
such substituted Debenture and deliver the same upon the written request or
authorization of any officer of the Company. Upon the issuance of any
substituted Debenture, the Company may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee) connected therewith. In case any Debenture that
has matured or is about to mature shall become mutilated or be destroyed,
lost or stolen, the Company may, instead of issuing a substitute Debenture,
pay or authorize the payment of the same (without surrender thereof except
in the case of a mutilated Debenture) if the applicant for such payment
shall furnish to the Company and the Trustee such security or indemnity as
they may require to save them harmless, and, in case of 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.
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
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Company shall otherwise acquire any of the Debentures, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Debentures unless and until the same are delivered to the
Trustee for cancellation.
SECTION 2.11. Benefit of Indenture.
Nothing in this Indenture or in the Debentures, express or implied, shall
give or be construed to give to any Person, other than the parties hereto and
the holders of the Debentures (and, with respect to the provisions of Article
XVI, the holders of Senior Indebtedness) any legal or equitable right, remedy or
claim under or in respect of this Indenture, or under any covenant, condition or
provision herein contained; all such covenants, conditions and provisions being
for the sole benefit of the parties hereto and of the holders of the Debentures
(and, with respect to the provisions of Article XVI, the holders of Senior
Indebtedness).
SECTION 2.12. Authentication Agent.
(a) So long as any of the Debentures remain Outstanding there may be
an Authenticating Agent for any or all such Debentures, which the Trustee
shall have the right to appoint. Said Authenticating Agent shall be
authorized to act on behalf of the Trustee to authenticate Debentures
issued upon exchange, transfer or partial redemption thereof, and
Debentures so authenticated shall be entitled to the benefits of this
Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. All references in this Indenture to
the authentication of Debentures by the Trustee shall be deemed to include
authentication by an Authenticating Agent. Each Authenticating Agent shall
be acceptable to the Company and shall be a corporation that has a combined
capital and surplus, as most recently reported or determined by it,
sufficient under the laws of any jurisdiction under which it is organized
or in which it is doing business to conduct a trust business, and that is
otherwise authorized under such laws to conduct such business and is
subject to supervision or examination by federal or state authorities. If
at any time any Authenticating Agent shall cease to be eligible in
accordance with these provisions, it shall resign immediately.
(b) Any Authenticating Agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at
any time (and upon request by the Company shall) terminate the agency of
any Authenticating Agent by giving written notice of termination to such
Authenticating Agent and to the Company. Upon resignation, termination or
cessation of eligibility of any Authenticating Agent, the Trustee may
appoint an eligible successor Authenticating Agent acceptable to the
Company. Any successor Authenticating Agent, upon acceptance of its
appointment hereunder, shall become vested with all the rights, powers and
duties of its predecessor hereunder as if originally named as an
Authenticating Agent pursuant hereto.
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ARTICLE III.
REDEMPTION OF DEBENTURES
SECTION 3.1. Redemption.
Subject to the Company's having received prior approval of the Federal
Reserve, if then required under the applicable capital guidelines or policies of
the Federal Reserve, the Company may redeem the Debentures issued hereunder on
and after the dates set forth in and in accordance with the terms of this
Article III.
SECTION 3.2. Special Event Redemption.
Subject to the Company's having received the prior approval of the Federal
Reserve, if then required under the applicable capital guidelines or policies of
the Federal Reserve, if a Special Event has occurred and is continuing, then,
notwithstanding Section 3.3(a), the Company shall have the right upon not less
than 30 days' nor more than 60 days' notice to the holders of the Debentures to
redeem the Debentures, in whole but not in part, for cash within 180 days
following the occurrence of such Special Event (the "180-Day Period") at a
redemption price equal to 100% of the principal amount to be redeemed plus any
accrued and unpaid interest thereon to the date of such redemption (the
"Redemption Price"), provided that if at the time there is available to the
Company the opportunity to eliminate, within the 180-Day Period, a Tax Event by
taking some ministerial action (a "Ministerial Action"), such as filing a form
or making an election, or pursuing some other similar reasonable measure which
has no adverse effect on the Company, the Trust or the holders of the Trust
Securities issued by the Trust, the Company shall pursue such Ministerial Action
in lieu of redemption. The Redemption Price shall be paid prior to 12:00 noon,
[ City/State ] 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., [ City/State ]
------------
time, on the date such Redemption Price is to be paid.
SECTION 3.3. Optional Redemption by Company.
(a) 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 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,
[City/State ] time, on the date of such redemption or at such earlier time
------------
as the
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Company determines provided that the Company shall deposit with the Trustee
an amount sufficient to pay the Redemption Price by 10:00 a.m.,
[City/State ] time, on the date such Redemption Price is to be paid.
-----------
SECTION 3.4. Notice of Redemption.
(a) In case the Company shall desire to exercise such right
to redeem all or, 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, give notice of such redemption to holders of the Debentures to be
redeemed by mailing, first class postage prepaid, a notice of such
redemption not less than 30 days and not more than 60 days before the date
fixed for redemption to such holders at their last addresses as they shall
appear upon the Debenture Register unless a shorter period is specified in
the Debentures to be redeemed. Any notice that is mailed in the manner
herein provided shall be conclusively presumed to have been duly given,
whether or not the registered holder receives the notice. In any case,
failure duly to give such notice to the holder of any Debenture designated
for redemption in whole or in part, or any defect in the notice, shall not
affect the validity of the proceedings for the redemption of any other
Debentures. In the case of any redemption of Debentures prior to the
expiration of any restriction on such redemption provided in the terms of
such Debentures or elsewhere in this Indenture, the Company shall furnish
the Trustee with an Officers' Certificate evidencing compliance with any
such restriction. Each such notice of redemption shall specify the date
fixed for redemption and the Redemption Price and shall state that payment
of the Redemption Price shall be made at the office or agency of the
Company in [ City/State ] or at the Corporate Trust Office, upon
------------
presentation and surrender of such Debentures, that interest accrued to the
date fixed for redemption shall be paid as specified in said notice and
that from and after said date interest shall cease to accrue. If less than
all the Debentures are to be redeemed, the notice to the holders of the
Debentures shall specify the particular Debentures to be redeemed. If the
Debentures are to be redeemed in part only, the notice shall state the
portion of the principal amount thereof to be redeemed and shall state that
on and after the redemption date, upon surrender of such Debenture, a new
Debenture or Debentures in principal amount equal to the unredeemed portion
thereof shall be issued.
(b) If less than all the Debentures are to be redeemed, the Company
shall give the Trustee at least 45 days' notice in advance of the date
fixed for redemption as to the aggregate principal amount of Debentures to
be redeemed, and thereupon the Trustee shall select, by lot or in such
other manner as it shall deem appropriate and fair in its discretion, the
portion or portions (equal to $25.00 or any integral multiple thereof) of
the Debentures to be redeemed and shall thereafter promptly notify the
Company in writing
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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 interest payment date).
(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.
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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, to defer payments of interest by extending the
interest payment period of such Debentures for a period not exceeding 20
consecutive quarters (the "Extended Interest Payment Period"), during which
Extended Interest Payment Period no interest shall be due and payable; provided
that no Extended Interest Payment Period may extend beyond the Maturity Date. 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 accrue 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, provided that such period together with
all such further extensions thereof shall not exceed 20 consecutive quarters, or
extend beyond the Maturity Date of the Debentures. Upon the termination of any
Extended Interest Payment Period and upon the payment of all Deferred Interest
then due, the Company may commence a new Extended Interest Payment Period,
subject to the foregoing requirements. No interest shall be due and payable
during an Extended Interest Payment Period, except at the end thereof, but the
Company may prepay at any time all or any portion of the interest accrued during
an Extended Interest Payment Period.
SECTION 4.2. Notice of Extension.
(a) If the Property Trustee is the only registered holder of the
Debentures at the time the Company selects an Extended Interest Payment
Period, the Company shall give written notice to the Administrative
Trustees, the Property Trustee and the Trustee of its selection of such
Extended Interest Payment Period one Business Day before the earlier of (i)
the next succeeding date on which Distributions on the Trust Securities
issued by the Trust are payable; or (ii) the date the Trust is required to
give notice of the record date, or the date such Distributions are payable,
to the holders of the Preferred Securities issued by the Trust, but in any
event at least one Business Day before such record date.
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(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
one Business Day before the earlier of (i) the next succeeding Interest
Payment Date; or (ii) the date the Company is required to give notice of
the record or payment date of such interest payment to the 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, and all interest during such quarter shall constitute Deferred
Interest.
(d) The Company's notice of the Extended Interest Payment Period shall
include the termination date of such period (or portion thereof), but the
Company may terminate such period at any earlier time by giving notice
(subject to the Company's right hereunder to continue the Extended Interest
Payment Period at a later time).
SECTION 4.3. Limitation on Transactions.
If (i) the Company shall exercise its right to defer payment of interest as
provided in Section 4.1; or (ii) there shall have occurred any Event of Default,
then, during the Extended Interest Payment Period and the period such Event of
Default continues, as the case may be (a) the Company shall not declare or pay
any dividend on, make any distributions with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock
(other than as a result of a reclassification of its capital stock for another
class of its capital stock) and (b) the Company shall not make any payment of
interest, principal or premium, if any, or repay, repurchase or redeem any debt
securities issued by the Company which rank pari passu with or junior to the
Debentures; provided, however, that notwithstanding the foregoing the Company
may make payments pursuant to its obligations under the Preferred Securities
Guarantee; and (c) the Company shall not redeem, purchase or acquire less than
all of the outstanding Debentures.
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.
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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 [City/State],
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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 Chairman, its President or a Vice President and
delivered to the Trustee, designate some other office or agency for such
purposes or any of them. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, notices and demands may be made or served
at the Corporate Trust Office of the Trustee, and the Company hereby appoints
the Trustee as its agent to receive all such presentations, notices and demands.
In addition to any such office or agency, the Company may from time to time
designate one or more offices or agencies outside of [City/State], where the
----------
Debentures may be presented for registration or transfer and for exchange in the
manner provided herein, and the Company may from time to time rescind such
designation as the Company may deem desirable or expedient; provided, however,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain any such office or agency in [City/State], 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 Trustee 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
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request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such paying agent; and
(iv) that it shall perform all other duties of paying agent as
set forth in this Indenture.
(b) If the Company shall act as its own paying agent with respect to
the Debentures, it shall on or before each due date of the principal of or
interest on such Debentures, set aside, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay such
principal or interest so becoming due on Debentures until such sums shall
be paid to such Persons or otherwise disposed of as herein provided and
shall promptly notify the Trustee of such action, or any failure (by it or
any other obligor on such Debentures) to take such action. Whenever the
Company shall have one or more paying agents for the Debentures, it shall,
prior to each due date of the principal of or interest on any Debentures,
deposit with the paying agent a sum sufficient to pay the principal or
interest so becoming due, such sum to be held in trust for the benefit of
the Persons entitled to such principal or interest, and (unless such paying
agent is the Trustee) the Company shall promptly notify the Trustee of this
action or failure so to act.
(c) Notwithstanding anything in this Section 5.3 to the contrary, (i)
the agreement to hold sums in trust as provided in this Section 5.3 is
subject to the provisions of Section 13.3 and 13.4; and (ii) the Company
may at any time, for the purpose of obtaining the satisfaction and
discharge of this Indenture or for any other purpose, pay, or direct any
paying agent to pay, to the Trustee all sums held in trust by the Company
or such paying agent, such sums to be held by the Trustee upon the same
terms and conditions as those upon which such sums were held by the Company
or such paying agent; and, upon such payment by any paying agent to the
Trustee, such paying agent shall be released from all further liability
with respect to such money.
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 9.11, 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.
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SECTION 5.6. Limitation on Transactions.
If during the time Debentures are issued to the Trust or a trustee of the
Trust in connection with the issuance of Trust Securities by the Trust and (i)
there shall have occurred any event that would constitute an Event of Default;
(ii) the Company shall be in default with respect to its payment of any
obligations under the Preferred Securities Guarantee relating to the Trust; or
(iii) the Company shall have given notice of its election to defer payments of
interest on such Debentures by extending the interest payment period as provided
in this Indenture and such period, or any extension thereof, or the occurrences
in the foregoing clauses (i) and (ii), as the case may be, shall be continuing,
then (a) the Company shall not declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock (other than as a
result of a reclassification of its capital stock) and (b) the Company shall not
make any payment of interest, principal or premium, if any, or repay, repurchase
or redeem any debt securities issued by the Company which rank pari passu with
or junior to the Debentures; provided, however, that the Company may make
payments pursuant to its obligations under the Preferred Securities Guarantee;
and (c) the Company shall not redeem, purchase or acquire less than all of the
outstanding Debentures.
SECTION 5.7. Covenants as to the Trust.
For so long as such Trust Securities of the Trust remain outstanding and
the Trust is a holder of Debentures, the Company shall (i) maintain 100% direct
or indirect ownership of the Common Securities of the Trust; provided, however,
that any permitted successor of the Company under this Indenture may succeed to
the Company's ownership of the Common Securities; (ii) not voluntarily
terminate, wind up or liquidate the Trust, except upon prior approval of the
Federal Reserve if then so required under applicable capital guidelines or
policies of the Federal Reserve and use its reasonable efforts to cause the
Trust (a) to remain a statutory trust, except in connection with a distribution
of Debentures, the redemption of all of the Trust Securities of the Trust or
certain mergers, consolidations or amalgamations, each as permitted by the Trust
Agreement; and (b) to otherwise continue not to be treated as an association
taxable as a corporation or partnership for United States federal income tax
purposes; and (iii) use its reasonable efforts to cause each holder of Trust
Securities to be treated as owning an individual beneficial interest in the
Debentures.
SECTION 5.8. Covenants as to Purchases.
Prior to _____________ the Company shall not purchase any Debentures, in
whole or in part, from the Trust, except if a Capital Event, a Tax Event or
Investment Company Event has occurred.
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ARTICLE VI.
DEBENTUREHOLDERS' LISTS AND REPORTS
BY THE COMPANY AND THE TRUSTEE
SECTION 6.1. Company to Furnish Trustee Names and Addresses of
Debentureholders.
The Company shall furnish or cause to be furnished to the Trustee (a) on a
monthly basis on each regular record date a list, in such form as the Trustee
may reasonably require, of the names and addresses of the holders of the
Debentures as of such regular record date, provided that the Company shall not
be obligated to furnish or cause to furnish such list at any time that the list
shall not differ in any respect from the most recent list furnished to the
Trustee by the Company; and (b) at such other times as the Trustee may request
in writing within 30 days after the receipt by the Company of any such request,
a list of similar form and content as of a date not more than 15 days prior to
the time such list is furnished; provided, however, that, in either case, no
such list need be furnished if the Trustee shall be the Debenture Registrar.
SECTION 6.2. Preservation of Information Communications with
Debentureholders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the holders
of Debentures contained in the most recent list furnished to it as provided
in Section 6.1 and as to the names and addresses of holders of Debentures
received by the Trustee in its capacity as registrar for the Debentures (if
acting in such capacity).
(b) The Trustee may destroy any list furnished to it as provided in
Section 6.1 upon receipt of a new list so furnished.
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 its bank
regulatory authorities, copies of the quarterly and annual financial
statements and annual audited financial statements and annual reports to
shareholders, if any.
ARTICLE VII.
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON EVENT OF DEFAULT
SECTION 7.1. Events of Default; Acceleration.
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(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; provided, however,
that a valid extension of the maturity of such Debentures in accordance
with the terms of this Indenture shall not constitute a default in the
payment of principal;
(iii) the Company fails to observe or perform in any material
respect 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;
(iv) the Company pursuant to or within the meaning of any
Bankruptcy Law commences a voluntary case; (ii) consents to the entry of an
order for relief against it in an involuntary case; (iii) consents to the
appointment of a Custodian of it or for all or substantially all of its
property; or (iv) makes a general assignment for the benefit of its
creditors;
(v) a court of competent jurisdiction enters an order under any
Bankruptcy Law that (i) is for relief against the Company in an involuntary
case; (ii) appoints a Custodian of the Company for all or substantially all
of its property; or (iii) orders the liquidation of the Company, and the
order or decree remains unstayed and in effect for 90 days; or
(vi) the Trust, if during the time that the Trust is a holder of
Debentures, shall have voluntarily or involuntarily dissolved, wound-up its
business or otherwise terminated its existence except in connection with
the distribution of Debentures to holders of Trust Securities in
liquidation of their interests in the Trust; (ii) the redemption of all of
the outstanding Trust Securities of the Trust; or (iii) certain mergers,
consolidations or amalgamations, each as permitted by the Trust Agreement.
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(b) In each and every such case of an Event of Default, unless the
principal of all the Debentures shall have already become due and payable,
either the Trustee or the holders of not less than 25% in aggregate
principal amount of the Debentures then Outstanding hereunder, by notice in
writing to the Company (and to the Trustee if given by such
Debentureholders) may declare the principal of all the Debentures to be due
and payable immediately, and upon any such declaration, such principal
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
declared due and payable pursuant to subsection (b) of this Section 7.1,
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 pursuant to subsection (b) of this Section 7.1
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 such 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 9.7; and (ii) any and
all Events of Default under this Indenture, other than the nonpayment of
principal on Debentures that shall not have become due by their terms,
shall have been remedied or waived as provided in Section 7.6. No such
rescission and annulment shall extend to or shall affect any subsequent
default or impair any right consequent thereon.
(d) In case the Trustee shall have proceeded to enforce any right with
respect to Debentures under this Indenture and such proceedings shall have
been discontinued or abandoned because of such rescission or annulment or
for any other reason or shall have been determined adversely to the
Trustee, then and in every such case the Company and the Trustee shall be
restored respectively to 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
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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 become due and payable on all such Debentures for principal or
interest, or both, as the case may be, with interest upon the overdue
principal and (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 of any of such Debentures,
or the production thereof at any trial or other proceeding relative
thereto, and
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any such suit or proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment
shall, after provision for payment to the Trustee of any amounts due under
Section 9.7, be for the ratable benefit of the holders of the Debentures.
In case of an Event of Default hereunder, the Trustee may in its discretion
proceed to protect and enforce the rights vested in it by this Indenture by
such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any of such rights, either at law or in
equity or in bankruptcy or otherwise, whether for the specific enforcement
of any covenant or agreement contained in this Indenture or in aid of the
exercise of any power granted in this Indenture, or to enforce any other
legal or equitable right vested in the Trustee by this Indenture or by law.
Nothing contained herein shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Debentureholder
any plan of reorganization, arrangement, adjustment or composition
affecting the Debentures or the rights of any holder thereof or to
authorize the Trustee to vote in respect of the claim of any
Debentureholder in any such proceeding.
SECTION 7.3. Application of Moneys Collected.
Any moneys collected by the Trustee pursuant to this Article VII with
respect to the Debentures shall be applied in the following order, at the date
or dates fixed by the Trustee and, in case of the distribution of such moneys on
account of principal or interest, upon presentation of the Debentures, and
notation thereon the payment, if only partially paid, and upon surrender thereof
if fully paid:
FIRST: To the payment of costs and expenses of collection and of all
amounts payable to the Trustee under Section 9.7;
SECOND: To the payment of all Senior Indebtedness of the Company if and to
the extent required by Article XVI; and
THIRD: To the payment of the amounts then due and unpaid upon the
Debentures for principal and interest, in respect of which or for the benefit of
which such money has been collected, ratably, without preference or priority of
any kind, according to the amounts due and payable on such Debentures for
principal and interest, respectively.
SECTION 7.4. Limitation on Suits.
(a) No holder of any Debenture shall have any right by virtue or by
availing of any provision of this Indenture to institute any suit, action
or proceeding in equity or at law upon or under or with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless (i) such holder previously shall have given to the
Trustee written notice of an Event of Default and of the continuance
thereof with respect to the Debentures specifying such Event of Default, as
provided in
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Section 9.3(c) hereof; (ii) the holders of not less than 25% in aggregate
principal amount of the Debentures then Outstanding shall have made written
request upon the Trustee to institute such action, suit or proceeding in
its own name as trustee hereunder; (iii) such holder or holders shall have
offered to the Trustee such reasonable indemnity as it may require against
the costs, expenses and liabilities to be incurred therein or thereby; and
(iv) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity, shall have failed to institute any such action, suit or
proceeding; and (v) during such 60 day period, the holders of a majority in
principal amount of the Debentures do not give the Trustee a direction
inconsistent with the request.
(b) Notwithstanding anything contained herein to the contrary or any
other provisions of this Indenture, the right of any holder of 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 Article XI, 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
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acquiescence therein; and, subject to the provisions of Section 7.4, every
power and remedy given by this Article VII or by law to the Trustee or the
Debentureholders may be exercised from time to time, and as often as shall
be deemed expedient, by the Trustee or by the Debentureholders.
SECTION 7.6. Control by Debentureholders.
The holders of a majority in aggregate principal amount of the Debentures
at the time Outstanding, determined in accordance with Section 10.4, shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
on the Trustee; provided, however, that such direction shall not be in conflict
with any rule of law or with this Indenture. Subject to the provisions of
Section 9.1, the Trustee shall have the right to decline to follow any such
direction if the Trustee in good faith shall, by a Responsible Officer or
Officers of the Trustee, determine that the proceeding so directed would involve
the Trustee in personal liability. The holders of a majority in aggregate
principal amount of the Debentures at the time Outstanding affected thereby,
determined in accordance with Section 10.4, may on behalf of the holders of all
of the Debentures waive any past default in the performance of any of the
covenants contained herein and its consequences, except (i) a default in the
payment of the principal of or interest on, any of the Debentures as and when
the same shall become due by the terms of such Debentures otherwise than by
acceleration (unless such default has been cured and a sum sufficient to pay all
matured installments of interest and principal has been deposited with the
Trustee (in accordance with Section 7.1(c)); (ii) a default in the covenants
contained in Section 5.6; or (iii) in respect of a covenant or provision hereof
which cannot be modified or amended without the consent of the holder of each
Outstanding Debenture affected; provided, however, that if the Debentures are
held by the Trust or a trustee of the Trust, such waiver or modification to such
waiver shall not be effective until the holders of a majority in liquidation
preference of Trust Securities of the Trust shall have consented to such waiver
or modification to such waiver; provided further, that if the consent of the
holder of each Outstanding Debenture is required, such waiver shall not be
effective until each holder of the Trust Securities of the Trust shall have
consented to such waiver. Upon any such waiver, the default covered thereby
shall be deemed to be cured for all purposes of this Indenture and the Company,
the Trustee and the holders of the Debentures shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other default or impair any right consequent thereon.
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
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undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 7.7 shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Debentureholder, or group of
Debentureholders holding more than 10% in aggregate principal amount of the
Outstanding Debentures, or to any suit instituted by any Debentureholder for the
enforcement of the payment of the principal of or interest on the Debentures, on
or after the respective due dates expressed in such Debenture or established
pursuant to this Indenture.
ARTICLE VIII.
FORM OF DEBENTURE AND ORIGINAL ISSUE
SECTION 8.1. Form of Debenture.
The Debenture and the Trustee's Certificate of Authentication to be
endorsed thereon are to be substantially in the forms contained as Exhibit A to
this Indenture, attached hereto and incorporated herein by reference.
SECTION 8.2. Original Issue of Debentures.
Debentures in the aggregate principal amount of [$____] may, upon execution
of this Indenture, be executed by the Company and delivered to the Trustee for
authentication, and the Trustee shall thereupon authenticate and deliver said
Debentures to or upon the written order of the Company, signed by its Chairman,
its Vice Chairman, its President, or any Vice President and its Treasurer or an
Assistant Treasurer, without any further action by the Company.
ARTICLE IX.
CONCERNING THE TRUSTEE
SECTION 9.1. Certain Duties and Responsibilities 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 man would exercise or use under the circumstances in the conduct
of his own affairs.
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(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:
(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
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indemnity against such risk is not reasonably assured to it.
SECTION 9.2. Notice of Defaults.
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Debentures, the Trustee shall transmit by mail to all holders of the Debentures,
as their names and addresses appear in the Debenture Register, notice of such
default, unless such default shall have been cured or waived; provided, however,
that, except in the case of 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 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 Chairman, 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 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
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;
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(e) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Debentureholders, pursuant to the provisions of
this Indenture, unless such Debentureholders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that may be incurred therein or thereby; nothing contained
herein shall, however, relieve the Trustee of the obligation, upon the
occurrence of an Event of Default (that has not been cured or waived) to
exercise with respect to the Debentures such of the rights and powers
vested in it by this Indenture, and to use the same degree of care and
skill in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs;
(f) The Trustee shall not be liable for any action taken or omitted to
be taken by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture;
(g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
bond, security, or other papers or documents, 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.
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(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 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 reasonable compensation (which shall not
be limited by any provision of law in regard to the compensation of a
trustee of an express trust), as the Company and the Trustee may from time
to time agree in writing, for all services rendered by it in the execution
of the trusts hereby created and in the exercise and performance of any of
the powers and duties hereunder of the Trustee, and, except as otherwise
expressly provided herein, the Company shall pay or reimburse the Trustee
upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any of the provisions of
this Indenture (including the reasonable compensation and the expenses and
disbursements of its counsel and of all Persons not regularly in its
employ) except any such expense, disbursement or advance as may arise from
its negligence or bad faith. The Company also covenants to indemnify the
Trustee (and its officers, agents, directors and employees) for, and to
hold it harmless against, any loss, liability or expense incurred without
negligence or bad faith on the part of the Trustee and arising out of or in
connection with the acceptance or administration of this trust, including
the costs and expenses of defending itself against any claim of liability
in the premises.
(b) The obligations of the Company under this Section 9.7 to
compensate and indemnify the Trustee and to pay or reimburse the Trustee
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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. 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 9.9, 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 9.9, the Trustee
shall resign immediately in the manner and with the effect specified in Section
9.10.
SECTION 9.10. 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
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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, 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 cease to be eligible in accordance with
the provisions of Section 9.9 and shall fail to resign after written
request therefor by the Company or by any such Debentureholder; or
(ii) The Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or commence a voluntary bankruptcy
proceeding, or a receiver of the Trustee or of its property shall be
appointed or consented to, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose
of rehabilitation, conservation or liquidation,
then, in any such case, the Company may remove the Trustee with respect to
all Debentures and appoint a successor trustee by written instrument, in
duplicate, executed by order of the Board of Directors, one copy of which
instrument shall be delivered to the Trustee so removed and one copy to the
successor trustee, or, subject to the provisions of Section 9.9, unless the
Trustee's duty to resign is stayed as provided herein, any Debentureholder
who has been a bona fide holder of a Debenture or Debentures for at least
six months may, on behalf of that holder and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor trustee. Such court may thereupon after
such notice, if any, as it may deem proper and prescribe, remove the
Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Debentures at the time Outstanding may at any time remove the Trustee by so
notifying the Trustee and the Company and may appoint a successor Trustee
with the consent of the Company.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee with respect to the Debentures pursuant to any of the
provisions of this Section 9.10 shall become effective upon acceptance of
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appointment by the successor trustee as provided in Section 9.11.
(e) Any successor trustee appointed pursuant to this Section 9.10 may
be appointed with respect to the Debentures, and at any time there shall be
only one Trustee with respect to the Debentures.
SECTION 9.11. 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 9.11.
(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 9.11, 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 9.12. 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
eligible under the provisions of Section 9.9, without the execution or filing of
any paper or any further
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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.
ARTICLE X.
CONCERNING THE DEBENTUREHOLDERS,
SECTION 10.1. Evidence of Action by Holders.
(a) Whenever in this Indenture it is provided that the holders of a
majority or specified percentage in aggregate principal amount of the
Debentures may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any
other action), the fact that at the time of taking any such action the
holders of such majority or specified percentage have joined therein may be
evidenced by any instrument or any number of instruments of similar tenor
executed by such holders of Debentures in Person or by agent or proxy
appointed in writing.
(b) If the Company shall solicit from the Debentureholders any
request, demand, authorization, direction, notice, consent, waiver or other
action, the Company may, at its option, as evidenced by an Officers'
Certificate, fix in advance a record date for the determination of
Debentureholders entitled to give such request, demand, authorization,
direction, notice, consent, waiver or other action, but the Company shall
have no obligation to do so. If such a record date is fixed, such request,
demand, authorization, direction, notice, consent, waiver or other action
may be given before or after the record date, but only the Debentureholders
of record at the close of business on the record date shall be deemed to be
Debentureholders for the purposes of determining whether Debentureholders
of the requisite proportion of Outstanding Debentures have authorized or
agreed or consented to such request, demand, authorization, direction,
notice, consent, waiver or other action, and for that purpose the
Outstanding Debentures shall be computed as of the record date; provided,
however, that no such authorization, agreement or consent by such
Debentureholders on the record date shall be deemed effective unless it
shall become effective pursuant to the provisions of this Indenture not
later than six months after the record date.
(c) For so long as the Trust is the registered holder of the
Debentures and the Fund is the registered holder of the Preferred
Securities, any matter requiring the consent of the majority of the holders
of Preferred Securities or all of the holders of Preferred Securities, or
other specified percentage of holders of Preferred Securities, such consent
shall in each case be evidenced by the consent of the manager of the Fund.
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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
unless the Trustee so requests) 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.
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
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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 10.01, 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 without the consent of
the Debentureholders, for one or more of the following purposes:
(a) to cure any ambiguity, defect, or inconsistency herein, in the
Debentures;
(b) to provide for uncertificated Debentures in addition to or in
place of certificated Debentures;
(c) 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;
(d) to add to, delete from, or revise the conditions, limitations,
and restrictions on the authorized amount, terms, or purposes of issue,
authentication, and delivery of Debentures, as herein set forth;
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(e) to make any change that does not adversely affect the rights of
any Debentureholder in any material respect;
(f) 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.
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 Article X) 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 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
Scheduled Maturity Date 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 principal amount of Debentures, the holders of which are
required to consent to any such supplemental indenture; provided further, that
if the Debentures are held by the Trust or a trustee of the Trust, such
supplemental indenture shall not be effective until the holders of a majority in
liquidation preference of Trust Securities of the Trust shall have consented to
such supplemental indenture; provided further, that if the consent of the holder
of each Outstanding Debenture is required, such supplemental indenture shall not
be effective until each holder of the Trust Securities of the Trust shall have
consented to such supplemental indenture. It shall not be necessary for the
consent of the Debentureholders affected thereby under this Section 11.2 to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such consent shall approve the substance thereof.
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SECTION 11.3. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture pursuant to the provisions
of this Article XI, this Indenture shall be and be deemed to be modified and
amended in accordance therewith and the respective rights, limitations of
rights, obligations, duties and immunities under this Indenture of the Trustee,
the Company and the holders of Debentures shall thereafter be determined,
exercised and enforced hereunder subject in all respects to such modifications
and amendments, and all the terms and conditions of any such supplemental
indenture shall be and be deemed to be part of the terms and conditions of this
Indenture for any and all purposes.
SECTION 11.4. Debentures Affected by Supplemental Indentures.
Debentures affected by a supplemental indenture, authenticated and
delivered after the execution of such supplemental indenture pursuant to the
provisions of this Article XI, may bear a notation in form approved by the
Company. If the Company shall so determine, new Debentures so modified as to
conform, in the opinion of the Board of Directors of the Company, to any
modification of this Indenture contained in any such supplemental indenture may
be prepared by the Company, authenticated by the Trustee and delivered in
exchange for the Debentures then Outstanding.
SECTION 11.5. Execution of Supplemental Indentures.
(a) Upon the request of the Company, accompanied by their Board
Resolutions authorizing the execution of any such supplemental indenture,
and upon the filing with the Trustee of evidence of the consent of
Debentureholders required to consent thereto as aforesaid, the Trustee
shall join with the Company in the execution of such supplemental indenture
unless such supplemental indenture affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise, in which case the Trustee
may in its discretion but shall not be obligated to, enter into such
supplemental indenture. The Trustee, subject to the provisions of Section
9.1, may receive an Opinion of Counsel as conclusive evidence that any
supplemental indenture executed pursuant to this Article XI is authorized
or permitted by, and conforms to, the terms of this Article XI and that it
is proper for the Trustee under the provisions of this Article XI to join
in the execution thereof
(b) Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of this Section 11.5,
the 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
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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 satisfactory in form to the Trustee executed and
delivered to the Trustee by the entity formed by such consolidation, or into
which the Company, as the case may be, shall have been merged, or by the entity
which shall have acquired such property; (ii) in case the Company consolidates
with or merges into another Person or conveys or transfers its properties and
assets substantially then as an entirety to any Person, the successor Person is
organized under the laws of the United States or any state or the District of
Columbia; and (iii) immediately after giving effect thereto, no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have occurred and be continuing.
SECTION 12.2. Successor Corporation Substituted.
(a) In case of any such consolidation, merger, sale, conveyance,
transfer or other disposition by the Company as contemplated in Section
12.1 and upon the assumption by the successor corporation, by supplemental
indenture, executed and delivered to the Trustee and satisfactory in form
to the Trustee, of, in the case of the Company, the due and punctual
payment of the principal of and interest on all of the Debentures
Outstanding and the due and punctual performance of all of the covenants
and conditions of this Indenture to be performed by the Company, as the
case may be, such successor corporation shall succeed to and be substituted
for the Company, with the same effect as if it had been named as the
Company herein, and thereupon the predecessor corporation shall be relieved
of all obligations and
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covenants of the Company 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 9.9, that shall survive until the date of
maturity or redemption date, as the case may be, and Sections 9.6 and 13.5, that
shall survive to such date and thereafter, and the Trustee, on demand of the
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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 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,
9.9 and 13.5 hereof that shall survive until such Debentures shall mature and be
paid. Thereafter, Sections 9.6 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 December 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
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of any of the Debentures entitled to receive such payment shall thereafter, as
an unsecured general creditor, look only to the Company for the payment thereof.
ARTICLE XIV.
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
SECTION 14.1. No Recourse.
No recourse under or upon any obligation, covenant or agreement of this
Indenture, or of the Debentures, or for any claim based thereon or otherwise in
respect thereof, shall be had against any incorporator, stockholder, officer or
director, past, present or future as such, of the Company or of any predecessor
or successor corporation, either directly or through the Company or any such
predecessor or successor corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that this Indenture and the obligations
issued hereunder are solely corporate obligations, and that no such personal
liability whatever shall attach to, or is or shall be incurred by, the
incorporators, stockholders, officers or directors as such, of the Company or of
any predecessor or successor corporation, or any of them, because of the
creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Debentures or implied therefrom; and that any and all such personal
liability of every name and nature, either at common law or in equity or by
constitution or statute, of, and any and all such rights and claims against,
every such incorporator, stockholder, officer or director as such, because of
the creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Debentures or implied therefrom, are hereby expressly waived and released as
a condition of, and as a consideration for, the execution of this Indenture and
the issuance of such Debentures.
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: [_____________________________________], Attn:
[__________________ ]. 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 [__________________] 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 (1) a statement that
the
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Person making such certificate or opinion has read such covenant or
condition; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based; (3) a statement that,
in the opinion of such Person, he has made such examination or
investigation as, in the opinion of such Person, is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and (4) a statement as to whether or not,
in the opinion of such Person, such condition or covenant has been complied
with.
SECTION 15.8. Payments on Business Days.
In any case where the date of maturity of interest or principal of any
Debenture or the date of redemption of any Debenture shall not be a Business
Day, then payment of interest or principal may (subject to Section 2.4) be made
on the next succeeding Business Day with the same force and effect as if made on
the nominal date of maturity or redemption, and no interest shall accrue for the
period after such nominal date.
SECTION 15.9. 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 15.10. 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 15.11. 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.
SECTION 15.12. 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
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under this Indenture as the holder of the Debentures held as the assets of the
Trust, any holder of Preferred Securities may institute legal proceedings
directly against the Company to enforce such Property Trustee's rights under
this Indenture without first instituting any legal proceedings against such
Property Trustee or any other person or entity. Notwithstanding the foregoing,
if an Event of Default has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest or principal on the
Debentures on the date such interest or principal is otherwise payable (or in
the case of redemption, on the redemption date), the Company acknowledges that a
holder of Preferred Securities may directly institute a proceeding for
enforcement of payment to such holder (subject to Article XVI hereof) of the
principal of or interest on the Debentures having a principal amount equal to
the aggregate liquidation amount of the Preferred Securities of such holder on
or after the respective due date specified in the Debentures; and the Company's
payment of any such amount to a holder of Preferred Securities shall discharge
the Company's obligation to pay such amount of principal or interest under such
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
50
<PAGE>
16.2, such payment shall be held in trust for the benefit of, and shall be paid
over or delivered to, the holders of Senior Indebtedness or their respective
representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Senior Indebtedness may have been issued, as their respective
interests may appear, but only to the extent that the holders of the Senior
Indebtedness (or their representative or representatives or a trustee) notify
the 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
51
<PAGE>
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.
(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 and upon 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
52
<PAGE>
the Company to or on account of such Senior Indebtedness. It is understood
that the provisions of this Article XVI are and are intended solely for the
purposes of defining the relative rights of the holders of the Debentures,
on the one hand, and the holders of such Senior Indebtedness on the other
hand.
(b) Nothing contained in this Article XVI or elsewhere in this
Indenture or in the Debentures is intended to or shall impair, as between
the Company, its creditors (other than the holders of Senior Indebtedness
of the Company), and the holders of the Debentures, the obligation of the
Company, which is absolute and unconditional, to pay to the holders of the
Debentures the principal of and interest on the Debentures as and when the
same shall become due and payable in accordance with their terms, or is
intended to or shall affect the relative rights of the holders of the
Debentures and creditors of the Company, as the case may be, other than the
holders of Senior Indebtedness of the Company, as the case may be, nor
shall anything herein or therein prevent the Trustee or the holder of any
Debenture from exercising all remedies otherwise permitted by applicable
law upon default under this Indenture, subject to the rights, if any, under
this Article XVI of the holders of such Senior Indebtedness in respect of
cash, property or securities of the Company, as the case may be, received
upon the exercise of any such remedy.
(c) Upon any payment or distribution of assets of the Company
referred to in this Article XVI, the Trustee, subject to the provisions of
Article IX, and the holders of the Debentures shall be entitled to
conclusively rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding-up, liquidation or
reorganization proceedings are pending, or a certificate of the receiver,
trustee in bankruptcy, liquidation trustee, agent or other Person making
such payment or distribution, delivered to the Trustee or to the holders of
the Debentures, for the purposes of ascertaining the Persons entitled to
participate in such distribution, the holders of Senior Indebtedness and
other indebtedness of the Company, as the case may be, the amount thereof
or payable thereon, the amount or amounts paid or distributed thereon and
all other facts pertinent thereto or to this Article XVI.
SECTION 16.5. Trustee to Effectuate Subordination.
Each holder of Debentures by such holder's acceptance thereof authorizes
and directs the Trustee on such holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article XVI and appoints the Trustee such holder's attorney-in-fact for any and
all such purposes.
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
53
<PAGE>
Debentures pursuant to the provisions of this Article XVI. Notwithstanding
the provisions of this Article XVI or any other provision of this
Indenture, the Trustee shall not be charged with knowledge of the existence
of any facts that would prohibit the making of any payment of monies to or
by the Trustee in respect of the Debentures pursuant to the provisions of
this Article XVI, unless and until a Responsible Officer of the Trustee
shall have received written notice thereof from the Company or a holder or
holders of Senior Indebtedness or from any trustee therefor; and before the
receipt of any such written notice, the Trustee, subject to the provisions
of Section 9.1, shall be entitled in all respects to assume that no such
facts exist; provided, however, that if the Trustee shall not have received
the notice provided for in this Section 16.6 at least two Business Days
prior to the date upon which by the terms hereof any money may become
payable for any purpose (including, without limitation, the payment of the
principal of or interest on any Debenture), then, anything herein contained
to the contrary notwithstanding, the Trustee shall have full power and
authority to receive such money and to apply the same to the purposes for
which they were received, and shall not be affected by any notice to the
contrary that may be received by it within two Business Days prior to such
date.
(b) The Trustee, subject to the provisions of Section 9.1, shall be
entitled to conclusively rely on the delivery to it of a written notice by
a Person representing himself to be a holder of Senior Indebtedness of the
Company (or a trustee on behalf of such holder) to establish that such
notice has been given by a holder of such Senior Indebtedness or a trustee
on behalf of any such holder or holders. In the event that the Trustee
determines in good faith that further evidence is required with respect to
the right of any Person as a holder of such Senior Indebtedness to
participate in any payment or distribution pursuant to this Article XVI,
the Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of such Senior Indebtedness
held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent
to the rights of such Person under this Article XVI, and, if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
the furnishing of such evidence or 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.
54
<PAGE>
(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 properly pay over or deliver (in accordance with
this Indenture) 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, 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.
55
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
[ISSUER]
By:___________________________________
Name:
Title:
[CORPORATE SEAL]
Attest:
________________________
[ ], Secretary
STATE STREET BANK AND
TRUST COMPANY
By:___________________________________
Name: Paul D. Allen
Title: Vice President
56
<PAGE>
STATE OF____________________)
) ss:
COUNTY OF___________________)
On the _______ day of _____________________, 1999. before me personally
came ________________________ to me known, who, being by me duly sworn, did
depose and say that he is the _________________________ 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,_______________________
My Commission Expires:_______________
[SEAL]
STATE OF [ ])
COUNTY OF [ ])
On this ____ day of [_____________], 1999, before me appeared
_____________________, to me personally known, who, being by me duly sworn (or
affirmed), did say that he is the ________________________ of STATE STREET BANK
AND TRUST COMPANY and that the seal affixed to said instrument is the corporate
seal of said corporation, and that said instrument was signed and sealed on
behalf of said corporation by authority of its board of directors, and said
_____________________ acknowledged said instrument to be the free act and deed
of said corporation.
______________________________________
Notary Public,________________________
My Commission Expires:_________________
[SEAL]
57
<PAGE>
EXHIBIT 99.k.4
TRUST AGREEMENT
---------------
This TRUST AGREEMENT, dated as of [ Date ] (this "Trust Agreement"),
among (i) [ISSUER], a [ ] corporation (the "Depositor"), (ii) State
Street Bank and Trust Company, a state chartered trust company organized under
the laws of the Commonwealth of Massachusetts, as trustee, and (iii)
[ Name ] and [ Name ], as
- -------------------------- -------------------------------------
trustees (each of such trustees in (ii) and (iii) a "Trustee" and collectively,
the ("Trustees"). The Depositor and the Trustees hereby agree as follows:
1. The trust created hereby (the "Trust") shall be known as "[ Issuer ]
Capital Statutory Trust" in which name the Trustees, or the Depositor to the
extent provided herein, may engage in the transactions contemplated hereby, make
and execute contracts, and sue and be sued.
2. The Depositor hereby assigns, transfers, conveys and sets over to the
Trustees the sum of Ten Dollars ($10.00). 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 statutory trust under
Chapter 615 of Title 34 of the Connecticut General Statutes, Section 500, et
--
seq., (the "Connecticut Statutory 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 Connecticut
Secretary of State in accordance with the provisions of the Connecticut
Statutory Trust Act substantially in the form attached as Exhibit A hereto.
---------
3. The Depositor and the Trustees will enter into an Amended and Restated
Trust Agreement, satisfactory to each such party, to provide for the
contemplated operation of the Trust created hereby and the issuance of the
Preferred Securities and Common Securities referred to therein. Prior to the
execution and delivery of such Amended and Restated Trust Agreement, the
Trustees shall not have any duty or obligation hereunder or with respect to the
trust estate, except as otherwise required by applicable law or as may be
necessary to obtain prior to such execution and delivery of any licenses,
consents or approvals required by applicable law or otherwise.
4. This Trust Agreement may be executed in one or more counterparts.
5. The number of Trustees initially shall be three (3) and thereafter the
number of Trustees shall be such number as shall be fixed from time to time by a
written instrument signed by the Depositor which may increase or decrease the
number of Trustees. Subject to the foregoing, the Depositor is entitled to
appoint or remove without cause any Trustee at any time. The Trustees may
resign upon thirty (30) days' prior notice to the Depositor.
<PAGE>
6. This Trust Agreement shall be governed by, and construed in accordance
with, the laws of the State of Connecticut (without regard to conflict of laws
of principles).
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to
be duly executed as of the day and year first above written.
[ISSUER], as Depositor
By:__________________________________
Name: [______________]
Title: [______________]
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By:__________________________________
Name:
Title _______________________________
_____________________________________
Name: , as Trustee
_____________________________________
Name: , as Trustee
-2-
<PAGE>
================================================================================
[ISSUER] CAPITAL STATUTORY TRUST
AMENDED AND RESTATED TRUST AGREEMENT
AMONG
[ISSUER] AS DEPOSITOR,
STATE STREET BANK AND TRUST COMPANY, AS PROPERTY TRUSTEE
AND
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
DATED AS OF [_______________], 1999
================================================================================
<PAGE>
@@
Table of Contents
<TABLE>
<S> <C>
ARTICLE I...................................................................................................... 1
SECTION 1.1. Definitions................................................................................. 1
ARTICLE II..................................................................................................... 8
SECTION 2.1. Name........................................................................................ 8
SECTION 2.2. Office of the Property Trustee, Principal Place of Business................................. 8
SECTION 2.3. Initial Contribution of Trust Property; Organizational Expenses............................. 8
SECTION 2.4. Issuance of the Preferred Securities........................................................ 9
SECTION 2.5. Issuance of the Common Securities; Subscription and Purchase of Debentures.................. 9
SECTION 2.6. Declaration of Trust........................................................................ 9
SECTION 2.7. Authorization to Enter Into Certain Transactions............................................ 10
SECTION 2.8. Assets of Trust............................................................................. 12
SECTION 2.9. Title to Trust Property..................................................................... 12
ARTICLE III.................................................................................................... 13
SECTION 3.1. Payment Account............................................................................. 13
ARTICLE IV..................................................................................................... 13
SECTION 4.1. Distributions............................................................................... 13
SECTION 4.2. Redemption.................................................................................. 14
SECTION 4.3. Subordination of Common Securities.......................................................... 15
SECTION 4.4. Payment Procedures.......................................................................... 16
SECTION 4.5. Tax Returns and Reports..................................................................... 16
SECTION 4.6. Payment of Taxes, Duties, Etc. of the Trust................................................. 16
SECTION 4.7. Payments Under Indenture; Subordination Under Indenture..................................... 17
ARTICLE V...................................................................................................... 17
SECTION 5.1. Initial Ownership........................................................................... 17
SECTION 5.2. The Trust Securities Certificates........................................................... 17
SECTION 5.3. Execution and Delivery of Trust Securities Certificates; Authentication..................... 17
SECTION 5.4. Legends..................................................................................... 18
SECTION 5.5. Registration of Transfer and Exchange Generally; Certain Transfers and Exchanges;
Preferred Securities Certificates.......................................................... 18
SECTION 5.6. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates.......................... 19
SECTION 5.7. Persons Deemed Securityholders.............................................................. 20
SECTION 5.8. Access to List of Securityholders' Names and Addresses...................................... 20
SECTION 5.9. Maintenance of Office or Agency............................................................. 20
SECTION 5.10. Appointment of Paying Agent................................................................ 20
SECTION 5.11. Ownership of Common Securities by Depositor................................................ 21
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 5.12. Rights of Securityholders; Acceleration and Enforcement of Debentures...................... 21
ARTICLE VI..................................................................................................... 22
SECTION 6.1. Limitations on Voting Rights................................................................ 22
SECTION 6.2. Notice of Meetings.......................................................................... 23
SECTION 6.3. Meetings of Preferred Securityholders....................................................... 23
SECTION 6.4. Voting Rights............................................................................... 24
SECTION 6.5. Proxies, Etc................................................................................ 24
SECTION 6.6. Securityholder Action by Written Consent.................................................... 24
SECTION 6.7. Record Date for Voting and Other Purposes................................................... 24
SECTION 6.8. Acts of Securityholders..................................................................... 24
SECTION 6.9. Inspection of Records....................................................................... 26
ARTICLE VII.................................................................................................... 26
SECTION 7.1. Representations and Warranties of the Bank and the Property Trustee......................... 26
SECTION 7.2. Representations and Warranties of Depositor................................................. 27
ARTICLE VIII................................................................................................... 27
SECTION 8.1. Certain Duties and Responsibilities......................................................... 27
SECTION 8.2. Certain Notices............................................................................. 28
SECTION 8.3. Certain Rights of Property Trustee.......................................................... 29
SECTION 8.4. Not Responsible for Recitals or Issuance of Securities...................................... 31
SECTION 8.5. May Hold Securities......................................................................... 31
SECTION 8.6. Compensation; Indemnity; Fees............................................................... 31
SECTION 8.7. Corporate Property Trustee Required; Eligibility of Trustees................................ 32
SECTION 8.8. Co-Trustees and Separate Trustee............................................................ 32
SECTION 8.9. Resignation and Removal; Appointment of Successor........................................... 33
SECTION 8.10. Acceptance of Appointment by Successor..................................................... 35
SECTION 8.11. Merger, Conversion, Consolidation or Succession to Business................................ 35
SECTION 8.12. Number of Trustees......................................................................... 35
SECTION 8.13. Delegation of Power........................................................................ 36
SECTION 8.14. Voting..................................................................................... 36
ARTICLE IX..................................................................................................... 36
SECTION 9.1. Termination Upon Expiration Date............................................................ 36
SECTION 9.2. Early Termination........................................................................... 36
SECTION 9.3. Termination................................................................................. 37
SECTION 9.4. Liquidation; Distribution of Debentures..................................................... 37
SECTION 9.5. Mergers, Consolidations, Amalgamations or Replacements of the Trust......................... 38
ARTICLE X...................................................................................................... 39
SECTION 10.1. Limitation of Rights of Securityholders.................................................... 39
SECTION 10.2. Amendment.................................................................................. 39
SECTION 10.3. Separability............................................................................... 41
SECTION 10.4. Governing Law.............................................................................. 41
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
SECTION 10.5. Payments Due on Non-Business Day........................................................... 41
SECTION 10.6. Successors................................................................................. 41
SECTION 10.7. Headings................................................................................... 41
SECTION 10.8. Reports, Notices and Demands............................................................... 41
SECTION 10.9. Agreement Not to Petition.................................................................. 42
SECTION 10.10. Acceptance of Terms of Trust Agreement, Guarantee and Indenture............................ 42
</TABLE>
-iii-
@@
<PAGE>
AMENDED AND RESTATED TRUST AGREEMENT
AMENDED AND RESTATED TRUST AGREEMENT, dated as of [_________________],
1999, among (i) [Issuer], a [ ] corporation (including any
------------------
successors or assigns, the "Depositor" or "Company"), (ii) STATE STREET BANK AND
TRUST COMPANY, a state chartered trust company duly organized and existing under
the laws of the Commonwealth of Massachusetts, as property trustee (the
"Property Trustee" and, in its separate corporate capacity and not in its
capacity as Property Trustee, the "Bank"), (iii) [ Name ], an
-------------------
individual, and [ Name ], an individual, each of whose address is c/o
-------------------
Company (each an "Administrative Trustee" and collectively the "Administrative
Trustees") (the Property Trustee and the Administrative Trustees referred to
collectively as the "Trustees"), and (iv) the several Holders (as hereinafter
defined).
RECITALS
WHEREAS, the Depositor, the Property Trustee and the Administrative
Trustees desire to duly declare and establish a statutory trust pursuant to the
Connecticut Statutory Trust Act to provide for, among other things, (i) the
issuance of the Common Securities (as defined herein) by the Trust (as defined
herein) to the Depositor; (ii) the issuance and sale of the Preferred Securities
(as defined herein) by the Trust pursuant to the Trust Preferred Purchase
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 agrees as follows:
ARTICLE I.
DEFINED TERMS
SECTION 1.1. Definitions.
For all purposes of this Trust Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article I have the meanings assigned to
them in this Article I and include the plural as well as the singular;
(b) 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
(c) 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 6.8.
<PAGE>
"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 [ Name ] and [ Name ]
---------- ----------
individually in his capacity as Administrative Trustee of the Trust formed and
continued hereunder and not in his individual capacity, or such Administrative
Trustee's successor in interest in such capacity, or any successor trustee
appointed as herein provided.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities or other ownership interests of the
specified Person, (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with the power to vote by the specified Person; (c) any
Person directly or indirectly controlling, controlled by, or under common
control with the specified Person; (d) a partnership in which the specified
Person is a general partner; (e) any officer or director of the specified
Person; and (f) if the specified Person is an individual, any entity of which
the specified Person is an officer, director or general partner.
"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 if such Person shall make a general assignment for the
benefit of creditors.
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"Bankruptcy Laws" has the meaning specified in Section 10.9.
"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 [ City/State ] are authorized
----------------------------------------
or required by law, executive order or regulation to remain closed, or a day on
which the Property Trustee's Corporate Trust Office or the Corporate Trust
Office of the Debenture Trustee is closed for business.
"Capital Event" means the receipt by the Trust of an Opinion of Counsel
experienced in such matters (which may be counsel to the Company) that the
Company cannot, or within 90 days after the date of the Opinion of such Counsel,
will not be permitted by the applicable regulatory authorities, due to a change
in law, regulation, policy or guideline or interpretation or application of law
or regulation, policy or guideline, to account for the Preferred Securities as
Tier I capital under the capital guidelines or policies of the Federal Reserve
and other applicable federal or state banking regulations.
"Certificate of Trust" means the certificate of trust filed with the
Secretary of State of the State of Connecticut 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."
"Closing Date" means the date of execution and delivery of this Trust
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute, in each case as amended from time to time.
"Common Securities Certificate" means a certificate evidencing ownership of
Common Securities, substantially in the form attached hereto as Exhibit A.
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"Common Security" means an undivided beneficial interest in the assets of
the Trust, having a Liquidation Amount of $25.00 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Company" means [Issuer].
"Connecticut Statutory Trust Act" means Chapter 615 of Title 34 of the
Connecticut General Statutes, Sections 500, et seq. as it may be amended from
time to time.
"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
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located at State Street Bank and Trust Company, 225 Franklin Street, Boston, MA
02110; Attention: Vice President, Corporate Trust Division.
"Debenture Event of Default" means an "Event of Default" as defined in
Section 7.1 of the Indenture.
"Debenture Redemption Date" means, with respect to any Debentures to be
redeemed under the Indenture, the date fixed for redemption under the Indenture.
"Debenture Tax Event" means a "Tax Event" as specified in Section 1.1 of
the Indenture.
"Debenture Trustee" means State Street Bank and Trust Company, a state
chartered trust company organized under the laws of the Commonwealth of
Massachusetts and any successors thereto, as trustee under the Indenture.
"Debentures" means the [ $ ] aggregate principal amount of the
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Depositor's % Subordinated Debentures due [ 2029 ], issued pursuant
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to the Indenture.
"Depositor" has the meaning specified in the Preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 4. 1 (a).
"Distributions" means amounts payable in respect of the Trust Securities as
provided in Section 4. 1.
"Event of Default" means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) the occurrence of a Debenture Event of Default; or
(b) default by the 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
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
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(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.
"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 9. 1.
"Extended Interest Payment Period" has the meaning specified in Section 4.1
of the Indenture.
"Fund" means SAL Trust Preferred Fund I, the initial holder of the
Preferred Securities.
"Guarantee" means the Preferred Securities Guarantee Agreement executed and
delivered by the Depositor and State Street Bank and Trust Company, as trustee,
contemporaneously with the execution and delivery of this Trust Agreement, for
the benefit of the holders of the Preferred Securities, as amended from time to
time.
"Indenture" means the Indenture, dated as of [ Date ], between the
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Depositor and the Debenture Trustee, as trustee, as amended or supplemented from
time to time.
"Investment Company Act," means the Investment Company Act of 1940, as
amended, as in effect at the date of execution of this instrument.
"Investment Company Event" means the receipt by the Trust of an Opinion of
Counsel, by a law firm experienced in such matters, to the effect that, as a
result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
the Trust is or shall be considered an "investment company" that is required to
be registered under the Investment Company Act, which Change in 1940 Act Law
becomes effective on or after the date of original issuance of the Preferred
Securities under this Trust Agreement.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to the principal amount of
Debentures to be contemporaneously redeemed in accordance with the Indenture and
the proceeds of which shall be used to pay the Redemption Price of such Trust
Securities; and (b) with respect to a distribution of Debentures to Holders of
Trust Securities in connection with a termination or liquidation of the Trust,
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the Holder to whom such Debentures are distributed. Each
Debenture distributed pursuant to clause (b) above shall carry with it
accumulated interest in an amount equal to the accumulated and unpaid interest
then due on such Debentures.
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<PAGE>
"Liquidation Amount" means the stated amount of $25.00 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 9.4(a).
"Liquidation Distribution" has the meaning specified in Section 9.4(d).
"Officers' Certificate" means a certificate signed by the President or a
Vice President and by the Treasurer or the Controller or the Secretary, of the
Depositor, and delivered to the appropriate Trustee. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Trust Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.
"Opinion of Counsel" means an opinion in writing of legal counsel, who may
be counsel for the Trust, the Property Trustee or the Depositor, but not an
employee of any thereof, and who shall be reasonably acceptable to the Property
Trustee.
"Outstanding", when used with respect to Preferred Securities, means, as of
the date of determination, all Preferred Securities theretofore executed and
delivered under this Trust Agreement, except:
(a) Preferred Securities theretofore canceled by the Property Trustee or
delivered to the Property Trustee for cancellation;
(b) Preferred Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Property Trustee or any
Paying Agent for the Holders of such Preferred Securities; provided that, if
such Preferred Securities are to be redeemed, notice of such redemption has been
duly given pursuant to this Trust Agreement; and
(c) Preferred Securities which have been paid or in exchange for or in lieu
of which other Preferred Securities have been executed and delivered pursuant to
Sections 5.4 and 5.5; provided, however, that in determining whether the Holders
of the requisite Liquidation Amount of the Outstanding Preferred Securities have
given any request, demand, authorization, direction, notice, consent or waiver
hereunder, Preferred Securities owned by the Depositor, any Trustee or any
Affiliate of the Depositor or any Trustee shall
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be disregarded and deemed not to be Outstanding, except that (a) in determining
whether any Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Preferred Securities
that such Trustee knows to be so owned shall be so disregarded; and (b) the
foregoing shall not apply at any time when all of the outstanding Preferred
Securities are owned by the Depositor, one or more of the Trustees and/or any
such Affiliate. Preferred Securities so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Administrative Trustees the pledgee's right so to act with
respect to such Preferred Securities to the exclusion of the Depositor or any
Affiliate of the Depositor.
"Owner" means each Person who is the beneficial owner of Preferred
Securities as reflected in the Securities Register.
"Paying Agent" means any paying agent or co-paying agent appointed pursuant
to Section 5.10 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 4.1 and 4.2.
"Person" means any individual, corporation, partnership, joint venture,
trust, limited liability company or corporation, unincorporated organization or
government or any agency or political subdivision thereof.
"Preferred Security" means an undivided beneficial interest in the assets
of the Trust, having a Liquidation Amount of $25.00 and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution as provided herein.
"Preferred Securities Certificate" means a certificate evidencing ownership
of Preferred Securities, substantially in the form attached hereto as Exhibit B.
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"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, allocated on a pro rata basis (based on
Liquidation Amounts) among the Trust Securities.
"Relevant Trustee" shall have the meaning specified in Section 8.10.
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<PAGE>
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 5.5.
"Securityholder" or "Holder" means a Person in whose name a Trust Security
or Securities is registered in the Securities Register; any such Person shall be
deemed to be a beneficial owner within the meaning of the Connecticut Statutory
Trust Act.
"Trust" means the Connecticut statutory 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.
"Trust Preferred Purchase Agreement" means the Trust Preferred Purchase
Agreement dated as of [ Date ], among the Trust, the Depositor and the
----------
Purchaser named therein.
"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 Preferred
Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificate or the Preferred Securities Certificate.
"Trustees" means, collectively, the Property Trustee and the Administrative
Trustees.
ARTICLE II.
ESTABLISHMENT OF THE TRUST
SECTION 2.1. Name.
The Trust created and continued hereby shall be known as "[Issuer] Capital
Statutory Trust," as such name may be modified from time to time by the
Administrative Trustees following written notice to the Holders of Trust
Securities and the other Trustees, in which name the Trustees may engage in the
transactions contemplated hereby, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
SECTION 2.2. Office of the Property Trustee, Principal Place of Business.
The address of the Property Trustee is State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110; Attention: Vice President, Corporate
Trust Division.
SECTION 2.3. Initial Contribution of Trust Property; Organizational Expenses.
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<PAGE>
The Trustees acknowledge receipt in trust from the Depositor the sum of
$10.00, which constitutes the initial Trust Property. The Depositor shall pay
organizational expenses of the Trust as they arise or shall, upon request of any
Trustee, promptly reimburse such Trustee for any such expenses paid by such
Trustee. The Depositor shall make no claim upon the Trust Property for the
payment of such expenses.
SECTION 2.4. Issuance of the Preferred Securities.
Contemporaneously with the execution and delivery of this Trust Agreement,
(a) the Depositor and an Administrative Trustee, on behalf of the Trust shall
execute and deliver the Trust Preferred Securities Purchase Agreement, and (b)
an Administrative Trustee, on behalf of the Trust, shall execute in accordance
with Section 5.2 and deliver in accordance with the Trust Preferred Securities
Purchase Agreement, the Preferred Securities Certificates registered in the name
of the Securityholder in an aggregate amount of [$ ] Preferred
---------------
Securities having an aggregate Liquidation Amount of [$ ] million against
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receipt of the aggregate purchase price of such Preferred Securities of [$
--------
], which amount such Administrative Trustee shall promptly deliver to the
- -
Property Trustee. No additional Preferred Securities (or Common Securities
other than those issued under Section 2.5) shall be issued at any time unless
and until the Trustees receive prior written authorization and direction to do
so from both (i) the Depositor and (ii) the holder(s) of at least a majority in
Liquidation Amount of the Outstanding Preferred Securities, other than
additional Preferred Securities required to be sold under the Trust Preferred
Securities Purchase Agreement pursuant to the Underwriters exercise of their
Over-Allotment Option thereunder.
SECTION 2.5. 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 5.2 and deliver to the Depositor, Common Securities Certificates,
registered in the name of the Depositor, in an aggregate amount of Common
Securities having an aggregate Liquidation Amount of [$ ] against payment
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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 [$ ] and,
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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 [$ ].
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SECTION 2.6. Declaration of Trust.
The exclusive purposes and functions of the Trust are (a) to issue and sell
Trust Securities and use the proceeds from such sale to acquire the Debentures;
and (b) to engage in those activities necessary, convenient or incidental
thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to
have all the rights, powers and duties to the extent set forth herein, and the
Trustees hereby accept such appointment. The Property Trustee hereby declares
that it shall hold the Trust Property in trust upon and subject to the
conditions set forth herein for the benefit of the Securityholders. The
Administrative Trustees shall have all rights, powers and duties set forth
herein and in accordance with applicable law with respect to accomplishing the
purposes of the Trust.
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SECTION 2.7. 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 2.7 and Article VIII, and in
accordance with the following provisions (i) and (ii), the Administrative
Trustees shall have the authority to enter into all transactions and agreements
determined by the Administrative Trustees to be appropriate in exercising the
authority, express or implied, otherwise granted to the Administrative Trustees
under this Trust Agreement, and to perform all acts in furtherance thereof,
including without limitation, the following:
(i) As among the Trustees, each Administrative Trustee, acting singly
or jointly, shall have the power and authority to act on behalf of the Trust
with respect to the following matters:
(A) the issuance and sale of the Trust Securities;
(B) to cause the Trust to enter into, and to execute, deliver
and perform on behalf of the Trust, the Expense Agreement
and such other agreements or documents as may be necessary
or desirable in connection with the purposes and function of
the Trust;
(C) 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;
(D) the appointment of a Paying Agent, authenticating agent and
Securities Registrar in accordance with this Trust
Agreement;
(E) 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
Connecticut;
(F) 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
trust under the laws of the State of Connecticut and of each
other jurisdiction in which such existence is necessary to
protect the limited liability of the Holders of the
Preferred Securities or to enable the Trust to effect the
purposes for which the Trust was created; and
(G) the taking of any action incidental to the foregoing as the
Administrative Trustees may from time to time determine is
necessary or advisable to give effect to the terms of this
Trust Agreement for the benefit of the Securityholders
(without
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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 2.7(a)(ii), the
Property Trustee shall have none of the duties, liabilities,
powers or the authority of the Administrative Trustees set
forth in Section 2.7(a)(i).
(b) So long as this Trust Agreement remains in effect, the Trust
(or the Trustees acting on behalf of the Trust) shall not undertake any
business, activities or transactions 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,
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set-off or otherwise dispose of any of the Trust Property or interests therein,
including to Securityholders, except as expressly provided herein; (iii) take
any action that would cause the Trust to fail or cease to qualify as a "grantor
trust" for United States federal income tax purposes; (iv) incur any
indebtedness for borrowed money or issue any other debt; or (v) take or consent
to any action that would result in the placement of a Lien on any of the Trust
Property. The Administrative Trustees shall defend all claims and demands of all
Persons at any time claiming any Lien on any of the Trust Property adverse to
the interest of the Trust or the Securityholders in their capacity as
Securityholders.
(c) In connection with the issue and sale of the Preferred
Securities, the Depositor shall have the right and responsibility to assist the
Trust with respect to, or effect on behalf of the Trust, the following:
(i) the negotiation of the terms of, and the execution and
delivery of, the Trust Preferred Purchase Agreement providing for the sale of
the Preferred Securities; and
(ii) the taking of any other actions necessary or desirable
to carry out any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the
Administrative Trustees are authorized and directed to [use reasonable efforts
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 10.2, the Depositor and the Administrative Trustees are
authorized to take any action, not inconsistent with applicable law or this
Trust Agreement, that each of the Depositor and the Administrative Trustees
determines in their discretion to be necessary or desirable for such purposes.
SECTION 2.8. Assets of Trust.
The assets of the Trust shall consist of the Trust Property.
SECTION 2.9. Title to Trust Property.
Legal title to all Trust Property shall be vested at all times in the
Property Trustee (in its capacity as such) and shall be held and administered by
the Property Trustee for the benefit of the Securityholders in accordance with
this Trust Agreement.
ARTICLE III.
PAYMENT ACCOUNT
SECTION 3.1. Payment Account.
(a) On or prior to the Closing Date, the Property Trustee shall
establish the Payment Account. The Property Trustee and 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
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Account in accordance with this Trust Agreement. All monies and other property
deposited or held from time to time in the Payment Account shall be held by the
Property Trustee in the Payment Account for the exclusive benefit of the
Securityholders and for distribution as herein provided, including (and subject
to) any priority of payments provided for herein.
(b) The Property Trustee shall deposit in the Payment Account,
promptly upon receipt, all payments of principal of or interest on, and any
other payments or proceeds with respect to, the Debentures. Amounts held in the
Payment Account shall not be invested by the Property Trustee pending
distribution thereof.
ARTICLE IV.
DISTRIBUTIONS; REDEMPTION
SECTION 4.1. Distributions.
(a) Distributions on the Trust Securities shall be cumulative, and
shall accumulate (as provided in the following paragraph (b)) whether or not
there are funds of the Trust available for the payment of Distributions.
Distributions shall accumulate from the respective date of issuance of Preferred
Securities, and, except during any Extended Interest Payment Period with respect
to the Debentures (as provided in the Indenture), shall be payable quarterly in
arrears on the last calendar day of March, June, September and December of each
year, commencing on [ Date ]. If any date on which a Distribution is
--------------
otherwise payable on the Trust Securities is not a Business Day, then the
payment of such Distribution shall be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay) with the same force and effect as if made on such date (each date on
which distributions are payable in accordance with this Section 4.1(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 accrue and accumulate at a rate of [____%] per annum of the
Liquidation Amount of the Trust Securities. The amount of Distributions payable
for any full period shall be computed on the basis of a 360-day year of twelve
30-day months. The amount of Distributions for any partial period shall be
computed on the basis of the number of days elapsed in a 360-day year of twelve
30 day months. During any Extended Interest Payment Period with respect to the
Debentures, Distributions on the Preferred Securities shall be deferred for a
period equal to the Extended Interest Payment Period and shall be payable on the
date provided in the Indenture for payments of interest accruing during such
period. The amount of Distributions payable for any period shall include the
Additional Amounts, if any.
(c) Distributions on the Trust Securities shall be made by the
Property Trustee solely from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Trust has funds then on hand and
immediately available in the Payment Account for the payment of such
Distributions.
(d) Distributions on the Trust Securities with respect to a
Distribution Date shall be payable to the record holders thereof as they appear
on the
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Securities Register for the Trust Securities on the relevant record date,
which shall be the 15th day of the month in which the Distribution is payable.
SECTION 4.2. Redemption.
(a) On each Debenture Redemption Date and on the stated maturity of
the Debentures, the Trust shall be required to redeem a Like Amount of Trust
Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee by
first class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the Redemption Date to each Holder of Trust Securities to be redeemed,
at such Holder's address appearing in the Securities Register. All notices of
redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price and that payment will be made upon
presentation and surrender of the Trust Securities Certificates;
(iii) if less than all the Outstanding Trust Securities are to be
redeemed, the identification and the aggregate Liquidation
Amount of the particular Trust Securities to be redeemed
and that new Trust Securities Certificates will be issued
for the unredeemed portion; and
(iv) that, on the Redemption Date, the Redemption Price shall
become due and payable upon each such Trust Security to be
redeemed and that Distributions thereon shall cease to
accumulate on and after said date.
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption of Debentures. Redemptions of the Trust Securities shall be made and
the Redemption Price shall be payable on each Redemption Date only to the extent
that the Trust has immediately available funds then on hand and available in the
Payment Account for the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect
of any Preferred Securities, then, by 12:00 noon, [ City/State of Depositor
-----------------------------
] time, on the Redemption Date, subject to Section 4.2(c), the Property Trustee,
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subject to Section 4.2(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 Preferred Securities Certificates.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Trust Securities called for redemption shall be payable
to the Holders of such Trust Securities as they appear on the Securities
Register for the Trust Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then upon the date of such deposit, all rights of
Securityholders holding Trust Securities so called for redemption shall cease,
except the right of such Securityholders to receive the Redemption Price and
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any Distribution payable on or prior to the Redemption Date, but without
interest, and such Securities shall cease to be Outstanding. In the event that
any date on which any Redemption Price is payable is not a Business Day, then
payment of the Redemption Price payable on such date shall be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay). 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 Securityholders 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 4.3(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated on a
pro rata basis (based on Liquidation Amounts) among the Common Securities and
the Preferred Securities. The particular Preferred Securities to be redeemed
shall be selected not more than 60 days prior to the Redemption Date by the
Property Trustee from the outstanding Preferred Securities not previously called
for redemption, by such method (including, without limitation, by lot) as the
Property Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions (equal to $25.00 or an integral multiple of
$25.00 in excess thereof) of the Liquidation Amount of Preferred Securities of a
denomination larger than $25.00. The Property Trustee shall promptly notify the
Securities Registrar in writing of the Preferred Securities selected for
redemption and, in the case of any Preferred Securities selected for partial
redemption, the Liquidation Amount thereof to be redeemed. For all purposes of
this Trust Agreement, unless the context otherwise requires, all provisions
relating to the redemption of Preferred Securities shall relate, in the case of
any Preferred Securities redeemed or to be redeemed only in part, to the portion
of the Liquidation Amount of Preferred Securities which has been or is to be
redeemed.
SECTION 4.3. 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 4.2(f), pro rata among the Common
Securities and the Preferred Securities based on the Liquidation Amount of the
Trust Securities; provided, however, that if on any Distribution Date or
Redemption Date any Event of Default resulting from a Debenture Event of Default
shall have occurred and be continuing, no payment of any Distribution (including
Additional Amounts, if applicable) on, or Redemption Price of, any Common
Security, and no other payment on account of the redemption, liquidation or
other acquisition of Common Securities, shall be made unless payment in full in
cash of all accumulated and unpaid Distributions (including Additional Amounts,
if applicable) on all Outstanding Preferred Securities for all Distribution
periods terminating on or prior
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thereto, or in the case of payment of the Redemption Price the full amount of
such Redemption Price on all Outstanding Preferred Securities then called for
redemption, shall have been made or provided for, and all funds immediately
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions (including Additional Amounts, if applicable) on,
or the Redemption Price of, Preferred Securities then due and payable.
(b) In the case of the occurrence of any Event of Default resulting
from a Debenture Event of Default, the record holder of Common Securities shall
be deemed to have waived any right to act with respect to any such Event of
Default under this Trust Agreement until the effect of all such Events of
Default with respect to the Preferred Securities shall have been cured, waived
or otherwise eliminated. Until any such Event of Default under this Trust
Agreement with respect to the Preferred Securities shall have been so cured,
waived or otherwise eliminated, the Property Trustee shall act solely on behalf
of the record holders of the Preferred Securities and not the record holder of
the Common Securities, and only the Holders of the Preferred Securities shall
have the right to direct the Property Trustee to act on their behalf.
SECTION 4.4. Payment Procedures.
Payments of Distributions (including Additional Amounts, if applicable) in
respect of the Preferred Securities shall be made by check mailed to the address
of the Person entitled thereto as such address shall appear on the Securities
Register. 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 4.5. Tax Returns and Reports.
The Administrative Trustees shall prepare (or cause to be prepared), at the
Depositor's expense, and file all United States federal, state and local tax and
information returns and reports required to be filed by or in respect of the
Trust. In this regard, the Administrative Trustees shall (a) prepare and file
(or cause to be prepared and filed) the appropriate Internal Revenue Service
Form required to be filed in respect of the Trust in each taxable year of the
Trust; and (b) prepare and furnish (or cause to be prepared and furnished) to
each Securityholder the appropriate Internal Revenue Service form required to be
furnished to such Securityholder or the information required to be provided on
such form. The Administrative Trustees shall provide the Depositor and Property
Trustee 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 4.6. 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.
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SECTION 4.7. Payments Under Indenture; Subordination Under Indenture.
Any amount payable hereunder to any record holder of Preferred Securities
shall be reduced by the amount of any corresponding payment such Holder has
directly received under the Indenture. Amounts paid by the Depositor to the
Trust or the holders of Preferred Securities under the Indenture or the
Guarantee or hereunder are subject to the subordination provisions of the
Indenture whereby the Depositor's payments to holders of Debentures are
subordinate in right of payment to the Depositor's payment of obligations to
certain other creditors, all as provided and set forth in the Indenture, and
similar subordination provisions in the Guarantee regarding the Depositor's
obligations thereunder.
ARTICLE V.
TRUST SECURITIES CERTIFICATES
SECTION 5.1. Initial Ownership.
Upon the creation of the Trust and the contribution by the Depositor
pursuant to Section 2.3 and until the issuance of the Trust Securities, and at
any time during which no Trust Securities are outstanding, the Depositor shall
be the sole beneficial owner of the Trust.
SECTION 5.2. The Trust Securities Certificates.
(a) The Trust Securities Certificates shall be executed on behalf of
the Trust by manual or facsimile signature of at least one Administrative
Trustee except as provided in Section 5.3; and the Property Trustee is
authorized to affix such facsimile signature upon written notice from the
President or Chief Financial Officer of the Depositor. Trust Securities
Certificates bearing the facsimile signatures of individuals who were, at the
time when such signatures were made, 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
Holder, and shall be entitled to the rights and subject to the obligations of a
Holder hereunder, upon due registration of such Trust Securities Certificates in
such transferee's name pursuant to Section 5.5.
(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 5.3. Execution and Delivery of Trust Securities Certificates;
Authentication.
On the Closing Date and on the Option Closing Date, the Administrative
Trustee shall cause Trust Securities Certificates, in an aggregate Liquidation
Amount as provided in Sections 2.4 and 2.5, to be executed on behalf of the
Trust by at least one of the Administrative Trustees and delivered to the
Property Trustee and upon such delivery the Property Trustee shall authenticate
such Trust Securities Certificates and deliver such
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Trust Securities Certificates upon the written order of the Trust in authorized
denominations.
SECTION 5.4. Legends.
Unless sold pursuant to an effective Registration Statement under the
Securities Act of 1933, as amended, all Trust Securities Certificates issued
hereunder shall bear the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
Prior to any transfer of any Trust Security Certificate bearing such
legend, in whole or in part (other than pursuant to an effective registration
statement under the Securities Act), the Holder thereof shall furnish, at the
expense of such Holder, to the Depositor and the Trustees an Opinion of Counsel,
which shall be reasonably satisfactory in form and substance to such parties, to
the effect that such transfer is exempt from registration under the Securities
Act and applicable state securities laws.
SECTION 5.5. Registration of Transfer and Exchange Generally; Certain Transfers
and Exchanges; Preferred Securities Certificates.
(a) The Property Trustee shall keep or cause to be kept at its
Corporate Trust Office a register or registers for the purpose of registering
Common Securities Certificates and Preferred Securities Certificates and
transfers and exchanges of Preferred Securities Certificates in which the
registrar and transfer agent with respect to the Preferred Securities (the
"Securities Register"), subject to such reasonable regulations as it may
prescribe, shall provide for the registration of Preferred Securities
Certificates and Common Securities Certificates (subject to Section 5.11 in the
case of Common Securities Certificates) and registration of transfers and
exchanges of Preferred Securities Certificates as herein provided. Such
registrar is herein sometimes referred to as the "Securities Registrar." The
Property Trustee is hereby appointed "Securities Registrar" for the purpose of
registering Common Securities Certificates and Preferred Securities and
transfers of Preferred Securities as herein provided.
Upon surrender for registration of transfer of any Preferred Security at
the offices or agencies of the Property Trustee designated for that purpose, the
Depositor shall (if such transfer complies with this Agreement, including
Section 5.4) execute and authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Preferred Securities of the same
series of any authorized denominations of like tenor and aggregate principal
amount and bearing such legends as may be required by this Trust Agreement.
At the option of the Holder, Preferred Securities may be exchanged for
other Preferred Securities of any authorized denominations, of like tenor and
aggregate Liquidation Amount and bearing such legends as may be required by this
Trust Agreement, upon surrender of the Preferred Securities to be exchanged at
such office or agency. Whenever any securities are so surrendered for exchange,
the Property Trustee
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shall execute and authenticate and deliver the Preferred Securities that the
Holder making the exchange is entitled to receive.
All Preferred Securities issued upon any transfer or exchange of Preferred
Securities shall be the valid obligations of the Trust, evidencing the same
debt, and entitled to the same benefits under this Trust Agreement, as the
Preferred Securities surrendered upon such transfer or exchange.
Every Preferred Security presented or surrendered for transfer or exchange
shall (if so required by the Property Trustee) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Property Trustee and the Securities Registrar, duly executed by the Holder
thereof or such Holder's attorney duly authorized in writing.
No service charge shall be made to a Holder for any transfer or exchange of
Preferred Securities, but the Property Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any transfer or exchange of Preferred Securities.
Neither the Trust nor the Property Trustee shall be required, pursuant to
the provisions of this Section, (i) to issue, register the transfer of or
exchange any Preferred Security during a period beginning at the opening of
business 15 days before the day of selection for redemption of Preferred
Securities pursuant to Article IV and ending at the close of business on the day
of mailing of the notice of redemption, or (ii) to register the transfer of or
exchange any Preferred Security so selected for redemption in whole or in part,
except, in the case of any such Preferred Security to be redeemed in part, any
portion thereof not to be redeemed.
(b) Trust Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Trust Agreement. Any
transfer or purported transfer of any Trust Security not made in accordance with
this Trust Agreement shall be null and void.
SECTION 5.6. Mutilated, Destroyed, Lost or Stolen Trust Securities
Certificates.
If (a) any mutilated Trust Securities certificate shall be surrendered to
the Securities Registrar, or if the Securities Registrar shall receive evidence
to its satisfaction of the destruction, loss or theft of any Trust Securities
Certificate; and (b) there shall be delivered to the Securities Registrar and
the 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
or other transferee, the Administrative Trustees, or any one of them, on behalf
of the Trust shall execute and make available for delivery, in exchange for or
in lieu of any such mutilated, destroyed, lost or stolen Trust Securities
Certificate, a new Trust Securities Certificate of like class, tenor and
denomination. In connection with the issuance of any new Trust Securities
Certificate under this Section, 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 shall constitute
conclusive evidence of an undivided beneficial interest in the assets of the
Trust,
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corresponding to that evidenced by the lost, stolen or destroyed Trust
Certificate, as if originally issued, whether or not the lost, stolen or
destroyed Trust Securities Certificate shall be found at any time.
SECTION 5.7. Persons Deemed Securityholders.
The Trustees, the Securities Registrar or the Depositor shall treat the
Person in whose name any Trust Securities are issued as the owner of such Trust
Securities for the purpose of receiving Distributions and for all other purposes
whatsoever, and none of the Trustees, the Administrative Trustees, the
Securities Registrar nor the Depositor shall be bound by any notice to the
contrary.
SECTION 5.8. Access to List of Securityholders' Names and Addresses.
Each Holder and each Owner shall be deemed to have agreed not to hold the
Depositor, the Property Trustee, or the Administrative Trustees accountable by
reason of the disclosure of such Securityholder's name and address, regardless
of the source from which such information was derived.
SECTION 5.9. Maintenance of Office or Agency.
The Property Trustee shall designate, with the consent of the
Administrative Trustees, which consent shall not be unreasonably withheld, an
office or offices or agency or agencies where Preferred Securities Certificates
may be surrendered for registration of transfer or exchange or redemption and
where notices and demands to or upon the Trustees in respect of the Trust
Securities Certificates may be served. The Property Trustee initially designates
State Street Bank and Trust Company, 225 Franklin Street, Boston, MA 02110;
Attention: Vice President, Corporate Trust Division as its corporate trust
office for such purposes. The Property Trustee shall give prompt written notice
to the Depositor, the Administrative Trustees and to the Holders of any change
in the location of the Securities Register or any such office or agency.
SECTION 5.10. Appointment of Paying Agent.
The Paying Agent shall make Distributions to 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 solely for the
purpose of making the Distributions referred to above. The Property Trustee may
revoke such power and remove any Paying Agent in its sole discretion. The Paying
Agent shall initially be the Property Trustee. Any Person acting as Paying Agent
shall be permitted to resign as Paying Agent upon 30 days' written notice to the
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 Property
Trustee shall appoint a successor (which shall be a bank or trust company) that
is reasonably acceptable to the Administrative Trustees to act as Paying Agent.
Such successor Paying Agent or any additional Paying Agent appointed by the
Administrative Trustees shall 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 will hold all sums, if any, held by it for
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payment to the Holders in trust for the benefit of the Holders entitled thereto
until such sums shall be paid to such Holders. The Paying Agent shall return all
unclaimed funds to the Property Trustee and upon removal of a Paying Agent such
Paying Agent shall also return all funds in its possession to the Property
Trustee. The provisions of Sections 8.1, 8.3 and 8.6 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 5.11. Ownership of Common Securities by Depositor.
At each time of delivery pursuant to Section 2.5, the Depositor shall
acquire and retain beneficial and record ownership of the Common Securities
except (i) in connection with a consolidation or merger of the Depositor into
another corporation or any conveyance, transfer or lease by the Depositor of its
properties and assets substantially as an entirety to any Person, pursuant to
Section 12.1 of the Indenture, or (ii) a transfer to an Affiliate of the
Depositor in compliance with applicable law (including the Securities Act of
1933, as amended and applicable state securities and blue sky laws). To the
fullest extent permitted by law, any attempted transfer of the Common Securities
shall be void except as contemplated by the following legend. The Administrative
Trustees shall cause each Common Securities Certificate issued to the Depositor
to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT TO A
SUCCESSOR IN INTEREST TO THE DEPOSITOR OR AN AFFILIATE OF THE DEPOSITOR IN
COMPLIANCE WITH APPLICABLE LAW AND SECTION 5.11 OF THE TRUST AGREEMENT."
SECTION 5.12. Rights of Securityholders; Acceleration and Enforcement of
Debentures.
(a) The legal title to the Trust Property is vested exclusively
in the Property Trustee (in its capacity as such) in accordance with Section
2.9, and the 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 and when issued and delivered to
Holders of the Preferred Securities against payment of the purchase price
therefor, the Preferred Securities shall be fully paid and nonassessable
interests in the Trust. The Holders of the Preferred Securities, in their
capacities as such, shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the Corporations law of the State of Connecticut.
(b) For so long as any Preferred Securities remain Outstanding
and the Trust is a holder of Debentures, 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 as permitted in the Indenture, the
Holders of at least 25% in Liquidation Amount of the Preferred Securities then
Outstanding shall have such right by a notice in writing to the Depositor and
the Debenture Trustee; and upon any such declaration such principal amount of
and the accrued interest on all of the Debentures
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shall become immediately due and payable, provided that the payment of principal
and interest on such Debentures shall remain subordinated to the extent provided
in the Indenture.
(c) For so long as any Preferred Securities remain outstanding,
if, upon a Debenture Event of Default arising from the failure to pay interest
or principal on the Debentures, the Holders of any Preferred Securities then
Outstanding shall, to the fullest extent permitted by law, have the right to
directly institute proceedings for enforcement of payment to such Holders of
principal of or interest on the Debentures having a principal amount equal to
the Liquidation Amount of the Preferred Securities of such Holders.
ARTICLE VI.
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
SECTION 6.1. Limitations on Voting Rights.
(a) Except as provided in this Section 6.1, in Sections 5.12,
8.10 and 10.2 and in the Indenture and as otherwise required by law, no Holder
of record of Preferred Securities shall have any right to vote or in any manner
otherwise control the administration, operation and management of the Trust or
the obligations of the parties hereto, nor shall anything herein set forth, or
contained in the terms of the Trust Securities Certificates, be construed so as
to constitute the Securityholders from time to time as partners or members of an
association.
(b) So long as any Debentures are held by the Property Trustee,
the Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or executing any
trust or power conferred on the Debenture Trustee with respect to such
Debentures; (ii) waive any past default which is waivable under Article VII of
the Indenture; (iii) exercise any right to rescind or annul a declaration that
the principal of all the Debentures shall be due and payable; or (iv) consent to
any amendment, modification or termination of the Indenture or the Debentures,
where such consent shall be required, without, in each case, obtaining the prior
approval of the Holders of at least a majority in Liquidation Amount of all
Outstanding Preferred Securities; provided, however, that where a consent under
the Indenture would require the consent of each Holder of Outstanding Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior consent of each holder of Preferred Securities. The Trustees shall not
revoke any action previously authorized or approved by a vote of the Holders of
the Outstanding Preferred Securities, except by a subsequent vote of the Holders
of the Outstanding Preferred Securities. The Property Trustee shall notify each
Holder of the Outstanding Preferred Securities of any notice of default received
from the Debenture Trustee with respect to the Debentures. In addition to
obtaining the foregoing approvals of the Holders of the Preferred Securities,
prior to taking any of the foregoing actions, the Trustees shall, at the expense
of the Depositor, obtain an Opinion of Counsel experienced in such matters to
the effect that the Trust shall continue to be classified as a grantor trust and
not as an association taxable as a corporation for United States federal income
tax purposes on account of such action. This paragraph governs the Trustees only
in their respective capacities as Trustees of the Trust, and not in any of their
other official capacities on behalf of other Persons, including
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without limitation as the Trustee under the Indenture or as officers of the
Depositor or otherwise.
(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, privileges or special
rights of the Preferred Securities as provided in this Agreement, whether by way
of amendment to the Trust Agreement or otherwise; or (ii) the dissolution,
winding-up or termination of the Trust, other than pursuant to the terms of this
Trust Agreement, then the Holders of Outstanding Preferred Securities as a class
shall be entitled to vote on such amendment or proposal and such amendment or
proposal shall not be effective except with the approval of the Holders of at
least 66 2/3 in Liquidation Amount of the Outstanding Preferred Securities. No
amendment to this Trust Agreement may be made if, as a result of such amendment,
the Trust would cease to be classified as a grantor trust or would be classified
as an association taxable as a corporation for United States federal income tax
purposes.
(d) If any Distributions payable on the Preferred Securities are in
arrears for any reason for ten quarterly periods, the Holders of the Preferred
Securities, voting separately, as a class with any other Holders having similar
voting rights, may appoint a representative who shall be entitled to attend any
subsequent meeting of the Board of Directors of the Depositor until such arrears
are paid, but such representative will not have any right to vote on matters
submitted for approval by the Board of Directors.
SECTION 6.2. Notice of Meetings.
Notice of all meetings of the Preferred Securityholders, stating the time,
place and purpose of the meeting, shall be given by the Property Trustee
pursuant to Section 10.8 to each Preferred Securityholder of record, at his
registered address, at least 15 days and not more than 90 days before the
meeting. At any such meeting, any business properly before the meeting may be so
considered whether or not stated in the notice of the meeting. Any adjourned
meeting may be held as adjourned without further notice.
SECTION 6.3. Meetings of Preferred Securityholders.
(a) No annual meeting of Securityholders is required to be held. The
Administrative Trustees, however, shall call a meeting of Securityholders to
vote on any matter in respect of which Preferred Securityholders are entitled to
vote upon the written request of the Preferred Securityholders of 25% of the
Outstanding Preferred Securities (based upon their aggregate Liquidation Amount)
and the Administrative Trustees or the Property Trustee may, at any time in
their discretion, call a meeting of Preferred Securityholders to vote on any
matters as to which the Preferred Securityholders are entitled to vote.
(b) Preferred Securityholders of record of 50% of the Outstanding
Preferred Securities (based upon their aggregate Liquidation Amount), present in
person or by proxy, shall constitute a quorum at any meeting of Securityholders.
(c) If a quorum is present at a meeting, an affirmative vote by the
Preferred Securityholders of record present, in person or by proxy, holding more
than a majority of the Preferred Securities (based upon their aggregate
Liquidation Amount) held
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by the Preferred Securityholders of record present, either in person or by
proxy, at such meeting shall constitute the action of the Securityholders,
unless this Trust Agreement requires a greater number of affirmative votes.
SECTION 6.4. Voting Rights.
Securityholders shall be entitled to one vote for each $25.00 of
Liquidation Amount represented by their Trust Securities in respect of any
matter as to which such Securityholders are entitled to vote.
SECTION 6.5. Proxies, Etc.
At any meeting of Securityholders, any Securityholder entitled to vote
thereat may vote by proxy, provided that no proxy, shall be voted at any meeting
unless it shall have been placed on file with the Administrative Trustees, or
with such other officer or agent of the Trust as the Administrative Trustees may
direct, for verification prior to the time at which such vote shall be taken.
When Trust Securities are held jointly by several persons, any one of them may
vote at any meeting in person or by proxy in respect of such Trust Securities,
but if more than one of them shall be present at such meeting in person or by
proxy, and such joint owners or their proxies so present disagree as to any vote
to be cast, such vote shall not be received in respect of such Trust Securities.
A proxy purporting to be executed by or on behalf of a Securityholder shall be
deemed valid unless challenged at or prior to its exercise, and, the burden of
proving invalidity shall rest on the challenger. No proxy shall be valid more
than three years after its date of execution.
SECTION 6.6. 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 6.7. Record Date for Voting and Other Purposes.
For the purposes of determining the Securityholders who are entitled to
notice of and to vote at any meeting or by written consent, or to participate in
any Distribution on the Trust Securities in respect of which a record date is
not otherwise provided for in this Trust Agreement, or for the purpose of any
other action, the Administrative Trustees may from time to time fix a date, not
more than 90 days prior to the date of any meeting of Securityholders or the
payment of Distribution or other action, as the case may be, as a record date
for the determination of the identity of the Securityholders of record for such
purposes.
SECTION 6.8. 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
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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 8.1) conclusive in favor of the Trustees, if made in the manner
provided in this Section 6.8.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which any Trustee receiving the same deems sufficient.
(c) The ownership of Preferred Securities shall be proved by the
Securities Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Securityholder of any Trust Security shall bind every
future Securityholder of the same Trust Security and the Securityholder of every
Trust Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustees or the Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.
(e) Without limiting the foregoing, a Securityholder entitled
hereunder to take any action hereunder with regard to any particular Trust
Security may do so with regard to all or any part of the Liquidation Amount of
such Trust Security or by one or more duly appointed agents each of which may do
so pursuant to such appointment with regard to all or any part of such
liquidation amount, without duplication.
(f) A Securityholder may institute a legal proceeding directly
against the Depositor under the Guarantee to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Guarantee
Trustee (as defined in the Guarantee), the Trust or any Person.
(g) For so long as the Trust is the registered holder of the
Debentures and the Fund is the sole Holder of the Preferred Securities, any
matter requiring the consent of the majority of the Holders of the Preferred
Securities or all of the Holders of the Preferred Securities, or other specified
percentage of the Holders of the Preferred Securities, such consent shall in
each case be evidenced by the consent of the manager of the Fund.
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SECTION 6.9. Inspection of Records.
Upon reasonable notice to the Administrative Trustees and the Property
Trustee, the records of the Trust shall be open to inspection by Securityholders
during normal business hours for any purpose reasonably related to such
Securityholder's interest as a Securityholder.
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES
SECTION 7.1. 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 hereby represents and warrants (as applicable) for the benefit
of the Depositor and the Securityholders that:
(a) the Bank is a state chartered trust company duly organized,
validly existing and in good standing under the laws of the State of
Massachusetts;
(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 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 Massachusetts, 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
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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
Massachusetts; and
(f) there are no proceedings pending or, to the best of the Property
Trustee's knowledge, threatened against or affecting the Bank or the Property
Trustee in any court or before any governmental authority, agency or arbitration
board or tribunal which, individually or in the aggregate, would materially and
adversely affect the Trust or would question the right, power and authority of
the Property Trustee to enter into or perform its obligations as one of the
Trustees under this Trust Agreement.
SECTION 7.2. Representations and Warranties of Depositor.
The Depositor hereby represents and warrants for the benefit of the
Securityholders that:
(a) the Trust Securities Certificates issued on the Closing Date or
the Option Closing Date, if applicable, on behalf of the Trust have been duly
authorized and, shall have been duly and validly executed, issued and delivered
by the Administrative Trustees pursuant to the terms and provisions of, and in
accordance with the requirements of, this Trust Agreement and the
Securityholders shall be, as of such date, entitled to the benefits of this
Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by
the Trust (or the Trustees on behalf of the Trust) under the laws of the State
of Connecticut or any political subdivision thereof in connection with the
execution, delivery and performance by the Bank or the Property Trustee, as the
case may be, of this Trust Agreement.
ARTICLE VIII.
TRUSTEES
SECTION 8.1. Certain Duties and Responsibilities.
(a) The duties and responsibilities of the Trustees shall be as
provided by this Trust Agreement. 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. None of the Trustees shall be liable for its acts or omissions hereunder
except as a result of its own gross negligence or willful misconduct. 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 8.1. To the
extent that, at law or in equity, an Administrative Trustee has duties
(including fiduciary duties) and liabilities relating thereto to the Trust or to
the Securityholders, such Administrative Trustee shall not be liable to the
Trust or to any Securityholder for such Trustee's good faith reliance on the
provisions of this Trust Agreement. The provisions of this Trust Agreement, to
the extent that they restrict the duties and liabilities of the Administrative
Trustees otherwise
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existing at law or in equity, are agreed by the Depositor and the
Securityholders to replace such other duties and liabilities of the
Administrative Trustees, as the case may be.
(b) All payments made by the Property Trustee or a Paying Agent in
respect of the Trust Securities shall be made only from the revenue and proceeds
from the Trust Property and only to the extent that there shall be sufficient
revenue or proceeds from the Trust Property to enable the Property Trustee or a
Paying Agent to make payments in accordance with the terms hereof. 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 8.1(b) does not limit the liability of the Trustees expressly set forth
elsewhere in this Trust Agreement.
(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;
(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 3.1 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.
SECTION 8.2. Certain Notices.
(a) Within one Business Day after the occurrence of any Event of
Default actually known to the Property Trustee, the Property Trustee shall
transmit, in
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the manner and to the extent provided in Section 10.8, 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 8.2 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 10.8, 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 8.3. Certain Rights of Property Trustee.
Subject to the provisions of Section 8.1:
(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
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 necessary
shorter period of time set forth in such notice (which to the extent practicable
shall not be less than 2 Business Days), it may, but shall be under no duty to,
take or refrain from taking such action not inconsistent with this Trust
Agreement as it shall deem advisable and in the best interests of the
Securityholders, in which event the Property Trustee shall have no liability
except for its own bad faith, negligence or willful misconduct;
(c) any direction or act of the Depositor or the Administrative
Trustees contemplated by this Trust Agreement shall be sufficiently evidenced by
an Officers' Certificate;
(d) whenever in the administration of this Trust Agreement, the
Property Trustee shall deem it desirable that a matter be established before
undertaking,
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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) except pursuant to written instructions delivered to the Property
Trustee in accordance with the provisions herein 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 and such exercise
shall not be inconsistent with the terms of this Trust Agreement or contrary to
law;
(h) the Property Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Securityholders, but the
Property Trustee may make such further inquiry or investigation into such facts
or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through its
agents or attorneys, provided that the Property Trustee shall be responsible for
its own negligence or recklessness with respect to selection of any agent or
attorney appointed by it hereunder;
(j) whenever in the administration of this Trust Agreement the
Property Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder the Property
Trustee (i) may request instructions from the Holders of the Trust Securities
which instructions may only be given by the Holders of the same proportion in
Liquidation Amount of the Trust Securities as would be entitled to direct the
Property Trustee under the terms of the Trust Securities in respect of such
remedy, right or action; (ii) may refrain from enforcing such remedy or right or
taking such other action until such instructions are received; and (iii) shall
be protected in acting in accordance with such instructions not inconsistent
with this Trust Agreement; and
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(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 8.4. Not Responsible for Recitals or Issuance of Securities.
The Recitals contained herein and in the Trust Securities Certificates
shall be taken as the statements of the 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 8.5. 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, 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 8.6. Compensation; Indemnity; Fees.
The Depositor agrees:
(a) to pay to the Trustees from time to time reasonable compensation
for all services rendered by them hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust) as the Depositor and Trustee may from time to time agree in
writing;
(b) except as otherwise expressly provided herein, to reimburse the
Trustees upon request for all reasonable expenses, disbursements and advances
incurred or made by the Trustees in accordance with any provision of this Trust
Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to such Trustee's negligence, bad faith or
willful misconduct (or, in the case of the Administrative Trustees, any such
expense, disbursement or advance as may be attributable to its, his or her gross
negligence, bad faith or willful misconduct); and
(c) to indemnify each of the Trustees or any predecessor Trustee for,
and to hold the Trustees harmless against, any loss, damage, claims, liability,
penalty or expense, 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 loss,
damage, claims, liability, penalty or expense, as may be attributable to such
Trustee's negligence, bad faith or willful misconduct (or, in the case of the
Administrative Trustees, any such expense, disbursement or advance as may be
attributable to its, his or her gross negligence, bad faith or willful
misconduct).
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No Trustee may claim any Lien or charge on any Trust Property as a result
of any amount due pursuant to this Section 8.6.
SECTION 8.7. 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 bank or trust
company organized under the laws of the United States or any state thereof or
the District of Columbia that 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 8.7, 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 8.7, 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.
SECTION 8.8. 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 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 8.8. 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 8.8 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 if reasonable and appropriate under this Agreement.
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(c) Every co-trustee or separate trustee shall, to the extent
permitted by law, but to such extent only, be appointed subject to the following
terms, namely:
(i) The Trust Securities shall be executed and delivered and
all rights, powers, duties and obligations hereunder in respect of the custody
of securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustees specified hereunder, shall be exercised,
solely by such Trustees and not by such co-trustee or separate trustee.
(ii) The rights, powers, duties and obligations hereby conferred
or imposed upon the Property Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed by the
Property Trustee or by the Property Trustee and such co-trustee or separate
trustee jointly, as shall be provided in the instrument appointing such co-
trustee or separate trustee, except to the extent that under any law of any
jurisdiction in which any particular act is to be performed, the Property
Trustee shall be incompetent or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be exercised and performed by
such co-trustee or separate trustee.
(iii) The Property Trustee at any time, by an instrument in
writing executed by it, with the written concurrence of the Depositor, may
accept the resignation of or remove any co-trustee or separate trustee appointed
under this Section 8.8, 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 8.8.
(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 and Administrative Trustees 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 8.9. 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 8.10.
(b) Subject to the immediately preceding paragraph, the Relevant
Trustee may resign at any time with respect to the Trust Securities by giving
written notice thereof to the Securityholders. If the instrument of acceptance
by the successor
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Trustee required by Section 8.11 shall not have been delivered to the Relevant
Trustee within 30 days after the giving of such notice of resignation, the
Relevant Trustee may petition, at the expense of the Depositor, any court of
competent jurisdiction for the appointment of a successor Trustee with respect
to the Trust Securities.
(c) Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by Act of the Common
Securityholder. If a Debenture Event of Default shall have occurred and be
continuing, the Property Trustee may be removed at such time by Act of the
Holders of a majority in Liquidation Amount of the 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 8.10. If the
Property Trustee shall resign, be removed or become incapable of continuing to
act as the Property Trustee at a time when a Debenture Event of Default shall
have occurred and is continuing, the Preferred Securityholders, by Act of the
Securityholders of a majority in Liquidation Amount of the 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 8.10. 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 8.10. If no successor
Relevant Trustee with respect to the Trust Securities shall have been so
appointed by the Common Securityholder or the Preferred Securityholders and
accepted appointment in the manner required by Section 8.10, any Securityholder
who has been a Securityholder of Trust Securities on behalf of himself and all
others similarly situated may petition a court of competent jurisdiction for the
appointment of a Relevant Trustee with respect to the Trust Securities.
(e) The Property Trustee shall give notice of each resignation and
each removal of a Relevant Trustee and each appointment of a successor Trustee
to all Securityholders in the manner provided in Section 10.8 and shall give
notice to the Depositor. Each notice shall include the name of the successor
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 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
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Depositor (with the successor in each case being a Person who satisfies the
eligibility requirement for Administrative Trustees set forth in Section 8.7).
SECTION 8.10. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with
respect to the Trust Securities and the Trust, the retiring Relevant Trustee and
each successor Trustee with respect to the Trust Securities shall execute and
deliver an instrument hereto wherein each successor Trustee shall accept such
appointment and which shall contain such provisions as shall be necessary or
desirable to transfer and confirm to, and to vest in, each successor Trustee all
the rights, powers, trusts and duties of the retiring 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 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 Trustee such retiring Relevant Trustee shall duly
assign, transfer and deliver to such successor 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 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 Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under this Article VIII.
SECTION 8.11. Merger, Conversion, Consolidation or Succession to Business.
Any Person into which any relevant Trustee may be merged or converted or
with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which such Relevant Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate trust
business of such Relevant Trustee, shall be the successor of such Relevant
Trustee hereunder, provided such Person shall be otherwise qualified and
eligible under this Article VIII, without the execution or filing of any paper
or any further act on the part of any of the parties hereto.
SECTION 8.12. Number of Trustees.
(a) There shall be one Property Trustee and two Administrative
Trustees, provided that the Holder of all of the Common Securities by written
instrument may increase or decrease the number of Administrative Trustees.
(b) If an Administrative Trustee ceases to hold office for any reason
and the number of Administrative Trustees is not reduced pursuant to Section
8.12(a), or if the number of Administrative Trustees is increased pursuant to
Section 8.12(a), a vacancy shall occur. The vacancy shall be filled with a
Trustee appointed in accordance with Section 8.10.
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(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 8.10, 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 8.13. Delegation of Power.
(a) Any Administrative Trustee may, by power of attorney consistent
with applicable law (subject to prior approval by the Depositor), delegate to
any other natural person over the age of 21 his or her power for the purpose of
executing any documents contemplated in Section 2.7(a); and
(b) The Administrative Trustees shall have power to delegate from
time to time to such of their number or to the Depositor the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Administrative Trustees or otherwise as the Administrative
Trustees may deem expedient, to the extent such delegation is not prohibited by
applicable law or contrary to the provisions of the Trust, as set forth herein.
SECTION 8.14. 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 9.1. Termination Upon Expiration Date
Unless earlier dissolved, the Trust shall automatically dissolve on,
[__________, 2029] (the "Expiration Date") subject to distribution of the Trust
Property in accordance with Section 9.4..
SECTION 9.2. Early Termination.
The first to occur of any of the following events is an "Early Termination
Event":
(a) the occurrence of a Bankruptcy Event in respect of, or the
dissolution or liquidation of, the Depositor;
(b) delivery of written direction to the Property Trustee by the
Depositor at any time (which direction is wholly optional and within the
discretion of the Depositor) to dissolve the Trust and distribute the Debentures
to Securityholders in exchange for the Preferred Securities in accordance with
Section 9.4;
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(c) the redemption of all of the Preferred Securities in
connection with the redemption of all of the Debentures; and
(d) an order for dissolution of the Trust shall have been
entered by a court of competent jurisdiction.
SECTION 9.3. 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 9.4, or upon the
redemption of all of the Trust Securities pursuant to Section 4.2, of all
amounts required to be distributed hereunder upon the final payment of the Trust
Securities; (b) the payment of any expenses owed by the Trust; (c) the discharge
of all administrative duties of the Administrative Trustees, including the
performance of any tax reporting obligations with respect to the Trust or the
Securityholders; and (d) the filing of a Certificate of Cancellation by the
Administrative Trustee under the Connecticut Statutory Trust Act.
SECTION 9.4. Liquidation; Distribution of Debentures.
(a) If an Early Termination Event specified in clause (a), (b), or
(d) of Section 9.2 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 9.4(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 9.4(d) applies, receive a Liquidation Distribution, as the
Administrative Trustees or the Property Trustee shall deem appropriate.
(b) Except where Section 9.2(c) or 9.4(d) applies, in order to effect
the liquidation of the 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.
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(c) Except where Section 9.2(c) or 9.4(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)
any Trust Securities Certificates not so surrendered for exchange shall be
deemed to represent a Like Amount of Debentures, accruing interest at the rate
provided for in the Debentures from the last Distribution Date on which a
Distribution was made on such Trust Securities Certificates until such
certificates are so surrendered (and until such certificates are so surrendered,
no payments of interest or principal shall be made to holders of Trust
Securities Certificates with respect to such Debentures); and (iv) 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 9.4, 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 reasonably 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 reasonably 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 Preferred securities, except that, if a Debenture Event of Default
has occurred and is continuing, the Preferred Securities shall have a priority
over the Common Securities.
SECTION 9.5. 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 9.5. At the request of the Depositor, with the consent of the
Administrative Trustees and without the consent of the holders of the Preferred
Securities, or the Property Trustee, the Trust may merge with or into,
consolidate, amalgamate, be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to a trust organized as such
under the laws of any state; provided, that (i) such successor entity either (a)
expressly assumes all of the obligations of the Trust with respect to the
Preferred Securities; or (b) substitutes for the Preferred Securities other
securities having substantially the same terms as the Preferred Securities (the
"Successor Securities") so long as the Successor Securities rank the same as the
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Preferred Securities rank in priority with respect to distributions and payments
upon liquidation, redemption and otherwise; (ii) the Depositor expressly
appoints a trustee of such successor entity possessing substantially the same
powers and duties as the Property Trustee as the holder of the Debentures; (iii)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Preferred Securities (including any Successor Securities) in any
material respect; (iv) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Depositor has received an
Opinion of Counsel to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect; and (b)
following such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither the Trust nor such successor entity shall be required
to register as an "investment company" under the Investment Company Act; and (v)
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 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 10.1. 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 10.2. 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 8.10 with respect to acceptance of appointment by a
successor Trustee; (ii) to cure any ambiguity, correct or supplement any
provision herein or therein which may be inconsistent with any other provision
herein or therein, or to make any other provisions with respect to matters or
questions arising under this Trust Agreement, that shall not be inconsistent
with the other provisions of this Trust Agreement; or (iii) to modify, eliminate
or add to any provisions of this Trust Agreement to such extent as shall be
necessary to ensure that the Trust shall be classified for United States federal
income tax purposes as a grantor trust at all times that any Trust Securities
are outstanding, to ensure that the Trust shall not be required to register as
an "investment company" under the Investment
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Company Act; or to ensure that the Preferred Securities are accounted as Tier I
capital under the capital guidelines or policies of the Federal Reserve and
other applicable federal or state banking regulations; 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 6.1(c) or Section 10.2(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 6.3 or 6.6 hereof), this Trust
Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount of
any Distribution required to be made in respect of the Trust Securities as of a
specified date; or (ii) restrict the right of a 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 6.3 or 6.6 hereof), this
paragraph (c) of this Section 10.2 may not be amended.
(d)
Notwithstanding any other provisions of this Trust Agreement to the
contrary, 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.
(g) The Property Trustee shall not 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.
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SECTION 10.3. Separability.
In case any provision in this Trust Agreement or in the Trust Securities
Certificates shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 10.4. Governing Law.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
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 CONNECTICUT (WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES THEREOF).
SECTION 10.5. Payments Due on Non-Business Day.
If the date fixed for any payment on any Trust Security shall be a day that
is not a Business Day, then such payment need not be made on such date but may
be made on the next succeeding day which is a Business Day (except as otherwise
provided in Sections 4.1(a) and 4.2(d)), with the same force and effect as
though made on the date fixed for such payment, and no distribution shall
accumulate thereon for the period after such date.
SECTION 10.6. 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 10.7. Headings.
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement.
SECTION 10.8. Reports, Notices and Demands.
Any report, notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
any Securityholder or the Depositor may be given or served in writing by deposit
thereof, first-class postage prepaid, in the United States mail, hand delivery
or facsimile transmission, in each case, addressed, (a) in the case of a
Preferred Securityholder, to such Preferred Securityholder as such
Securityholder's name and address may appear on the Securities Register; and (b)
in the case of the Common Securityholder or the Depositor, to
[ISSUER] [ ADDRESS ], Attention: [______]. Any notice to
-------------------
Preferred Securityholders shall also be given to such owners as have, within two
years preceding the giving of such notice, filed their names and addresses with
the Property Trustee for that purpose. Such notice, demand or other
communication to or
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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 Trust or the Property Trustee to the State Street Bank
and Trust Company, 225 Franklin Street, Boston, MA 02110; Attention: Vice
President; Corporate Trust Division and (b) with respect to the Administrative
Trustees, to them at the address above for notices to the Depositor, marked
"Attention: Administrative Trustees of [Issuer] Statutory Trust." Such notice,
demand or other communication to or upon the Trust or the Property Trustee or
the depositor or the Administrative Trustees under this Section 10.8 shall be
deemed to have been sufficiently given or made only upon actual receipt of the
writing by the Trust or the Property Trustee or other such addressee.
SECTION 10.9. Agreement Not to Petition.
Each of the Trustees and the Depositor agree for the benefit of the
Securityholders that, until at least one year and 1 day after the Trust has been
terminated in accordance with Article IX, they shall not file, or join in the
filing of, a petition against the Trust under any bankruptcy, insolvency,
reorganization or other similar law (including, without limitation, the United
States Bankruptcy Code of 1978, as amended) (collectively, "Bankruptcy Laws") or
otherwise join in the commencement of any proceeding against the Trust under any
Bankruptcy Law. In the event the Depositor takes action in violation of this
Section 10.9, the Property Trustee agrees, for the benefit of Securityholders,
that at the expense of the Depositor (which expense shall be paid prior to the
filing), it shall file an answer with the bankruptcy court or otherwise properly
contest the filing of such petition by the Depositor against the Trust or the
commencement of such action and raise the defense that the Depositor has agreed
in writing not to take such action and should be stopped and precluded
therefrom. The provisions of this Section 10.9 shall survive the termination of
this Trust Agreement.
SECTION 10.10. 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.
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IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Trust Agreement to be duly executed, and their respective corporate
seals to be hereunto affixed and attested, as applicable, all as of the day and
year first above written.
[ISSUER]
By:_______________________________
Name:
Title:
Attest:
__________________________
Name:
Title:
STATE STREET BANK AND TRUST COMPANY, as Property
Trustee
By:
Name:
Title:
[ ], as Administrative Trustee
By:_______________________________
Title:
[ ], as Administrative Trustee
By:_______________________________
Title:
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EXHIBIT A
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT TO THE DEPOSITOR OR AN AFFILIATE OF
THE DEPOSITOR IN COMPLIANCE WITH APPLICABLE LAW AND SECTION 5.5 OF THE AMENDED
AND RESTATED TRUST AGREEMENT
CERTIFICATE NUMBER C-1 NUMBER OF COMMON SECURITIES ___
($_________ Aggregate Liquidation Amount)
CERTIFICATE EVIDENCING COMMON SECURITIES
OF
[ISSUER] CAPITAL STATUTORY TRUST
____% COMMON SECURITIES
(LIQUIDATION AMOUNT [$_______] PER COMMON SECURITY)
[ISSUER] CAPITAL STATUTORY TRUST, a statutory trust created under the laws
of the State of Connecticut (the "Trust"), hereby certifies that [ISSUER] (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 $25.00 per Common
Security) (the "Common Securities"). Except in accordance with Section 5.5 of
the Trust Agreement (as defined below), the Common Securities are not
transferable and any attempted transfer hereof other than in accordance thereof
shall be void. The designations, rights, privileges, restrictions, preferences,
and other terms and provisions of the Common Securities are set forth in, and
this certificate and the Common Securities represented hereby are issued and
shall in all respects be subject to the terms and provisions of, the Amended and
Restated Trust Agreement of the Trust dated as of [ Date ], as the same may
-------------
be amended from time to time (the "Trust Agreement") among [Issuer], as
Depositor, State Street Bank and Trust Company, as Property Trustee and the
Holders of the Trust Securities, including the designation of the terms of the
Common Securities as set forth therein. The Trust will furnish a copy of the
Trust Agreement to the Holder without charge upon written request to the Trust
at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder. Terms used but not
defined herein have the meaning set forth in the Trust Agreement.
<PAGE>
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has
executed this certificate this [ Date ].
------------
[ISSUER]
By:______________________________
Name:
Administrative Trustee
COUNTERSIGNED AND REGISTERED:
STATE STREET BANK AND TRUST COMPANY,
as Securities Registrar
By:_____________________________
Authorized Signatory
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EXHIBIT B
THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT TO THE DEPOSITOR OR AN AFFILIATE OF
THE DEPOSITOR IN COMPLIANCE WITH APPLICABLE LAW AND SECTION 5.5 OF THE AMENDED
AND RESTATED TRUST AGREEMENT
CERTIFICATE NUMBER C-1 NUMBER OF PREFERRED SECURITIES ___
($_________ Aggregate Liquidation Amount)
CERTIFICATE EVIDENCING PREFERRED SECURITIES
OF
[ISSUER] CAPITAL STATUTORY TRUST
____% PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25.00 PER PREFERRED SECURITY)
[ISSUER] CAPITAL STATUTORY TRUST, a statutory trust created under the laws
of the State of Connecticut (the "Trust"), hereby certifies that [ISSUER] (the
"Holder") is the registered owner of _____________________ preferred securities
of the Trust representing undivided beneficial interests in the assets of the
Trust and designated the Preferred Securities (liquidation amount $25.00 per
Preferred Security) (the "Preferred Securities"). Except in accordance with
Section 5.5 of the Trust Agreement (as defined below), the Preferred Securities
are not transferable and any attempted transfer hereof other than in accordance
thereof shall be void. The designations, rights, privileges, restrictions,
preferences, and other terms and provisions of the Preferred Securities are set
forth in, and this certificate and the Preferred Securities represented hereby
are issued and shall in all respects be subject to the terms and provisions of,
the Amended and Restated Trust Agreement of the Trust dated as of [ Date ],
-------------
as the same may be amended from time to time (the "Trust Agreement") among
[ISSUER], as Depositor, State Street Bank and Trust Company, as Property Trustee
and the Holders of the Trust Securities, including the designation of the terms
of the Common Securities as set forth therein. The Trust will furnish a copy of
the Trust Agreement to the Holder without charge upon written request to the
Trust at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder. Terms used but not
defined herein have the meaning set forth in the Trust Agreement.
<PAGE>
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has
executed this certificate this [ Date ].
------------
[ISSUER] CAPITAL STATUTORY TRUST
By:_______________________________
Name:
Administrative Trustee
COUNTERSIGNED AND REGISTERED:
STATE STREET BANK AND TRUST COMPANY,
as Securities Registrar
By:_____________________________
Authorized Signatory
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EXHIBIT C
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT AS TO EXPENSES AND LIABILITIES (this "Agreement") dated as of
[ Date ], between [ISSUER], a [ State ] a corporation (the "Company"),
---------- -------------
and [ISSUER] CAPITAL STATUTORY TRUST, a Connecticut statutory trust (the
"Trust").
RECITALS
WHEREAS, the Trust intends to issue its common securities (the "Common
Securities") to, and receive Debentures from, the Company and to issue and sell
[ISSUER] Capital Statutory Trust ___% Cumulative Trust Preferred Securities (the
"Preferred Securities") with such powers, preferences and special rights and
restrictions as are set forth in the Amended and Restated Trust Agreement of the
Trust dated as of [ Date ], as the same may be amended from time to time
--------------
(the "Trust Agreement");
WHEREAS, the Company shall directly or indirectly own all of the Common
Securities of the Trust and shall issue the Debentures;
NOW, THEREFORE, in consideration of the purchase by each holder of the
Preferred Securities, which purchase the Company hereby agrees shall benefit the
Company and which purchase the Company acknowledges shall be made in reliance
upon the execution and delivery of this Agreement, the Company, including in its
capacity as holder of the Common Securities, and the Trust hereby agree as
follows:
ARTICLE I
SECTION 1.1 GUARANTEE BY THE COMPANY.
Subject to the terms and conditions hereof, the Company, including in its
capacity as holder of the Common Securities, hereby irrevocably and
unconditionally guarantees to each person or entity to whom the Trust is now or
hereafter becomes indebted or liable (the "Beneficiaries") the full payment when
and as due, of any and all Obligations (as hereinafter defined) to such
Beneficiaries. As used herein, "Obligations" means any costs, expenses or
liabilities of the Trust other than obligations of the Trust to pay to holders
of any Preferred Securities or other similar interests in the Trust the amounts
due such holders pursuant to the terms of the Preferred Securities or such other
similar interests, as the case may be. This Agreement is intended to be for the
benefit of, and to be enforceable by, all such Beneficiaries, whether or not
such Beneficiaries have received notice hereof.
SECTION 1.2 TERM OF AGREEMENT.
This Agreement shall terminate and be of no further force and effect upon
the later of (a) the date on which full payment has been made of all amounts
payable to all holders of all the Preferred Securities (whether upon redemption,
liquidation, exchange or otherwise); and (b) the date on which there are no
Beneficiaries remaining; provided, however, that this Agreement shall continue
to be effective or shall be reinstated, as the case may be, if at any time any
holder of Preferred Securities or any Beneficiary must
<PAGE>
restore payment of any sums paid under the Preferred Securities, under any
obligation, under the Preferred Securities Guarantee Agreement dated the date
hereof by Company and State Street Bank and Trust Company, 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 Company hereby waives
presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
SECTION 1.4 NO IMPAIRMENT.
The obligations, covenants, agreements and duties of the Company under this
Agreement shall in no way be affected or impaired by reason of the happening
from time to time of any of the following:
(a) the extension of time for the payment by the Trust of all or
any portion of the obligations or for the performance of any other obligation
under, arising out of, or in connection with, the obligations;
(b) any failure, omission, delay or lack of diligence on the part
of the Beneficiaries to enforce, assert or exercise any right, privilege, power
or remedy conferred on the Beneficiaries with respect to the obligations or any
action on the part of the Trust granting indulgence or extension of any kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale
of any collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement composition or readjustment of
debt of, or other similar proceedings affecting, the Trust or any of the assets
of the Trust.
There shall be no obligation of the Beneficiaries to give notice to, or
obtain the consent of, the Company with respect to the happening of any of the
foregoing.
SECTION 1.5 ENFORCEMENT.
A Beneficiary may enforce this Agreement directly against the Company, and
the Company waives any right or remedy to require that any action be brought
against the Trust or any other person or entity before proceeding against the
Company.
-2-
<PAGE>
ARTICLE II
SECTION 2.1 BINDING EFFECT.
All guarantees and agreements contained in this Agreement shall bind the
successors, assigns, receivers, trustees and representatives of the Company and
shall inure to the benefit of the Beneficiaries.
SECTION 2.2 AMENDMENT.
So long as there remains any Beneficiary or any Preferred Securities of any
series are outstanding, this Agreement shall not be modified or amended in any
manner adverse to such Beneficiary or to the holders of the Preferred
Securities.
SECTION 2.3 NOTICES.
Any notice, request or other communication required or permitted to be
given hereunder shall be given in writing by delivering the same by facsimile
transmission (confirmed by mail), telex, or by registered or certified mail,
addressed as follows (and if so given, shall be deemed given when mailed or upon
receipt of an answerback, if sent by telex):
[Issuer]
______________________
______________________
______________________
Facsimile No.: _________________
Attention: ________________
[Issuer] Capital Statutory Trust
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
Facsimile No.: _________________
Attention: Vice President, Corporate Trust Division
SECTION 2.4 This agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of [______] (without regard
to conflict of laws principles).
-3-
<PAGE>
THIS AGREEMENT is executed as of the day and year first above written.
[ISSUER]
By:______________________________
[Authorized Officer]
[ISSUER] CAPITAL STATUTORY TRUST
By:______________________________
Name:
Administrative Trustee
-4-
<PAGE>
EXHIBIT 99.l
[Letterhead of Morgan, Lewis & Bockius LLP appears here]
SAL Trust Preferred Fund I
1901 Sixth Avenue, Suite 2100
Birmingham, AL 35203
RE: SAL TRUST PREFERRED FUND I
REGISTRATION STATEMENT ON FORM N-2
(REGISTRATION NOS. 333-82195 AND 811-09421)
Ladies and Gentlemen:
We are acting as counsel for SAL Trust Preferred Fund I (the "Fund"),
in connection with the Fund's filing of a registration statement on Form N-2
(the "Registration Statement") with the Securities and Exchange Commission
covering the registration of 946,000 authorized but unissued units of beneficial
interest ("Shares") no par value. In that capacity, we have examined such
corporate records, certificates and other documents, and have made such other
factual and legal investigations as we have deemed necessary and appropriate for
the purposes of this opinion.
Based upon the foregoing, it is our opinion that:
(1) The Fund is validly existing as a business trust in good standing
under the laws of the State of Delaware.
(2) The Shares when issued and delivered by the Fund against payment of
consideration will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit l to the
Registration Statement and to the reference to us under the caption "LEGAL
COUNSEL" in the prospectus contained in the Registration Statement.
Very truly yours,
MORGAN LEWIS & BOCKIUS LLP
<PAGE>
EXHIBIT 99.N.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated August 19, 1999 in this Registration Statement and to all references to
our Firm included in or made a part of this Registration Statement.
ARTHUR ANDERSON LLP
Birmingham, Alabama
August 19, 1999
<PAGE>
EXHIBIT 99.N.2
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' CONSENT
We consent to the use in this Amendment No. 1 to the Registration Statement of
SAL Trust Preferred Fund I on Form N-2 of our report dated February 19, 1999 of
our audit of the consolidated financial statements of FirstBancorp, Inc. as of
December 31, 1998 and 1997, and for the two years then ended appearing in the
Prospectus which is a part of this Registration Statement, and to the reference
to our firm under the heading "Experts" in such Prospectus.
OSBURN, HENNING AND COMPANY
August 23, 1999
Orlando, Florida
<PAGE>
EXHIBIT 99.N.3
[LOGO] McGLADREY & PULLEN, LLP RSM
----------------------- ---
Certified Public Accountants and Consultants international
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement of SAL Trust
Preferred Fund I on Form N-2 of our report, dated January 15, 1999, relating to
the consolidated financial statements of First Southern Bancorp, Inc. and
subsidiaries as of and for the years ended December 31, 1998 and 1997. We also
consent to the reference to our Firm under the caption "Experts" in the
Prospectus.
McGladrey & Pullen, LLP
Fort Lauderdale, Florida
August 20, 1999
100 N.E. Third Avenue, Suite 600 Worldwide
Ft. Lauderdale, Florida 33301-1155 Services
(954) 462-6300 FAX (954) 462-4607 Through
Miami (305) 372-5158 RSM International
Boca Raton (561) 368-1402
<PAGE>
EXHIBIT 99.N.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated May 14, 1999, with respect to the 1998 and 1997
consolidated financial statements of Central Community Corporation and
subsidiaries included in the Pre-Effective Amendment No. 1 to Registration
Statement (Form N-2) of SAL Trust Preferred Fund I for the registration of
946,000 shares of beneficial interest.
/s/ Ernst & Young LLP
Fort Worth, Texas
August 18, 1999
<PAGE>
Exhibit 99.P
STERNE AGEE ASSET MANAGEMENT, INC. LETTERHEAD
August 19, 1999
SAL TRUST PREFERRED FUND I
1901 Sixth Avenue North
Suite 2100
Birmingham, AL 35203
Gentlemen:
We propose to acquire 4,000 shares of beneficial interest (the "Shares") of the
SAL Trust Preferred Fund I (the "Fund"), at a purchase price of $25.00 per share
for a total price of $100,000. We will purchase the Shares in a private
offering prior to the effective date of the Form N-2 registration statement
filed by the Fund under the Securities Act of 1933 and the Investment Company
Act of 1940. The Shares are being purchased pursuant to section 14 of the
Investment Company Act of 1940 to serve as the seed capital for the Fund prior
to the commencement of the public offering of its Shares.
We consent to the filing of this Investment Letter as an exhibit to the Form N-2
registration statement of the Fund.
Sincerely,
STERNE AGEE ASSET MANAGEMENT, INC.
By: /s/ Jerry Harris
---------------------------
Jerry Harris
President
