<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 1, 1998
REGISTRATION NO. 333-
REGISTRATION NO. 333- -01
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------
<TABLE>
<S> <C>
FIRST BANKS AMERICA, INC. FIRST AMERICA CAPITAL TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS (EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN
CHARTER) ITS CHARTER)
DELAWARE DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION (STATE OR OTHER JURISDICTION OF INCORPORATION
OR ORGANIZATION) OR ORGANIZATION)
75-1604965 APPLIED FOR
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
135 NORTH MERAMEC, ST. LOUIS, MISSOURI 63105 (314) 854-4600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S AND CO-REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
-----------------------------------------
ALLEN H. BLAKE
VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY
FIRST BANKS AMERICA, INC.
135 NORTH MERAMEC
ST. LOUIS, MISSOURI 63105
(314) 854-4600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-----------------------------------------
WITH COPIES TO:
<TABLE>
<S> <C> <C>
JOHN S. DANIELS, ESQ. JAMES S. RYAN, III, ESQ. JAMES L. NOUSS, JR., ESQ.
8117 PRESTON ROAD, SUITE 800 JACKSON WALKER L.L.P. BRYAN CAVE LLP
DALLAS, TEXAS 75225 901 MAIN STREET, SUITE 6000 211 NORTH BROADWAY, SUITE 3600
(214) 696-3200 DALLAS, TEXAS 75202 ST. LOUIS, MISSOURI 63102-2750
(214) 953-6000 (314) 259-2000
</TABLE>
--------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
CALCULATION OF REGISTRATION FEE
==================================================================================================================================
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT PRICE REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Preferred Securities of First America Capital
Trust<F1>..................................... 1,840,000<F1> $25.00 $46,000,000<F1> $13,940<F2>
- ----------------------------------------------------------------------------------------------------------------------------------
Subordinated Debentures of First Banks America,
Inc.<F3>...................................... <F3><F4> -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Guarantee of First Banks America, Inc., with
respect to Preferred Securities<F4>........... <F4> -- -- --
==================================================================================================================================
<FN>
<F1>Includes 240,000 Preferred Securities which may be sold
by First America Capital Trust to cover over-allotments.
<F2>Calculated pursuant to Rule 457 under the Securities Act
of 1933.
<F3>The Subordinated Debentures will be purchased by First
America Capital Trust with the proceeds of the sale of
the Preferred Securities. Such securities may later be
distributed for no additional consideration to the
holders of the Preferred Securities of First America
Capital Trust upon its dissolution and the distribution
of its assets.
<F4>This Registration Statement is deemed to cover the
Subordinated Debentures of First Banks America, Inc.,
the rights of holders of Subordinated Debentures of
First Banks America, Inc. under the Indenture, and the
rights of holders of the Preferred Securities under the
Trust Agreement, the Guarantee and the Expense Agreement
entered into by First Banks America, Inc. No separate
consideration will be received for the Guarantee.
</TABLE>
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
===============================================================================
<PAGE> 2
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE *
* SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR *
* MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT *
* BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR *
* THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE *
* SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE *
* UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS *
* OF ANY SUCH STATE. *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
SUBJECT TO COMPLETION, DATED JULY 1, 1998
PROSPECTUS
1,600,000 PREFERRED SECURITIES
FIRST AMERICA CAPITAL TRUST
% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED, AS DESCRIBED HEREIN, BY
FIRST BANKS AMERICA, INC.
------------------
$40,000,000 % SUBORDINATED DEBENTURES OF
FIRST BANKS AMERICA, INC.
------------------
The % Cumulative Trust Preferred Securities (the "Preferred
Securities") offered hereby represent preferred undivided beneficial interests
in the assets of First America Capital Trust, a statutory business trust
created under the laws of the State of Delaware ("the Trust"). First Banks
America, Inc., a Delaware corporation ("FBA" or the "Company"), will own
all of the common securities (the "Common Securities" and, together with the
Preferred Securities, the "Trust Securities") representing undivided
beneficial interests in the assets of the Trust.
(continued on next page)
Application has been made to have the Preferred Securities approved for
listing on the New York Stock Exchange (the "NYSE") under the symbol
"FBAPrT."
--------------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
--------------------------------
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS, ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANKING OR NON-
BANKING AFFILIATE OF THE COMPANY (EXCEPT TO THE EXTENT THAT PREFERRED
SECURITIES ARE GUARANTEED BY THE COMPANY AS DESCRIBED HEREIN), ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY AND INVOLVE INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE SECURITIES
OFFERED BY THIS PROSPECTUS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY FIRST BANKS, INC.
--------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
========================================================================================================================
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC COMMISSION<F1> THE TRUST<F2>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Preferred Security............................... $25.00 <F2> $25.00
- ------------------------------------------------------------------------------------------------------------------------
Total<F3>............................................ $40,000,000 <F2> $40,000,000
========================================================================================================================
<FN>
<F1>The Trust and the Company have each agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
<F2>In view of the fact that the proceeds of the sale of the Preferred Securities will be invested in
the Subordinated Debentures, the Company has agreed to pay the Underwriters as compensation
for their arranging the investment therein of such proceeds $ per Preferred
Security, or $ in the aggregate ($ if the over-allotment option is
exercised in full). See "Underwriting." The Company has also agreed to pay the expenses of
the offering estimated to be $ .
<F3>The Trust has granted the Underwriters an option exercisable within 30 days from the date of this
Prospectus to purchase up to 240,000 additional Preferred Securities on the same terms and
conditions set forth above to cover over-allotments, if any. If all such additional
Preferred Securities are purchased, the total Price to Public and Proceeds to the Trust will be
$46,000,000.
</TABLE>
-----------------------------------------
The Preferred Securities are offered by the Underwriters subject to receipt
and acceptance by them, prior sale and the Underwriters' right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the Preferred Securities will be made
on or about , 1998.
STIFEL, NICOLAUS & COMPANY HOEFER & ARNETT, INC.
INCORPORATED
, 1998
<PAGE> 3
(continued from previous page)
State Street Bank and Trust Company is the Property Trustee (as defined
herein) of the Trust. The Trust exists for the purpose of issuing the Preferred
Securities and investing the proceeds thereof in an equivalent amount of %
Subordinated Debentures (the "Subordinated Debentures") of the Company. The
Subordinated Debentures will mature on June 30, 2028, which date may be (i)
shortened to a date not earlier than June 30, 2003, or (ii) extended to a date
not later than June 30, 2037, in each case if certain conditions are met
(including, in the case of shortening the Stated Maturity (as defined herein),
the Company having received prior approval of the Board of Governors of the
Federal Reserve System ("Federal Reserve") to do so if then required under
applicable capital guidelines or policies of the Federal Reserve). The
Preferred Securities will have a preference under certain circumstances with
respect to cash distributions and amounts payable on liquidation, redemption or
otherwise over the Common Securities. See "Description of the Preferred
Securities--Subordination of Common Securities."
Holders of Preferred Securities are entitled to receive preferential
cumulative cash distributions, at the annual rate of % of the liquidation
amount of $25 per Preferred Security (the "Liquidation Amount"), accruing
from , 1998, the date of original issuance, and payable
quarterly in arrears on the last day of March, June, September and December of
each year, commencing September 30, 1998 (the "Distributions"). The Company
has the right, so long as no Debenture Event of Default (as defined herein) has
occurred and is continuing, to defer payment of interest on the Subordinated
Debentures at any time or from time to time for a period not to exceed 20
consecutive quarters with respect to each deferral period (each, an "Extension
Period"); provided that no Extension Period may extend beyond the Stated
Maturity of the Subordinated Debentures. Upon the termination of any such
Extension Period and the payment of all amounts then due, the Company may elect
to begin a new Extension Period subject to the requirements set forth herein.
If interest payments on the Subordinated Debentures are so deferred,
Distributions on the Preferred Securities will also be deferred, and the
Company will not be permitted, subject to certain exceptions described herein,
to declare or pay any cash distributions with respect to its capital stock or
debt securities that rank pari passu with or junior to the Subordinated
Debentures. WHILE THE COMPANY INTENDS TO TAKE THE POSITION THAT THE
SUBORDINATED DEBENTURES WILL NOT BE DEEMED TO BE ISSUED WITH ORIGINAL ISSUE
DISCOUNT ("OID"), DURING AN EXTENSION PERIOD, INTEREST ON THE SUBORDINATED
DEBENTURES WILL CONTINUE TO ACCRUE (AND THE AMOUNT OF DISTRIBUTIONS TO WHICH
HOLDERS OF THE PREFERRED SECURITIES ARE ENTITLED WILL ACCUMULATE) AT THE RATE
OF % PER ANNUM, COMPOUNDED QUARTERLY, AND HOLDERS OF THE PREFERRED SECURITIES
WILL BE REQUIRED TO INCLUDE INTEREST INCOME AS OID IN THEIR GROSS INCOME FOR
UNITED STATES FEDERAL INCOME TAX PURPOSES IN ADVANCE OF RECEIPT OF THE CASH
DISTRIBUTIONS WITH RESPECT TO SUCH DEFERRED INTEREST PAYMENTS. A HOLDER OF
PREFERRED SECURITIES WHO DISPOSES OF ITS PREFERRED SECURITIES BETWEEN RECORD
DATES FOR PAYMENTS OF DISTRIBUTIONS (AND CONSEQUENTLY DOES NOT RECEIVE A
DISTRIBUTION FROM THE TRUST FOR THE PERIOD PRIOR TO SUCH DISPOSITION) WILL
NEVERTHELESS BE REQUIRED TO INCLUDE ACCRUED BUT UNPAID INTEREST OR OID, IF ANY,
ON THE SUBORDINATED DEBENTURES THROUGH THE DATE OF DISPOSITION IN ORDINARY
INCOME AND TO ADD THE AMOUNT OF ANY ACCRUED OID TO ITS ADJUSTED TAX BASIS IN
ITS PRO RATA SHARE OF THE UNDERLYING SUBORDINATED DEBENTURES DEEMED DISPOSED
OF. See "Description of the Subordinated Debentures--Option to Extend Interest
Payment Period," "Certain Federal Income Tax Consequences--Potential
Extension of Interest Payment Period and Original Issue Discount" and
"--Disposition of Preferred Securities."
The Company and the Trust believe that, taken together, the obligations of
the Company under the Guarantee, the Trust Agreement, the Subordinated
Debentures, the Indenture and the Expense Agreement (each as defined herein)
provide, in the aggregate, a full, irrevocable and unconditional guarantee, on
a subordinated basis, of all of the obligations of the Trust under the
Preferred Securities. See "Relationship Among the Preferred Securities, the
Subordinated Debentures and the Guarantee--Full and Unconditional Guarantee."
The Guarantee of the Company guarantees the payment of Distributions and
payments on liquidation or redemption of the Preferred Securities, but only in
each case to the extent of funds held by the Trust, as described herein. See
"Description of the Guarantee--General." If the Company does not make
interest payments on the Subordinated Debentures held by the Trust, the Trust
will have insufficient funds to pay Distributions on the Preferred Securities.
The Guarantee does not cover payments of Distributions when the Trust does not
have sufficient funds to pay such Distributions. In such event, a
(continued on next page)
<PAGE> 4
(continued from previous page)
holder of Preferred Securities may institute a legal proceeding directly
against the Company pursuant to the terms of the Indenture to enforce payments
of amounts equal to such Distributions to such holder. See "Description of the
Subordinated Debentures--Enforcement of Certain Rights by Holders of the
Preferred Securities." The obligations of the Company under the Guarantee and
the Preferred Securities are subordinate and junior in right of payment to all
Senior Debt, Subordinated Debt and Additional Senior Obligations (each as
defined herein) of the Company. The Subordinated Debentures are unsecured
obligations of the Company and are subordinated to all Senior Debt,
Subordinated Debt and Additional Senior Obligations of the Company.
The Preferred Securities are subject to mandatory redemption, in whole or
in part, upon repayment of the Subordinated Debentures at maturity or their
earlier redemption. Subject to Federal Reserve approval, if then required under
applicable capital guidelines or policies of the Federal Reserve, the
Subordinated Debentures are redeemable prior to maturity at the option of the
Company (i) on or after June 30, 2003, in whole at any time or in part from
time to time, or (ii) at any time, in whole (but not in part), within 180 days
following the occurrence of a Tax Event, a Capital Treatment Event or an
Investment Company Event (each as defined herein), in each case at a redemption
price equal to the accrued and unpaid interest on the Subordinated Debentures
so redeemed to the date fixed for redemption, plus 100% of the principal amount
thereof. See "Description of the Preferred Securities--Redemption."
The Company has the right at any time to dissolve, wind-up or terminate the
Trust, subject to the Company having received prior approval of the Federal
Reserve to do so if then required under applicable capital guidelines or
policies of the Federal Reserve. In the event of the voluntary or involuntary
dissolution, winding up or termination of the Trust, after satisfaction of
liabilities to creditors of the Trust as required by applicable law, the
holders of Preferred Securities will be entitled to receive a Liquidation
Amount of $25 per Preferred Security, plus accumulated and unpaid Distributions
thereon to the date of payment, which may be in the form of a Subordinated
Debenture having an aggregate principal amount equal to the Liquidation Amount
of such Preferred Securities (and carrying with it accumulated interest in an
amount equal to the accumulated and unpaid Distributions then due on such
Preferred Securities), subject to certain exceptions. See "Description of the
Preferred Securities--Redemption" and "--Liquidation Distribution Upon
Termination."
--------------------------------
The Company will provide Quarterly Reports containing unaudited financial
statements to the holders of Preferred Securities if such reports are furnished
to the holders of the Company's common stock, and Annual Reports containing
financial statements audited by the Company's independent auditors. The Company
will also furnish Annual Reports on Form 10-K and Quarterly Reports on Form
10-Q free of charge to holders of Preferred Securities who so request in
writing addressed to the Secretary of the Company.
--------------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES. SUCH TRANSACTIONS MAY INCLUDE OVER-ALLOTMENT, STABILIZING
TRANSACTIONS, THE PURCHASE OF PREFERRED SECURITIES TO COVER SHORT POSITIONS AND
THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF SUCH ACTIVITIES, SEE
"UNDERWRITING." SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 5
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
MAP OF LOCATIONS
[MAP OF USA]
- -------------------------------------------------------------------------------
BANKTEXAS N.A.
HAS 6 BRANCHES SERVING HOUSTON
AND DALLAS, TEXAS . . .
- --------------------------------
(DALLAS)
Abrams
Irving--Las Colinas
McKinney
(HOUSTON)
Allen Parkway
Northside
Westheimer
- --------------------------------
PENDING ACQUISITION . . .
Redwood Bank
FIRST BANK OF CALIFORNIA
HAS 11 BRANCHES SERVING
NORTHERN CALIFORNIA . . .
- --------------------------------
Campbell
Concord
Fairfield
Rancho Cordova
Roseville (3)
Sacramento
San Francisco
San Pablo
Vallejo
CORPORATE OFFICE . . .
- --------------------------------
FIRST BANKS AMERICA, INC.
135 NORTH MERAMEC AVENUE
ST. LOUIS, MISSOURI 63105
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere (or incorporated by reference) in this
Prospectus. Unless otherwise indicated, the information in this Prospectus
assumes that the Underwriters' over-allotment option will not be exercised.
Prospective investors should carefully consider the information set forth under
the heading "Risk Factors."
THE COMPANY
GENERAL
First Banks America, Inc. ("FBA" or the "Company") is a bank holding
company with two wholly-owned banking subsidiaries, First Bank of California
("FB California"), a bank chartered by the State of California, and BankTEXAS
National Association, a national banking association ("BankTEXAS")
(collectively, the "Subsidiary Banks"). FBA, through FB California and
BankTEXAS, operates a total of eleven banking locations in the San
Francisco-Sacramento corridor of Northern California and a total of six banking
locations in Houston, Dallas, Irving and McKinney, Texas. As of March 31, 1998,
FBA had approximately $692.4 million in total assets, $444.1 million in total
loans, net of unearned discount, $600.6 million in total deposits and $56.8
million in total stockholders' equity. Since 1994, FBA has been controlled by
First Banks, Inc., a $4.3 billion bank holding company headquartered in
St. Louis, Missouri ("First Banks").
In an effort to enhance its banking franchise, FBA places emphasis upon
acquiring other financial institutions as a means of accelerating its growth in
order to expand its presence in a given market, to increase the scope of its
market area or to enter new or noncontiguous market areas. After an acquisition
is consummated, FBA endeavors to enhance the franchise of the acquired entity
by supplementing the acquired entity's marketing and business development
efforts in order to broaden customer bases, strengthen particular business
segments or fill voids in its overall market coverage. In addition, the
acquisition program enables FBA to further leverage the operational support
services available to it through First Banks and to provide the products and
services typically available only through such a larger organization. FBA's
management philosophy is to centralize overall corporate policies, procedures
and administrative functions and to provide operational support functions for
the Subsidiary Banks. Primary responsibility for implementation of such
policies and management of the Subsidiary Banks resides with the officers and
directors of the respective Subsidiary Banks.
After First Banks' 1994 acquisition of control of FBA, FBA embarked on a
business strategy to improve its operating performance and strengthen its asset
quality as prerequisites to initiating an effective acquisition program. The
initial stages of this strategy involved substantial restructuring of assets
and liabilities and reduction of operating expenses, resulting in significant
losses in the sale of investment securities and the establishment of
substantial provisions for loan losses. The loan losses related primarily to
problems with FBA's portfolio of indirect automobile loans. The losses also
included significant nonrecurring expenses in connection with the reduction of
non-interest expenses, including personnel and employee benefits, occupancy,
data processing and other expenses. Following net losses of $4.8 million and
$905,000 for the fiscal years ended December 31, 1995 and 1994, respectively,
reflecting the implementation of the new strategy, FBA returned to
profitability in 1996, with consolidated net income of $691,000, representing a
0.15% return on average assets. FBA's profitability has continued to improve.
FBA has reported consolidated net income of $3.5 million for the fiscal year
ended December 31, 1997 and consolidated net income of $1.1 million for the
three months ended March 31, 1998.
Selected consolidated financial data of FBA and its subsidiaries, including
the Subsidiary Banks, as of and for the five years ended December 31, 1997 and
the three months ended March 31, 1998 and 1997 are set forth below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ -----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)............... $ 1,100 484 3,533 691 (4,814) (905) 219
Stockholders' equity............ 56,841 38,013 45,091 38,195 40,965 39,714 14,952
Total assets.................... 692,409 530,023 643,664 529,087 468,486 331,790 368,608
Return on average assets........ 0.67%<F1> 0.37%<F1> 0.65% 0.15% (1.28)% (0.25)% 0.07%
Return on average equity........ 8.13 <F1> 5.11 <F1> 8.90 1.71 (12.06) (3.66) 1.49
<FN>
- --------
<F1>Ratios as of March 31, 1998 and 1997 are annualized.
</TABLE>
2
<PAGE> 7
The Subsidiary Banks offer a broad range of commercial and personal banking
services, including certificates of deposit, individual retirement and other
time deposit accounts, checking and other demand deposit accounts, and interest
checking, savings and money market accounts. Loan product offerings include
commercial and financial, commercial and residential real estate, real estate
construction and development and consumer loans. Other financial services
include mortgage banking, automatic teller machines, telephone banking, lockbox
deposits, cash management services, sweep accounts, credit-related insurance
and safe deposit boxes. FBA and the Subsidiary Banks purchase certain services
and supplies, including data processing services, internal auditing, loan
review, income tax preparation and assistance, accounting, asset/liability
management and investment services, loan servicing and other management and
administrative services from First Banks and its affiliates.
The following table provides general information regarding FB California
and BankTEXAS as of March 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF TOTAL LOANS, NET OF TOTAL
LOCATIONS ASSETS UNEARNED DISCOUNT DEPOSITS
--------- ------ ----------------- --------
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C>
FB California........................... 11 $415,806 270,713 365,405
BankTEXAS............................... 6 271,902 173,386 235,215
</TABLE>
While FBA initially focused its acquisition efforts within its primary
market areas of Houston and Dallas, Texas and the immediately surrounding
areas, increased prices for potential acquisition candidates in the Texas
market generally reduced the suitability to FBA of potential acquisition
candidates based in such areas. Accordingly, FBA broadened its target market to
include California, where FBA perceived pricing to be more attractive. The
economic advantages of the California market were enhanced by the geographic
proximity of various offices of First Bank & Trust, a subsidiary of First
Banks. Between October 1996 and February 1998, FBA completed four acquisitions
of banks located in northern California, which banks were subsequently merged
together to form FB California. See "Management's Discussion and
Analysis--Acquisitions" for a discussion of FBA's recent acquisitions.
PENDING ACQUISITION
On June 8, 1998, FBA announced the signing of an Agreement in Principle to
acquire Redwood Bancorp ("Redwood"), and its wholly owned subsidiary, Redwood
Bank, for cash consideration of $26 million. Redwood is headquartered in San
Francisco, California and operates four banking locations in the San Francisco
Bay area. As of March 31, 1998, Redwood had approximately $152.0 million in
total assets, $120.1 million in total loans, net of unearned discount, $130.1
million in total deposits and $17.8 million in total stockholder's equity. The
transaction is subject to various conditions, including the negotiation of a
definitive agreement and the receipt of regulatory approvals and the approval
of Redwood's sole shareholder. FBA anticipates the transaction will be
consummated at the end of the fourth quarter of 1998. See "Use of Proceeds"
and "Pro Forma Financial Information."
Selected consolidated financial data of Redwood and its subsidiaries, as of
and for the two years ended December 31, 1997 and the three months ended March
31, 1998 and 1997 are set forth below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
-------------------- --------------------
1998 1997 1997 1996
---- ---- ---- ----
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income (loss)....................... $ 425 250 1,420 3,307
Stockholders' equity.................... 17,826 16,127 17,472 15,943
Total assets............................ 152,006 133,157 145,472 134,061
Return on average assets................ 1.14%<F1> 0.75%<F1> 1.02% 2.63%
Return on average equity................ 9.62 <F1> 6.24 <F1> 8.50 23.02
<FN>
- --------
<F1>Ratios as of March 31, 1998 and 1997 are annualized.
</TABLE>
FBA's principal executive office is located at 135 North Meramec, St.
Louis, Missouri 63105, and its telephone number is (314) 854-4600.
3
<PAGE> 8
THE TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a trust agreement, dated as of June 18, 1998, executed by the Company,
as depositor, and the trustees of the Trust (together with the Property
Trustee, the "Trustees"), and (ii) a certificate of trust filed with the
Secretary of State of the State of Delaware on June 18, 1998. The initial trust
agreement will be amended and restated in its entirety (as so amended and
restated, the "Trust Agreement") substantially in the form filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
The Trust Agreement will be qualified as an indenture under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). Upon issuance of the
Preferred Securities, the purchasers thereof will own all of the Preferred
Securities. The Company will acquire all of the Common Securities which will
represent an aggregate liquidation amount equal to at least 3% of the total
capital of the Trust. The Common Securities will rank pari passu, and payments
will be made thereon pro rata, with the Preferred Securities, except that upon
the occurrence and during the continuance of an Event of Default (as defined
herein) under the Trust Agreement resulting from a Debenture Event of Default,
the rights of the Company as holder of the Common Securities to payment in
respect of Distributions and payments upon liquidation, redemption or otherwise
will be subordinated to the rights of the holders of the Preferred Securities.
See "Description of the Preferred Securities--Subordination of Common
Securities." The Trust exists for the exclusive purposes of (i) issuing the
Trust Securities representing undivided beneficial interests in the assets of
the Trust, (ii) investing the gross proceeds of the Trust Securities in the
Subordinated Debentures issued by the Company, and (iii) engaging in only those
other activities necessary, advisable, or incidental thereto. The Subordinated
Debentures and payments thereunder will be the only assets of the Trust and
payments under the Subordinated Debentures will be the only revenue of the
Trust. The Trust has a term of 55 years, but may terminate earlier as provided
in the Trust Agreement. The principal executive office of the Trust is 135
North Meramec, St. Louis, Missouri 63105, and its telephone number is
(314) 854-4600.
The number of Trustees will, pursuant to the Trust Agreement, initially be
five. Three of the Trustees (the "Administrative Trustees") will be persons
who are employees or officers of, or who are affiliated with, the Company. The
fourth trustee will be a financial institution that is unaffiliated with the
Company, which trustee will serve as institutional trustee under the Trust
Agreement and as indenture trustee for the purposes of compliance with the
provisions of the Trust Indenture Act (the "Property Trustee"). State Street
Bank and Trust Company, a state chartered trust company organized under the
laws of the Commonwealth of Massachusetts, will be the Property Trustee until
removed or replaced by the holder of the Common Securities. For purposes of
compliance with the provisions of the Trust Indenture Act, State Street Bank
and Trust Company will also act as trustee (the "Guarantee Trustee") under
the Guarantee and as Debenture Trustee (as defined herein) under the Indenture.
The fifth trustee will be an entity that maintains its principal place of
business in the State of Delaware (the "Delaware Trustee"). Wilmington Trust
Company, a Delaware chartered trust company, will act as Delaware Trustee.
The Property Trustee will hold title to the Subordinated Debentures for the
benefit of the holders of the Trust Securities and in such capacity will have
the power to exercise all rights, powers and privileges under the Indenture.
The Property Trustee will also maintain exclusive control of a segregated
non-interest-bearing bank account (the "Property Account") to hold all
payments made in respect of the Subordinated Debentures for the benefit of the
holders of the Trust Securities. The Property Trustee will make payments of
Distributions and payments on liquidation, redemption and otherwise to the
holders of the Trust Securities out of funds from the Property Account. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Preferred Securities. The Company, as the holder of all the Common Securities,
will have the right to appoint, remove or replace any Trustee and to increase
or decrease the number of Trustees. The Company will pay all fees and expenses
related to the Trust and the offering of the Trust Securities.
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the Trust
Agreement, the Delaware Business Trust Act (the "Trust Act") and the Trust
Indenture Act. See "Description of the Preferred Securities."
4
<PAGE> 9
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ 1,600,000 Preferred Securities having a Liquidation Amount of $25 per Preferred
Security. The Preferred Securities represent preferred undivided beneficial
interests in the assets of the Trust, which assets will consist solely of the
Subordinated Debentures and payments thereunder. The Trust has granted the
Underwriters an option, exercisable within 30 days after the date of this
Prospectus, to purchase up to an additional 240,000 Preferred Securities at the
initial offering price, solely to cover over-allotments, if any.
Distributions..................... The Distributions payable on each Preferred Security will be fixed at a rate per
annum of % of the Liquidation Amount of $25 per Preferred Security, will be
cumulative, will accrue from , 1998, the date of original
issuance of the Preferred Securities, and will be payable quarterly in arrears,
on March 31, June 30, September 30 and December 31 of each year, commencing
September 30, 1998. See "Description of the Preferred
Securities--Distributions--Payment of Distributions."
Option to Extend Interest Payment
Period.......................... The Company has the right, at any time, so long as no Debenture Event of Default
has occurred and is continuing, to defer payments of interest on the Subordinated
Debentures for a period not exceeding 20 consecutive quarters; provided, that no
Extension Period may extend beyond the Stated Maturity of the Subordinated
Debentures. As a consequence of the extension by the Company of the interest
payment period, quarterly Distributions on the Preferred Securities will be de-
ferred (though such Distributions would continue to accrue with interest thereon
compounded quarterly, since interest will continue to accrue and compound on the
Subordinated Debentures) during any such Extension Period. During an Extension
Period, the Company will be prohibited, subject to certain exceptions described
herein, from declaring or paying any cash distributions with respect to its
capital stock or debt securities that rank pari passu with or junior to the
Subordinated Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, the Company may commence a new Extension Period,
subject to the foregoing requirements. See "Description of the Preferred
Securities--Distributions--Extension Period" and "Description of the Subordi-
nated Debentures--Option to Extend Interest Payment Period."
Should an Extension Period occur, holders of Preferred Securities will be
required to include deferred interest income in their gross income for United
States federal income tax purposes in advance of receipt of the cash
distributions with respect to such deferred interest payments. See "Certain
Federal Income Tax Consequences--Potential Extension of Interest Payment Period
and Original Issue Discount."
Optional Redemption............... The Preferred Securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Subordinated Debentures at maturity or their earlier
redemption. Subject to Federal Reserve approval, if then required under applica-
ble capital guidelines or policies of the Federal Reserve, the Subordinated
Debentures are redeemable prior to maturity at the option of the Company (i) on
or after June 30, 2003, in whole at any time or in part from time to time, or
(ii) at any time, in whole (but not in part), within 180 days following the
occurrence of a Tax Event, a Capital Treatment Event or an Investment Company
Event, in each case at the redemption price equal to 100% of the principal amount
of the Subordinated Debentures, together with any accrued but unpaid interest to
the date fixed for redemption. See "Description of the Subordinated
Debentures--Redemption."
5
<PAGE> 10
Distribution of Subordinated
Debentures...................... The Company has the right at any time to terminate the Trust and cause the
Subordinated Debentures to be distributed to holders of Preferred Securities in
liquidation of the Trust, subject to the Company having received prior approval
of the Federal Reserve to do so if then required under applicable capital
guidelines or policies of the Federal Reserve. See "Description of the Preferred
Securities--Redemption" and "Description of the Preferred
Securities--Liquidation Distribution Upon Termination."
Guarantee......................... The Company has guaranteed the payment of Distributions and payments on
liquidation or redemption of the Preferred Securities, but only in each case to
the extent of funds held by the Trust, as described herein. The Company and the
Trust believe that, taken together, the obligations of the Company under the
Guarantee, the Trust Agreement, the Subordinated Debentures, the Indenture and
the Expense Agreement provide, in the aggregate, a full, irrevocable and
unconditional guarantee, on a subordinated basis, of all of the obligations of
the Trust under the Preferred Securities. The obligations of the Company under
the Guarantee and the Preferred Securities are subordinate and junior in right of
payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations
of the Company. If the Company does not make principal or interest payments on
the Subordinated Debentures, the Trust will not have sufficient funds to make
distributions on the Preferred Securities; in such event, the Guarantee will not
apply to such Distributions until the Trust has sufficient funds available
therefor. See "Description of the Guarantee."
Voting Rights..................... The holders of the Preferred Securities will have no voting rights except in
limited circumstances. The affirmative consent of the holders of at least 66 2/3%
of the outstanding Preferred Securities will be required by the Trust for
amendments to the Trust Agreement that would adversely affect the rights or
privileges of the holders of the Preferred Securities. See "Description of the
Preferred Securities--Voting Rights; Amendment of Trust Agreement."
Use of Proceeds................... The proceeds from the sale of the Preferred Securities offered hereby will be
used by the Trust to purchase the Subordinated Debentures issued by the Company.
The Company intends to use the net proceeds from the sale of the Subordinated
Debentures to repay outstanding indebtedness to First Banks under the terms of a
revolving promissory note payable, for general corporate purposes, for acquisi-
tions (including the pending acquisition of Redwood), and the possible repurchase
of common stock from time to time. The portion of the net proceeds from the sale
of Subordinated Debentures which is not used to repay existing obligations will
be invested in short term investment securities pending its use for the purposes
described above. See "Use of Proceeds" and "Management's Discussion and
Analysis--Acquisitions."
New York Stock Exchange........... Application has been made to have the Preferred Securities approved for listing
on the NYSE under the symbol "FBAPrT".
</TABLE>
6
<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL DATA<F1>
The consolidated financial data below, insofar as it relates to the five
years ended December 31, 1997, is derived from the audited consolidated
financial statements of FBA. The data for the three month periods ended March
31, 1998 and 1997 has been derived from unaudited interim financial statements;
however, in the opinion of the Company, such unaudited interim statements
include all adjustments (consisting of normal recurring accruals) necessary to
fairly present the data for such periods. The results of operations for the
three month period ended March 31, 1998 are not necessarily indicative of
results to be achieved for the full year. Such data is qualified in its
entirety by reference to the consolidated financial statements of FBA included
elsewhere in this Prospectus or incorporated by reference and should be read in
conjunction with such financial statements and related notes thereto and
"Management's Discussion and Analysis." See "Available Information" and
"Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income......... $ 12,996 9,611 42,517 33,382 26,556 22,649 21,966
Interest expense........ 5,899 4,508 19,155 15,533 13,134 11,072 9,750
-------- ------- ------- ------- ------- ------- -------
Net interest income..... 7,097 5,103 23,362 17,849 13,422 11,577 12,216
Provision for possible
loan losses........... 300 550 2,000 2,405 6,416 1,258 490
-------- ------- ------- ------- ------- ------- -------
Net interest income
after provision for
possible loan
losses................ 6,797 4,553 21,362 15,444 7,006 10,319 11,726
Noninterest income...... 1,150 871 3,287 3,585 129 (4,511) 3,068
Noninterest expense..... 6,057 4,493 17,677 17,737 14,148 16,174 14,575
-------- ------- ------- ------- ------- ------- -------
Income (loss) before
provision (benefit)
for income taxes and
minority interest in
(income) loss of
subsidiary............ 1,890 931 6,972 1,292 (7,013) (10,366) 219
Provision (benefit) for
income tax expense.... 790 361 3,145 470 (2,188) (9,461) --
-------- ------- ------- ------- ------- ------- -------
Net income (loss) before
minority interest in
(income) loss of
subsidiary............ 1,100 570 3,827 822 (4,825) (905) 219
Minority interest in
(income) loss of
subsidiary............ -- (86) (294) (131) 11 -- --
-------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 1,100 484 3,533 691 (4,814) (905) 219
======== ======= ======= ======= ======= ======= =======
DIVIDENDS:
Common stock............ $ -- -- -- -- -- -- --
Ratio of total dividends
declared to net
income................ --% --% --% --% --% --% --%
PER SHARE DATA:
Earnings (loss) per
share:
Basic............... $ 0.22 0.12 0.87 0.16 (1.19) (0.41) 0.17
Diluted............. 0.22 0.12 0.86 0.16 (1.19) (0.41) 0.14
Weighted average common
stock outstanding (in
thousands)............ 4,911 4,082 4,069 4,225 4,032 2,181 1,290
BALANCE SHEET DATA (AT
PERIOD END):
Investment securities... $141,131 139,682 148,181 125,139 113,586 61,400 160,158
Loans, net of unearned
discount.............. 444,099 327,015 431,455 336,371 266,588 203,314 167,732
Total assets............ 692,409 530,023 643,664 529,087 468,486 331,790 368,608
Total deposits.......... 600,557 452,455 556,527 455,942 405,427 241,570 242,897
Promissory note
payable............... 13,450 14,000 14,900 14,000 1,054 1,054 1,054
Stockholders' equity.... 56,841 38,013 45,091 38,195 40,965 39,714 14,952
EARNINGS RATIOS:
Return on average total
assets<F2>............ 0.67% 0.37% 0.65% 0.15% (1.28)% (0.25)% 0.07%
Return on average
stockholders'
equity<F2>............ 8.13 5.11 8.90 1.71 (12.06) (3.66) 1.49
ASSET QUALITY RATIOS:
Allowance for possible
loan losses to
loans................. 2.72 3.32 2.64 3.19 3.98 1.36 1.57
Nonperforming loans to
loans<F3>............. 1.35 0.75 0.66 0.88 1.90 0.14 0.37
Allowance for possible
loan losses to
nonperforming
loans<F3>............. 200.95 444.66 400.81 363.10 209.18 940.61 423.95
Nonperforming assets to
loans and foreclosed
assets<F4>............ 1.51 1.06 0.80 1.17 2.78 0.90 2.22
Net loan charge-offs to
average loans<F2>..... 0.49 0.52 0.40 1.69 1.45 0.62 0.52
CAPITAL RATIOS:
Average stockholders'
equity to average
total assets.......... 8.25 7.32 7.34 8.86 10.64 6.80 4.40
Total risk-based capital
ratio................. 9.08 6.94 6.88 6.62 9.64 17.50 8.47
Leverage ratio.......... 6.77 4.22 4.96 4.46 5.98 11.97 4.27
RATIO OF EARNINGS (LOSS)
TO FIXED CHARGES<F5>:
Including interest on
deposits.............. 1.31x 1.20x 1.35x 1.08x 0.50x 0.11x 1.02x
Excluding interest on
deposits.............. 3.35 2.17 3.00 1.53 (1.13) (1.28) 1.09
<FN>
- ----------
<F1>The comparability of the selected data presented is affected by FBA's
acquisitions of Pacific Bay Bank, Surety Bank and Sunrise Bank of
California on February 2, 1998, December 1, 1997 and November 1, 1996,
respectively. These acquisitions were accounted for as purchases and,
accordingly, the selected data includes the financial position and results
of operations of each acquired entity only for the periods subsequent to
its date of acquisition. In addition, on February 2, 1998, FBA completed
its acquisition of First Commercial Bancorp, Inc. and its subsidiary, First
Commercial Bank. As discussed in Note 2 to the consolidated financial
statements of FBA, the selected data has been restated to reflect First
Banks, Inc.'s interest in First Commercial Bancorp, Inc. for the periods
subsequent to August 23, 1995.
<F2>Ratios for the three month periods are annualized.
<F3>Nonperforming loans consist of nonaccrual loans and loans with restructured
terms.
<F4>Nonperforming assets consist of nonperforming loans and foreclosed assets.
<F5>For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before taxes plus interest and rent expense.
Fixed charges consist of interest and rent expense.
</TABLE>
7
<PAGE> 12
RISK FACTORS
Prospective investors should carefully consider, together with the other
information contained and incorporated by reference in this Prospectus, the
following risk factors in evaluating the Company and its business and the Trust
before purchasing the Preferred Securities offered hereby. Prospective
investors should note, in particular, that this Prospectus contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Act of 1934, as amended (the "Exchange Act"), and that actual
results could differ materially from those contemplated by such statements. The
considerations listed below represent certain important factors the Company
believes could cause such results to differ. These considerations are not
intended to represent a complete list of the general or specific risks that may
affect the Company and the Trust. It should be recognized that other risks may
be significant, presently or in the future, and that the risks set forth below
may affect the Company and the Trust to a greater extent than indicated.
RISK FACTORS RELATING TO THE PREFERRED SECURITIES
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE SUBORDINATED
DEBENTURES
The obligations of the Company under the Guarantee issued for the benefit
of the holders of Preferred Securities and under the Subordinated Debentures
are unsecured and rank subordinate and junior in right of payment to all Senior
Debt, Subordinated Debt and Additional Senior Obligations of the Company,
whether now existing or hereafter incurred. At March 31, 1998, the aggregate
outstanding Senior Debt, Subordinated Debt and Additional Senior Obligations of
the Company was approximately $23.4 million. Because the Company is a holding
company, the right of the Company to participate in any distribution of assets
of any Subsidiary Bank upon such Subsidiary Bank's liquidation or
reorganization or otherwise (and thus the ability of holders of the Preferred
Securities to benefit indirectly from such distribution) is subject to the
prior claims of creditors of that Subsidiary Bank, except to the extent that
the Company may itself be recognized as a creditor of that Subsidiary Bank. The
Subordinated Debentures, therefore, will be effectively subordinated to all
existing and future liabilities of the Subsidiary Banks and holders of
Subordinated Debentures and Preferred Securities should look only to the assets
of the Company for payments on the Subordinated Debentures. Neither the
Indenture, the Guarantee nor the Trust Agreement places any limitation on the
amount of secured or unsecured debt, including Senior Debt, Subordinated Debt
and Additional Senior Obligations, that may be incurred by the Company. See
"Description of the Guarantee--Status of the Guarantee" and "Description of
the Subordinated Debentures--Subordination."
The ability of the Trust to pay amounts due on the Preferred Securities is
dependent solely upon the Company making payments on the Subordinated
Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD, TAX CONSEQUENCES; MARKET PRICE
CONSEQUENCES
The Company has the right under the Indenture, so long as no Debenture
Event of Default has occurred and is continuing, to defer the payment of
interest on the Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarters with respect to each Extension
Period; provided that no Extension Period may extend beyond the Stated Maturity
of the Subordinated Debentures. As a consequence of any such deferral,
quarterly Distributions on the Preferred Securities by the Trust will be
deferred (and the amount of Distributions to which holders of the Preferred
Securities are entitled will accumulate additional Distributions thereon at the
rate of % per annum, compounded quarterly from the relevant payment date
for such Distributions) during any such Extension Period. During any such
Extension Period, the Company may not (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock (other than (a) dividends
or distributions in common stock of the Company, any declaration of a non-cash
dividend in connection with the implementation of a shareholder rights plan, or
the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, and (b) purchases of common
stock of the Company related to the rights under any of the Company's benefit
plans for its directors, officers or employees), (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Company that rank pari passu with or junior in interest
to the Subordinated Debentures or make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any subsidiary of the
Company if such guarantee ranks pari passu with or junior in interest to the
Subordinated Debentures (other than payments under the Guarantee), or (iii)
redeem, purchase or acquire less than all of the Subordinated Debentures or any
of the Preferred Securities. Prior to the termination of any such Extension
Period, the Company may further defer the payment of interest; provided that no
Extension Period may exceed 20
8
<PAGE> 13
consecutive quarters or extend beyond the Stated Maturity of the Subordinated
Debentures. Upon the termination of any Extension Period and the payment of all
interest then accrued and unpaid (together with interest thereon at the annual
rate of % compounded quarterly, to the extent permitted by applicable
law), the Company may elect to begin a new Extension Period, subject to the
above requirements. Subject to the foregoing, there is no limitation on the
number of times the Company may elect to begin an Extension Period. See
"Description of the Preferred Securities--Distributions--Extension Period"
and "Description of the Subordinated Debentures--Option to Extend Interest
Payment Period."
Should an Extension Period occur, each holder of Preferred Securities will
be required to accrue and recognize income (in the form of original issue
discount ("OID")) in respect of its pro rata share of the interest accruing
on the Subordinated Debentures held by the Trust for United States federal
income tax purposes. A holder of Preferred Securities must, as a result,
include such income in gross income for United States federal income tax
purposes in advance of the receipt of cash, and will not receive the cash
related to such income from the Trust if the holder disposes of the Preferred
Securities prior to the record date for the payment of the related
Distributions. See "Certain Federal Income Tax Consequences--Potential
Extension of Interest Payment Period and Original Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Debentures. Should the Company elect, however, to exercise such
right in the future, the market price of the Preferred Securities is likely to
be adversely affected. A holder that disposes of its Preferred Securities
during an Extension Period, therefore, might not receive the same return on its
investment as a holder that continues to hold its Preferred Securities. As a
result of the existence of the Company's right to defer interest payments, the
market price of the Preferred Securities may be more volatile than the market
prices of other securities on which OID accrues that are not subject to such
optional deferrals.
TAX EVENT, CAPITAL TREATMENT EVENT OR INVESTMENT COMPANY EVENT; REDEMPTION
The Company has the right to redeem the Subordinated Debentures in whole
(but not in part) within 180 days following the occurrence of a Tax Event, a
Capital Treatment Event or an Investment Company Event (whether occurring
before or after June 30, 2003), and, therefore, cause a mandatory redemption of
the Preferred Securities. The exercise of such right is subject to the Company
having received prior approval of the Federal Reserve to do so if then required
under applicable capital guidelines or policies of the Federal Reserve. See
"--Redemption; Exchange of Preferred Securities for Subordinated Debentures."
"Tax Event" means the receipt by the Trust of an opinion of counsel
rendered by a law firm having a recognized tax and securities law practice to
the effect that, as a result of any amendment to, or change (including any
announced prospective change) in the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official administrative pronouncement or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or which pronouncement or decision is
announced on or after the date of issuance of the Preferred Securities under
the Trust Agreement, there is more than an insubstantial risk that (i) the
Trust is, or 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 the Company on the
Subordinated Debentures is not, or, within 90 days of such opinion, will not
be, deductible by the Company, in whole or in part, for United States federal
income tax purposes, or (iii) the Trust is, or will be within 90 days of the
date of the opinion, subject to more than a de minimis amount of other taxes,
duties or other governmental charges. The Company must request and receive an
opinion with regard to such matters within a reasonable period of time after it
becomes aware of the possible occurrence of any of the events described in
clauses (i) through (iii) above.
According to a petition recently filed in the United States Tax Court by a
corporation unrelated to the Company and the Trust, the Internal Revenue
Service has challenged the deductibility for United States federal income tax
purposes of interest payments on certain purported debt instruments for United
States federal income tax purposes where the holders of the debt instruments,
in turn, issued preferred securities to investors. Although the overall
structure of the financing arrangement involved in that case is somewhat
similar to the financing structure for the Subordinated Debentures and the
Trust, the relevant facts in that case appear to differ significantly from
those relating to the Subordinated Debentures and the Trust. Whether the
Internal Revenue Service would attempt to challenge the deductibility of
interest on the Subordinated Debentures cannot be predicted. The Company
intends to
9
<PAGE> 14
take the position that interest payments on the Subordinated Debentures will be
deductible by the Company for United States federal income tax purposes. See
"Certain Federal Income Tax Consequences--Classification of the Subordinated
Debentures." Adverse developments relating to the deductibility of interest,
whether arising in connection with the case currently pending in the United
States Tax Court or not, could give rise to a Tax Event. Consequently, there
can be no assurance that a Tax Event will not occur. If the Internal Revenue
Service successfully challenged the deductibility of interest on the
Subordinated Debentures, and the Subordinated Debentures were determined to
constitute equity rather than indebtedness of the Company, the Company would
not be entitled to deduct the stated interest payments thereon and thus, the
Company's federal income tax liability would likely increase. Consequently, the
Company might have less cash on hand with which to make distributions and
amounts payable on liquidation, redemption or otherwise, to the holders of the
Preferred Securities.
"Capital Treatment Event" means the receipt by the Trust of an opinion of
counsel rendered by a law firm having a recognized banking law practice to the
effect that, as a result of any amendment to or any change (including any
announced prospective change) in the laws (or any regulations thereunder) of
the United States or any political subdivision thereof or therein, or as a
result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which proposed change, pronouncement or decision is announced on
or after the date of issuance of the Preferred Securities under the Trust
Agreement, there is more than an insubstantial risk of impairment of the
Company's ability to treat the aggregate Liquidation Amount of the Preferred
Securities (or any substantial portion thereof) as "Tier 1 Capital" (or the
then equivalent thereof) for purposes of the capital adequacy guidelines of the
Federal Reserve, as then applicable to the Company, provided, however, that the
inability of the Company to treat all or any portion of the Liquidation Amount
of the Preferred Securities as Tier 1 Capital shall not constitute the basis
for a Capital Treatment Event if such inability results from the Company having
cumulative preferred capital in excess of the amount which may qualify for
treatment as Tier 1 Capital under applicable capital adequacy guidelines of the
Federal Reserve.
"Investment Company Event" means the receipt by the Trust of an opinion
of counsel rendered by a law firm having a recognized tax and securities law
practice to the effect that, as a result of the occurrence of a change in law
or regulation or a change in interpretation or application of law or regulation
by any legislative body, court, governmental agency or regulatory authority,
the Trust is or will be considered an "investment company" that is required
to be registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), which change becomes effective on or after the
date of original issuance of the Preferred Securities. See "--Risk Factors
Relating to the Preferred Securities--Recent Tax Legislation" for a discussion
of certain legislative proposals that, if adopted, could give rise to a Tax
Event, which may permit the Company to cause a redemption of the Preferred
Securities prior to June 30, 2003.
SHORTENING OR EXTENSION OF STATED MATURITY OF SUBORDINATED DEBENTURES
The Company has the right, at any time, to shorten the maturity of the
Subordinated Debentures to a date not earlier than June 30, 2003. The exercise
of such right is subject to the Company having received prior approval of the
Federal Reserve if then required under applicable capital guidelines or
policies of the Federal Reserve. The Company also has the right to extend the
maturity of the Subordinated Debentures (whether or not the Trust is terminated
and the Subordinated Debentures are distributed to holders of the Preferred
Securities) to a date no later than June 30, 2037, a date approximately 39
years after the initial issuance of the Preferred Securities. Such right may
only be exercised, however, if at the time such election is made and at the
time of such extension (i) the Company is not in bankruptcy, otherwise
insolvent or in liquidation, (ii) the Company is not in default in the payment
of any interest or principal on the Subordinated Debentures, and (iii) the
Trust is not in arrears on payments of Distributions on the Preferred
Securities and no deferred Distributions are accumulated. See "Description of
the Subordinated Debentures--General."
RIGHTS UNDER THE GUARANTEE
The Guarantee guarantees to the holders of the Preferred Securities, to the
extent not paid by the Trust, (i) any accrued and unpaid Distributions required
to be paid on the Preferred Securities, to the extent that the Trust has funds
available therefor at such time, (ii) the Redemption Price (as defined herein)
with respect to any Preferred Securities called for redemption, to the extent
that the Trust has funds available therefor at such time, and (iii) upon a
voluntary or involuntary dissolution, winding-up or liquidation of the Trust
(other than in connection with the
10
<PAGE> 15
distribution of Subordinated Debentures to the holders of Preferred Securities
or a redemption of all of the Preferred Securities), the lesser of (a) the
amount of the Liquidation Distribution (as defined herein), to the extent the
Trust has funds available therefor at such time, and (b) the amount of assets
of the Trust remaining available for distribution to holders of the Preferred
Securities in liquidation of the Trust. The holders of not less than a majority
in Liquidation Amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Guarantee Trustee in respect of the Guarantee or to direct the exercise of
any trust power conferred upon the Guarantee Trustee under the Guarantee. Any
holder of the Preferred Securities may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee Trustee or any
other Person (as defined in the Guarantee). If the Company were to default on
its obligation to pay amounts payable under the Subordinated Debentures, the
Trust would lack funds for the payment of Distributions or amounts payable on
redemption of the Preferred Securities or otherwise, and, in such event,
holders of Preferred Securities would not be able to rely upon the Guarantee
for such amounts. In the event, however, that a Debenture Event of Default has
occurred and is continuing and such event is attributable to the failure of the
Company to pay interest on or principal of the Subordinated Debentures on the
payment date on which such payment is due and payable, then a holder of
Preferred Securities may institute a legal proceeding directly against the
Company for enforcement of payment to such holder of the principal of or
interest on such Subordinated Debentures having a principal amount equal to the
aggregate Liquidation Amount of the Preferred Securities of such holder (a
"Direct Action"). The exercise by the Company of its right, as described
herein, to defer the payment of interest on the Subordinated Debentures does
not constitute a Debenture Event of Default. In connection with such Direct
Action, the Company will have a right of set-off under the Indenture to the
extent of any payment made by the Company to such holder of Preferred
Securities in the Direct Action. Except as described herein, holders of
Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Subordinated Debentures or assert directly any
other rights in respect of the Subordinated Debentures. See "Description of
the Subordinated Debentures--Enforcement of Certain Rights by Holders of
Preferred Securities," "Description of the Subordinated Debentures--Debenture
Events of Default" and "Description of the Guarantee." The Trust Agreement
provides that each holder of Preferred Securities by acceptance thereof agrees
to the provisions of the Guarantee and the Indenture.
The Company and the Trust believe that, taken together, the obligations of
the Company under the Guarantee, the Trust Agreement, the Subordinated
Debentures, the Indenture and the Expense Agreement provide in the aggregate, a
full, irrevocable and unconditional guarantee, on a subordinated basis, of all
of the obligations of the Trust under the Preferred Securities. See
"Relationship Among the Preferred Securities, the Subordinated Debentures and
the Guarantee--Full and Unconditional Guarantee."
NO VOTING RIGHTS EXCEPT IN LIMITED CIRCUMSTANCES
Holders of Preferred Securities will have no voting rights except in
limited circumstances relating only to the modification of the Preferred
Securities and the exercise of the rights of the Trust as holder of the
Subordinated Debentures and the Guarantee. The affirmative consent of the
holders of at least 66 2/3% of the outstanding Preferred Securities will be
required by the Trust for amendments to the Trust Agreement or the Guarantee
that would adversely affect the rights or privileges of the holders of the
Preferred Securities. Holders of Preferred Securities will not be entitled to
vote to appoint, remove or replace the Property Trustee or the Delaware
Trustee, as such voting rights are vested exclusively in the holder of the
Common Securities (except upon the occurrence of certain events described
herein). The Property Trustee, the Administrative Trustees and the Company may
amend the Trust Agreement without the consent of holders of Preferred
Securities to ensure that the Trust will be classified for United States
federal income tax purposes as a grantor trust even if such action adversely
affects the interests of such holders. See "Description of the Preferred
Securities--Voting Rights; Amendment of Trust Agreement" and "Description of
the Preferred Securities--Removal of the Trust Trustees."
RECENT TAX LEGISLATION
Certain legislative proposals were made in 1996 and 1997 which, if enacted,
could have adversely affected the ability of the Company to deduct interest
paid on the Subordinated Debentures. These proposals were not, however,
incorporated into the legislation enacted on August 5, 1997 as the Taxpayer
Relief Act of 1997. Nevertheless, there can be no assurance that other
legislation enacted after the date hereof will not otherwise adversely affect
the ability
11
<PAGE> 16
of the Company to deduct the interest payable on the Subordinated Debentures.
Consequently, there can be no assurance that a Tax Event will not occur. A Tax
Event would permit, but not require, the Company, upon approval of the Federal
Reserve if then required under applicable capital guidelines or policies of the
Federal Reserve, to cause a redemption of the Preferred Securities before, as
well as after, June 30, 2003. See "Description of the Subordinated
Debentures--Redemption" and "Description of the Preferred
Securities--Redemption--Tax Event Redemption, Capital Treatment Event
Redemption or Investment Company Event Redemption" and "Certain Federal
Income Tax Consequences--Effect of Recent Changes in Tax Laws."
REDEMPTION; EXCHANGE OF PREFERRED SECURITIES FOR SUBORDINATED DEBENTURES
The Company has the right at any time to dissolve, wind-up or terminate the
Trust and cause the Subordinated Debentures to be distributed to the holders of
the Preferred Securities in exchange therefor in liquidation of the Trust. The
exercise of such right is subject to the Company having received prior approval
of the Federal Reserve if then required under applicable capital guidelines or
policies of the Federal Reserve. The Company will have the right, in certain
circumstances, to redeem the Subordinated Debentures in whole or in part, in
lieu of a distribution of the Subordinated Debentures by the Trust, in which
event the Trust will redeem the Trust Securities on a pro rata basis to the
same extent as the Subordinated Debentures are redeemed by the Company. Any
such distribution or redemption prior to the Stated Maturity will be subject to
prior approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. See "Description of the
Preferred Securities--Redemption--Tax Event Redemption, Capital Treatment Event
Redemption or Investment Company Event Redemption."
Under current United States federal income tax law, a distribution of
Subordinated Debentures upon the dissolution of the Trust would not be a
taxable event to holders of the Preferred Securities. If, however, the Trust
were to be recharacterized as an association taxable as a corporation at the
time of the dissolution of the Trust, the distribution of the Subordinated
Debentures may constitute a taxable event to holders of Preferred Securities.
Moreover, upon occurrence of a Tax Event, a dissolution of the Trust in which
holders of the Preferred Securities receive cash may be a taxable event to such
holders. See "Certain Federal Income Tax Consequences--Receipt of Subordinated
Debentures or Cash Upon Liquidation of the Trust."
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for Preferred Securities upon a dissolution or liquidation of the Trust. The
Preferred Securities or the Subordinated Debentures may trade at a discount to
the price that the investor paid to purchase the Preferred Securities offered
hereby. Because holders of Preferred Securities may receive Subordinated
Debentures, prospective purchasers of Preferred Securities are also making an
investment decision with regard to the Subordinated Debentures and should
carefully review all the information regarding the Subordinated Debentures
contained herein.
If the Subordinated Debentures are distributed to the holders of Preferred
Securities upon the liquidation of the Trust, the Company will use its best
efforts to list the Subordinated Debentures on the NYSE or such stock
exchanges, if any, on which the Preferred Securities are then listed.
TRADING PRICE; ABSENCE OF PRIOR PUBLIC MARKET FOR THE PREFERRED SECURITIES
The Preferred Securities may trade at prices that do not fully reflect the
value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. A holder of Preferred Securities that disposes of its
Preferred Securities between record dates for payments of Distributions (and
consequently does not receive a Distribution from the Trust for the period
prior to such disposition) will nevertheless be required to include accrued but
unpaid interest on the Subordinated Debentures through the date of disposition
in income as ordinary income and to add such amount to its adjusted tax basis
in its pro rata share of the underlying Subordinated Debentures deemed disposed
of. Such holder will recognize a capital loss to the extent the selling price
(which may not fully reflect the value of accrued but unpaid interest) is less
than its adjusted tax basis (which will include all accrued but unpaid
interest). Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax
purposes. See "Certain Federal Income Tax Consequences--Disposition of
Preferred Securities."
There is no current public market for the Preferred Securities. Although
application has been made to approve the Preferred Securities for listing on
the NYSE, there can be no assurance that an active public market will develop
12
<PAGE> 17
for the Preferred Securities or that, if such market develops, the market price
will equal or exceed the public offering price set forth on the cover page of
this Prospectus. The public offering price for the Preferred Securities has
been determined through negotiations between the Company and the Underwriters.
Prices for the Preferred Securities will be determined in the marketplace and
may be influenced by many factors, including prevailing interest rates, the
liquidity of the market for the Preferred Securities, investor perceptions of
the Company and general industry and economic conditions.
PREFERRED SECURITIES ARE NOT INSURED
The Preferred Securities are not insured by the Bank Insurance Fund (the
"BIF") or the Savings Association Insurance Fund (the "SAIF") of the
Federal Deposit Insurance Corporation (the "FDIC") or by any other
governmental agency.
RISK FACTORS RELATING TO THE COMPANY
HISTORY OF LOSSES OF FBA
Prior to 1996, FBA experienced several years of significant operating
losses caused by economic conditions in its markets, loan losses and asset
quality deterioration, high overhead and operational problems. Consequently,
FBA's positive earnings record occurred only during the period from January
1996 through the present. There can be no assurance that a recurrence of some
or all of the problems which led to earlier losses will not cause similar
problems in the future, or that FBA will be able to sustain the favorable
recent earnings trends.
OPERATING REQUIREMENTS ASSOCIATED WITH GEOGRAPHIC DISPERSION
Because of the geographic distance between the offices of BankTEXAS and FB
California, various operating requirements are placed on FBA's management which
are not present in other organizations operating in contiguous markets. These
include: (1) the operation of data processing and item processing functions at
remote locations; (2) the control of correspondent accounts, reserve balances
and wire transfers, particularly where differences in time zones are involved;
(3) providing administrative support, including accounting, human resources,
loan servicing, internal audit and credit review, at significant distances and
(4) establishing and monitoring compliance with corporate policies and
procedures. This geographic distance adds to the cost of management, and such
additional costs could limit the profitability which might otherwise be
expected by investors in FBA.
DEPENDENCE ON FUTURE GROWTH THROUGH ACQUISITIONS
FBA believes that a business strategy of growth through acquisitions is
necessary in order for FBA to achieve the size necessary to compete with larger
competitors in the banking industry. There are several risks associated with
such a strategy, including the following:
(1) There is a general trend toward consolidation among financial
institutions, and there are a large number of potential competitors for
acquisitions viewed favorably by FBA's management, including, in some
cases, much larger organizations with substantially more resources than
FBA.
(2) The prices at which acquisitions may be made fluctuates with market
conditions, and there is no assurance that FBA will continue to identify
acquisition prospects at prices which its management and Board of
Directors believe are reasonable. To the extent that FBA is able to
identify acquisitions that may be made using securities of FBA rather than
cash, the prospects for acquisitions without dilution of FBA's
stockholders will also depend to some extent on the market for FBA's
securities, which is beyond FBA's control and may fluctuate over time.
(3) The managerial and operational requirements for completing
acquisitions and realizing the benefits therefrom can be burdensome and
time-consuming. There is no assurance that FBA will realize the benefits
of particular acquisitions in a timely manner or without unanticipated
costs.
13
<PAGE> 18
UNCERTAINTIES ARISING FROM YEAR 2000
FBA and the Subsidiary Banks are subject to risks associated with the
"Year 2000" problem, a term which refers to uncertainties about the ability
of various data processing hardware and software systems to interpret dates
correctly after the beginning of the year 2000. Since most of these systems are
common with those of First Banks, FBA has been working with First Banks to
address this problem. Most of the software used by FBA is purchased from
outside vendors. Consequently, FBA has been working with these vendors to
determine whether these issues are being adequately addressed.
FBA's process of evaluating potential effects of Year 2000 issues on
customers of the Subsidiary Banks is in its early stages, and it is therefore
impossible to quantify the potential adverse effects of incompatible systems on
customers of the Subsidiary Banks. The failure of a commercial bank customer to
prepare adequately for Year 2000 compatibility could have a significant adverse
effect on such customer's operations and profitability, in turn inhibiting its
ability to repay loans in accordance with their terms or requiring the use of
its deposited funds. Until sufficient information is accumulated from customers
of the banks to enable FBA to assess the degree to which customers' operations
are susceptible to potential problems, FBA will be unable to quantify the
potential effect on its commercial customers. In addressing the uncertainty,
FBA has revised its methodology with respect to the adequacy of its allowance
for possible loan losses to include an allocation for the estimated risks
associated with the Year 2000 issue.
ADVERSE CHANGES IN INTEREST RATES
With banking as its principal business, FBA has exposure to changes in
interest rates, as its assets and liabilities will not necessarily reprice at
the same time in a changing interest rate environment. In addition, changes in
interest rates may impact the Company with respect to its ability to attract
deposits. FBA believes its existing balance sheet structure is appropriate and
will allow it to maintain acceptable interest margins in various interest rate
environments. However, there can be no assurance that competitive factors will
not result in a change in the composition of the balance sheet, or that
interest rate movements will not negatively impact the financial condition or
results of operations of the Company. Further, should its ability to attract
deposits be diminished because of movements in interest rates, FBA would be
required to access secondary funding sources, which would be likely to
negatively impact its net interest margin.
CREDIT RISKS
FBA, as a financial institution, is exposed to the risk that customers to
whom the Subsidiary Banks have made loans will be unable to repay those loans
according to their terms and that collateral securing such loans, if any, may
not be sufficient in value to assure repayment. Credit losses could have a
material adverse effect on FBA's operating results. See "Management's
Discussion and Analysis--Provision for Possible Loan Losses."
GOVERNMENT REGULATION
Banking organizations are subject to extensive federal and state regulation
and supervision. These regulations and laws are primarily intended to protect
depositors and the FDIC, not shareholders or other creditors. Regulations and
laws affecting the financial institutions industry are undergoing continuous
change, and the ultimate effect of such changes cannot be predicted.
Regulations and laws affecting FBA and the Subsidiary Banks may be modified at
any time, and new legislation affecting financial institutions may be proposed
and enacted. There is no assurance that such modifications or new laws will not
materially and adversely affect the business, condition or operations of FBA
and the Subsidiary Banks or benefit competing entities which may not be subject
to the same regulation and supervision. See "Supervision and
Regulation--Recent and Pending Legislation."
COMPETITION
The banking business is highly competitive. The Subsidiary Banks compete
with other commercial banks, savings and loan associations, credit unions,
mortgage banking companies, securities brokerage companies, insurance
companies, and money market mutual funds. Many of these competitors have
substantially greater resources than FBA and the Subsidiary Banks and offer
certain services that FBA and the Subsidiary Banks do not currently
14
<PAGE> 19
provide. Such competitors may also have greater lending limits than the
Subsidiary Banks. The number of competitors may increase as a result of the
easing of restrictions on interstate banking effected under the Riegle-Neal
Interstate Banking and Efficiency Act of 1994. Non-bank competitors are also
generally not subject to the extensive regulations applicable to FBA and the
Subsidiary Banks. See "Business--Competition and Branch Banking" and
"Supervision and Regulation--Recent and Pending Legislation."
DIVIDENDS FROM SUBSIDIARY BANKS
The ability of FBA to pay interest on the Subordinated Debentures is
largely dependent on its receipt of dividends from the Subsidiary Banks. The
amount of dividends that the Subsidiary Banks may pay to FBA is limited by
various state and federal laws and by the regulations promulgated by their
respective primary regulators, which impose certain minimum capital
requirements.
POTENTIAL LIABILITY FOR UNDERCAPITALIZED SUBSIDIARY BANK
Under federal law, a bank holding company may be required to guarantee a
capital plan filed by an undercapitalized bank or thrift subsidiary with its
primary regulator. If the subsidiary defaults under the plan, the holding
company may be required to contribute to the capital of the subsidiary bank an
amount equal to the lesser of 5% of the bank's assets at the time it became
undercapitalized or the amount necessary to bring the bank into compliance with
applicable capital standards. It is, therefore, possible that the Company would
be required to contribute capital to a Subsidiary Bank or any other bank it may
acquire in the event that a Subsidiary Bank or such other bank becomes
undercapitalized.
CONTROL OF FBA BY FIRST BANKS, INC.
FBA is controlled by First Banks, which exercises effective control over
the management and policies of FBA and the election of most or all of the
directors of FBA. Furthermore, executive officers of First Banks have
significant management responsibility for FBA's business activities, and First
Banks performs numerous management and other services for FBA pursuant to
contracts between the two companies. Holders of FBA common stock who are not
satisfied with the policies and decisions made by the Board of Directors and
management of FBA would therefore have less of an opportunity to change such
policies through the exercise of voting rights than would stockholders in a
comparable corporation with no controlling stockholder.
The agreement by which First Banks became the majority stockholder of FBA
provides certain anti-dilutive rights which allow First Banks to acquire
additional shares of Class B common stock if its ownership is reduced below 55%
of the total outstanding voting stock of FBA. In that event, First Banks has
the right to purchase sufficient additional shares of Class B common stock to
maintain 55% ownership, at 106.7% of the then current tangible book value per
share. This right will remain effective until August 1999, after which a
comparable right will exist to maintain the same level of ownership by
purchasing shares at 113% and 120% of the then current tangible book value per
share through August 2000 and February 2002, respectively. Thereafter, First
Banks' anti-dilutive right will lapse.
All of the voting stock of First Banks is owned by various trusts which
were created by and are administered by and for the benefit of Mr. James F.
Dierberg, Chairman of the Board, President and Chief Executive Officer of First
Banks, and members of his immediate family. Mr. Dierberg, therefore, controls
the management and policies of First Banks and FBA and the election of their
directors by and through these trusts.
15
<PAGE> 20
USE OF PROCEEDS
The proceeds from the sale of the Preferred Securities offered hereby will
be used by the Trust to purchase the Subordinated Debentures issued by the
Company. The Company intends to use the net proceeds from the sale of the
Subordinated Debentures to repay outstanding indebtedness to First Banks under
the terms of a revolving promissory note (the "First Banks Note"), for
general corporate purposes, for acquisitions (including the pending acquisition
of Redwood), and for the possible repurchase of common stock from time to time.
The amounts borrowed under the First Banks Note have been used by FBA for the
acquisitions of Sunrise Bank of California, Surety Bank and Pacific Bay Bank,
and for purchases of treasury stock. The First Banks Note bears interest at one
quarter of one percent below the prime rate of interest as announced from time
to time in The Wall Street Journal (8.25% as of March 31, 1998). Principal and
accrued interest on the First Banks Note are due and payable on October 31,
2001. The portion of the net proceeds from the sale of Subordinated Debentures
which is not used to repay existing obligations will be invested in short term
investment securities pending its use for the purposes described above.
MARKET FOR THE PREFERRED SECURITIES
Although application has been made to have the Preferred Securities
approved for listing on the NYSE under the symbol "FBAPrT", there can be no
assurance that an active and liquid trading market will develop or, if
developed, that such a market will continue. The offering price and
distribution rate have been determined by negotiations among representatives of
the Company and the Underwriters, and the offering price of the Preferred
Securities may not be indicative of the market price following the offering.
See "Underwriting."
ACCOUNTING TREATMENT
The Trust will be treated, for financial reporting purposes, as a
subsidiary of the Company and, accordingly, the accounts of the Trust will be
included in the consolidated financial statements of FBA. The Preferred
Securities will be presented as a separate line item in the consolidated
balance sheet of the Company under the caption "Guaranteed Preferred
Beneficial Interests in the Company's Subordinated Debentures," and
appropriate disclosures about the Preferred Securities, the Guarantee and the
Subordinated Debentures will be included in the notes to consolidated financial
statements of FBA. The Company will record Distributions payable on the
Preferred Securities as a noninterest expense in its consolidated statements of
operations for financial reporting purposes.
All future reports of the Company filed under the Exchange Act while the
Preferred Securities are outstanding will (a) present the Trust Securities
issued by the Trust on the balance sheet as a separate line item entitled
"Guaranteed preferred beneficial interests in the Company's subordinated
debentures," (b) include in a footnote to the financial statements disclosure
that the sole assets of the Trust are the Subordinated Debentures (including
the outstanding principal amount, interest rate and maturity date of such
Subordinated Debentures), and (c) include in a footnote to the financial
statements disclosure that the Company owns all of the Common Securities of the
Trust, the sole assets of the Trust are the Subordinated Debentures, and the
back-up obligations, in the aggregate, constitute a full and unconditional
guarantee by the Company of the obligations of the Trust under the Preferred
Securities.
16
<PAGE> 21
CAPITALIZATION
The following table assumes that the Underwriters' over-allotment option
was not exercised and sets forth (i) the unaudited consolidated capitalization
of the Company at March 31, 1998, (ii) the unaudited consolidated
capitalization of the Company giving effect to the issuance of the Preferred
Securities hereby offered by the Trust and the receipt by the Company of the
net proceeds from the corresponding sale of the Subordinated Debentures to the
Trust (the "Offering"), as if the Offering had been consummated on March 31,
1998, and (iii) the unaudited consolidated capitalization of the Company giving
effect to the Offering and the Redwood acquisition as if each had been
consummated on March 31, 1998.
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------------------
AS ADJUSTED
FOR OFFERING
AND PENDING
AS ADJUSTED ACQUISITION
ACTUAL FOR OFFERING OF REDWOOD
------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
LONG TERM DEBT:
Promissory note payable................................. $13,450 -- 1,200
12% convertible debentures.............................. 6,500 6,500 6,500
------- ------- -------
Total long-term debt............................ 19,950 6,500 7,700
------- ------- -------
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE COMPANY'S
SUBORDINATED DEBENTURES:
Guaranteed preferred beneficial interests in the
Company's subordinated debentures..................... -- 40,000 40,000
Less expenses relating to the issuance of the Preferred
Securities............................................ -- (1,750) (1,750)
------- ------- -------
Net proceeds from the sale of guaranteed
preferred beneficial interests in the
Company's subordinated debentures:............ -- 38,250 38,250
------- ------- -------
STOCKHOLDERS' EQUITY:
Common stock:
Common stock, $0.15 par value; 6,666,666 shares
authorized; 3,238,417 shares issued at March 31,
1998.................................................. 486 486 486
Class B common stock, $.15 par value; 4,000,000 shares
authorized; 2,500,000 shares issued and outstanding... 375 375 375
Capital surplus......................................... 60,173 60,173 60,173
Retained earnings, since elimination of accumulated
deficit of $259,117 effective December 31, 1994....... 2,183 2,183 2,183
Common treasury stock, at cost; 496,056 shares at March
31, 1998.............................................. (6,814) (6,814) (6,814)
Net fair value adjustment for securities available for
sale.................................................. 438 438 438
------- ------- -------
Total stockholders' equity...................... 56,841 56,841 56,841
------- ------- -------
Total capitalization............................ $76,791 101,591 102,791
======= ======= =======
CAPITAL RATIOS:
Stockholders' equity to total assets.................... 8.21% 7.91 6.66
Leverage ratio<F1><F2><F4>.............................. 6.77 9.98 6.27<F4>
Risk-based capital ratios:<F2><F3>
Tier 1 capital to risk-weighted assets.............. 7.82 11.41 7.09
Total risk-based capital to risk-weighted assets.... 9.08 16.47 11.19
<FN>
- --------
<F1>The leverage ratio is Tier 1 capital divided by average quarterly assets,
after deducting intangible assets and net deferred tax assets in excess of
regulatory limits.
<F2>The capital ratios are computed including the total estimated net proceeds
from the sale of the Preferred Securities, in a manner consistent with
Federal Reserve calculation guidelines.
<F3>Federal Reserve guidelines for calculation of Tier 1 capital to
risk-weighted assets limit the amount of cumulative preferred stock which
can be included in Tier 1 capital to 25% of total Tier 1 core capital
elements (including the cumulative preferred stock). Approximately $18.8
million of the aggregate amount of the Preferred Securities offered hereby
will be included as Tier 1 capital for the Company.
<F4>For purposes of this calculation, Redwood balances are assumed to be
outstanding for the entire quarter.
</TABLE>
17
<PAGE> 22
SELECTED CONSOLIDATED AND OTHER FINANCIAL DATA<F1>
The selected consolidated financial data set forth below, insofar as it
relates to the five years ended December 31, 1997, is derived from the audited
consolidated financial statements of FBA. The data for the three month periods
ended March 31, 1998 and 1997 has been derived from unaudited interim financial
statements; however, in the opinion of FBA, such unaudited interim statements
include all adjustments (consisting of normal recurring accruals) necessary to
fairly present the data for such periods. The results of operations for the
three month period ended March 31, 1998 are not necessarily indicative of
results to be achieved for the full year. Such data is qualified by reference
to the consolidated financial statements of FBA included elsewhere in this
Prospectus or incorporated by reference and should be read in conjunction with
such financial statements and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income................................ $ 12,996 9,611 42,517 33,382 26,556 22,649 21,966
Interest expense............................... 5,899 4,508 19,155 15,533 13,134 11,072 9,750
-------- ------- ------- ------- ------- ------- -------
Net interest income............................ 7,097 5,103 23,362 17,849 13,422 11,577 12,216
Provision for possible loan losses............. 300 550 2,000 2,405 6,416 1,258 490
-------- ------- ------- ------- ------- ------- -------
Net interest income after provision for
possible loan losses......................... 6,797 4,553 21,362 15,444 7,006 10,319 11,726
Noninterest income............................. 1,150 871 3,287 3,585 129 (4,511) 3,068
Noninterest expense............................ 6,057 4,493 17,677 17,737 14,148 16,174 14,575
-------- ------- ------- ------- ------- ------- -------
Income (loss) before provision (benefit) for
income taxes and minority interest in
(income) loss of subsidiary.................. 1,890 931 6,972 1,292 (7,013) (10,366) 219
Provision (benefit) for income tax expense..... 790 361 3,145 470 (2,188) (9,461) --
-------- ------- ------- ------- ------- ------- -------
Net income (loss) before minority interest in
(income) loss of subsidiary.................. 1,100 570 3,827 822 (4,825) (905) 219
Minority interest in (income) loss of
subsidiary................................... -- (86) (294) (131) 11 -- --
-------- ------- ------- ------- ------- ------- -------
Net income (loss).............................. $ 1,100 484 3,533 691 (4,814) (905) 219
======== ======= ======= ======= ======= ======= =======
DIVIDENDS:
Common stock................................... $ -- -- -- -- -- -- --
Ratio of total dividends declared to net
income....................................... --% --% --% --% --% --% --%
PER SHARE DATA:
Earnings (loss) per share:
Basic...................................... $ 0.22 0.12 0.87 0.16 (1.19) (0.41) 0.17
Diluted.................................... 0.22 0.12 0.86 0.16 (1.19) (0.41) 0.14
Weighted average common stock outstanding (in
thousands)................................... 4,911 4,082 4,069 4,225 4,032 2,181 1,290
BALANCE SHEET DATA (AT PERIOD END):
Investment securities.......................... $141,131 139,682 148,181 125,139 113,586 61,400 160,158
Loans, net of unearned discount................ 444,099 327,015 431,455 336,371 266,588 203,314 167,732
Total assets................................... 692,409 530,023 643,664 529,087 468,486 331,790 368,608
Total deposits................................. 600,557 452,455 556,527 455,942 405,427 241,570 242,897
Promissory note payable........................ 13,450 14,000 14,900 14,000 1,054 1,054 1,054
Stockholders' equity........................... 56,841 38,013 45,091 38,195 40,965 39,714 14,952
EARNINGS RATIOS:
Return on average total assets<F2>............. 0.67% 0.37% 0.65% 0.15% (1.28)% (0.25)% 0.07%
Return on average stockholders' equity<F2>..... 8.13 5.11 8.90 1.71 (12.06) (3.66) 1.49
ASSET QUALITY RATIOS:
Allowance for possible loan losses to loans.... 2.72 3.32 2.64 3.19 3.98 1.36 1.57
Nonperforming loans to loans<F3>............... 1.35 0.75 0.66 0.88 1.90 0.14 0.37
Allowance for possible loan losses to
nonperforming loans<F3>...................... 200.95 444.66 400.81 363.10 209.18 940.61 423.95
Nonperforming assets to loans and foreclosed
assets<F4>................................... 1.51 1.06 0.80 1.17 2.78 0.90 2.22
Net loan charge-offs to average loans<F2>...... 0.49 0.52 0.40 1.69 1.45 0.62 0.52
CAPITAL RATIOS:
Average stockholders' equity to average total
assets....................................... 8.25 7.32 7.34 8.86 10.64 6.80 4.40
Total risk-based capital ratio................. 9.08 6.94 6.88 6.62 9.64 17.50 8.47
Leverage ratio................................. 6.77 4.22 4.96 4.46 5.98 11.97 4.27
RATIO OF EARNINGS (LOSS) TO FIXED CHARGES<F5>:
Including interest on deposits................. 1.31x 1.20x 1.35x 1.08x 0.50x 0.11x 1.02x
Excluding interest on deposits................. 3.35 2.17 3.00 1.53 (1.13) (1.28) 1.09
<FN>
- ----------
<F1>The comparability of the selected data presented is affected by FBA's
acquisitions of Pacific Bay Bank, Surety Bank and Sunrise Bank of
California on February 2, 1998, December 1, 1997 and November 1, 1996,
respectively. These acquisitions were accounted for as purchases and,
accordingly, the selected data includes the financial position and results
of operations of each acquired entity only for the periods subsequent to
its date of acquisition. In addition, on February 2, 1998, FBA completed
its acquisition of First Commercial Bancorp, Inc. and its subsidiary, First
Commercial Bank. As discussed in Note 2 to the consolidated financial
statements of FBA, the selected data has been restated to reflect First
Banks, Inc.'s interest in First Commercial Bancorp, Inc. for the periods
subsequent to August 23, 1995.
<F2>Ratios for the three month periods are annualized.
<F3>Nonperforming loans consist of nonaccrual loans and loans with restructured
terms.
<F4>Nonperforming assets consist of nonperforming loans and foreclosed assets.
<F5>For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before taxes plus interest and rent expense.
Fixed charges consist of interest and rent expense.
</TABLE>
18
<PAGE> 23
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed balance sheet as of
March 31, 1998 and unaudited pro forma combined condensed statements of
operations for the three months ended March 31, 1998 and 1997, and for the year
ended December 31, 1997, have been prepared to reflect the effects on the
historical results of FBA of the proposed acquisition of Redwood and its wholly
owned subsidiary, Redwood Bank. The unaudited pro forma combined condensed
balance sheet has been prepared as if the acquisition of Redwood occurred on
March 31, 1998. The unaudited pro forma combined condensed statements of
operations have been prepared assuming the acquisition of Redwood occurred on
January 1, 1997. In addition, the unaudited pro forma combined condensed
statements of operations reflect the acquisitions of Surety Bank, completed on
December 1, 1997, and of the minority stockholders' interest in the net assets
of FCB, completed on February 2, 1998, as if the transactions occurred on
January 1, 1997. The unaudited pro forma combined condensed statements of
operations for the year ended December 31, 1997 and for the three months ended
March 31, 1997 also reflect the restatement of FBA's results of operations for
its acquisition of First Banks' interest in FCB completed on February 2, 1998.
The pro forma financial information set forth below is unaudited and not
necessarily indicative of the results that will occur in the future.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET<F1>
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------------------------
PRO FORMA
ADJUSTMENTS - PRO FORMA
FBA REDWOOD REDWOOD COMBINED
--- ------- ------------- ---------
ASSETS (DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Cash and cash equivalents:
Cash and due from banks........................ $ 32,651 6,034 -- 38,685
Interest bearing deposits...................... 2,271 -- -- 2,271
Federal funds sold............................. 42,250 3,000 -- 45,250
-------- ------- ----- -------
Total cash and cash equivalents........ 77,172 9,034 -- 86,206
-------- ------- ----- -------
Investment securities--available for sale, at fair
value............................................ 141,131 16,667 -- 157,798
Loans:
Commercial and financial....................... 113,312 14,893 -- 128,205
Real estate construction and development....... 96,035 9,762 -- 105,797
Real estate mortgage........................... 166,160 82,848 -- 249,008
Consumer and other............................. 71,017 13,069 -- 84,086
-------- ------- ----- -------
Total loans............................ 446,524 120,572 -- 567,096
Unearned discount.............................. (2,425) (512) -- (2,937)
Allowance for possible loan losses............. (12,063) (1,180) -- (13,243)
-------- ------- ----- -------
Net loans.............................. 432,036 118,880 -- 550,916
-------- ------- ----- -------
Bank premises and equipment, net................... 11,382 784 -- 12,166
Intangibles associated with the purchase of
subsidiaries..................................... 8,794 3,920 8,174<F6> 20,888
Foreclosed property, net........................... 725 -- -- 725
Deferred tax assets................................ 13,739 1,460 -- 15,199
Other assets....................................... 7,430 1,261 -- 8,691
-------- ------- ----- -------
Total assets........................... $692,409 152,006 8,174 852,589
======== ======= ===== =======
</TABLE>
See notes to pro forma combined condensed financial statements.
19
<PAGE> 24
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET<F1> (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------------------------
PRO FORMA
ADJUSTMENTS - PRO FORMA
FBA REDWOOD REDWOOD COMBINED
--- ------- ------------- ---------
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
LIABILITIES
Deposits:
Demand:
Non-interest-bearing..................... $101,270 26,232 -- 127,502
Interest-bearing......................... 73,433 28,080 -- 101,513
Savings....................................... 158,625 25,108 -- 183,733
Time deposits:
Time deposits of $100 or more............ 57,725 19,864 -- 77,589
Other time deposits...................... 209,504 30,827 -- 240,331
-------- ------- ------- -------
Total deposits......................... 600,557 130,111 -- 730,668
Short-term borrowings.............................. 3,453 2,910 -- 6,363
Promissory note payable............................ 13,450 -- (12,250)<F7> 1,200
Deferred tax liabilities........................... 1,049 695 -- 1,744
Accrued expenses and other liabilities............. 10,559 464 -- 11,023
12% convertible debentures......................... 6,500 -- -- 6,500
-------- ------- ------- -------
Total liabilities...................... 635,568 134,180 (12,250) 757,498
-------- ------- ------- -------
Guaranteed preferred beneficial interests in FBA's
subordinated debentures.......................... -- -- 38,250 <F7> 38,250
-------- ------- ------- -------
STOCKHOLDERS' EQUITY
Common stock:
Common stock................................... 486 833 (833)<F6> 486
Class B common stock........................... 375 -- -- 375
Capital surplus.................................... 60,173 10,640 (10,640)<F6> 60,173
Retained earnings.................................. 2,183 6,412 (6,412)<F6> 2,183
Treasury stock..................................... (6,814) -- -- (6,814)
Accumulated other comprehensive income............. 438 (59) 59 <F6> 438
-------- ------- ------- -------
Total stockholders' equity............. 56,841 17,826 (17,826) 56,841
-------- ------- ------- -------
Total liabilities and stockholders'
equity............................... $692,409 152,006 8,174 852,589
======== ======= ======= =======
</TABLE>
See notes to pro forma combined condensed financial statements.
20
<PAGE> 25
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS<F1>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
------------------------------------------------------
PRO FORMA
ADJUSTMENTS - PRO FORMA
FBA REDWOOD REDWOOD & FCB COMBINED
--- ------- ------------- ---------
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans.......................... $10,568 2,701 -- 13,269
Investment securities............................... 2,033 309 -- 2,342
Federal funds sold and other........................ 395 28 -- 423
------- ----- ----- ------
Total interest income........................... 12,996 3,038 -- 16,034
------- ----- ----- ------
Interest expense:
Interest on deposits................................ 5,362 1,072 -- 6,434
Note payable and other borrowings................... 537 6 (321)<F3><F8> 222
------- ----- ----- ------
Total interest expense.......................... 5,899 1,078 (321) 6,656
------- ----- ----- ------
Net interest income............................. 7,097 1,960 321 9,378
Provision for possible loan losses...................... 300 -- -- 300
------- ----- ----- ------
Net interest income after provision for
possible loan losses.......................... 6,797 1,960 321 9,078
------- ----- ----- ------
Noninterest income:
Service charges on deposit accounts................. 739 63 -- 802
Other income........................................ 411 175 -- 586
------- ----- ----- ------
Total noninterest income........................ 1,150 238 -- 1,388
------- ----- ----- ------
Noninterest expense:
Salary and employee benefits........................ 2,135 800 -- 2,935
Occupancy, furniture and equipment.................. 838 234 -- 1,072
Other noninterest expense........................... 3,084 403 1,056<F2><F8> 4,543
------- ----- ----- ------
Total noninterest expense....................... 6,057 1,437 1,056 8,550
------- ----- ----- ------
Income before provision for income tax
expense....................................... 1,890 761 (735) 1,916
Provision for income tax expense (benefit).............. 790 336 (199) 927
------- ----- ----- ------
Net income...................................... $ 1,100 425 (536) 989
======= ===== ===== ======
Weighted average common stock outstanding
(in thousands)........................................ 4,911 -- 365<F9> 5,276
======= ===== ===== ======
Earnings per common share:
Basic............................................... $ 0.22 0.19
Diluted............................................. 0.22 0.19
======= ======
</TABLE>
See notes to pro forma combined condensed financial statements.
21
<PAGE> 26
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS<F1>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS - PRO FORMA
FCB & PRO FORMA ADJUSTMENTS - PRO FORMA
FBA SURETY SURETY COMBINED REDWOOD REDWOOD COMBINED
--- ------ ------ --------- ------- ------------- ---------
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans.... $7,453 1,145 -- 8,598 2,404 -- 11,002
Investment securities......... 1,781 182 -- 1,963 197 -- 2,160
Federal funds sold............ 377 -- -- 377 68 -- 445
------ ----- ----- ------ ----- ----- ------
Total interest income..... 9,611 1,327 -- 10,938 2,669 -- 13,607
------ ----- ----- ------ ----- ----- ------
Interest expense:
Interest on deposits.......... 3,963 607 -- 4,570 907 -- 5,477
Note payable and other
borrowings.................. 545 2 (126)<F3><F5> 421 -- (249)<F8> 172
------ ----- ----- ------ ----- ----- ------
Total interest expense.... 4,508 609 (126) 4,991 907 (249) 5,649
------ ----- ----- ------ ----- ----- ------
Net interest income....... 5,103 718 126 5,947 1,762 249 7,958
Provision for possible loan
losses.......................... 550 35 -- 585 -- -- 585
------ ----- ----- ------ ----- ----- ------
Net interest income after
provision for possible
loan losses............. 4,553 683 126 5,362 1,762 249 7,373
------ ----- ----- ------ ----- ----- ------
Noninterest income:
Service charges on deposit
accounts.................... 575 101 -- 676 57 -- 733
Other income.................. 296 156 (5)<F4> 447 151 -- 598
------ ----- ----- ------ ----- ----- ------
Total noninterest
income.................. 871 257 (5) 1,123 208 -- 1,331
------ ----- ----- ------ ----- ----- ------
Noninterest expense:
Salary and employee
benefits.................... 1,550 434 -- 1,984 931 -- 2,915
Occupancy, furniture and
equipment................... 838 90 2<F4> 930 227 -- 1,157
Other noninterest expense..... 2,105 309 73<F2><F4> 2,487 346 1,047<F8> 3,880
------ ----- ----- ------ ----- ----- ------
Total noninterest
expense................. 4,493 833 75 5,401 1,504 1,047 7,952
------ ----- ----- ------ ----- ----- ------
Income before provision
for income tax expense
and minority interest in
income of subsidiary.... 931 107 46 1,084 466 (798) 752
Provision for income tax
expense......................... 361 43 42 446 216 (224) 438
------ ----- ----- ------ ----- ----- ------
Income before minority
interest in income of
subsidiary.............. 570 64 4 638 250 (574) 314
Minority interest in income of
subsidiary...................... (86) -- 86<F2> -- -- -- --
------ ----- ----- ------ ----- ----- ------
Net income................ $ 484 64 90 638 250 (574) 314
====== ===== ===== ====== ===== ===== ======
Weighted average common stock
equivalents outstanding (in
thousands)...................... 4,082 265<F9> 1,093<F9> 5,440 -- -- 5,440
====== ===== ===== ====== ===== ===== ======
Earnings per common share:
Basic......................... $ 0.12 0.12 0.06
Diluted....................... 0.12 0.12 0.06
====== ====== ======
</TABLE>
See notes to pro forma combined condensed financial statements.
22
<PAGE> 27
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS<F1>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS - PRO FORMA
FCB & PRO FORMA ADJUSTMENTS - PRO FORMA
FBA SURETY SURETY COMBINED REDWOOD REDWOOD COMBINED
--- ------ ------------- --------- ------- ------------- ---------
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans.... $33,393 4,338 -- 37,731 10,418 -- 48,149
Investment securities......... 7,870 699 -- 8,569 1,018 -- 9,587
Federal funds sold............ 1,254 -- -- 1,254 244 -- 1,498
------- ----- ----- ------ ------ ------ ------
Total interest income..... 42,517 5,037 -- 47,554 11,680 -- 59,234
------- ----- ----- ------ ------ ------ ------
Interest expense:
Interest on deposits.......... 16,716 2,297 -- 19,013 3,863 -- 22,876
Note payable and other
borrowings.................. 2,439 16 (504)<F3><F5> 1,951 1 (995)<F8> 957
------- ----- ----- ------ ------ ------ ------
Total interest expense.... 19,155 2,313 (504) 20,964 3,864 (995) 23,833
------- ----- ----- ------ ------ ------ ------
Net interest income....... 23,362 2,724 504 26,590 7,816 995 35,401
Provision for possible loan
losses.......................... 2,000 255 -- 2,255 -- -- 2,255
------- ----- ----- ------ ------ ------ ------
Net interest income after
provision for possible
loan losses............. 21,362 2,469 504 24,335 7,816 995 33,146
------- ----- ----- ------ ------ ------ ------
Noninterest income:
Service charges on deposit
accounts.................... 2,239 369 -- 2,608 373 -- 2,981
Other income.................. 1,048 952 (20)<F4> 1,980 28 -- 2,008
------- ----- ----- ------ ------ ------ ------
Total noninterest
income.................. 3,287 1,321 (20) 4,588 401 -- 4,989
------- ----- ----- ------ ------ ------ ------
Noninterest expense:
Salary and employee
benefits.................... 6,226 2,151 -- 8,377 3,362 -- 11,739
Occupancy, furniture and
equipment................... 3,315 360 8<F4> 3,683 934 -- 4,617
Other noninterest expense..... 8,136 1,580 293<F2><F4> 10,009 1,345 4,184<F8> 15,538
------- ----- ----- ------ ------ ------ ------
Total noninterest
expense................. 17,677 4,091 301 22,069 5,641 4,184 31,894
------- ----- ----- ------ ------ ------ ------
Income (loss) before
provision for income tax
expense (benefit) and
minority interest in
income of subsidiary.... 6,972 (301) 183 6,854 2,576 (3,189) 6,241
Provision for income tax expense
(benefit)....................... 3,145 (120) 167 3,192 1,156 (897) 3,451
------- ----- ----- ------ ------ ------ ------
Income before minority
interest in income of
subsidiary.............. 3,827 (181) 16 3,662 1,420 (2,292) 2,790
Minority interest in income of
subsidiary...................... (294) -- 294<F2> -- -- -- --
------- ----- ----- ------ ------ ------ ------
Net income................ $ 3,533 (181) 310 3,662 1,420 (2,292) 2,790
======= ===== ===== ====== ====== ====== ======
Weighted average common stock
equivalents outstanding (in
thousands)...................... 4,069 265<F9> 1,093<F9> 5,427 -- -- 5,427
======= ===== ===== ====== ====== ====== ======
Earnings per common share:
Basic......................... $ 0.87 0.67 0.51
Diluted....................... 0.86 0.67 0.51
======= ====== ======
</TABLE>
See notes to pro forma combined condensed financial statements.
23
<PAGE> 28
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) The unaudited pro forma combined condensed balance sheet has been
prepared based on the historical financial statements of FBA and Redwood as if
the pending acquisition of Redwood had occurred on March 31, 1998. The
unaudited pro forma combined condensed statements of operations set forth the
results of operations of FBA as if the pending acquisition of Redwood had
occurred as of January 1, 1997. In addition, the unaudited pro forma combined
condensed statements of operations reflect the acquisitions of Surety Bank and
of the minority stockholders' interest in the net assets of FCB as if these
transactions were completed on January 1, 1997. The unaudited pro forma
combined condensed statements of operations for the year ended December 31,
1997 and for the three months ended March 31, 1997 also reflect the restatement
of FBA's results of operations for its acquisition of First Banks' interest in
FCB completed on February 2, 1998. For further discussion of FBA's acquisition
activities, see "--Management's Discussion and Analysis--Acquisitions" and
"Note 2" to the accompanying consolidated financial statements of FBA. No
adjustments have been made for any operational synergies that may occur as a
result of these transactions. The pro forma financial information is unaudited
and not necessarily indicative of the results that will occur in the future.
ACQUISITION OF THE MINORITY STOCKHOLDERS' INTEREST IN FCB:
(2) The application of the purchase method of accounting gives rise to
purchase adjustments to reflect the fair value of assets acquired and
liabilities assumed. Intangibles associated with the purchase of subsidiaries
includes $1.63 million of goodwill for the acquisition of the minority
stockholders' interest in the net assets of FCB. This amount represents the
difference between the minority stockholders' interest in the net assets of FCB
as of February 2, 1998 of $2.85 million and the estimated market value of that
interest. The pro forma combined condensed statements of operations have been
adjusted to include the amortization of goodwill generated by this transaction,
amortized over a 15 year period using the straight-line method, and the
elimination of minority interest in income of subsidiary.
(3) The pro forma combined condensed statements of operations have been
adjusted to reflect the reduction in interest expense from the exchange of $10
million of the First Banks Note for 804,000 shares of FBA common stock as of
February 2, 1998. The First Banks Note carries an interest rate equal to 25
basis points below the prime rate. During 1998 and 1997, the average prime rate
of interest was approximately 8.50% and 8.375%, respectively.
ACQUISITION OF SURETY:
(4) Intangibles associated with the purchase of subsidiaries include $2.77
million in goodwill generated by the transaction between FBA and Surety,
representing the difference between the purchase price and the fair value of
the net assets acquired. The fair value of the net assets acquired reflects
increases of $200,000 and $210,000 relating to bank premises and mortgage
servicing rights (MSRs), respectively, offset by the accrual of $389,000 in
estimated acquisition costs. The deferred tax effects of these adjustments were
recorded using an effective tax rate of 35%. The pro forma combined condensed
statements of operations for the year ended December 31, 1997 and for the three
months ended March 31, 1997 have been adjusted to include the amortization of
goodwill generated by the transaction, amortized over a 15 year period using
the straight-line method, and the additional depreciation and amortization
relating to the increases in bank premises and MSRs.
(5) The pro forma combined condensed statements of operations for the year
ended December 31, 1997 and for the three months ended March 31, 1997 have been
adjusted to reflect the amount of interest expense which would have been paid
on the advance under the First Banks Note to fund the cash portion of the
acquisition. The First Banks Note carries an interest rate equal to 25 basis
points below the prime rate. During 1997, the average prime rate of interest
was approximately 8.375%.
PENDING ACQUISITION OF REDWOOD:
(6) The pro forma combined condensed balance sheet has been adjusted to
reflect the application of the purchase method of accounting. Adjustments to
intangibles associated with the purchase of subsidiaries result in $12.1 million
of goodwill for the pending acquisition of Redwood. This amount represents the
difference between the assumed purchase price of $26.0 million and the fair
value of the net assets acquired.
24
<PAGE> 29
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(7) The pro forma combined condensed financial statements reflect the
assumed issuance of $40 million of Preferred Securities as of January 1, 1997.
The proceeds of the offering, net of estimated issuance costs, are assumed to
be $38.3 million. The proceeds will be used by the Trust to purchase the
Subordinated Debentures issued by FBA. FBA intends to use the proceeds from the
sale of the Subordinated Debentures to repay outstanding indebtedness under the
First Banks Note, for general corporate purposes, for acquisitions (including
the pending acquisition of Redwood), and the possible repurchase of common
stock from time to time. See "Use of Proceeds."
(8) The pro forma combined condensed statements of operations have been
adjusted to include the reduction in interest expense under the First Banks
Note, the amortization of goodwill generated by this pending transaction,
amortized over a 15 year period using the straight-line method, and the cost of
the Subordinated Debentures at an estimated rate of 8.75%, including the
amortization of estimated issuance costs.
EARNINGS PER SHARE:
(9) Pro forma earnings per share were calculated based upon FBA's weighted
average shares outstanding plus 289,552 shares issued for the acquisition of
the minority stockholders' interest in the fair value of the net assets of FCB,
804,000 shares issued in exchange for $10.0 million of the First Banks Note and
264,622 shares issued in the transaction between FBA and Surety.
25
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS
The discussion set forth in Management's Discussion and Analysis contains
certain forward-looking statements with respect to the financial condition,
results of operations and business of the Company. These forward-looking
statements are subject to certain risks and uncertainties, not all of which can
be predicted or anticipated. Factors that may cause actual results to differ
materially from those contemplated by the forward-looking statements herein
include general market conditions as well as conditions specifically affecting
the banking industry generally and factors having a specific impact on the
Company, including, but not limited to, the specific risks and uncertainties
identified in the section of this Prospectus entitled "RISK FACTORS--Risk
Factors Relating to the Company." Readers should therefore not place undue
reliance on forward-looking statements appearing herein.
ACQUISITIONS
FBA believes in order for a financial institution to prosper in the current
environment of rapid restructuring and consolidation in the banking industry,
and intense competition both within the industry and from non-banking entities,
it must achieve a size sufficient to enable it to take advantage of many of the
efficiencies available to its much larger competitors. FBA further believes
failure to achieve this growth would place FBA at a competitive disadvantage
relative to those larger competitors with respect to its costs of operation
which, over time, will be an increasingly difficult obstacle to overcome. FBA
projects internal growth alone will not be sufficient to advance FBA to the
size which is necessary within an acceptable time frame and, accordingly, views
a combination of internal growth and acquisitions as the means by which FBA
will achieve its growth objectives.
Although FBA originally viewed Texas, particularly the Dallas and Houston
areas, as its primary acquisition area, during 1995 and 1996 prices for
acquisitions escalated sharply in those areas. Acquisitions at the prices
required to successfully consummate these transactions would have caused
substantial diminution in the economic benefits which FBA envisioned would be
available in its acquisition program. This diminution in benefits resulted in
FBA's evaluation of California for acquisition candidates, where acquisition
pricing was considerably more favorable, and subsequently led to FBA's
acquisition of Sunrise Bank of California, Roseville, California ("Sunrise
Bank") in November 1996 and Surety Bank, Vallejo, California in December 1997,
as well as the acquisitions of First Commercial Bancorp, Inc., Sacramento,
California, ("FCB"), the holding company parent of First Commercial Bank
("First Commercial"), and Pacific Bay Bank, San Pablo, California ("Pacific
Bay Bank") in February 1998.
In enhancing its banking franchise, FBA places emphasis upon acquiring
other financial institutions as a means of accelerating its growth to
significantly expand its presence in a given market, to increase the extent of
its market area or to enter new or noncontiguous market areas. After an
acquisition is consummated, FBA expects to enhance the franchise of the
acquired entity by supplementing the marketing and business development efforts
to broaden the customer bases, strengthening particular segments of the
business or filling voids in the overall market coverage. In addition, the
acquisition program enables FBA to further leverage the operational support
services available to it through First Banks and its affiliates and to provide
the products and services typically available only through such a larger
organization. FBA will utilize cash, borrowings and the issuance of additional
common stock to meet its growth objectives under the acquisition program.
In November 1996, FBA completed its acquisition of Sunrise Bank for $17.5
million in cash. At the time of the transaction, Sunrise Bank had $110.8
million in total assets, $17.7 million in investment securities, $61.1 million
in total loans, net of unearned discount, and $91.1 million in deposits.
Sunrise Bank conducted its business through two banking locations in Roseville
and Rancho Cordova, California. Sunrise Bank was merged into FB California.
On December 1, 1997, FBA completed its acquisition of Surety Bank for $3.8
million in cash and 264,622 shares of FBA common stock. At the time of the
transaction, Surety Bank had $72.8 million in total assets, $11.8 million in
investment securities, $54.4 million in total loans, net of unearned discount,
and $67.5 million in deposits. Surety Bank conducted its banking business
through two banking locations in Vallejo and Fairfield, California. On December
1, 1997, Surety Bank was merged into FB California.
On February 2, 1998, FBA completed two acquisitions, FCB and its wholly
owned subsidiary, First Commercial, and Pacific Bay Bank. FCB operated through
First Commercial, which had six banking locations located in Sacramento,
Roseville (2), Concord, Campbell and San Francisco, California. At the time of
the acquisition, FCB had $192.5 million in total assets, $64.4 million in
investment securities, $118.9 million in total loans, net of unearned
26
<PAGE> 31
discount, and $173.1 million in deposits. Consideration paid for FCB consisted
of approximately 752,000 shares of FBA common stock. Additionally, $6.5 million
in convertible debentures of FCB owned by First Banks were exchanged for $6.5
million in convertible debentures of FBA. Pacific Bay Bank had one banking
location in San Pablo, California and one loan production office in Lafayette,
California. At the time of the acquisition, Pacific Bay Bank had $38.3 million
in total assets, $2.2 million in total interest-bearing deposits with other
financial institutions, $29.7 million in total loans, net of unearned discount,
and $35.2 million in deposits. Consideration paid for Pacific Bay consisted of
approximately $4.2 million in cash. Both First Commercial and Pacific Bay Bank
were merged into FB California.
RESTATEMENT OF FINANCIAL INFORMATION
In connection with FBA's acquisition of FCB and its wholly owned
subsidiary, First Commercial, as of February 2, 1998, FBA's financial
information for the period from August 23, 1995 to February 2, 1998 has been
restated to include the ownership interest of First Banks, FBA's majority
owner, in FCB consistent with the accounting treatment applicable to entities
under common control. First Banks' ownership interest in FCB was approximately
96.1% from August 23, 1995 to May 1996 and 61.5% from June 1996 to February 2,
1998. The remaining interest in FCB acquired by FBA is reflected in the
consolidated financial statements of FBA as minority interest for the period
from August 23, 1995 to February 2, 1998. Accordingly, Management's Discussion
and Analysis of Financial Condition and Results of Operations and the
accompanying consolidated financial statements of FBA are presented as if FBA
and FCB had been consolidated for all periods after August 23, 1995.
FINANCIAL CONDITION AND AVERAGE BALANCES
FBA's average total assets were $665.2 million and $524.4 million for the
three months ended March 31, 1998 and 1997, respectively. The increase is
primarily attributable to the acquisitions of Pacific Bay Bank and Surety Bank,
and internal loan growth resulting from the expansion of the commercial
business development staff.
FBA's average total assets were $540.8 million, $456.7 million and $375.1
million for the years ended December 31, 1997, 1996 and 1995, respectively. For
1997, total average assets increased by $84.1 million compared to 1996
primarily due to the acquisitions of Surety Bank and Sunrise Bank on December
1, 1997 and November 1, 1996, respectively, and internal loan growth resulting
from the expansion of the business development staff. For 1996, total average
assets increased by $81.6 million from 1995. The increase for 1996 is primarily
attributable to including the average assets of FCB for the full year in 1996,
or $153.7 million, compared to an average of $56.8 million for 1995. As
previously discussed under "--Restatement of Financial Information," the
historical financial information of FBA was retroactively restated to include
FCB as if the acquisition was completed on August 23, 1995. Partially
offsetting this increase were reductions in BankTEXAS' consumer indirect
automobile loan and investment securities portfolios consistent with strategies
employed during 1995.
Loans, net of unearned discount, averaged $438.4 million and $326.5 million
for the three months ended March 31, 1998 and 1997, and $343.3 million, $273.1
million and $230.5 million for the years ended December 31, 1997, 1996 and
1995, respectively. During 1995, average loans increased by $47.6 million,
reflecting FBA's acquisition of FCB and the prior emphasis on indirect
automobile lending. As more fully discussed under "--Net Interest Income,"
during the second quarter of 1995, FBA elected to reduce the level of
originations of indirect automobile loans. Accordingly, indirect automobile
loans, which initially increased from $147.7 million at December 31, 1994 to
$159.5 million at June 30, 1995, have subsequently decreased to $59.0 million
at March 31, 1998 and $61.4 million, $86.6 million and $130.3 million at
December 31, 1997, 1996 and 1995, respectively. At the same time, FBA expanded
its corporate banking activities, resulting in the increase of the commercial
and financial, commercial real estate and real estate construction loan
portfolios to $314.8 million at March 31, 1998 and $296.7 million and $203.1
million at December 31, 1997 and 1996, respectively, including the loans
provided by the acquisition of Surety Bank and Sunrise Bank, from $102.1
million at December 31, 1995.
Investment securities previously increased to an average of $141.7 million
for the year ended December 31, 1994 from an investment strategy which FBA
implemented during 1992. Under this strategy, funds were borrowed, principally
through repurchase agreements and advances from the Federal Home Loan Bank
("FHLB"), which were in turn used to purchase investment securities,
primarily mortgage-backed securities. As more fully discussed under "--Net
Interest Income," this strategy resulted in a declining net interest income
and net interest margin.
27
<PAGE> 32
Recognizing the need to improve the net interest income and net interest
margin, during 1994 FBA commenced the process of restructuring its investment
portfolio. The restructuring process consisted initially of hedging the
existing investment security portfolio in an attempt to reduce the overall
interest rate risk to a more acceptable level. At the same time, FBA began
disposing of securities which had greater interest rate risk and reducing the
level of short-term borrowings. Remaining funds generated in this process were
invested in shorter-term U.S. Treasury and U.S. Government Agency securities
which generally have less interest rate risk. The restructuring of the
investment security portfolio was completed during 1995 and resulted in a
reduction of $51.8 million in the average balance of investment securities to
$89.9 million for the year ended December 31, 1995.
The average balance of investment securities was $136.5 million and $125.5
million for the three months ended March 31, 1998 and 1997 and $129.9 million
and $107.2 million for the years ended December 31, 1997 and 1996,
respectively. The increases are attributable to the securities acquired through
the acquisitions of Pacific Bay Bank, Surety Bank and Sunrise Bank.
Deposits are the primary funding source for FBA and are acquired from a
broad base of local markets, including both individual and corporate customers.
The average balance of deposits was $573.3 million and $449.3 million for the
three months ended March 31, 1998 and 1997, respectively. The increase is
attributable to the acquisitions of Pacific Bay Bank and Surety Bank, which
provided deposits of $35.2 million and $67.5 million, respectively, and to
internal growth resulting from FBA's promotional efforts. For 1997, average
deposits were $461.3 million, an increase of $67.1 million, from $394.2 million
for 1996. Average deposits increased $94.3 million during 1996, from $299.9
million for the year ended December 31, 1995. These increases are primarily
attributable to the acquisitions of Surety Bank, Sunrise Bank and FCB.
The average balance of promissory notes payable and short-term borrowings
decreased to $26.8 million and $13.8 million for the years ended December 31,
1997 and 1996, respectively, from $31.5 million for 1995. The decrease in the
average balance during 1996 is attributable to a strategic decision to reduce
FBA's dependence on short-term borrowings as a funding source for its
investment securities portfolio. The increase in the average balance for 1997
is attributable to borrowings under the First Banks Note to facilitate its
funding of the acquisition of Sunrise Bank as of December 1, 1996. For the
three months ended March 31, 1998 and 1997, promissory notes payable and
short-term borrowings averaged $24.6 million and $24.4 million, respectively.
Stockholders' equity averaged $54.9 million and $38.4 million for the three
months ended March 31, 1998 and 1997, respectively. The increase is primarily
attributable to net income, to the conversion of $10.0 million of the First
Banks Note for common stock and to the issuance of common stock in connection
with the acquisition of Surety Bank in December 1997 and the publicly-owned
portion of FCB in February 1998. The increase was partially offset by the
repurchase of $2.5 million of common stock for treasury during the three months
ended March 31, 1998. Stockholders' equity averaged $39.7 million, $40.5
million and $39.9 million for the years ended December 31, 1997, 1996 and 1995,
respectively. These fluctuations are primarily attributable to the repurchases
of common stock for treasury, repurchases of an outstanding warrant and an
option to purchase common stock, and a net loss of $4.8 million for the year
ended December 31, 1995, partially offset by net income of $3.5 million and
$691,000 for the years ended December 31, 1997 and 1996, respectively.
In addition, effective December 31, 1994, stockholders' equity includes the
impact of implementing an accounting adjustment referred to as a
"quasi-reorganization" as approved by the Board of Directors of FBA. In
accordance with the accounting provisions applicable to a quasi-reorganization,
the assets and liabilities of FBA were adjusted to fair value and the
accumulated deficit was eliminated. Fair value adjustments included a reduction
in the carrying value of bank premises and equipment of $4.4 million and the
elimination of the net fair value adjustment for securities available for sale
of $1.1 million. As a result of implementing the quasi-reorganization,
stockholders' equity was reduced by $3.1 million. The implementation of the
quasi-reorganization did not have a significant impact on the results of
operations of FBA.
28
<PAGE> 33
The following table sets forth certain information relating to FBA's
average balance sheets, and reflects the average yield earned on
interest-bearing assets, the average cost of interest-bearing liabilities and
the resulting net interest income for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------
1998 1997
----------------------------- -----------------------------
INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- -------- ------- ------- -------- -------
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Time deposits with banks.......................... $ 1,985 $ 28 5.72% $ 624 $ 11 7.15%
Investment securities<F2><F3>..................... 136,501 2,033 6.04 125,544 1,781 5.75
Federal funds sold and securities purchased under
agreements to resell............................ 26,077 367 5.71 28,736 366 5.17
Loans<F1><F2>..................................... 438,421 10,568 9.78 326,474 7,453 9.26
-------- ------- -------- ------
Total earning assets.......................... 602,984 12,996 8.74 481,378 9,611 8.10
------- ------
Nonearning assets..................................... 62,166 43,064
-------- --------
Total assets.................................. $665,150 $524,442
======== ========
Interest-bearing liabilities:
Interest-bearing demand and savings deposits...... $224,528 1,803 3.26 $166,263 1,120 2.73
Time deposits of $100 or more..................... 51,594 775 6.09 39,465 529 5.44
Other time deposits............................... 205,975 2,784 5.48 171,480 2,314 5.47
-------- ------- -------- ------
Total interest-bearing deposits............... 482,097 5,362 4.51 377,208 3,963 4.26
Promissory notes payable and short-term
borrowings<F3>.................................. 24,602 537 8.85 24,393 545 9.06
-------- ------- -------- ------
Total interest-bearing liabilities............ 506,699 5,899 4.72 401,601 4,508 4.55
------- ------
Non-interest-bearing liabilities:
Demand deposits................................... 91,230 72,129
Other liabilities................................. 12,360 12,312
-------- --------
Total liabilities............................. 610,289 486,042
Stockholders' equity.................................. 54,861 38,400
-------- --------
Total liabilities and stockholders' equity.... $665,150 $524,442
======== ========
Net interest income................................... $ 7,097 $5,103
======= ======
Interest rate spread.................................. 4.02 3.55
Net interest margin................................... 4.77 4.30
==== ====
<FN>
- ---------
<F1>Nonaccrual loans are included in the average loan amounts.
<F2>FBA has no tax-exempt income.
<F3>Includes the effect of an interest rate exchange agreement.
</TABLE>
29
<PAGE> 34
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------- ------------------------------------- -------------------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
- ------- -------- ------- ------- -------- ------- ------- -------- -------
(DOLLARS EXPRESSED IN THOUSANDS)
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,019 $ 58 5.69% $ 19,813 $ 1,062 5.36% $ 4,693 $ 319 6.80%
129,865 7,870 6.06 107,211 6,257 5.84 89,860 5,426 6.04
22,058 1,196 5.42 17,347 926 5.34 12,801 724 5.66
343,329 33,393 9.73 273,063 25,137 9.21 230,451 20,087 8.72
- -------- ------- -------- ------- -------- -------
496,271 42,517 8.57 417,434 33,382 8.00 337,805 26,556 7.86
------- ------- -------
44,498 39,295 37,336
- -------- -------- --------
$540,769 $456,729 $375,141
======== ======== ========
$175,117 5,145 2.94 $134,091 3,575 2.67 $ 99,596 2,967 2.98
39,126 2,144 5.48 36,586 2,008 5.49 29,073 1,610 5.54
168,795 9,427 5.59 152,812 8,353 5.47 116,919 6,258 5.35
- -------- ------- -------- ------- -------- -------
383,038 16,716 4.36 323,489 13,936 4.31 245,588 10,835 4.41
26,755 2,439 9.12 13,769 1,597 11.60 31,548 2,299 7.29
- -------- ------- -------- ------- -------- -------
409,793 19,155 4.67 337,258 15,533 4.61 277,136 13,134 4.74
------- ------- -------
78,222 70,739 54,288
13,043 8,247 3,807
- -------- -------- --------
501,058 416,244 335,231
39,711 40,485 39,910
- -------- -------- --------
$540,769 $456,729 $375,141
======== ======== ========
$23,362 $17,849 $13,422
======= ======= =======
3.90 3.39 3.12
4.71 4.28 3.97
==== ===== ====
</TABLE>
30
<PAGE> 35
The following table indicates the changes in interest income and interest
expense which are attributable to changes in average volume and changes in
average rates, in comparison with the same period in the preceding year. The
change in interest due to the combined rate/volume variance has been allocated
to rate and volume changes in proportion to the dollar amounts of the change in
each.
<TABLE>
<CAPTION>
INCREASE (DECREASE) ATTRIBUTABLE TO CHANGES IN:
----------------------------------------------------------------------------------------
MARCH 31, 1998 COMPARED DECEMBER 31, 1997 COMPARED DECEMBER 31, 1996 COMPARED
TO MARCH 31, 1997 TO DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------------------- ---------------------------- ---------------------------
NET NET NET
VOLUME RATE CHANGE VOLUME RATE CHANGE VOLUME RATE CHANGE
------ ---- ------ ------ ---- ------ ------ ---- ------
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Time deposits with banks.......... $ 19 (2) 17 (1,074) 70 (1,004) 795 (52) 743
Investment securities<F1><F2>..... 160 92 252 1,365 248 1,613 1,001 (170) 831
Federal funds sold and securities
purchased under agreements to
resell.......................... (8) 9 1 256 14 270 240 (38) 202
Loans<F2>......................... 2,677 438 3,115 6,761 1,495 8,256 3,865 1,185 5,050
------ --- ----- ------ ----- ------ ------- ------- -----
Total interest income......... 2,848 537 3,385 7,308 1,827 9,135 5,901 925 6,826
------ --- ----- ------ ----- ------ ------- ------- -----
Interest-bearing liabilities:
Interest-bearing demand and
savings deposits................ 440 243 683 1,175 395 1,570 868 (260) 60
Time deposits of $100 or more..... 177 69 246 139 (3) 136 412 (14) 398
Other time deposits............... 466 4 470 884 190 1,074 1,955 140 2,095
Notes payable and short-term
borrowings<F1>.................. 5 (13) (8) 1,089 (247) 842 13,968 (14,670) (702)
------ --- ----- ------ ----- ------ ------- ------- -----
Total interest expense........ 1,088 303 1,391 3,287 335 3,622 17,203 (14,804) 2,399
------ --- ----- ------ ----- ------ ------- ------- -----
Net interest income........... $1,760 234 1,994 4,021 1,492 5,513 (11,302) 15,729 4,427
====== === ===== ====== ===== ====== ======= ======= =====
<FN>
- ----------
<F1>Includes the effect of an interest rate exchange agreement.
<F2>FBA has no tax-exempt income.
</TABLE>
NET INTEREST INCOME
The primary source of FBA's income is net interest income, which is the
difference between the interest earned on assets and the interest paid on
liabilities. Net interest income was $7.1 million, or 4.8% of average earnings
assets, compared to $5.1 million, or 4.3% of average earnings assets, for the
three months ended March 31, 1998 and 1997, respectively. For the year ended
December 31, 1997, net interest income was $23.4 million, or 4.7% of average
earning assets, compared with $17.8 million, or 4.3% of average earning assets,
and $13.4 million, or 4.0% of average earning assets, for the years ended
December 31, 1996 and 1995, respectively.
FBA's loan portfolio, which represents its primary interest-earning asset
and primary source of net interest income, previously consisted primarily of
fixed rate indirect automobile loans. As interest rates began to increase
during 1994, the yield on this fixed rate portfolio remained relatively
constant. Furthermore, intense competition for automobile loans, particularly
from nonbank entities, caused market rates to increase more slowly than
interest rates in general. Consequently, both the amounts and rates at which
new loans were originated were less than anticipated. The combination of these
factors and the continued repayments of the older loans caused the yield on the
loan portfolio to increase by only 41 basis points to 8.7% for the year ended
December 31, 1995, compared with 8.3% for the year ended December 31, 1994. At
the same time, FBA's cost of interest-bearing deposits, the principal source of
funding for the loan portfolio, increased by 77 basis points to 4.4% for the
year ended December 31, 1995 from 3.6% for the year ended December 31, 1994.
During this same time frame, FBA was following an investment strategy
whereby funds were borrowed on a short-term basis and were invested in
mortgage-backed securities. While these instruments initially generated an
incremental spread, as interest rates increased in 1994, the contribution to
net interest margin of this investment strategy was substantially reduced.
31
<PAGE> 36
The following is a comparison of the yield earned on the investment
portfolio and the cost of short-term borrowings for the years ended December
31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Average yield on investment securities............ 6.04% 4.91%
Average cost of borrowings........................ 7.29 4.35
----- ----
Interest spread................................... (1.25)% 0.56%
===== ====
</TABLE>
Concerned with its interest rate risk profile and the overall impact of
further increases in interest rates, FBA began the process of restructuring its
investment securities portfolio and repositioning its loan portfolio in the
latter part of 1994. The restructuring process included sales of investment
securities of $71.0 million and $113.9 million, resulting in net losses of $3.0
million and $7.1 million for the years ended December 31, 1995 and 1994,
respectively. To reposition the loan portfolio, FBA significantly expanded its
ability to originate commercial and financial, commercial real estate and real
estate construction and development loans while maintaining a presence in the
indirect automobile lending business. The current composition of the loan
portfolio and the changes are presented under "--Loans and Allowance for
Possible Loan Losses."
The culmination of FBA's efforts in repositioning its loan portfolio,
including the expansion into the San Francisco-Sacramento corridor of northern
California and the restructuring of the investment securities portfolio, has
resulted in an improvement of the net interest margin to 4.7% of average
interest-earning assets for the year ended December 31, 1997, from 4.3% and
4.0% for the years ended December 31, 1996 and 1995, respectively. This
improvement is attributable to the increase in the average yield on the loan
portfolio to 9.7% for 1997 from 8.7% for 1995, while the overall cost of funds
decreased by approximately four basis points from 1995 to 1997.
For the three months ended March 31, 1998, the increase in net interest
income over the same period in 1997 is primarily attributable to the net
interest-earning assets provided by the acquisitions of Surety Bank and Pacific
Bay Bank, the improved yield on BankTEXAS' repositioned loan portfolio and the
effect of the exchange of $10.0 million of the First Banks Note for common
stock of FBA.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1997
NET INCOME. Net income was $1.1 million, or $0.22 per share on a diluted
basis, for the three months ended March 31, 1998, compared to $484,000 or $0.12
per share on a diluted basis, for the same period in 1997. The improved
operating results of FBA reflect the improved performance of both BankTEXAS and
FB California. BankTEXAS' net income increased to $753,000 from $629,000 for
the three month periods ended March 31, 1998 and 1997, respectively. FB
California recorded net income of $739,000 for the three month period ended
March 31, 1998, in comparison to $395,000 for the same period in 1997. The
results for the first quarter of 1998 include a net charge after related income
taxes of $225,000, or $0.05 per share on a diluted basis, in settlement of
certain litigation. Excluding this charge, earnings per share on a diluted
basis for the first quarter of 1998 would have been $0.27. As previously
discussed, net interest income increased by $2.0 million to $7.1 million, or
4.8% of average interest-earning assets, from $5.1 million, or 4.3% of average
interest-earnings assets, for the same period in 1997.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses
was $300,000 and $550,000 for the three month periods ended March 31, 1998 and
1997, respectively. The decrease in the provision for possible loan losses for
the first quarter of 1998, compared to the same period in 1997, is primarily
attributable to improved asset quality of FBA's existing loan portfolio, as
determined by management's review and evaluation of the credit quality of the
loans in the portfolio and its assessment of the adequacy of the allowance for
possible loan losses.
Net loan charge-offs were $529,000 for the three month period ended March
31, 1998, compared to $422,000 for the same period in 1997. The increase in net
loan charge-offs is primarily attributable to the loans obtained through the
acquisitions of Surety Bank and Pacific Bay Bank. The acquired allowance for
possible loan losses for Pacific Bay Bank totaled $885,000 at the acquisition
date. See "--Lending and Credit Management" for a summary of nonperforming
loans and a summary of loan loss experience.
32
<PAGE> 37
NONINTEREST INCOME AND EXPENSE. The following table summarizes noninterest
income and noninterest expense for the three months ended March 31, 1998 and
1997.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-------------------
1998 1997 AMOUNT PERCENT
---- ---- ------ -------
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest income:
Service charges on deposit accounts........... $ 739 575 164 28.5%
Other income.................................. 319 296 23 7.8
Gain on sales of securities, net.............. 92 -- 92 --
------ ----- ----- -------
Total noninterest income.................. $1,150 871 279 32.0
====== ===== ===== =======
Noninterest expense:
Salaries and employee benefits................ $2,135 1,550 585 37.7%
Occupancy, net of rental income............... 491 571 (80) (14.0)
Furniture and equipment....................... 347 267 80 30.0
Federal Deposit Insurance Corporation
premiums.................................... 43 38 5 13.2
Postage, printing and supplies................ 167 148 19 12.8
Legal, examination and professional fees...... 890 750 140 18.7
Data processing............................... 475 327 148 45.3
Communications................................ 200 164 36 22.0
Losses and expenses on sale of foreclosed
property, net of gains...................... 157 (9) 166 1,844.4
Other......................................... 1,152 687 465 67.7
------ ----- -----
Total noninterest expense................. $6,057 4,493 1,564 34.8
====== ===== ===== =======
</TABLE>
NONINTEREST INCOME. Noninterest income was $1.2 million for the three month
period ended March 31, 1998 compared to $871,000 for the same period in 1997.
Noninterest income consists primarily of service charges on deposit accounts
and customer service fees.
Service charges on deposit accounts and customer service fees increased to
$739,000 for the three month period ended March 31, 1998, in comparison to
$575,000 for the same period in 1997. This increase is primarily attributable
to the acquisitions of Surety Bank and Pacific Bay Bank.
NONINTEREST EXPENSE. Noninterest expense was $6.1 million for the three
month period ended March 31, 1998, compared to $4.5 million for the same period
in 1997. The increase is attributable to the noninterest expense of Surety Bank
and Pacific Bay Bank, nonrecurring expenses associated with those acquisitions
and the additional noninterest expense attributable to FBA's expansion of its
corporate lending and retail banking staff. Specifically, salaries and employee
benefits increased by $585,000 to $2.1 million from $1.6 million for the three
months ended March 31, 1998 and 1997, respectively. Additionally, other
noninterest expense for the three months ended March 31, 1998 includes a
$350,000 charge in settlement of certain litigation.
During these same periods, occupancy expense, net of rental income,
declined to $491,000 for the three months ended March 31, 1998 from $571,000
for the same period in 1997. This decline is the result of increased
sub-leasing of excess space within FB California's banking premises and
relocation of certain California branches.
INCOME TAXES. The accompanying consolidated statements of operations
reflect a provision for income taxes of $790,000 for the three month period
ended March 31, 1998, compared to $361,000 for the same period in 1997. At
March 31, 1998 and December 31, 1997, the accompanying consolidated balance
sheets included a deferred tax asset, net of deferred tax liabilities, of $12.7
million and $13.1 million, respectively. The deferred tax asset valuation
allowance was $7.0 million at March 31, 1998 and December 31, 1997.
33
<PAGE> 38
COMPARISON OF RESULTS OF OPERATIONS FOR YEARS ENDED 1997 AND 1996
NET INCOME. Net income for the year ended December 31, 1997 improved to
$3.5 million from $691,000 for the same period in 1996, an increase of 411%.
This improvement is primarily attributable to net interest income. As
previously discussed, net interest income increased by $5.6 million to $23.4
million, an increase of 30.9% or 4.7% of average earning assets, for 1997, from
$17.8 million, or 4.3% of average earning assets, for 1996.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses
was $2.0 million and $2.4 million for the years ended December 31, 1997 and
1996, respectively. Net loan charge-offs were $1.4 million and $4.6 million for
the years ended December 31, 1997 and 1996, respectively. The allowance for
possible loan losses was $11.4 million, or 2.6% of total loans, net of unearned
discount, at December 31, 1997, compared to $10.7 million, or 3.2% of total
loans, net of unearned discount, at December 31, 1996. Loans which were either
90 days or more past due and still accruing interest or on nonaccrual status
totaled $4.0 million and $3.6 million at December 31, 1997 and 1996,
respectively, representing 0.9% and 1.1% of total loans, net of unearned
discount, at those dates. Loans which were between 30 and 89 days past due were
$7.9 million, or 1.8% of total loans, net of unearned discount, at December 31,
1997, compared to $7.3 million, or 2.2% of total loans, net of unearned
discount, at December 31, 1996.
Although asset quality has improved, FBA has continued to provide for
possible loan losses in recognition of the overall growth in the loan portfolio
as well as its changing composition. As the portfolio changes from one with
significant preponderance in indirect automobile loans, to one having
substantial portions of commercial and financial, real estate construction and
development and commercial real estate loans, the credit risk profile also
changes. Typically, a larger group of lower balance homogeneous loans, such as
the indirect automobile loan portfolio, exhibits certain past due and loan loss
experience trends which provides FBA a basis for establishing an adequate level
of allowance for possible loan losses. While these same trends are included in
FBA's evaluation of its commercial lending activities, the overall credit risk
of this type of portfolio is heightened as the possibility of a significant
unforeseen loss occurring over time is greater. See "--Loans and Allowance for
Possible Loan Losses" for a further discussion of FBA's policies and practices
of monitoring and maintaining the allowance for possible loan losses.
NONINTEREST INCOME AND EXPENSE. The following table summarizes noninterest
income and noninterest expense for the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-------------------
1997 1996 AMOUNT PERCENT
---- ---- ------ -------
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest income:
Service charges on deposit accounts........... $ 2,239 2,258 (19) (0.8)%
Loan sales and servicing income............... 40 70 (30) (42.9)
Other income.................................. 932 1,072 (140) (13.1)
Gain on sales of securities, net.............. 76 185 (109) (58.9)
------- ------ ------
Total noninterest income.................. $ 3,287 3,585 (298) (8.3)
======= ====== ====== ======
Noninterest expense:
Salaries and employee benefits................ $ 6,226 5,249 977 18.6%
Occupancy, net of rental income............... 2,166 1,832 334 18.2
Furniture and equipment....................... 1,149 1,003 146 14.6
Federal Deposit Insurance Corporation
premiums.................................... 119 497 (378) (76.1)
Postage, printing and supplies................ 496 744 (248) (33.3)
Legal, examination and professional fees...... 3,241 2,777 464 16.7
Data processing............................... 1,084 735 349 47.5
Communications................................ 673 623 50 8.0
(Gain) loss on sale of foreclosed property,
net of gains................................ (350) 1,148 (1,498) (130.5)
Other......................................... 2,873 3,129 (256) (8.2)
------- ------ ------
Total noninterest expense................. $17,677 17,737 (60) (0.3)
======= ====== ====== ======
</TABLE>
34
<PAGE> 39
NONINTEREST INCOME. Noninterest income was $3.3 million for the year ended
December 31, 1997, in comparison to $3.6 million for 1996, representing a
decrease of $300,000.
Service charges on deposit accounts decreased to $2.2 million from $2.3
million for the years ended December 31, 1997 and 1996, respectively. The
decrease is primarily attributable to the deposit base of FCB, which
experienced both a reduction in the number of demand deposit accounts subject
to service charges and which reduced its minimum balance requirements in
conjunction with a promotional campaign. The decrease was substantially offset
by the additional service charges and fees provided by the acquisition of
Sunrise Bank.
Loan servicing fees decreased to $40,000 from $70,000 for the years ended
December 31, 1997 and 1996, respectively. The decrease is due to a reduction in
the amount of indirect automobile loans serviced for others as FBA is no longer
selling indirect automobile loans on a servicing retained basis.
Other income was $932,000 and $1.1 million for the years ended December 31,
1997 and 1996, respectively. For 1997, other income consists primarily of
certain legal settlements received applicable to pending litigation of the
former Sunrise Bank and a net gain of $47,000 realized upon sales of
repossessed and other assets. Other income for the year ended December 31, 1996
includes a $795,000 gain realized upon FCB's sale and assignment of certain
railroad cars and the associated leveraged leases to an unrelated party.
In addition, the decrease in noninterest income for the year ended December
31, 1997 is attributable to a gain of $76,000 recognized upon the sale of an
investment security for the year ended December 31, 1997, compared to a gain of
$185,000 for 1996.
NONINTEREST EXPENSE. Noninterest expense decreased by $60,000 to $17.7
million for the year ended December 31, 1997 compared to 1996. The decrease is
primarily attributable to a gain on sale of foreclosed property, net of
expenses, substantially offset by increases in other noninterest expense
categories including salaries and benefits, occupancy, net of rental income,
data processing and legal, examination and professional fees. These increases
are primarily attributable to the acquisitions of Surety Bank, Sunrise Bank and
FBA's expansion of its corporate lending and retail staff. In particular,
salaries and employee benefits increased by $980,000 to $6.2 million for 1997
from $5.2 million for 1996. In addition, occupancy expense, net of rental
income, and data processing expenses increased by $334,000 and $349,000 for the
year ended December 31, 1997, respectively, in comparison to 1996.
Legal, examination and professional fees increased to $3.2 million from
$2.8 million for the years ended December 31, 1997 and 1996, respectively. The
increase is primarily attributable to the costs associated with expanding FBA's
organizational capabilities to achieve both internal and external growth as
well as its overall growth in 1997.
For 1997, FBA realized a gain on sale of foreclosed property, net of
expenses, of $350,000, compared to losses and expenses on sale of foreclosed
property of $1.1 million for the same period in 1996. The improvement for 1997
is attributable to a gain realized upon sale of a foreclosed property, net of
gains, and an overall decrease in the losses and expenses of maintaining a
reduced level of foreclosed properties. In addition, for 1996, losses and
expenses on foreclosed property, net of gains, included $996,000 of valuation
write-downs.
Noninterest expense also reflects a decrease in other expense of $256,000
to $2.9 million from $3.1 million for the years ended December 31, 1997 and
1996, respectively. The decrease is primarily attributable to the noncredit
provision for possible losses within the indirect automobile dealer lending
program of $842,000 recorded in 1996, partially offset by an increase in fees
paid to First Banks and its affiliates of approximately $700,000 for 1997 in
comparison to 1996. Fees payable to First Banks and its affiliates generally
increase as FBA expands through acquisitions and internal growth, reflecting
the higher levels of service needed to operate the Subsidiary Banks. See Note
14 to the consolidated financial statements of FBA.
INCOME TAXES. The accompanying consolidated statements of operations
reflect a deferred income tax charge of $3.1 million for the year ended
December 31, 1997, compared to $470,000 in 1996. At December 31, 1997 and 1996,
the accompanying consolidated balance sheets include a deferred tax asset, net
of deferred tax liabilities, of $13.1 million and $14.6 million, respectively.
The deferred tax asset valuation allowance was $7.0 million and $6.6 million at
December 31, 1997 and 1996.
35
<PAGE> 40
COMPARISON OF RESULTS OF OPERATIONS FOR 1996 AND 1995
NET INCOME. Net income for the year ended December 31, 1996 was $691,000 in
comparison to a net loss of $4.8 million for the same period in 1995. As more
fully discussed below, the operating results for 1995 reflect an after-tax loss
of $2.1 million incurred in connection with the restructuring of FBA's
investment portfolio and a sharply higher provision for possible loan losses in
comparison to 1996. As previously discussed, net interest income was $17.8
million, or 4.3% of average earning assets, for 1996, compared to $13.4
million, or 4.0% of average earning assets, for 1995.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses
was $2.4 million and $6.4 million for the years ended December 31, 1996 and
1995, respectively. Net loan charge-offs were $4.6 million and $3.4 million for
the years ended December 31, 1996 and 1995, respectively. The allowance for
possible loan losses was $10.7 million, or 3.2% of total loans, net of unearned
discount, at December 31, 1996, compared to $10.6 million, or 4.0% of total
loans, net of unearned discount, at December 31, 1995. Loans which were either
90 days or more past due and still accruing interest or on nonaccrual status
totaled $3.6 million and $7.8 million at December 31, 1996 and 1995,
respectively, representing 1.1% and 2.9% of total loans, net of unearned
discount, at those dates. Loans which were between 30 and 89 days past due were
$7.3 million, or 2.2% of total loans, net of unearned discount, at December 31,
1996 compared to $9.7 million, or 3.6% of total loans, net of unearned
discount, at December 31, 1995.
The provision for possible loan losses for 1995 was higher than normal in
recognition of increasing loan charge-offs and delinquencies which were
experienced during 1995 within the portfolio of indirect automobile loans.
NONINTEREST INCOME AND EXPENSE. The following table summarizes noninterest
income and noninterest expense for the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
--------------------
1996 1995 AMOUNT PERCENT
---- ---- ------ -------
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest income:
Service charges on deposit accounts..................... $ 2,258 1,682 576 34.2%
Loan sales and servicing income......................... 70 159 (89) (56.0)
Other income............................................ 1,072 1,284 (212) (16.5)
Gain (loss) on sales of securities, net................. 185 (2,996) 3,181 (106.2)
------- ------ -----
Total noninterest income........................ $ 3,585 129 3,456 2,679.1
======= ====== ===== =======
Noninterest expense:
Salaries and employee benefits.......................... $ 5,249 5,358 (109) (2.0)%
Occupancy, net of rental income......................... 1,832 1,615 217 13.4
Furniture and equipment................................. 1,003 895 108 12.1
Federal Deposit Insurance Corporation premiums.......... 497 493 4 0.8
Postage, printing and supplies.......................... 744 396 348 87.9
Legal, examination and professional fees................ 2,777 1,337 1,440 107.7
Data processing......................................... 735 755 (20) (2.6)
Communications.......................................... 623 619 4 0.6
Losses and expenses on foreclosed property, net of
gains................................................. 1,148 643 505 78.5
Other................................................... 3,129 2,037 1,092 53.6
------- ------ -----
Total noninterest expense....................... $17,737 14,148 3,589 25.4
======= ====== ===== =======
</TABLE>
NONINTEREST INCOME. Noninterest income was $3.6 million for the year ended
December 31, 1996 in comparison to $129,000 for 1995. As more fully discussed
under "--Net Interest Income and Interest Rate Risk Management," noninterest
income for 1995 includes a $3.0 million loss realized upon sales of investment
securities.
36
<PAGE> 41
Service charges on deposit accounts increased by $580,000 to $2.3 million
from $1.7 million for the years ended December 31, 1996 and 1995, respectively.
The increase is primarily attributable to the acquisition of FCB. See Note 2 to
the accompanying consolidated financial statements of FBA.
Loan sales and servicing income decreased to $70,000 from $159,000 for the
years ended December 31, 1996 and 1995, respectively. The decrease is due to a
reduction in the amount of indirect automobile loans serviced for others.
Other income decreased by $210,000 to $1.1 million from $1.3 million for
the years ended December 31, 1996 and 1995, respectively. Other income for the
year ended December 31, 1995 includes a nonrecurring benefit of $179,000 from
the termination of the FBA's Directors' Retirement Plan and an $802,000
nonrecurring benefit from the termination of a self-insurance trust. During
1990, FBA established a trust in lieu of purchasing officer and director
liability insurance. Since coverage is now available and in place through First
Banks, the trust was terminated and the funds were returned to FBA. For 1996,
other income includes a $795,000 gain realized upon FCB's sale and assignment
of certain railroad cars and leveraged leases to an unrelated party.
NONINTEREST EXPENSE. Noninterest expense increased by $3.6 million to $17.7
million from $14.1 million for the years ended December 31, 1996 and 1995,
respectively. The increase, as more fully discussed below, is primarily
attributable to the acquisition of FCB on August 23, 1995, offset by cost
reductions achieved through the reengineering of FBA's operations and the
centralization of various functions with First Banks' systems during 1995.
The decrease in salaries and employee benefits of $109,000 to $5.2 million
from $5.4 million for the years ended December 31, 1996 and 1995, respectively,
relates primarily to reductions in staff during 1995 substantially offset by
the acquisition of FCB. FBA's existing staff was reduced from 142 and 162
full-time equivalent employees at December 31, 1994 and 1993, respectively, to
130 full-time equivalent employees at December 31, 1995, including the addition
of 63 full-time equivalent employees from the acquisition of FCB.
Legal, examination and professional fees increased to $2.8 million from
$1.3 million for the years ended December 31, 1996 and 1995, respectively. The
increase is primarily attributable to the additional costs associated with the
reorganization of FBA and FCB and the amalgamating of acquired entities into
FBA's systems and cultures and the costs incurred in expanding FBA's
organizational capabilities to achieve its internal and external growth
objectives.
Losses and expenses on foreclosed property, net of gains, increased by
$505,000 to $1.1 million from $643,000 for the years ended December 31, 1996
and 1995, respectively. The increase is attributable to valuation write-downs
of $996,000 for 1996, compared to $116,000 for 1995.
Other expenses increased $1.1 million to $3.1 million from $2.0 million for
the years ended December 31, 1996 and 1995, respectively. The increase is
primarily attributable to the noncredit provision for possible losses within
the indirect automobile dealer lending program of $842,000 in 1996. Also
included in other expenses are fees paid to First Banks and its affiliates for
the various services rendered. These fees totaled $2.4 million and $895,000 for
the years ended December 31, 1996 and 1995, respectively. Fees payable to First
Banks and its affiliates generally increase as FBA expands through acquisitions
and internal growth, reflecting the higher levels of service needed to operate
the Subsidiary Banks.
INCOME TAXES. The accompanying consolidated statements of operations
reflect a deferred income tax charge of $470,000 for the year ended December
31, 1996. This compares to a $2.2 million deferred income tax benefit for the
same period in 1995. At December 31, 1996 and 1995, the accompanying
consolidated balance sheets include a deferred tax asset, net of deferred tax
liabilities, of $14.6 million and $13.2 million, respectively. The deferred tax
asset valuation allowance was $6.6 million and $5.6 million at December 31,
1996 and 1995, respectively.
INVESTMENT SECURITIES
FBA classifies the securities within its investment portfolio as held to
maturity or available for sale. FBA does not engage in the trading of
investment securities. As more fully described in Notes 1 and 3 of the
consolidated financial statements of FBA, the investment security portfolio
consists solely of securities designated as available-for-sale at December 31,
1997 and 1996. The investment security portfolio was $141.1 million at March
31, 1998, compared to $148.2 million and $125.1 million at December 31, 1997
and 1996, respectively. See, "--General,
37
<PAGE> 42
Financial Condition and Average Balances and Net interest Income" for further
discussion of the investment security portfolio.
LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Interest earned on the loan portfolio is the primary source of income for
FBA. Loans, net of unearned discount, represented 64.1% of total assets as of
March 31, 1998, compared to 67.0% and 63.6% as of December 31, 1997 and 1996,
respectively. At March 31, 1998 and December 31, 1997, total loans, net of
unearned discount, were $444.1 million and $431.5 million, increases of $107.7
million and $95.1 million, from $336.4 million at December 31, 1996. For 1996,
total loans, net of unearned discount, increased by $69.8 million from $266.6
million at December 31, 1995. As previously discussed under "--Acquisitions
and Financial Condition and Average Balances," the increases are attributable
to the loans provided by the acquisitions of Pacific Bay Bank, Surety Bank and
Sunrise Bank and the expansion of the commercial and financial, commercial real
estate and real estate construction and development loan portfolios, partially
offset by the decrease in the portfolio of indirect automobile loans.
The following table summarizes the changes in the loan portfolio for the
periods indicated:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
------------------------------------
FOR THE
THREE MONTHS
ENDED FOR THE YEARS ENDED
MARCH 31, DECEMBER 31,
------------ ---------------------
1998 1997 1996
---- ---- ----
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Loans provided by acquisition:
Pacific Bay Bank........................................ $ 29,700 -- --
Surety Bank............................................. -- 54,400 --
Sunrise Bank............................................ -- -- 61,100
Internal loan volumes:
Commercial lending...................................... 3,100 71,200 48,900
Indirect automobile loans............................... (5,800) (28,600) (36,800)
Other................................................... (14,400) (1,900) (3,400)
-------- ------- -------
Total increase in loans, net of unearned
discount...................................... $ 12,600 95,100 69,800
======== ======= =======
Decrease in potential problem loans<F1>..................... $ 600 7,100 4,100
======== ======= =======
<FN>
- --------
<F1>Potential problem loans include indirect automobile loans 60 days or more
past due, loans on nonaccrual status and other loans identified by
management as having potential credit problems.
</TABLE>
FBA's lending strategy stresses quality, growth and diversification by
collateral, geography and industry. A common credit underwriting structure is
in place throughout FBA. The commercial lenders focus principally on small to
middle-market companies. Retail lenders focus principally on residential loans,
including home equity loans, automobile financing and other consumer financing
needs arising out of FBA's branch banking network.
Commercial and financial loans include loans that are made primarily based
on the borrowers' general credit strength and ability to generate repayment
cash flows from income sources even though such loans and bonds may also be
secured by real estate or other assets. Real estate construction and
development loans, primarily relating to residential properties and smaller
commercial properties, represent interim financing secured by real estate under
construction. Real estate mortgage loans consist primarily of loans secured by
single-family owner-occupied properties and various types of commercial
properties on which the income from the property is the intended source of
repayment. Consumer and installment loans are loans to individuals and consist
primarily of loans secured by automobiles. Loans held for sale are generally
fixed and adjustable rate residential loans pending sale in the secondary
mortgage market in the form of a mortgage-backed security, or to various
private third-party investors.
38
<PAGE> 43
The following table shows the composition of the loan portfolio by major
category and the percent of each category to the total portfolio as of the
dates presented:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------------------------------- ------------------------------------------------------
1998 1997 1997 1996 1995
---------------- ---------------- ---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and financial.......... $113,312 25.5% $ 82,978 25.4% $109,763 25.8% $ 80,781 24.0% $ 48,807 18.3%
Real estate construction and
development..................... 96,035 21.6 58,922 18.0 93,454 22.0 58,045 17.3 30,142 11.3
Real estate mortgage.............. 166,160 37.4 92,070 28.1 149,951 35.2 93,864 27.9 45,530 17.1
Consumer and installment, net of
unearned discount............... 68,592 15.5 93,045 28.5 72,579 17.0 103,681 30.8 142,109 53.3
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans, excluding loans
held for sale............... 444,099 100.0% 327,015 100.0% 425,747 100.0% 336,371 100.0% 266,588 100.0%
===== ===== ===== ===== =====
Loans held for sale............... -- -- 5,708 -- --
-------- -------- -------- -------- --------
Total loans................... $444,099 $327,015 $431,455 $336,371 $266,588
======== ======== ======== ======== ========
<CAPTION>
DECEMBER 31,
-----------------------------------
1994 1993
---------------- ----------------
AMOUNT % AMOUNT %
------ - ------ -
<S> <C> <C> <C> <C>
Commercial and financial.......... $ 14,556 7.4% $ 7,653 5.2%
Real estate construction and
development..................... 13,793 7.0 9,072 6.2
Real estate mortgage.............. 14,796 7.6 12,862 8.8
Consumer and installment, net of
unearned discount............... 152,916 78.0 117,116 79.8
-------- ----- -------- -----
Total loans, excluding loans
held for sale............... 196,061 100.0% 146,703 100.0%
===== =====
Loans held for sale............... 7,253 21,029
-------- --------
Total loans................... $203,314 $167,732
======== ========
</TABLE>
Loans at December 31, 1997 mature as follows:
<TABLE>
<CAPTION>
OVER ONE YEAR
THROUGH
FIVE YEARS OVER FIVE YEARS
----------------- -----------------
ONE YEAR FIXED FLOATING FIXED FLOATING
OR LESS RATE RATE RATE RATE TOTAL
-------- ----- -------- ----- -------- -----
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial and financial.......................... $ 95,695 10,013 1,584 427 2,044 109,763
Real estate construction and development.......... 92,476 118 419 94 347 93,454
Real estate mortgage.............................. 109,325 14,130 9,686 6,331 10,479 149,951
Consumer and installment, net of unearned
discount........................................ 9,315 55,356 150 7,758 -- 72,579
Loans held for sale............................... 5,708 -- -- -- -- 5,708
-------- ------ ------ ------ ------ -------
Total loans................................... $312,519 79,617 11,839 14,610 12,870 431,455
======== ====== ====== ====== ====== =======
</TABLE>
39
<PAGE> 44
The following table is a summary of loan loss experience for the three
months ended March 31, 1998 and 1997 and for the five years ended December 31,
1997:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------ -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period............................ $ 11,407 10,744 10,744 10,616 2,756 2,637 3,044
Acquired allowances for possible loan losses.............. 885 -- 30 2,338 4,797 -- --
-------- ------- ------- ------- ------- ------- -------
12,292 10,744 10,774 12,954 7,553 2,637 3,044
-------- ------- ------- ------- ------- ------- -------
Loans charged off:
Commercial and financial.............................. (376) (64) (966) (2,286) -- (7) (268)
Real estate construction and development.............. -- -- (15) (164) (2) -- --
Real estate mortgage.................................. (465) (43) (244) (786) (153) (375) (8)
Consumer and installment.............................. (218) (875) (2,430) (3,818) (4,018) (1,876) (1,622)
-------- ------- ------- ------- ------- ------- -------
Total loans charged-off....................... (1,059) (982) (3,655) (7,054) (4,173) (2,258) (1,898)
-------- ------- ------- ------- ------- ------- -------
Recoveries of loans previously charged off:
Commercial and financial.............................. 299 151 926 1,271 223 184 164
Real estate construction and development.............. 25 58 68 15 1 -- --
Real estate mortgage.................................. 30 73 195 109 36 258 154
Consumer and installment.............................. 176 278 1,099 1,044 560 677 683
-------- ------- ------- ------- ------- ------- -------
Total recoveries of loans previously charged
off........................................ 530 560 2,288 2,439 820 1,119 1,001
-------- ------- ------- ------- ------- ------- -------
Net loans charged-off......................... (529) (422) (1,367) (4,615) (3,353) (1,139) (897)
-------- ------- ------- ------- ------- ------- -------
Provision for possible loan losses........................ 300 550 2,000 2,405 6,416 1,258 490
-------- ------- ------- ------- ------- ------- -------
Balance at end of period.................................. $ 12,063 10,872 11,407 10,744 10,616 2,756 2,637
======== ======= ======= ======= ======= ======= =======
Loans outstanding:
Average............................................... $438,421 326,474 343,329 273,063 230,451 182,922 171,889
End of period......................................... 444,099 327,015 431,455 336,371 266,588 203,314 167,732
Ratio of allowance for possible loan losses to loans
outstanding:
Average........................................... 2.75% 3.33% 3.32% 3.93% 4.61% 1.51% 1.53%
End of period..................................... 2.72 3.32 2.64 3.19 3.98 1.36 1.57
Ratio of net charge-offs to average loans
outstanding......................................... 0.49 0.52 .40 1.69 1.45 0.62 0.52
======== ======= ======= ======= ======= ======= =======
Allocation of allowance for possible loan losses at end of
period:
Commercial and financial.............................. $ 2,525 3,458 2,552 3,417 2,534 197 229
Real estate construction and development.............. 2,108 1,336 1,680 1,320 1,835 187 237
Real estate mortgage.................................. 3,218 3,688 3,536 3,645 2,210 201 720
Consumer and installment.............................. 1,297 2,390 1,539 2,362 4,037 2,171 1,451
Unallocated........................................... 2,915 -- 2,100 -- -- -- --
-------- ------- ------- ------- ------- ------- -------
Total......................................... $ 12,063 10,872 11,407 10,744 10,616 2,756 2,637
======== ======= ======= ======= ======= ======= =======
Percent of categories to loans, net of unearned discount:
Commercial and financial.............................. 25.5% 25.4% 25.4% 24.0% 18.3% 7.1% 4.6%
Real estate construction and development.............. 21.6 18.0 21.7 17.3 11.3 6.8 5.4
Real estate mortgage.................................. 37.4 28.1 34.8 27.9 17.1 7.3 7.7
Consumer and installment.............................. 15.5 28.5 16.8 30.8 53.3 75.2 69.8
Loans held for sale................................... -- -- 1.3 -- -- 3.6 12.5
-------- ------- ------- ------- ------- ------- -------
Total......................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======= ======= ======= ======= ======= =======
</TABLE>
40
<PAGE> 45
Nonperforming assets include nonaccrual loans, restructured loans and
foreclosed property. The following table presents the categories of
nonperforming assets and certain ratios as of the dates indicated:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------ -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Nonperforming loans............................ $ 6,003 2,445 2,846 2,959 5,075 293 622
Foreclosed property, net....................... 725 1,035 601 977 2,393 1,553 3,171
-------- ------- ------- ------- ------- ------- -------
Total nonperforming assets......... $ 6,728 3,480 3,447 3,936 7,468 1,846 3,793
======== ======= ======= ======= ======= ======= =======
Loans, net of unearned discount................ $444,099 327,015 431,455 336,371 266,588 203,314 167,732
======== ======= ======= ======= ======= ======= =======
Loans past due:
Over 30 days to 90 days.................... $ 12,428 6,781 7,866 7,302 9,664 1,368 1,571
Over 90 days and still accruing............ 672 672 1,158 615 2,766 183 803
-------- ------- ------- ------- ------- ------- -------
Total past-due loans............... $ 13,100 7,453 9,024 7,917 12,430 1,551 2,374
======== ======= ======= ======= ======= ======= =======
Allowance for possible loan losses to loans.... 2.72% 3.32% 2.64% 3.19% 3.98% 1.36% 1.57%
Nonperforming loans to loans................... 1.35 0.75 0.66 0.88 1.90 0.14 0.37
Allowance for possible loan losses to
nonperforming loans.......................... 200.95 444.66 400.81 363.10 209.18 940.61 423.95
Nonperforming assets to loans and
foreclosed property.......................... 1.51 1.06 0.80 1.17 2.78 0.90 2.22
======== ======= ======= ======= ======= ======= =======
</TABLE>
Nonperforming loans, consisting of loans on nonaccrual status and
restructured loans, were $6.0 million at March 31, 1998 in comparison to $2.8
million and $2.4 million at December 31, 1997 and March 31, 1997, respectively.
The increase is primarily attributable to the loans obtained through the
acquisition of Pacific Bay Bank. The acquired allowance for possible loan
losses totaled $885,000 at the acquisition date.
As of March 31, 1998 and December 31, 1997 and 1996, $5.3 million, $5.9
million and $13.0 million, respectively, of loans not included in the table
above were identified by management as having potential credit problems which
raised doubts as to the ability of the borrowers to comply with the present
loan repayment terms.
FBA's credit management policy and procedures focus on identifying,
measuring and controlling credit exposure. These procedures employ a
lender-initiated system of rating credits, which is ratified in the loan
approval process and subsequently tested in internal loan reviews, external
audits and regulatory bank examinations. Basically, the system requires rating
all loans at the time they are made, except for homogeneous categories of
loans, such as residential real estate mortgage loans and indirect automobile
loans. These homogeneous loans are assigned an initial rating based on FBA's
experience with each type of loan. Adjustments to these ratings are based on
payment experience subsequent to their origination.
Adversely rated credits, including loans requiring close monitoring which
would not normally be considered criticized credits by regulators, are included
on a monthly loan watch list. Loans may be added to the watch list for reasons
which are temporary and correctable, such as the absence of current financial
statements of the borrower, or a deficiency in loan documentation. Other loans
are added whenever any adverse circumstance is detected which might affect the
borrower's ability to meet the terms of the loan. Such circumstances include
the delinquency of a scheduled loan payment, a deterioration in the borrower's
financial condition identified in a review of periodic financial statements, a
decrease in the value of the collateral securing the loan, or a change in the
economic environment within which the borrower operates. Loans on the watch
list require detailed loan status reports prepared by the responsible officer
every four months, which are then discussed in formal meetings with the loan
review and credit administration staffs. Downgrades of loan risk ratings may be
initiated by the responsible loan officer at any time. However, upgrades of
risk ratings may only be made with the concurrence of the loan review and
credit administration staffs generally at the time of the formal watch list
review meetings.
Each month, the credit administration department provides FBA's management
with detailed lists of loans on the watch list and summaries of the entire loan
portfolio of each Subsidiary Bank by risk rating. These are coupled with
analyses of changes in the risk profiles of the portfolios, changes in past due
and nonperforming loans and changes in watch list and classified loans over
time. In this manner, the overall increases or decreases in the levels of risk
in the portfolios are monitored continually. Factors are applied to the loan
portfolios for each category of loan
41
<PAGE> 46
risk to determine acceptable levels of allowance for possible loan losses.
These factors are derived primarily from the actual loss experience of the
Subsidiary Banks and from published national surveys of norms in the industry.
The calculated allowances required for the portfolios are then compared to the
actual allowance balances to determine the provisions necessary to maintain the
allowances at appropriate levels. In addition, management exercises judgment in
its analysis of determining the overall level of the allowance for possible
losses. In its analysis, management considers the change in the portfolio,
including growth and composition, and the economic conditions of the regions in
which FBA operates.
Based on this quantitative and qualitative analysis, the allowance for
possible loan losses is adjusted. Such adjustments are reflected in the
consolidated statements of operations.
FBA does not engage in lending in foreign countries or based on activities
in foreign countries. Additionally, FBA does not have any concentrations of
loans exceeding 10% of total loans which are not otherwise disclosed in the
loan portfolio composition table and Note 4 to the accompanying consolidated
financial statements of FBA. FBA does not have any interest-bearing assets
which would have been included in nonaccrual, past due or restructured loans if
such assets were loans.
DEPOSITS
Deposits are the primary source of funds for FBA. FBA's deposits consist
principally of core deposits from its local market areas. FBA does not accept
brokered deposits. The following table sets forth the distribution of FBA's
average deposit accounts at the dates indicated and the weighted average
interest rates by category of deposit:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
MARCH 31, ---------------------------------------------------------
1998 1997 1996 1995
--------------- --------------- --------------- ---------------
BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE
------- ---- ------- ---- ------- ---- ------- ----
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest-bearing demand.................. $ 91,230 --% $ 78,222 --% $ 70,739 --% $ 54,288 --%
Interest-bearing demand...................... 73,291 1.93 66,687 2.10 43,048 1.76 24,020 2.41
Savings...................................... 151,237 3.90 108,430 3.46 91,043 3.10 75,576 3.16
Time deposits of $100 or more................ 51,594 6.09 39,126 5.48 36,586 5.49 29,073 5.54
Other time................................... 205,975 5.48 168,795 5.59 152,812 5.47 116,919 5.35
-------- ==== -------- ==== -------- ==== -------- ====
Total average deposits........... $573,327 $461,260 $394,228 $299,876
======== ======== ======== ========
</TABLE>
CAPITAL
In 1996, FBA purchased an outstanding warrant to acquire 131,336 shares of
FBA common stock at $0.75 per share from the FDIC for an aggregate amount of
$1.3 million. The purchase of the warrant was applied as a reduction of capital
surplus.
FBA issued 264,622 shares of common stock in connection with its
acquisition of Surety Bank, resulting in an increase to stockholders' equity of
$4.8 million. The increase represents the fair value of the net assets
exchanged for FBA common stock, as determined by the market value of FBA common
stock at the date of exchange.
On February 2, 1998, FBA completed its acquisition of FCB. As described
under "--Acquisitions" and in Note 2 of the accompanying consolidated
financial statements of FBA, in connection with the acquisition, FBA issued
approximately 1,555,728 shares of common stock, of which 1,266,176 were issued
to First Banks. The consolidated statements of changes in stockholders' equity
reflect the accounts of FBA as if the common stock issued to acquire First
Banks' interest in FCB had been outstanding since August 23, 1995.
The Board of Directors has authorized the purchase of up to a cumulative
total of 816,906 shares of common stock for treasury during 1995 through 1998.
Aggregate shares purchased for treasury totaled 496,056, 386,458 and 280,430,
at an aggregate cost of $6.8 million, $4.4 million and $2.8 million as of March
31, 1998 and December 31, 1997 and 1996, respectively.
42
<PAGE> 47
At March 31, 1998 and December 31, 1997, FBA's and the Subsidiary Banks'
capital ratios were as follows:
<TABLE>
<CAPTION>
RISK-BASED CAPITAL RATIOS
------------------------------------
TOTAL TIER 1 LEVERAGE RATIO
---------------- ---------------- ----------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FBA................................................. 9.08% 6.88% 7.82% 5.62% 6.77% 4.96%
BankTEXAS........................................... 12.99 12.26 11.73 11.00 9.24 8.90
FB California....................................... 13.18 12.19 11.91 10.93 11.12 10.40
</TABLE>
Management believes as of December 31, 1997 and March 31, 1998, each of the
Subsidiaries was "well capitalized" as defined by the Federal Deposit
Insurance Corporation Improvement Act of 1991.
INTEREST RATE RISK MANAGEMENT
For financial institutions, the maintenance of a satisfactory level of net
interest income is a primary factor in achieving acceptable income levels.
However, the maturity and repricing characteristics of the institution's loan
and investment portfolios, relative to those within its deposit structure, may
differ significantly. These characteristics are influenced by the nature of the
loan and deposit markets within which such institution operates, as well as its
objectives for business development within those markets at any point in time.
In addition, the ability of borrowers to repay loans and depositors to withdraw
funds prior to stated maturity dates introduces divergent option
characteristics which operate primarily as interest rates change. These factors
cause various elements of the institution's balance sheet to react in different
manners and at different times relative to changes in interest rates, thereby
leading to increases or decreases in net interest income over time. Depending
upon the nature and velocity of interest rate movements and their effect on the
specific components of the institution's balance sheet, the effects on net
interest income can be substantial. Consequently, a fundamental requirement in
managing a financial institution is establishing effective control over the
exposure of the institution to changes in interest rates.
FBA manages its interest rate risk by: (1) maintaining an Asset Liability
Committee ("ALCO") responsible to FBA's Board of Directors to review the
overall interest rate risk management activity and approve actions taken to
reduce risk; (2) maintaining an effective simulation model to determine FBA's
exposure to changes in interest rates; (3) coordinating the lending, investing
and deposit-generating functions to control the assumption of interest rate
risk; and (4) employing various off-balance-sheet financial instruments to
offset inherent interest rate risk when it becomes excessive. The objective of
these procedures is to limit the adverse impact which changes in interest rates
may have on net interest income.
The ALCO has overall responsibility for the effective management of
interest rate risk and the approval of policy guidelines. The ALCO includes the
Chairman and Chief Executive Officer, the senior executives of investments,
credit, retail banking, commercial banking and finance, and certain other
officers. The ALCO is supported by the Asset Liability Management Group which
monitors interest rate risk, prepares analyses for review by the ALCO and
implements actions which are either specifically directed by the ALCO or
established by policy guidelines.
The objective and primary focus of interest sensitivity management is to
optimize earnings results, while managing, within internal policy constraints,
interest rate risk. FBA's policy on rate sensitivity is to manage exposure to
potential risks associated with changing interest rates by maintaining a
balance sheet posture in which annual net interest income is not significantly
impacted by reasonably possible near-term changes in interest rates. To measure
the effect of interest rate changes, FBA recalculates its net income over two
one-year horizons on a pro forma basis. The analysis assumes various scenarios
for increases and decreases in interest rates including both instantaneous and
gradual and parallel and non-parallel shifts in the yield curve, in varying
amounts. For purposes of arriving at reasonably possible near-term changes in
interest rates, FBA includes a forecast based on actual changes in interest
rates which have occurred over a two year period, simulating both a declining
and rising interest rate scenario. Consistent with the table presented on page
45, which indicates FBA is "asset-sensitive," FBA's simulation model
indicates a loss of projected net income should interest rates decline. While a
decline in interest rates of less than 10% has a diminutive effect on the
earnings of FBA, a significant decline in interest rates, resembling the actual
decline which occurred over a two-year period commencing in March 1991,
indicates a loss of net income equivalent to approximately 7% of net interest
income for the year ended December 31, 1997.
43
<PAGE> 48
FBA utilizes off-balance-sheet derivative financial instruments to assist
in the management of interest rate sensitivity and to modify the repricing,
maturity and option characteristics of on-balance-sheet assets and liabilities.
Derivative financial instruments held by FBA at March 31, 1998 and December 31,
1997 and 1996 consist of an interest rate cap agreement with a notional amount
of $10.0 million and credit exposure of $146,000, $222,000 and $335,000,
respectively. The notional amount of the interest rate cap agreement does not
represent amounts exchanged by the parties and, therefore, is not a measure of
FBA's credit exposure through its use of derivative financial instruments. The
amounts actually exchanged are determined by reference to the notional amounts
and the other terms of the agreement.
FBA's interest rate cap agreement limits the interest expense associated
with certain of its interest-bearing liabilities. In exchange for an initial
fee, the interest rate cap agreement entitles FBA to receive interest payments
when a specified index rate exceeds a predetermined rate. The agreement
outstanding at March 31, 1998 and December 31, 1997 and 1996 effectively limits
the interest rate to 5.0% on $10.0 million of interest-bearing liabilities from
October 15, 1997 to May 15, 2000.
Previously, FBA sold interest rate futures contracts and purchased options
on interest rate futures contracts to hedge the interest rate risk of its
available-for-sale securities portfolio. Interest rate futures contracts are
commitments either to purchase or sell designated financial instruments at a
future date for a specified price and may be settled in cash or through
delivery of such financial instruments. Options on interest rate futures
contracts confer the right to purchase or sell financial futures contracts at a
specified price and are settled in cash. There were no outstanding interest
rate futures contracts or options on interest rate futures contracts at
December 31, 1995 and no activity subsequent to December 31, 1995.
During 1995, as interest rates declined, FBA incurred losses on the
interest rate futures contracts of $5.9 million, of which $806,000 was
amortized to income as a yield adjustment to the investment security portfolio
and $5.1 million was included in the cost basis in determining the gain or loss
upon the sale of the securities. The losses incurred on the interest rate
futures contracts were partially offset by gains in the available-for-sale
securities portfolio. The overall net loss in net market value of these
positions was attributable to an increase in the projected prepayments of
principal underlying the available-for-sale securities portfolio. These
increased prepayment projections disproportionately shortened the expected
lives of the available-for-sale securities portfolio in comparison to the
effective maturity created with the hedge position. As a result, beginning in
the second quarter of 1995, FBA began to reduce its hedge position to coincide
with the current expected life of the available-for-sale securities portfolio
by decreasing the number of outstanding interest rate futures contracts. FBA
continued to reduce its hedge position during the third and fourth quarters of
1995 as a result of the further declines in interest rates. In addition, on
November 3, 1995, upon sales of $48.9 million of securities, which marked the
completion of the restructuring of the available-for-sale securities portfolio,
the remaining outstanding interest rate futures contracts were closed.
44
<PAGE> 49
In addition to the simulation model employed by FBA, a more traditional
interest rate sensitivity position is prepared and reviewed in conjunction with
the results of the simulation model. The following table presents the projected
maturities and periods to repricing of FBA's rate sensitive assets and
liabilities as of December 31, 1997, adjusted to account for anticipated
prepayments:
<TABLE>
<CAPTION>
OVER THREE OVER SIX
THREE THROUGH THROUGH OVER ONE OVER
MONTHS SIX TWELVE THROUGH FIVE
OR LESS MONTHS MONTHS FIVE YEARS YEARS TOTAL
------- ---------- -------- ---------- ----- -----
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans<F1>............................... $310,342 21,466 35,589 61,820 2,238 431,455
Investment securities................... 26,959 4,162 9,706 101,638 5,716 148,181
Federal funds sold...................... 2,215 -- -- -- -- 2,215
Interest-bearing deposits with other
financial institutions................ 690 -- -- -- -- 690
-------- ------- ------- ------- ------- -------
Total interest-earning assets... 340,206 25,628 45,295 163,458 7,954 582,541
-------- ------- ------- ------- ------- -------
Interest-bearing liabilities:
Interest-bearing demand accounts........ 27,084 16,835 10,980 8,052 10,248 73,199
Money market demand accounts............ 68,201 -- -- -- -- 68,201
Savings accounts........................ 13,502 11,119 9,531 13,501 31,769 79,422
Time deposits........................... 58,703 49,824 65,196 64,589 -- 238,312
Notes payable and other borrowed
funds................................. 18,003 584 -- 6,500 -- 25,087
-------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities................... 185,493 78,362 85,707 92,642 42,017 484,221
-------- ------- ------- ------- ------- -------
Interest-sensitivity gap:
Periodic................................ $154,713 (52,734) (40,412) 70,816 (34,063) 98,320
=======
Cumulative.............................. 154,713 101,979 61,567 132,383 98,320
======== ======= ======= ======= =======
Ratio of interest-sensitive assets to
interest-sensitive liabilities:
Periodic................................ 1.83 0.33 0.53 1.76 0.19 1.20
=======
Cumulative.............................. 1.83 1.39 1.18 1.30 1.20
======== ======= ======= ======= =======
<FN>
- --------
<F1>Loans presented net of unearned discount.
</TABLE>
Management made certain assumptions in preparing the table above. These
assumptions included: Loans will repay at historic repayment speeds;
mortgage-backed securities, included in investment securities, will repay at
projected repayment speeds; interest-bearing demand accounts and savings
accounts are interest-sensitive at a rate of 37% and 17%, respectively, of the
remaining balance for each period presented; and fixed maturity deposits will
not be withdrawn prior to maturity.
At December 31, 1997, FBA's asset-sensitive position on a cumulative basis
through the twelve-month time horizon was $61.6 million, or 9.6% of total
assets. The asset-sensitive position is attributable to the composition of the
loan and investment security portfolios.
The interest-sensitivity position is one of several measurements of the
impact of interest rate changes on net interest income. Its usefulness in
assessing the effect of potential changes in net interest income varies with
the constant change in the composition of FBA's assets and liabilities. For
this reason, FBA places greater emphasis on a simulation model for monitoring
its interest rate risk exposure.
LIQUIDITY
The liquidity of FBA and the Subsidiary Banks is the ability to maintain a
cash flow which is adequate to fund operations and meet obligations and other
commitments on a timely basis. The Subsidiary Banks receive funds for
liquidity from customer deposits, loan payments, maturities of loans and
investments, sales of investments and from
45
<PAGE> 50
earnings. In addition, the Subsidiary Banks may avail themselves of more
volatile sources of funds through the issuance of certificates of deposit in
denominations of $100,000 or more, federal funds borrowed, securities sold
under agreements to repurchase and through borrowings from the FHLB. The
aggregate funds acquired from these more volatile sources were $61.2 million
at March 31, 1998 and $56.2 million and $43.8 million at December 31, 1997
and 1996, respectively.
The following table presents the maturity structure of volatile funds,
which consists of certificates of deposit of $100,000 or more and other
short-term borrowings, at March 31, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C>
3 months or less............................... $21,562 19,333
Over 3 through 6 months........................ 13,606 11,284
Over 6 through 12 months....................... 13,315 14,142
Over 12 months................................. 12,695 11,400
------- ------
Total.............................. $61,178 56,159
======= ======
</TABLE>
In addition to these more volatile sources of funds, FBA borrowed $13.5
million, $14.9 million and $14.0 million at March 31, 1998 and December 31,
1997 and 1996, respectively, from First Banks under the $20.0 million First
Banks Note to facilitate the funding of its acquisitions. The borrowings under
the First Banks Note bear interest at an annual rate of one-quarter percent
less than the "Prime Rate" as reported in The Wall Street Journal. The
principal and accrued interest under the First Banks Note are due and payable
on October 31, 2001. In connection with the acquisition of FCB, $10.0 million
of the outstanding principal balance of the First Banks Note was exchanged for
804,000 shares of FBA common stock.
Management believes the available liquidity and operating results of the
Subsidiary Banks will be sufficient to provide funds for growth and to meet
FBA's operating and debt service requirements both on a short-term and long-
term basis, including the First Banks Note.
YEAR 2000 COMPATIBILITY
FBA and its Subsidiary Banks are subject to risks associated with the Year
2000 software problem, a term which refers to uncertainties about the ability
of various software systems to interpret dates correctly after the beginning of
the Year 2000. FBA and its Subsidiary Banks have significant dependence on
various computer equipment and software for their daily operations. Most
software systems were originally designed to operate using date fields which
contain two digits to correspond to the last two digits of the Year. With the
approaching change to the Year 2000, this limitation in these systems could
cause the computers to misinterpret years beginning with "20" as instead
being years beginning with "19." If not corrected, this could cause
miscalculation of data for financial purposes, and operating failure of
equipment which is date dependent. While the most obvious part of this
problem is the mainframe computer system, there are many other potential
ramifications. These can be categorized as: (1) the ancillary software systems
which are used for various other purposes throughout FBA on secondary mainframe
computers, personal computers or intelligent terminals; (2) other types of
equipment which are not related to or connected to computer equipment, such as
vault time locks, elevators, security equipment and heating/air conditioning
systems, which are used in bank branches for various purposes; and (3) the
effects which the transition to the Year 2000 may have on external suppliers
and servicers, as well as on the loan and deposit customers of FBA.
Recognizing this issue, FBA has established an operating committee, which
includes representatives of First Banks, to identify all of the various Year
2000 problems which may arise and to work with the various departments within
FBA to address these issues. Since most of the software used by FBA is
purchased from outside vendors, FBA has been working with these vendors to
ensure the issues are being corrected. In a few instances, there are particular
systems or equipment which the vendors do not intend to convert to Year 2000
compatibility. However, generally these are items which are at the end of their
economic lives and scheduled for replacement. Consequently, FBA believes its
cost of Year 2000 compliance will not be material to its financial position or
results of operations. These costs are expensed as incurred.
46
<PAGE> 51
FBA's process of evaluating potential effects of Year 2000 issues on
customers of the Subsidiary Banks is in its early stages, and it is therefore
impossible to quantify the potential adverse effects of incompatible software
systems on loan or deposit customers of FBA's Subsidiary Banks. The failure of
a commercial bank customer to prepare adequately for Year 2000 compatibility
could have a significant adverse effect on such customer's operations and
profitability, in turn inhibiting its ability to repay loans in accordance with
their terms or requiring it to use its deposit balances. Until sufficient
information is accumulated from customers of the Subsidiary Banks to enable FBA
to assess the degree to which customers' operations are susceptible to
potential problems, FBA will be unable to quantify the potential effect on its
commercial customers. FBA has revised its method of determining its adequacy of
the allowance for possible loan losses to include an allocation for the risks
associated with the year 2000 issue.
EFFECT OF NEW ACCOUNTING STANDARDS
FBA adopted the provisions of Statement of Financial Accounting Standards
("SFAS") No. 130--Reporting Comprehensive Income ("SFAS 130") retroactively
on January 1, 1998. SFAS 130 established standards for reporting and displaying
income and its components (revenues, gains and losses) in a full set of general
purpose financial statements. The statement mandates that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. Comparative financial
statements provided for earlier periods have been restated to reflect the
application of SFAS 130. The implementation of SFAS 130 did not have a material
impact on FBA's consolidated financial statements of FBA.
During 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131--Disclosures about Segments of an Enterprise and Related
Information ("SFAS 131"). SFAS 131 establishes standards for the way public
business enterprises report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. Additionally, SFAS 131 establishes standards for related
disclosures about products and services, geographic areas, and major customers
superseding SFAS No. 14--Financial Reporting for Segments of a Business
Enterprise. FBA is currently evaluating information required by SFAS 131 and
believes expanded disclosure information will be required to be included in
FBA's consolidated financial statements of FBA for fiscal years beginning after
December 15, 1997.
In June 1998, the FASB issued SFAS No. 133--Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as a hedge in one of three categories described in the
pronouncement. The accounting for changes in the fair value of a derivative
(that is, gains and losses) depends on the intended use of the derivative and
the resulting designation. Under SFAS 133, an entity that elects to apply hedge
accounting is required to establish at the inception of the hedge the method it
will use for assessing the effectiveness of the hedging derivative and the
measurement approach for determining the ineffective aspect of the hedge. Those
methods must be consistent with the entity's approach to managing risk. SFAS
133 applies to all entities and is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Initial application should be as of the
beginning of an entity's fiscal quarter; on that date, hedging relationships
must be designated and documented pursuant to the provisions of SFAS 133.
Earlier application of all of the provisions is encouraged but is permitted
only as of the beginning of any fiscal quarter that begins after issuance of
SFAS 133. Additionally, SFAS 133 should not be applied retroactively to
financial statements of prior periods. FBA is currently evaluating SFAS 133 to
determine its impact on the consolidated financial statements of FBA.
EFFECTS OF INFLATION
Financial institutions are less affected by inflation than other types of
companies. Financial institutions make relatively few significant asset
acquisitions which are directly affected by changing prices. Instead, the
assets and liabilities are primarily monetary in nature. Consequently, interest
rates are more significant to the performance of financial institutions than
the effect of general inflation levels. While a relationship exists between the
inflation rate and interest rates, FBA believes this is generally manageable
through its asset/liability management program.
47
<PAGE> 52
BUSINESS
GENERAL
First Banks America, Inc. ("FBA" or the "Company") is a bank holding
company with two wholly-owned banking subsidiaries, First Bank of California
("FB California"), a bank chartered by the State of California, and BankTEXAS
National Association, a national banking association ("BankTEXAS")
(collectively, the "Subsidiary Banks"). FBA, through FB California and
BankTEXAS, operates a total of eleven banking locations in the San
Francisco-Sacramento corridor of Northern California and a total of six banking
locations in Houston, Dallas, Irving and McKinney, Texas. As of March 31, 1998,
FBA had approximately $692.4 million in total assets, $444.1 million in total
loans, net of unearned discount, $600.6 million in total deposits and $56.8
million in total stockholders' equity. Since 1994, FBA has been controlled by
First Banks, a $4.3 billion bank holding company headquartered in St. Louis,
Missouri. First Banks holds, as of March 31, 1998, approximately 72% of FBA's
outstanding voting stock. FBA's senior executive officers, as well as a
majority of FBA's Board of Directors, are executive officers of First Banks.
FBA and the Subsidiary Banks purchase certain services and supplies, including
data processing services, internal auditing, loan review, income tax
preparation and assistance, accounting, asset/liability management and
investment services, loan servicing and other management and administrative
services from First Banks and its affiliates.
In an effort to enhance its banking franchise, FBA places emphasis upon
acquiring other financial institutions as a means of accelerating its growth in
order to expand its presence in a given market, to increase the scope of its
market area or to enter new or noncontiguous market areas. After an acquisition
is consummated, FBA endeavors to enhance the franchise of the acquired entity
by supplementing the acquired entity's marketing and business development
efforts in order to broaden customer bases, strengthen particular business
segments or fill voids in its overall market coverage. In addition, the
acquisition program enables FBA to further leverage the operational support
services available to it through First Banks and to provide the products and
services typically available only through such a larger organization. FBA's
management philosophy is to centralize overall corporate policies, procedures
and administrative functions and to provide operational support functions for
the Subsidiary Banks. Primary responsibility for implementation of such
policies and management of the Subsidiary Banks resides with the officers and
directors of the respective Subsidiary Banks.
After First Banks' 1994 acquisition of control of FBA, FBA embarked on a
business strategy to improve its operating performance and strengthen its asset
quality as prerequisites to initiating an effective acquisition program. The
initial stages of this strategy involved substantial restructuring of assets
and liabilities and reduction of operating expenses, resulting in significant
losses in the sale of investment securities and the establishment of
substantial provisions for loan losses. The loan losses related primarily to
problems with FBA's portfolio of indirect automobile loans. The losses also
included significant nonrecurring expenses in connection with the reduction of
non-interest expenses, including personnel and employee benefits, occupancy,
data processing and other expenses. Following net losses of $4.8 million and
$905,000 for the fiscal years ended December 31, 1995 and 1994, respectively,
reflecting the implementation of the new strategy, FBA returned to
profitability in 1996, with consolidated net income of $691,000, representing a
0.15% return on average assets. FBA's profitability has continued to improve.
FBA has reported consolidated net income of $3.5 million for the fiscal year
ended December 31, 1997 and consolidated net income of $1.1 million for the
three months ended March 31, 1998.
Selected consolidated financial data of FBA and its subsidiaries, including
the Subsidiary Banks, as of and for the five years ended December 31, 1997 and
the three months ended March 31, 1998 and 1997 are set forth below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)................ $ 1,100 484 3,533 691 (4,814) (905) 219
Stockholders' equity............. 56,841 38,013 45,091 38,195 40,965 39,714 14,952
Total assets..................... 692,409 530,023 643,664 529,087 468,486 331,790 368,608
Return on average assets......... 0.67%<F1> 0.37%<F1> 0.65% 0.15% (1.28)% (0.25)% 0.07%
Return on average equity......... 8.13 <F1> 5.11 <F1> 8.90 1.71 (12.06) (3.66) 1.49
<FN>
- ---------
<F1>Ratios as of March 31, 1998 and 1997 are annualized.
</TABLE>
48
<PAGE> 53
The Subsidiary Banks offer a broad range of commercial and personal banking
services, including certificates of deposit, individual retirement and other
time deposit accounts, checking and other demand deposit accounts, and interest
checking, savings and money market accounts. Loan product offerings include
commercial and financial, commercial and residential real estate, real estate
construction and development and consumer loans. Other financial services
include mortgage banking, automatic teller machines, telephone banking, lockbox
deposits, cash management services, sweep accounts, credit-related insurance
and safe deposit boxes. FBA and the Subsidiary Banks purchase certain services
and supplies, including data processing services, internal auditing, loan
review, income tax preparation and assistance, accounting, asset/liability
management and investment services, loan servicing and other management and
administrative services from First Banks and its affiliates.
The following table provides general information regarding FB California
and BankTEXAS as of March 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF TOTAL LOANS, NET OF TOTAL
LOCATIONS ASSETS UNEARNED DISCOUNT DEPOSITS
--------- ------ ----------------- --------
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C>
FB California.......... 11 $415,806 270,713 365,405
BankTEXAS.............. 6 271,902 173,386 235,215
</TABLE>
While FBA initially focused its acquisition efforts within its primary
market areas of Houston and Dallas, Texas and the immediately surrounding
areas, increased prices for potential acquisition candidates in the Texas
market generally reduced the suitability to FBA of potential acquisition
candidates based in such areas. Accordingly, FBA broadened its target market to
include California, where FBA perceived pricing to be more attractive. The
economic advantages of the California market were enhanced by the geographic
proximity of various offices of First Bank & Trust, a subsidiary of First
Banks. Between October 1996 and February 1998, FBA completed four acquisitions
of banks located in northern California, which banks were subsequently merged
together to form FB California. See "Management's Discussion and
Analysis--Acquisitions" for a discussion of FBA's recent acquisitions.
PENDING ACQUISITION
On June 8, 1998, FBA announced the signing of an Agreement in Principle to
acquire Redwood, and its wholly owned subsidiary Redwood Bank, for cash
consideration of $26 million. Redwood is headquartered in San Francisco,
California and operates four banking locations in the San Francisco Bay area.
As of March 31, 1998, Redwood had approximately $152.0 million in total assets,
$120.1 million in total loans, net of unearned discount, $130.1 million in
total deposits and $17.8 million in total stockholder's equity. The transaction
is subject to various conditions, including the negotiation of a definitive
agreement and the receipt of regulatory approvals and the approval of Redwood's
sole shareholder. FBA anticipates the transaction will be consummated at the
end of the fourth quarter of 1998. See "Use of Proceeds" and "Pro Forma
Financial Information."
LENDING ACTIVITIES
FBA's lending activities are conducted pursuant to a written loan policy
which has been adopted by each of the Subsidiary Banks. Each loan officer has a
defined lending authority, and loans made by each such officer must be reviewed
by a loan committee of the banking facility at which the loan officer is
located and by the Subsidiary Bank's board of directors or the Central Finance
Committee of FBA, depending upon the amount of the loan request. Loan requests
for amounts in excess of $5.0 million, and loan requests for amounts in excess
of $1.0 million where the aggregate indebtedness of the borrower exceeds $10.0
million, must also be approved by FBA's Chairman of the Board, Chief Financial
Officer or Chief Credit Officer.
Loans generally are limited to borrowers residing or doing business in the
immediate market area of the originating Subsidiary Bank. FBA's policy is for
each Subsidiary Bank to meet the quality loan demand and credit needs of its
local community before it considers the purchase of loan participations from an
affiliate.
FBA offers commercial and financial, real estate construction and
development, commercial and residential real estate and consumer loans.
Additional information regarding FBA's loan portfolio is included under
"Management's Discussion and Analysis--Loans and Allowance for Possible Loan
Losses."
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INVESTMENT PORTFOLIO
FBA has established a written investment policy which has been adopted by
the Subsidiary Banks and is reviewed annually. The investment policy identifies
investment criteria and states specific objectives in terms of risk, interest
rate sensitivity and liquidity. The investment policy directs management of the
Subsidiary Banks to consider, among other criteria, the quality, term and
marketability of the securities acquired for their respective investment
portfolios. FBA does not engage in the practice of trading securities for the
purpose of generating portfolio gains. The composition of the investment
portfolio is shown in the Notes to consolidated financial statements of FBA;
see also "Management's Discussion and Analysis--Investment Securities."
DEPOSITS
FBA's deposits consist principally of core deposits from the local market
areas of the Subsidiary Banks. The Subsidiary Banks currently do not hold
brokered deposits, except for any such deposits which acquired institutions may
have had prior to their acquisition by FBA. A table summarizing the
distribution of FBA's deposit accounts and the weighted average nominal
interest rates on each category of deposits for the three years ending December
31, 1997 and for the three months ended March 31, 1998 is included under
"Management's Discussion and Analysis--Deposits."
COMPETITION AND BRANCH BANKING
The activities in which the Subsidiary Banks are engaged are highly
competitive. Those activities and the geographic markets served primarily
involve competition with other banks and thrift institutions, some of which are
affiliated with large regional or national holding companies. Competition among
financial institutions is based upon interest rates offered on deposit
accounts, interest rates charged on loans and other credit and service charges,
the quality of services rendered, the convenience of banking facilities and, in
the case of loans to large commercial borrowers, relative lending limits.
In addition to competing with other banks and thrift institutions within
their primary service areas, the Subsidiary Banks also compete with other
financial intermediaries, such as credit unions, industrial loan associations,
securities firms, insurance companies, small loan companies, finance companies,
mortgage companies, real estate investment trusts, certain governmental
agencies, credit organizations and other enterprises. Additional competition
for depositors' funds comes from United States Government securities, private
issuers of debt obligations and suppliers of other investment alternatives for
depositors. Many of FBA's non-bank competitors are not subject to the same
extensive federal regulations that govern bank holding companies and
federally-insured banks and state regulations governing state-chartered banks.
As a result, such non-bank competitors may have certain advantages over FBA in
providing some services.
The trend in the Subsidiary Banks' markets has been for multi-state holding
companies to acquire independent banks and thrifts. FBA believes it will
continue to face competition in the acquisition of banks and thrifts from
larger holding companies. Many of the financial institutions with which FBA
competes are larger than FBA and have substantially greater resources available
for making acquisitions.
Subject to regulatory approval, both commercial banks and thrift
institutions operating in Texas and California are permitted to establish
branches throughout each of those states, thereby creating the potential for
additional competition in the service areas of the Subsidiary Banks.
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SUPERVISION AND REGULATION
GENERAL
The Company and the Subsidiary Banks are extensively regulated under
federal and state law. These laws and regulations are intended to protect
depositors, not stockholders. To the extent that the following information
describes statutory or regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Changes in
applicable laws or regulations may have a material effect on the business and
prospects of the Company. The operations of the Company may be affected by
legislative changes and by the policies of various regulatory authorities. The
Company is unable to predict the nature or the extent of the effects on its
business and earnings that fiscal or monetary policies, economic controls or
new federal or state legislation may have in the future.
FBA is a registered bank holding company under the Bank Holding Company Act
of 1956, as amended (the "BHCA") and, as such, is subject to regulation,
supervision and examination by the Federal Reserve. FBA is required to file
annual reports with the Federal Reserve and to provide the Federal Reserve such
additional information as it may require.
BankTEXAS and FB California are subject to supervision and regulation by
the United States Office of the Comptroller of the Currency (the "OCC") and
the State Banking Department of the State of California, respectively. The
Subsidiary Banks are also subject to supervision and regulation by the Federal
Deposit Insurance Corporation ("FDIC"), which provides deposit insurance to
the Subsidiary Banks.
LEGISLATION
The enactment of the legislation described below has significantly affected
the banking industry generally and will have an ongoing effect on the Company
and the Subsidiary Banks in the future.
FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT OF 1989. The
Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") reorganized and reformed the regulatory structure applicable to
financial institutions generally. Among other things, FIRREA enhanced the
supervisory and enforcement powers for the federal bank regulatory agencies;
required insured financial institutions to guaranty repayment of losses
incurred by the FDIC in connection with the failure of an affiliated financial
institution; required financial institutions to provide their primary federal
regulator with notice, under certain circumstances, of changes in senior
management and broadened authority for bank holding companies to acquire
savings institutions.
Under FIRREA, federal bank regulators were granted expanded enforcement
authority over "institution-affiliated parties" (i.e., officers, directors,
controlling stockholders, attorneys, appraisers and accountants who knowingly
or recklessly participate in wrongful action likely to have an adverse effect
on an insured institution). Federal banking regulators have power to bring
enforcement actions against insured institutions and institution-affiliated
parties, including cease and desist orders, prohibition orders, civil money
penalties, termination of insurance and the imposition of operating
restrictions and capital plan requirements. In general, these enforcement
actions may be initiated for violations of laws and regulations and unsafe or
unsound practices. Since the enactment of FIRREA, the federal bank regulators
have significantly increased the use of written agreements to correct
compliance deficiencies with respect to applicable laws and regulations and to
ensure safe and sound practices. Violations of such written agreements are
grounds for initiation of cease-and-desist proceedings. FIRREA granted the FDIC
back-up enforcement authority to recommend enforcement action to an appropriate
federal banking agency and to bring such enforcement action against a financial
institution or an institution-affiliated party if such federal banking agency
fails to follow the FDIC's recommendation. In addition, FIRREA generally
requires public disclosure of final enforcement actions by the federal banking
agencies.
FIRREA also established a cross-guarantee provision ("Cross-Guarantee")
pursuant to which the FDIC may recover from a depository institution losses
that the FDIC incurs in providing assistance to, or paying off the depositors
of, any of such depository institution's affiliated insured banks or thrifts.
The Cross-Guarantee thus enables the FDIC to assess a holding company's healthy
Bank Insurance Fund (the "BIF") members and Savings Association Insurance
Fund (the "SAIF") members for the losses of any of such holding company's
failed BIF and SAIF members. Cross-Guarantee liabilities are generally superior
in priority to obligations of the depository
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<PAGE> 56
institution to its stockholders due solely to their status as stockholders and
obligations to other affiliates. Cross-Guarantee liabilities are generally
subordinated to deposit liabilities, secured obligations or any other general
or senior liabilities, and any obligations subordinated to depositors or other
general creditors.
THE FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991. The
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was
adopted to recapitalize the BIF and impose certain supervisory and regulatory
reforms on insured depository institutions. FDICIA includes provisions, among
others, to: (i) increase the FDIC's line of credit with the U.S. Treasury in
order to provide the FDIC with additional funds to cover the losses of
federally insured banks; (ii) reform the deposit insurance system, including
the implementation of risk-based deposit insurance premiums; (iii) establish a
format for closer monitoring of financial institutions to enable prompt
corrective action by banking regulators when a financial institution begins to
experience financial difficulty; (iv) establish five capital levels for
financial institutions ("well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized") that impose more scrutiny and restrictions on less
capitalized institutions; (v) require the banking regulators to set operational
and managerial standards for all insured depository institutions and holding
companies, including limits on excessive compensation to executive officers,
directors, employees and principal stockholders, and establish standards for
loans secured by real estate; (vi) adopt certain accounting reforms and require
annual on-site examinations of federally insured institutions, including the
ability to require independent audits of banks and thrifts; (vii) revise
risk-based capital standards to ensure that they (a) take adequate account of
interest-rate changes, concentration of credit risk and the risks of
nontraditional activities, and (b) reflect the actual performance and expected
risk of loss of multi-family mortgages; and (viii) restrict state-chartered
banks from engaging in activities not permitted for national banks unless they
are adequately capitalized and have FDIC approval. Further, FDICIA permits the
FDIC to make special assessments on insured depository institutions, in amounts
determined by the FDIC to be necessary to give it adequate assessment income to
repay amounts borrowed from the U.S. Treasury and other sources or for any
other purpose the FDIC deems necessary. FDICIA also grants authority to the
FDIC to establish semiannual assessment rates on BIF and SAIF member banks so
as to maintain these funds at the designated reserve ratios.
As noted above, FDICIA authorizes and, under certain circumstances,
requires the federal banking agencies to take certain actions against
institutions that fail to meet certain capital-based requirements. Under
FDICIA, the federal banking agencies are required to establish five levels of
insured depository institutions based on leverage limit and risk-based capital
requirements established for institutions subject to their jurisdiction, plus,
in their discretion, individual additional capital requirements for such
institutions. Under the final rules that have been adopted by each of the
federal banking agencies, an institution is designated: (i) well capitalized if
the institution has a total risk-based capital ratio of 10% or greater, a Tier
1 risk-based capital ratio of 8% or greater and a leverage ratio of 5% or
greater, and the institution is not subject to an order, written agreement,
capital directive or prompt corrective action directive to meet and maintain a
specific capital level for any capital measure; (ii) adequately capitalized if
the institution has a total risk-based capital ratio of 8% or greater, a Tier 1
risk-based capital ratio of 4% or greater and a leverage ratio of 4% or
greater; (iii) undercapitalized if the institution has a total risk-based
capital ratio that is less than 8%, a Tier 1 risk-based capital ratio that is
less than 4% or a leverage ratio that is less than 4%; (iv) significantly
undercapitalized if the institution has a total risk-based capital ratio that
is less than 6%, a Tier 1 risk-based capital ratio that is less than 3% or a
leverage ratio that is less than 3%; and (v) critically undercapitalized if the
institution has a ratio of tangible equity to total assets that is equal to or
less than 2%.
Undercapitalized, significantly undercapitalized and critically
undercapitalized institutions are required to submit capital restoration plans
to the appropriate federal banking agency and are subject to certain
operational restrictions. Moreover, companies controlling an undercapitalized
institution are required to guarantee the subsidiary institution's compliance
with the capital restoration plan, subject to an aggregate limitation of the
lesser of 5% of the institution's assets at the time it received notice that it
was undercapitalized or the amount of the capital deficiency when the
institution first failed to meet the plan.
Significantly or critically undercapitalized institutions and
undercapitalized institutions that fail to submit or comply with acceptable
capital restoration plans are subject to regulatory sanctions. A forced sale of
shares or merger, restriction on affiliate transactions and restrictions on
rates paid on deposits are required to be imposed by the banking agency unless
it is determined that they would not further capital improvement. FDICIA
generally requires the appointment of a conservator or receiver within 90 days
after an institution becomes critically undercapitalized. The federal banking
agencies have adopted uniform procedures for the issuance of directives by the
appropriate
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federal banking agency. Under these procedures, an institution is generally
provided advance notice when the appropriate federal banking agency proposes to
impose one or more of the sanctions set forth above. These procedures provide
an opportunity for the institutions to respond to the proposed agency action
or, where circumstances warrant immediate agency action, an opportunity for
administrative review of the agency's action.
As described in "Management's Discussion and Analysis--Capital,"
management believes each of the Subsidiary Banks was "well capitalized" as of
March 31, 1998.
Pursuant to FDICIA, the federal banking agencies adopted real estate
lending guidelines pursuant to which each insured depository institution is
required to adopt and maintain written real estate lending policies in
conformity with the prescribed guidelines. Under these guidelines, each
institution is expected to set loan-to-value ratios not exceeding the
supervisory limits set forth in the guidelines. A loan-to-value ratio is
generally defined as the total loan amount divided by the appraised value of
the property at the time the loan is originated. The guidelines require that
the institution's real estate policy provide for proper loan documentation and
prudent underwriting standards.
FDICIA also contained the Truth in Savings Act, which requires clear and
uniform disclosure of the rates and interest payable on deposit accounts by
depository institutions and the fees assessable against deposit accounts, so
that consumers can make a meaningful comparison between the competing claims of
financial institutions with regard to deposit accounts and products.
RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994. In
1994 Congress enacted the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act"). Beginning in 1995, bank
holding companies gained the right to expand, by acquiring existing banks, into
all states, even those which had theretofore restricted entry. The legislation
also provides that a holding company has the right, commencing in 1997, to
convert the banks which its owns in different states to branches of a single
bank. The Interstate Act also establishes limits on acquisitions by large
banking organizations, providing that no acquisition may be undertaken if it
would result in the organization having deposits exceeding either 10% of all
bank deposits in the United States or 30% of the bank deposits in the state in
which the acquisition would occur.
ECONOMIC GROWTH AND REGULATORY PAPERWORK REDUCTION ACT OF 1996. The
Economic Growth and Regulatory Paperwork Reduction Act of 1996 ("EGRPRA")
streamlined the non-banking activities application process for well-
capitalized and well-managed bank holding companies. Under EGRPRA, qualified
bank holding companies may commence a regulatory approved non-banking
acquisition or share purchase, assuming the size of the acquisition does not
exceed 10% of risk-weighted assets of the acquiring bank holding company and
the consideration does not exceed 15% of Tier 1 capital. The foregoing prior
notice requirement also applies to commencing a non-banking activity de novo if
that activity has been previously approved by order of the Federal Reserve, but
has not yet been implemented by regulations. EGRPRA also provided for the
recapitalization of the SAIF in order to bring it into parity with the BIF of
the FDIC.
PENDING LEGISLATION. Because of concerns relating to competitiveness and
the safety and soundness of the banking industry, Congress is considering a
number of wide-ranging proposals for altering the structure, regulation and
competitive relationships of the nation's financial institutions. On May 13,
1998, the House of Representatives passed H.R.10 which, if passed by the Senate
and signed into law, would alter the statutory separation of commercial and
investment banking and to further expand the powers of banks, bank holding
companies and competitors of banks. It cannot be predicted whether or in what
form any of these proposals will be adopted or the extent to which the business
of the Company may be affected thereby.
BANK AND BANK HOLDING COMPANY REGULATION
BHCA. Under the BHCA, the activities of a bank holding company are limited
to businesses so closely related to banking, managing or controlling banks as
to be a proper incident thereto. The Company is also subject to capital
requirements applied on a consolidated basis in a form substantially similar to
those required of the Subsidiary Banks. The BHCA also requires a bank holding
company to obtain approval from the Federal Reserve before: (i) acquiring,
directly or indirectly, ownership or control of any voting shares of another
bank or bank holding company if, after such acquisition, it would own or
control more than 5% of such shares (unless it already owns or controls the
majority of such shares); (ii) acquiring all or substantially all of the assets
of another bank or bank holding company; or (iii) merging or consolidating with
another bank holding company. The Federal Reserve will not approve any
acquisition,
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merger or consolidation that would have a substantially anticompetitive result,
unless the anticompetitive effects of the proposed transaction are clearly
outweighed by a greater public interest in meeting the convenience and needs of
the community to be served. The Federal Reserve also considers capital adequacy
and other financial and managerial factors in reviewing acquisitions or
mergers.
The BHCA also prohibits a bank holding company, with certain limited
exceptions: (i) from acquiring or retaining direct or indirect ownership or
control of more than 5% of the voting shares of any company which is not a bank
or bank holding company; or (ii) from engaging directly or indirectly in
activities other than those of banking, managing or controlling banks, or
providing services for its subsidiaries. The principal exceptions to these
prohibitions involve certain non-bank activities which, by statute or by
Federal Reserve regulation or order, have been identified as activities closely
related to the business of banking or of managing or controlling banks. In
making this determination, the Federal Reserve considers whether the
performance of such activities by a bank holding company can be expected to
produce benefits to the public such as greater convenience, increased
competition or gains in efficiency in resources, which can be expected to
outweigh the risks of possible adverse effects such as decreased or unfair
competition, conflicts of interest or unsound banking practices. FIRREA, which
is described in more detail above, made a significant addition to this list of
permitted non-bank activities for bank holding companies by providing that bank
holding companies may acquire thrift institutions.
INSURANCE OF ACCOUNTS. The FDIC provides insurance to deposit accounts at
the Subsidiary Banks to a maximum of $100,000 for each insured depositor.
Through December 31, 1992, all FDIC-insured institutions, whether members of
the BIF or the SAIF, paid the same premium (23 cents per $100 of domestic
deposits) under a flat-rate system mandated by law. FDICIA required the FDIC to
raise the reserves of the BIF and the SAIF, implement a risk-related premium
system and adopt a long-term schedule for recapitalizing the BIF. Effective in
1993, the FDIC amended its regulations regarding insurance premiums to provide
that a bank or thrift would pay an insurance assessment within a range of 23
cents to 31 cents per $100 of domestic deposits, depending on its risk
classification.
Effective January 1, 1993, the FDIC established a risk-based deposit
insurance premium assessment system, with assessment rates ranging from 0.23%
of domestic deposits (the same rate as under the previous flat-rate assessment
system) for those banks deemed to pose the least risk to the insurance fund to
0.31% for those banks deemed to pose greater risk. The assessment rate
applicable to a bank is subject to change with each semi-annual assessment
period. Effective September 15, 1995, the FDIC lowered the assessment rate
schedule for BIF-insured institutions from a range of 0.23% to 0.31% of
domestic deposits to a range of 0.04% to 0.31% of domestic deposits. This
reduction in the assessment rate schedule was made retroactive to June 1, 1995
because the FDIC determined that the BIF achieved its statutorily-required
reserve ratio of 1.25% on May 31, 1995. On November 14, 1995, the FDIC again
lowered the assessment rate schedule for BIF-insured institutions, effective
for the semiannual assessment period beginning January 1, 1996, to a range of
0.00% to 0.27% of domestic deposits. The deposits of BankTEXAS consist solely
of BIF deposits, and the deposits of FB California include both BIF and SAIF
deposits.
The statutory semiannual minimum assessment of $1,000 per insured
institution was eliminated as part of EGRPRA, which was signed into law on
September 30, 1996. EGRPRA provided for the recapitalization of the SAIF
through a one-time special assessment on SAIF-insured deposits in order to
bring it into parity with the BIF. Since January 1, 1997, BIF and SAIF premiums
are assessed at between 0.00% and 0.27%, depending on the supervisory rating
assigned.
EGRPRA also requires BIF members to pay a portion of the annual interest on
the Financing Corporation ("FICO") bonds issued by a government
instrumentality in 1987 to begin funding the resolution of the problems of the
savings and loan industry. Since January 1, 1997, BIF members have paid a FICO
premium on BIF deposits equal to 0.0129%. During that same period, SAIF members
have paid a FICO premium on SAIF deposits equal to 0.0644%. Beginning January
1, 2000, BIF members will share in the payment of the FICO assessment with SAIF
members on a pro rata basis, with the annual assessment expected to equal
approximately 0.0243% until retirement of the FICO bond obligation in
approximately 2017. This assessment is not expected to have a material adverse
effect on the Subsidiary Banks.
THE PREFERRED SECURITIES AND THE SUBORDINATED DEBENTURES OFFERED BY THIS
PROSPECTUS ARE NOT SAVINGS OR DEPOSIT ACCOUNTS, ARE NOT OBLIGATIONS OF ANY
BANKING OR NONBANKING AFFILIATE OF FBA (EXCEPT TO THE EXTENT THAT PREFERRED
SECURITIES ARE GUARANTEED BY FBA AS DESCRIBED HEREIN), ARE NOT INSURED BY THE
FDIC OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
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REGULATIONS GOVERNING CAPITAL ADEQUACY. The federal bank regulatory
agencies use capital adequacy guidelines in their examination and regulation of
bank holding companies and banks. If the capital falls below the minimum levels
established by these guidelines, the bank holding company or bank may be denied
approval to acquire or establish additional banks or nonbank businesses or to
open facilities.
The Federal Reserve, the FDIC and the OCC have adopted risk-based capital
guidelines for banks and bank holding companies, and the OTS has adopted
similar guidelines for thrifts. The risk-based capital guidelines are designed
to make regulatory capital requirements more sensitive to differences in risk
profile among financial institutions and holding companies, to account for
off-balance sheet exposure and to minimize disincentives for holding liquid
assets. Assets and off-balance sheet items are assigned to broad risk
categories, each with appropriate weights. The resulting capital ratios
represent capital as a percentage of total risk-weighted assets and off-balance
sheet items. The Federal Reserve has noted that bank holding companies
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain ratios well in excess of the
minimums. Under these guidelines, all bank holding companies and federally
regulated banks must maintain a minimum risk-based total capital ratio equal to
8%, of which at least 4% must be Tier 1 capital.
The Federal Reserve also has implemented a leverage ratio, which is the
ratio of Tier 1 capital to total assets, to be used as a supplement to the
risk-based guidelines. The principal objective of the leverage ratio is to
place a constraint on the maximum degree to which a bank holding company may
leverage its equity capital base. The Federal Reserve requires a minimum
leverage ratio of 3%. For all but the most highly-rated bank holding companies
and for bank holding companies seeking to expand, however, the Federal Reserve
expects that additional capital sufficient to increase the ratio by at least
100 to 200 basis points will be maintained.
As described in "Management's Discussion and Analysis--Capital,"
management believes each of the Subsidiary Banks was "well capitalized" as of
March 31, 1998.
Management of the Company believes that the risk-weighting of assets and
the risk-based capital guidelines do not have a material adverse impact on the
Company's operations or on the operations of the Subsidiary Banks. The
requirement of deducting certain intangibles in computing capital ratios
contained in the guidelines, however, could adversely affect the ability of the
Company to make acquisitions in the future in transactions that would be
accounted for using the purchase method of accounting.
COMMUNITY REINVESTMENT ACT. The Community Reinvestment Act of 1977 (the
"CRA") requires that, in connection with examinations of financial
institutions within their jurisdiction, the federal banking regulators must
evaluate the record of the financial institutions in meeting the credit needs
of their local communities, including low and moderate income neighborhoods,
consistent with the safe and sound operation of those banks. These factors are
also considered in evaluating mergers, acquisitions and applications to open a
branch or facility.
REGULATIONS GOVERNING EXTENSIONS OF CREDIT. The Subsidiary Banks are
subject to certain restrictions imposed by the Federal Reserve Act on
extensions of credit to FBA or its non-bank subsidiaries and its affiliates, or
investments in their securities and on the use of their securities as
collateral for loans to any borrowers. These regulations and restrictions may
limit the Company's ability to obtain funds from the Subsidiary Banks for its
cash needs, including funds for acquisitions and for payment of dividends,
interest and operating expenses. Further, under the BHCA and certain
regulations of the Federal Reserve, a bank holding company and its subsidiaries
are prohibited from engaging in certain tying arrangements in connection with
any extension of credit, lease or sale of property or furnishing of services.
For example, the Subsidiary Banks may generally not require a customer to
obtain other services from the Subsidiary Banks or any other affiliated bank or
the Company and may not require the customer to promise not to obtain other
services from a competitor, as a condition to an extension of credit to the
customer.
The Subsidiary Banks are also subject to certain restrictions imposed by
the Federal Reserve Act on extensions of credit to executive officers,
directors, principal stockholders or any related interest of such persons.
Extensions of credit (i) must be made on substantially the same terms,
including interest rates and collateral as, and following credit underwriting
procedures that are not less stringent than, those prevailing at the time for
comparable transactions with persons not covered and who are not employees; and
(ii) must not involve more than the normal risk of repayment or present other
unfavorable features. The Subsidiary Banks are also subject to certain lending
limits and restrictions on overdrafts to such persons.
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RESERVE REQUIREMENTS. The Federal Reserve requires all depository
institutions to maintain reserves against their transaction accounts and
non-personal time deposits. Reserves of 3% must be maintained against total
transaction accounts of $47.8 million or less (subject to adjustment by the
Federal Reserve) and an initial reserve of $1,434,000 plus 10% of any amount
over $47.8 million (subject to adjustment by the Federal Reserve to a level
between 8% and 14%) must be maintained against that portion of total
transaction accounts in excess of such amount. The balances maintained to meet
the reserve requirements imposed by the Federal Reserve may be used to satisfy
liquidity requirements.
Institutions are authorized to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve regulations require institutions to
exhaust other reasonable alternative sources of funds, including advances from
Federal Home Loan Banks ("FHLBs"), before borrowing from the Federal Reserve
Bank.
FEDERAL HOME LOAN BANK SYSTEM. The Subsidiary Banks are members of the
Federal Home Loan Bank System ("FHLB System"), which consists of twelve
regional FHLBs, each subject to supervision and regulation by the Federal
Housing Finance Board, an independent agency created by FIRREA. The FHLBs
provide a central credit facility primarily for member institutions. The
Subsidiary Banks are required to acquire and hold shares of capital stock in an
FHLB in an amount at least equal to 1% of the aggregate principal amount of
their respective unpaid residential mortgage loans and similar obligations at
the beginning of each year, or 1/20th of advances (borrowings) from the FHLB,
whichever is greater. The Subsidiary Banks were in compliance with these
regulations at March 31, 1998, with investments of $857,000 in stock of the
FHLB of Dallas held by BankTEXAS and $715,000 in stock of the FHLB San
Francisco held by FB California.
RESTRICTIONS ON THRIFT ACQUISITIONS. FBA is prohibited from acquiring,
without prior approval of the Director of the Office of Thrift Supervision, (i)
control of any savings institution or savings and loan holding company or
substantially all the assets thereof; or (ii) more than 5% of the voting shares
of a savings institution or holding company which is not a subsidiary.
Furthermore, such an acquisition would require FBA itself to become registered
as a savings and loan holding company subject to all applicable regulations of
the OTS.
DIVIDENDS. FBA's primary source of funds is the dividends, if any, paid by
the Subsidiary Banks. The ability of the Subsidiary Banks to pay dividends is
limited by federal laws, by the regulations promulgated by the bank regulatory
agencies and by principles of prudent bank management. In addition, the amount
of dividends that the Subsidiary Banks may pay to the Company is limited by the
provisions of First Bank's credit agreement with a group of unaffiliated
lenders, which imposes certain minimum capital requirements. Under the most
restrictive of these requirements, dividends from the Subsidiary Banks are
limited to approximately $2.5 million as of March 31, 1998, unless prior
permission of regulatory authorities is obtained.
MONETARY POLICY AND ECONOMIC CONTROL. The commercial banking business is
affected not only by general economic conditions, but also by the monetary
policies of the Federal Reserve. Changes in the discount rate on member bank
borrowings, availability of borrowing at the "discount window," open market
operations, the imposition of changes in reserve requirements against member
bank deposits and assets of foreign branches, and the imposition of and changes
in reserve requirements against certain borrowings by banks and their
affiliates are some of the instruments of monetary policy available to the
Federal Reserve. These monetary policies are used in varying combinations to
influence overall growth and distributions of bank loans, investments and
deposits, and this use may affect interest rates charged on loans or paid on
deposits. The monetary policies of the Federal Reserve have had a significant
effect on the operating results of commercial banks and are expected to do so
in the future. The monetary policies of the Federal Reserve are influenced by
various factors, including inflation, unemployment, short-term and long-term
changes in the international trade balance and in the fiscal policies of the
U.S. Government. Future monetary policies and the effect of such policies on
the future business and earnings of the Company or the Subsidiary Banks cannot
be predicted.
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DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the Trust
Agreement. The Trust Agreement will be qualified as an indenture under the
Trust Indenture Act. The Property Trustee, State Street Bank and Trust Company,
will act as indenture trustee for the Preferred Securities under the Trust
Agreement for purposes of complying with the provisions of the Trust Indenture
Act. The terms of the Preferred Securities will include those stated in the
Trust Agreement and those made part of the Trust Agreement by the Trust
Indenture Act. The following summary of the material terms and provisions of
the Preferred Securities and the Trust Agreement does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Trust Agreement, the Trust Act, and the Trust Indenture Act. Wherever
particular defined terms of the Trust Agreement are referred to, but not
defined herein, such defined terms are incorporated herein by reference. The
form of the Trust Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
GENERAL
Pursuant to the terms of the Trust Agreement, the Trustees, on behalf of
the Trust, will issue the Trust Securities. All of the Common Securities will
be owned by the Company. The Preferred Securities will represent preferred
undivided beneficial interests in the assets of the Trust and the holders
thereof will be entitled to a preference in certain circumstances with respect
to Distributions and amounts payable on redemption or liquidation over the
Common Securities, as well as other benefits as described in the Trust
Agreement. The Trust Agreement does not permit the issuance by the Trust of any
securities other than the Trust Securities or the incurrence of any
indebtedness by the Trust.
The Preferred Securities will rank pari passu, and payments will be made
thereon pro rata, with the Common Securities, except as described under
"--Subordination of Common Securities." Legal title to the Subordinated
Debentures will be held by the Property Trustee in trust for the benefit of the
holders of the Trust Securities. The Guarantee executed by the Company for the
benefit of the holders of the Preferred Securities will be a guarantee on a
subordinated basis with respect to the Preferred Securities, but will not
guarantee payment of Distributions or amounts payable on redemption or
liquidation of such Preferred Securities when the Trust does not have funds on
hand available to make such payments. State Street Bank and Trust Company, as
Guarantee Trustee, will hold the Guarantee for the benefit of the holders of
the Preferred Securities. See "Description of the Guarantee."
DISTRIBUTIONS
PAYMENT OF DISTRIBUTIONS. Distributions on each Preferred Security will be
payable at the annual rate of % of the stated Liquidation Amount of $25,
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year, to the holders of the Preferred Securities on the relevant record
dates (each date on which Distributions are payable in accordance with the
foregoing, a "Distribution Date"). The record date will be the 15th day of
the month in which the relevant Distribution Date occurs. Distributions will
accumulate from , 1998, the date of original issuance. The first
Distribution Date for the Preferred Securities will be September 30, 1998. The
amount of Distributions payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months. In the event that any date on which
Distributions are payable on the Preferred Securities is not a Business Day,
then payment of the Distributions payable on such date will be made on the next
succeeding day that is a Business Day (and without any additional
Distributions, interest or other payment in respect of any such delay) with the
same force and effect as if made on the date such payment was originally due
and payable. "Business Day" means any day other than a Saturday or a Sunday,
a day on which banking institutions in the City of New York are authorized or
required by law or executive order to remain closed or a day on which the
corporate trust office of the Property Trustee or the Debenture Trustee is
closed for business.
EXTENSION PERIOD. The Company has the right under the Indenture, so long as
no Debenture Event of Default has occurred and is continuing, to defer the
payment of interest on the Subordinated Debentures at any time, or from time to
time (each, an "Extension Period"), which, if exercised, would defer
quarterly Distributions on the Preferred Securities during any such Extension
Period. Distributions to which holders of the Preferred Securities are entitled
will accumulate additional Distributions thereon at the rate per annum of
% thereof, compounded quarterly from the relevant Distribution Date.
"Distributions," as used herein, includes any such additional Distributions.
The right to defer the payment of interest on the Subordinated Debentures is
limited, however, to a period, in each
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instance, not exceeding 20 consecutive quarters, and no Extension Period may
extend beyond the Stated Maturity of the Subordinated Debentures. During any
such Extension Period, the Company may not (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock (other than (a) dividends
or distributions in common stock of the Company, any declaration of a non-cash
dividend in connection with the implementation of a shareholder rights plan, or
the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, and (b) purchases of common
stock of the Company related to the rights under any of the Company's benefit
plans for its directors, officers or employees), (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Company that rank pari passu with or junior in interest
to the Subordinated Debentures or make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any subsidiary of the
Company if such guarantee ranks pari passu with or junior in interest to the
Subordinated Debentures (other than payments under the Guarantee), or (iii)
redeem, purchase or acquire less than all of the Subordinated Debentures or any
of the Preferred Securities. Prior to the termination of any such Extension
Period, the Company may further defer the payment of interest; provided that
such Extension Period may not exceed 20 consecutive quarters or extend beyond
the Stated Maturity of the Subordinated Debentures. Upon the termination of any
such Extension Period and the payment of all amounts then due, the Company may
elect to begin a new Extension Period, subject to the above requirements.
Subject to the foregoing, there is no limitation on the number of times that
the Company may elect to begin an Extension Period.
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Debentures.
SOURCE OF DISTRIBUTIONS. The funds of the Trust available for distribution
to holders of its Preferred Securities will be limited to payments under the
Subordinated Debentures in which the Trust will invest the proceeds from the
issuance and sale of its Trust Securities. See "Description of the
Subordinated Debentures." Distributions will be paid through the Property
Trustee who will hold amounts received in respect of the Subordinated
Debentures in the Property Account for the benefit of the holders of the Trust
Securities. If the Company does not make interest payments on the Subordinated
Debentures, the Property Trustee will not have funds available to pay
Distributions on the Preferred Securities. The payment of Distributions (if and
to the extent the Trust has funds legally available for the payment of such
Distributions and cash sufficient to make such payments) is guaranteed by the
Company. See "Description of the Guarantee." Distributions on the Preferred
Securities will be payable to the holders thereof as they appear on the
register of holders of the Preferred Securities on the relevant record dates,
which will be the 15th day of the month in which the relevant Distribution Date
occurs.
REDEMPTION
GENERAL. The Subordinated Debentures will mature on June 30, 2028. The
Company will have the right to redeem the Subordinated Debentures (i) on or
after June 30, 2003, in whole at any time or in part from time to time, or (ii)
at any time, in whole (but not in part), within 180 days following the
occurrence of a Tax Event, a Capital Treatment Event or an Investment Company
Event, in each case subject to receipt of prior approval by the Federal Reserve
if then required under applicable capital guidelines or policies of the Federal
Reserve. The Company will not have the right to purchase the Subordinated
Debentures, in whole or in part, from the Trust until after June 30, 2003. See
"Description of the Subordinated Debentures--General."
MANDATORY REDEMPTION. Upon the repayment or redemption, in whole or in
part, of any Subordinated Debentures, whether at Stated Maturity or upon
earlier redemption as provided in the Indenture, the proceeds from such
repayment or redemption will be applied by the Property Trustee to redeem a
Like Amount (as defined herein) of the Trust Securities, upon not less than 30
nor more than 60 days notice, at a redemption price (the "Redemption Price")
equal to the aggregate Liquidation Amount of such Trust Securities plus
accumulated but unpaid Distributions thereon to the date of redemption (the
"Redemption Date"). See "Description of the Subordinated
Debentures--Redemption." If less than all of the Subordinated Debentures are
to be repaid or redeemed on a Redemption Date, then the proceeds from such
repayment or redemption will be allocated to the redemption of the Trust
Securities pro rata.
DISTRIBUTION OF SUBORDINATED DEBENTURES. Subject to the Company having
received prior approval of the Federal Reserve if so required under applicable
capital guidelines or policies of the Federal Reserve, the Company will have
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the right at any time to dissolve, wind-up or terminate the Trust and, after
satisfaction of the liabilities of creditors of the Trust as provided by
applicable law, cause the Subordinated Debentures to be distributed to the
holders of Trust Securities in liquidation of the Trust. See "--Liquidation
Distribution Upon Termination."
TAX EVENT REDEMPTION, CAPITAL TREATMENT EVENT REDEMPTION OR INVESTMENT
COMPANY EVENT REDEMPTION. If a Tax Event, a Capital Treatment Event or an
Investment Company Event in respect of the Trust Securities occurs and is
continuing, the Company has the right to redeem the Subordinated Debentures in
whole (but not in part) and thereby cause a mandatory redemption of such Trust
Securities in whole (but not in part) at the Redemption Price within 180 days
following the occurrence of such Tax Event, Capital Treatment Event or
Investment Company Event. In the event that a Tax Event, a Capital Treatment
Event or an Investment Company Event in respect of the Trust Securities has
occurred and the Company does not elect to redeem the Subordinated Debentures
and thereby cause a mandatory redemption of such Trust Securities or to
liquidate the Trust and cause the Subordinated Debentures to be distributed to
holders of such Trust Securities in liquidation of the Trust as described below
under "--Liquidation Distribution Upon Termination," such Preferred
Securities will remain outstanding and Additional Payments (as defined herein)
may be payable on the Subordinated Debentures.
"Additional Payments" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Trust on the
outstanding Trust Securities will not be reduced as a result of any additional
taxes, duties and other governmental charges to which the Trust has become
subject as a result of a Tax Event.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to that portion of the
principal amount of Subordinated Debentures to be contemporaneously redeemed in
accordance with the Indenture, which will be used to pay the Redemption Price
of such Trust Securities, and (ii) with respect to a distribution of
Subordinated Debentures to holders of Trust Securities in connection with a
dissolution or liquidation of the Trust, Subordinated Debentures having a
principal amount equal to the Liquidation Amount of the Trust Securities of the
holder to whom such Subordinated Debentures are distributed. Each Subordinated
Debenture distributed pursuant to clause (ii) above will carry with it
accumulated interest in an amount equal to the accumulated and unpaid interest
then due on such Subordinated Debentures.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
After the liquidation date fixed for any distribution of Subordinated
Debentures for Preferred Securities, (i) such Preferred Securities will no
longer be deemed to be outstanding, and (ii) any certificates representing
Preferred Securities will be deemed to represent the Subordinated Debentures
having a principal amount equal to the Liquidation Amount of such Preferred
Securities, and bearing accrued and unpaid interest in an amount equal to the
accrued and unpaid Distributions on the Preferred Securities until such
certificates are presented to the Administrative Trustees or their agent for
transfer or reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for Preferred Securities if a dissolution and liquidation of the Trust were to
occur. The Preferred Securities that an investor may purchase, or the
Subordinated Debentures that an investor may receive on dissolution and
liquidation of the Trust, may, therefore, trade at a discount to the price that
the investor paid to purchase the Preferred Securities offered hereby.
REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date will be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Subordinated Debentures. Redemptions of the Preferred
Securities will be made and the Redemption Price will be payable on each
Redemption Date only to the extent that the Trust has funds on hand available
for the payment of such Redemption Price. See "--Subordination of Common
Securities."
If the Trust gives a notice of redemption in respect of its Preferred
Securities, then, by 12:00 noon, Eastern Standard Time, on the Redemption Date,
to the extent funds are available, the Property Trustee will irrevocably
deposit with the paying agent for the Preferred Securities funds sufficient to
pay the aggregate Redemption Price and will give the paying agent for the
Preferred Securities irrevocable instructions and authority to pay the
Redemption Price to the holders thereof upon surrender of their certificates
evidencing such Preferred Securities. Notwithstanding
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the foregoing, Distributions payable on or prior to the Redemption Date for any
Preferred Securities called for redemption will be payable to the holders of
such Preferred Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption will have been given and funds
deposited as required, then upon the date of such deposit, all rights of the
holders of such Preferred Securities so called for redemption will cease,
except the right of the holders of such Preferred Securities to receive the
Redemption Price, but without interest on such Redemption Price, and such
Preferred Securities will cease to be outstanding. In the event that any date
fixed for redemption of Preferred Securities is not a Business Day, then
payment of the Redemption Price payable on such date will be made on the next
succeeding day which is a Business Day (and without any additional
Distribution, interest or other payment in respect of any such delay) with the
same force and effect as if made on such date. In the event that payment of the
Redemption Price in respect of Preferred Securities called for redemption is
improperly withheld or refused and not paid either by the Trust, or by the
Company pursuant to the Guarantee, Distributions on such Preferred Securities
will continue to accrue at the then applicable rate, from the Redemption Date
originally established by the Trust for such Preferred Securities to the date
such Redemption Price is actually paid, in which case the actual payment date
will be considered the date fixed for redemption for purposes of calculating
the Redemption Price. See "Description of the Guarantee."
Subject to applicable law (including, without limitation, United States
federal securities law), and further provided that the Company does not and is
not continuing to exercise its right to defer interest payments, the Company or
its subsidiaries may at any time and from time to time purchase outstanding
Preferred Securities by tender, in the open market or by private agreement.
Payment of the Redemption Price on the Preferred Securities and any
distribution of Subordinated Debentures to holders of Preferred Securities will
be made to the applicable recordholders thereof as they appear on the register
for the Preferred Securities on the relevant record date, which date will be
the date 15 days prior to the Redemption Date or liquidation date, as
applicable.
If less than all of the Trust Securities are to be redeemed on a Redemption
Date, then the aggregate Liquidation Amount of such Trust Securities to be
redeemed will be allocated pro rata to the Trust Securities based upon the
relative Liquidation Amounts of such classes. The particular Preferred
Securities to be redeemed will be selected by the Property Trustee from the
outstanding Preferred Securities not previously called for redemption, by such
method as the Property Trustee deems fair and appropriate and which may provide
for the selection for redemption of portions (equal to $25 or an integral
multiple of $25 in excess thereof) of the Liquidation Amount of Preferred
Securities of a denomination larger than $25. The Property Trustee will
promptly notify the registrar for the Preferred Securities in writing of the
Preferred Securities selected for redemption and, in the case of any Preferred
Securities selected for partial redemption, the Liquidation Amount thereof to
be redeemed. For all purposes of the Trust Agreement, unless the context
otherwise requires, all provisions relating to the redemption of Preferred
Securities will relate to the portion of the aggregate Liquidation Amount of
Preferred Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Trust Securities to be
redeemed at its registered address. Unless the Company defaults in payment of
the redemption price on the Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on such Subordinated Debentures
or portions thereof (and Distributions will cease to accrue on the related
Preferred Securities or portions thereof) called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Preferred
Securities and Common Securities, as applicable, will be made pro rata based on
the Liquidation Amount of the Preferred Securities and Common Securities;
provided, however, that if on any Distribution Date or Redemption Date a
Debenture Event of Default has occurred and is continuing, no payment of any
Distribution on, or Redemption Price of, any of the Common Securities, and no
other payment on account of the redemption, liquidation or other acquisition of
such Common Securities, will be made unless payment in full in cash of all
accumulated and unpaid Distributions on all of the outstanding Preferred
Securities for all Distribution periods terminating on or prior thereto, or in
the case of payment of the Redemption Price the full amount of such Redemption
Price on all of the outstanding Preferred Securities then called for
redemption, will have been made or provided for, and all funds available to the
Property Trustee will first be
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applied to the payment in full in cash of all Distributions on, or Redemption
Price of, the Preferred Securities then due and payable.
In the case of any Event of Default resulting from a Debenture Event of
Default, the Company as holder of the Common Securities will be deemed to have
waived any right to act with respect to any such Event of Default under the
Trust Agreement until the effect of all such Events of Default with respect to
the Preferred Securities have been cured, waived or otherwise eliminated. Until
any such Events of Default under the Trust Agreement with respect to the
Preferred Securities has been so cured, waived or otherwise eliminated, the
Property Trustee will act solely on behalf of the holders of the Preferred
Securities and not on behalf of the Company, as holder of the Common
Securities, and only the holders of the Preferred Securities will have the
right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
The Company will have the right at any time to dissolve, wind-up or
terminate the Trust and cause the Subordinated Debentures to be distributed to
the holders of the Preferred Securities. Such right is subject, however, to the
Company having received prior approval of the Federal Reserve if then required
under applicable capital guidelines or policies of the Federal Reserve.
Pursuant to the Trust Agreement, the Trust will automatically terminate
upon expiration of its term and will terminate earlier on the first to occur of
(i) certain events of bankruptcy, dissolution or liquidation of the Company,
(ii) the distribution of a Like Amount of the Subordinated Debentures to the
holders of its Trust Securities, if the Company, as depositor, has given
written direction to the Property Trustee to terminate the Trust (which
direction is optional and wholly within the discretion of the Company, as
depositor), (iii) redemption of all of the Preferred Securities as described
under "Description of the Preferred Securities--Redemption--Mandatory
Redemption," or (iv) the entry of an order for the dissolution of the Trust by
a court of competent jurisdiction.
If an early termination occurs as described in clause (i), (ii) or (iv) of
the preceding paragraph, the Trust will be liquidated by the Trustees as
expeditiously as the Trustees determine to be possible by distributing, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, to the holders of such Trust Securities a Like Amount of the Subordinated
Debentures, unless such distribution is determined by the Property Trustee not
to be practical, in which event such holders will be entitled to receive out of
the assets of the Trust available for distribution to holders, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, an amount equal to, in the case of holders of Preferred Securities, the
aggregate of the Liquidation Amount plus accrued and unpaid Distributions
thereon to the date of payment (such amount being the "Liquidation
Distribution"). If such Liquidation Distribution can be paid only in part
because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities will be paid on a pro rata basis. The
Company, as the holder of the Common Securities, will be entitled to receive
distributions upon any such liquidation pro rata with the holders of the
Preferred Securities, except that, if a Debenture Event of Default has occurred
and is continuing, the Preferred Securities will have a priority over the
Common Securities. See "--Subordination of Common Securities."
Under current United States federal income tax law and interpretations and
assuming, as expected, that the Trust is treated as a grantor trust, a
distribution of the Subordinated Debentures should not be a taxable event to
holders of the Preferred Securities. Should there be a change in law, a change
in legal interpretation, a Tax Event or other circumstances, however, the
distribution could be a taxable event to holders of the Preferred Securities.
See "Certain Federal Income Tax Consequences--Receipt of Subordinated
Debentures or Cash Upon Liquidation of the Trust." If the Company elects
neither to redeem the Subordinated Debentures prior to maturity nor to
liquidate the Trust and distribute the Subordinated Debentures to holders of
the Preferred Securities, the Preferred Securities will remain outstanding
until the repayment of the Subordinated Debentures.
If the Company elects to liquidate the Trust and thereby causes the
Subordinated Debentures to be distributed to holders of the Preferred
Securities in liquidation of the Trust, the Company will continue to have the
right to shorten or extend the maturity of such Subordinated Debentures,
subject to certain conditions. See "Description of the Subordinated
Debentures--General."
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LIQUIDATION VALUE
The amount of the Liquidation Distribution payable on the Preferred
Securities in the event of any liquidation of the Trust is $25 per Preferred
Security plus accrued and unpaid Distributions thereon to the date of payment,
which may be in the form of a distribution of such amount in Subordinated
Debentures, subject to certain exceptions. See "--Liquidation Distribution
Upon Termination."
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an event of default under the
Trust Agreement (an "Event of Default") with respect to the Preferred
Securities (whatever the reason for such Event of Default and whether voluntary
or involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description
of the Subordinated Debentures--Debenture Events of Default"); or
(ii) default by the Trust in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period of
30 days; or
(iii) default by the Trust in the payment of any Redemption Price of
any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Trustees in the Trust Agreement (other than
a covenant or warranty a default in the performance of which or the breach
of which is dealt with in clauses (ii) or (iii) above), and continuation of
such default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the Trustee(s) by the holders of at
least 25% in aggregate Liquidation Amount of the outstanding Preferred
Securities, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Company to appoint a
successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of the Preferred Securities, the
Administrative Trustees and the Company, as depositor, unless such Event of
Default has been cured or waived. The Company, as depositor, and the
Administrative Trustees are required to file annually with the Property Trustee
a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the
Preferred Securities will have a preference over the Common Securities upon
termination of the Trust. See "--Liquidation Distribution Upon Termination."
The existence of an Event of Default does not entitle the holders of Preferred
Securities to accelerate the maturity thereof.
REMOVAL OF THE TRUST TRUSTEES
Unless a Debenture Event of Default has occurred and is continuing, any
Trustee may be removed at any time by the holder of the Common Securities. If a
Debenture Event of Default has occurred and is continuing, the Property Trustee
and the Delaware Trustee may be removed at such time by the holders of a
majority in Liquidation Amount of the outstanding Preferred Securities. In no
event, however, will the holders of the Preferred Securities have the right to
vote to appoint, remove or replace the Administrative Trustees, which voting
rights are vested exclusively in the Company as the holder of the Common
Securities. No resignation or removal of a Trustee and no appointment of a
successor trustee will be effective until the acceptance of appointment by the
successor trustee in accordance with the provisions of the Trust Agreement.
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CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default has occurred and is continuing, at any time or
times, for the purpose of meeting the legal requirements of the Trust Indenture
Act or of any jurisdiction in which any part of the Trust Property (as defined
in the Trust Agreement) may at the time be located, the Company, as the holder
of the Common Securities, will have power to appoint one or more Persons (as
defined in the Trust Agreement) either to act as a co-trustee, jointly with the
Property Trustee, of all or any part of such Trust Property, or to act as
separate trustee of any such Trust Property, in either case with such powers as
may be provided in the instrument of appointment, and to vest in such Person or
Persons in such capacity any property, title, right or power deemed necessary
or desirable, subject to the provisions of the Trust Agreement. In case a
Debenture Event of Default has occurred and is continuing, the Property Trustee
alone will have power to make such appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any Person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which such Trustee is a party, or any Person
succeeding to all or substantially all the corporate trust business of such
Trustee, will be the successor of such Trustee under the Trust Agreement,
provided such Person is otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, except as described below. The
Trust may, at the request of the Company, with the consent of the
Administrative Trustees and without the consent of the holders of the Preferred
Securities, the Property Trustee or the Delaware Trustee, merge with or into,
consolidate, amalgamate, or be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to a trust organized as such
under the laws of any State; provided, that (i) such successor entity either
(a) expressly assumes all of the obligations of the Trust with respect to the
Preferred Securities, or (b) substitutes for the Preferred Securities other
securities having substantially the same terms as the Preferred Securities (the
"Successor Securities") so long as the Successor Securities rank the same as
the Preferred Securities rank in priority with respect to distributions and
payments upon liquidation, redemption and otherwise, (ii) the Company expressly
appoints a trustee of such successor entity possessing the same powers and
duties as the Property Trustee in its capacity as the holder of the
Subordinated Debentures, (iii) the Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the Preferred
Securities are then listed (including, if applicable, the NYSE), if any, (iv)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Preferred Securities (including any Successor Securities) in any
material respect, (v) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Company has received an opinion
from independent counsel to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect, and
(b) following such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Trust nor such successor entity will
be required to register as an "investment company" under the Investment
Company Act, and (vi) the Company owns all of the common securities of such
successor entity and guarantees the obligations of such successor entity under
the Successor Securities at least to the extent provided by the Guarantee, the
Indenture, the Subordinated Debentures, the Trust Agreement and the Expense
Agreement. Notwithstanding the foregoing, the Trust will not, except with the
consent of holders of 100% in Liquidation Amount of the Preferred Securities,
consolidate, amalgamate, merge with or into, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to any
other Person or permit any other Person to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger,
replacement, conveyance, transfer or lease would cause the Trust or the
successor entity to be classified as other than a grantor trust for United
States federal income tax purposes.
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VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "Description of the Guarantee--Voting
Rights; Amendments and Assignment" and as otherwise required by the Trust Act,
the Trust Agreement and the Guarantee, the holders of the Preferred Securities
will have no voting rights.
The Trust Agreement may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Preferred Securities (i) with respect to acceptance of
appointment by a successor trustee, (ii) to cure any ambiguity, correct or
supplement any provisions in such Trust Agreement that may be inconsistent with
any other provision, or to make any other provisions with respect to matters or
questions arising under the Trust Agreement (provided such amendment is not
inconsistent with the other provisions of the Trust Agreement), (iii) to
modify, eliminate or add to any provisions of the Trust Agreement to such
extent as is necessary to ensure that the Trust will be classified for United
States federal income tax purposes as a grantor trust at all times that any
Trust Securities are outstanding or to ensure that the Trust will not be
required to register as an "investment company" under the Investment Company
Act, or (iv) to reduce or increase the Liquidation Amount per Trust Security
and simultaneously to increase or reduce the number of Trust Securities issued
and outstanding solely for the purpose of maintaining the eligibility of the
Preferred Securities for listing or quotation on any national securities
exchange or other organization on which the Preferred Securities are then
listed or quoted (including, if applicable, the NYSE); provided, however, that
in the case of clause (ii), such action may not adversely affect in any
material respect the interests of any holder of Trust Securities and that, in
the case of clause (iv), the aggregate Liquidation Amount of the Trust
Securities outstanding, upon completion of any such reduction or increase, must
be the same as the aggregate Liquidation Amount of the Trust Securities
outstanding immediately prior to any such reduction or increase, and any
amendments of such Trust Agreement will become effective when notice thereof is
given to the holders of Trust Securities (or, in the case of an amendment
pursuant to clause (iv), as of the date specified in the notice). The Trust
Agreement may be amended by the Trustees and the Company with (i) the consent
of holders representing not less than a majority in the aggregate Liquidation
Amount of the outstanding Trust Securities, and (ii) receipt by the Trustees of
an opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Trustees in accordance with such amendment will not affect
the Trust's status as a grantor trust for United States federal income tax
purposes or the Trust's exemption from status as an "investment company"
under the Investment Company Act. The affirmative consent of the holders of at
least 66 2/3% of the outstanding Preferred Securities will be required by the
Trust for amendments to the Trust Agreement that would adversely affect the
rights or privileges of the holders of the Preferred Securities.
Notwithstanding anything in this paragraph to the contrary, without the consent
of each holder of Trust Securities, the Trust Agreement may not be amended to
(a) change the amount or timing of any Distribution on the Trust Securities or
otherwise adversely affect the amount of any Distribution required to be made
in respect of the Trust Securities as of a specified date, or (b) restrict the
right of a holder of Trust Securities to institute suit for the enforcement of
any such payment on or after such date.
The Trustees will not, so long as any Subordinated Debentures are held by
the Property Trustee, (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, of executing any
trust or power conferred on the Property Trustee with respect to the
Subordinated Debentures, (ii) waive any past default that is waivable under the
Indenture, (iii) exercise any right to rescind or annul a declaration that the
principal of all the Subordinated Debentures will be due and payable, or (iv)
consent to any amendment, modification or termination of the Indenture or the
Subordinated Debentures, where such consent is required, without, in each case,
obtaining the prior approval of the holders of a majority in aggregate
Liquidation Amount of all outstanding Preferred Securities; provided, however,
that where a consent under the Indenture requires the consent of each holder of
Subordinated Debentures affected thereby, no such consent will be given by the
Property Trustee without the prior consent of each holder of the Preferred
Securities. The Trustees may not revoke any action previously authorized or
approved by a vote of the holders of the Preferred Securities except by
subsequent vote of the holders of the Preferred Securities. The Property
Trustee will notify each holder of Preferred Securities of any notice of
default with respect to the Subordinated Debentures. In addition to obtaining
the foregoing approvals of the holders of the Preferred Securities, prior to
taking any of the foregoing actions, the Trustees must obtain an opinion of
counsel experienced in such matters to the effect that the Trust will not be
classified as an association taxable as a corporation for United States federal
income tax purposes on account of such action.
Any required approval of holders of Preferred Securities may be given at a
meeting of holders of Preferred Securities convened for such purpose or
pursuant to written consent. The Property Trustee will cause a notice of any
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meeting at which holders of Preferred Securities are entitled to vote, or of
any matter upon which action by written consent of such holders is to be taken,
to be given to each holder of record of Preferred Securities in the manner set
forth in the Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required
for the Trust to redeem and cancel its Preferred Securities in accordance with
the Trust Agreement.
Notwithstanding the fact that holders of Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Company, the Trustees or any
affiliate of the Company or any Trustee will, for purposes of such vote or
consent, be treated as if they were not outstanding.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities will be made by check
mailed to the address of the holder entitled thereto as such address will
appear on the register of holders of the Preferred Securities. The paying agent
for the Preferred Securities will initially be the Property Trustee and any
co-paying agent chosen by the Property Trustee and acceptable to the
Administrative Trustees and the Company. The paying agent for the Preferred
Securities may resign as paying agent upon 30 days' written notice to the
Property Trustee and the Company. In the event that the Property Trustee no
longer is the paying agent for the Preferred Securities, the Administrative
Trustees will appoint a successor (which must be a bank or trust company
acceptable to the Administrative Trustees and the Company) to act as paying
agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as the registrar and the transfer agent for
the Preferred Securities. Registration of transfers of Preferred Securities
will be effected without charge by or on behalf of the Trust, but upon payment
of any tax or other governmental charges that may be imposed in connection with
any transfer or exchange. The Trust will not be required to register or cause
to be registered the transfer of Preferred Securities after such Preferred
Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the Trust Agreement and, upon the occurrence and
during the continuance of an Event of Default, must exercise the same degree of
care and skill as a prudent person would exercise or use in the conduct of his
or her own affairs. Subject to this provision, the Property Trustee is under no
obligation to exercise any of the powers vested in it by the Trust Agreement at
the request of any holder of Preferred Securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby. If no Event of Default has occurred and is continuing and the
Property Trustee is required to decide between alternative causes of action,
construe ambiguous provisions in the Trust Agreement or is unsure of the
application of any provision of the Trust Agreement, and the matter is not one
on which holders of Preferred Securities are entitled under the Trust Agreement
to vote, then the Property Trustee will take such action as is directed by the
Company and if not so directed, will take such action as it deems advisable and
in the best interests of the holders of the Trust Securities and will have no
liability except for its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that the Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes and so that the Subordinated
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. The Company and the Administrative Trustees are
authorized, in this connection, to take any action, not inconsistent with
applicable law, the certificate of trust of the Trust or the Trust Agreement,
that the Company and the Administrative Trustees determine in their discretion
to be necessary or desirable for such purposes.
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Holders of the Preferred Securities have no preemptive or similar rights.
The Trust Agreement and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
DESCRIPTION OF THE SUBORDINATED DEBENTURES
Concurrently with the issuance of the Preferred Securities, the Trust will
invest the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in the Subordinated Debentures issued by the
Company. The Subordinated Debentures will be issued as unsecured debt under the
Indenture, to be dated as of , 1998 (the "Indenture"), between
the Company and State Street Bank and Trust Company, as trustee (the
"Debenture Trustee"). The Indenture will be qualified as an indenture under
the Trust Indenture Act. The following summary of the material terms and
provisions of the Subordinated Debentures and the Indenture does not purport to
be complete and is subject to, and is qualified in its entirety by reference
to, the Indenture and to the Trust Indenture Act. Wherever particular defined
terms of the Indenture are referred to, but not defined herein, such defined
terms are incorporated herein by reference. The form of the Indenture has been
filed as an exhibit to the Registration Statement of which this Prospectus
forms a part.
GENERAL
The Subordinated Debentures will be limited in aggregate principal amount
to approximately $41,237,125 (or $47,442,700 if the option described under the
heading "Underwriting" is exercised by the Underwriters), such amount being
the sum of the aggregate stated Liquidation Amount of the Trust Securities. The
Subordinated Debentures will bear interest at the annual rate of % of the
principal amount thereof, payable quarterly in arrears on March 31, June 30,
September 30, and December 31 of each year (each, an "Interest Payment Date")
beginning September 30, 1998, to the Person (as defined in the Indenture) in
whose name each Subordinated Debenture is registered, subject to certain
exceptions, at the close of business on the fifteenth day of the last month of
the calendar quarter. It is anticipated that, until the liquidation of the
Trust, the Subordinated Debentures will be held in the name of the Property
Trustee in trust for the benefit of the holders of the Preferred Securities.
The amount of interest payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months. In the event that any date on which
interest is payable on the Subordinated Debentures is not a Business Day, then
payment of the interest payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay), with the same force and effect as if
made on the date such payment was originally payable. Accrued interest that is
not paid on the applicable Interest Payment Date will bear additional interest
on the amount thereof (to the extent permitted by law) at the rate per annum of
% thereof, compounded quarterly. The term "interest," as used herein,
includes quarterly interest payments, interest on quarterly interest payments
not paid on the applicable Interest Payment Date and Additional Payments (as
herein defined), as applicable.
The Subordinated Debentures will mature on June 30, 2028 (such date, as it
may be shortened or extended as hereinafter described, the "Stated
Maturity"). Such date may be shortened at any time by the Company to any date
not earlier than June 30, 2003, subject to the Company having received prior
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. Such date may also be extended
at any time at the election of the Company but in no event to a date later than
June 30, 2037, provided that at the time such election is made and at the time
of extension (i) the Company is not in bankruptcy, otherwise insolvent or in
liquidation, (ii) the Company is not in default in the payment of any interest
or principal on the Subordinated Debentures, and (iii) the Trust is not in
arrears on payments of Distributions on the Preferred Securities and no
deferred Distributions are accumulated. In the event that the Company elects to
shorten or extend the Stated Maturity of the Subordinated Debentures, it will
give notice thereof to the Debenture Trustee, the Trust and to the holders of
the Subordinated Debentures no more than 180 days and no less than 90 days
prior to the effectiveness thereof. The Company will not have the right to
purchase the Subordinated Debentures, in whole or in part, from the Trust until
after June 30, 2003, except if a Tax Event, a Capital Treatment Event or an
Investment Company Event has occurred and is continuing.
The Subordinated Debentures will be unsecured and will rank junior and be
subordinate in right of payment to all Senior Debt, Subordinated Debt and
Additional Senior Obligations of the Company. Because the Company is a
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holding company, the right of the Company to participate in any distribution of
assets of any Subsidiary Bank, upon any such Subsidiary Bank's liquidation or
reorganization or otherwise (and thus the ability of holders of the
Subordinated Debentures to benefit indirectly from such distribution), is
subject to the prior claim of creditors of such Subsidiary Bank, except to the
extent that the Company may itself be recognized as a creditor of such
Subsidiary Bank. The Subordinated Debentures will, therefore, be effectively
subordinated to all existing and future liabilities of the Subsidiary Banks,
and holders of Subordinated Debentures should look only to the assets of the
Company for payments on the Subordinated Debentures. The Indenture does not
limit the incurrence or issuance of other secured or unsecured debt of the
Company, including Senior Debt, Subordinated Debt and Additional Senior
Obligations, whether under the Indenture or any existing indenture or other
indenture that the Company may enter into in the future or otherwise. See
"--Subordination."
The Indenture does not contain provisions that afford holders of the
Subordinated Debentures protection in the event of a highly leveraged
transaction or other similar transaction involving the Company that may
adversely affect such holders.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company has the right under the Indenture at any time during the term
of the Subordinated Debentures, so long as no Debenture Event of Default has
occurred and is continuing, to defer the payment of interest at any time, or
from time to time (each, an "Extension Period"). The right to defer the
payment of interest on the Subordinated Debentures is limited, however, to a
period, in each instance, not exceeding 20 consecutive quarters, and no
Extension Period may extend beyond the Stated Maturity of the Subordinated
Debentures. At the end of each Extension Period, the Company must pay all
interest then accrued and unpaid (together with interest thereon at the annual
rate of %, compounded quarterly, to the extent permitted by applicable
law). During an Extension Period, interest will continue to accrue and holders
of Subordinated Debentures (or the holders of Preferred Securities if such
securities are then outstanding) will be required to accrue and recognize
income for United States federal income tax purposes. See "Certain Federal
Income Tax Consequences--Potential Extension of Interest Payment Period and
Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock (other
than (a) dividends or distributions in common stock of the Company, any
declaration of a non-cash dividend in connection with the implementation of a
shareholder rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto,
and (b) purchases of common stock of the Company related to the rights under
any of the Company's benefit plans for its directors, officers or employees),
(ii) make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu
with or junior in interest to the Subordinated Debentures or make any guarantee
payments with respect to any guarantee by the Company of the debt securities of
any subsidiary of the Company if such guarantee ranks pari passu or junior in
interest to the Subordinated Debentures (other than payments under the
Guarantee), or (iii) redeem, purchase or acquire less than all of the
Subordinated Debentures or any of the Preferred Securities. Prior to the
termination of any such Extension Period, the Company may further defer the
payment of interest; provided that no Extension Period may exceed 20
consecutive quarters or extend beyond the Stated Maturity of the Subordinated
Debentures. Upon the termination of any such Extension Period and the payment
of all amounts then due on any Interest Payment Date, the Company may elect to
begin a new Extension Period subject to the above requirements. No interest
will be due and payable during an Extension Period, except at the end thereof.
The Company has no present intention of exercising its rights to defer payments
of interest on the Subordinated Debentures. The Company must give the Property
Trustee, the Administrative Trustees and the Debenture Trustee notice of its
election of such Extension Period at least two Business Days prior to the
earlier of (i) the next succeeding date on which Distributions on the Trust
Securities would have been payable except for the election to begin such
Extension Period, or (ii) the date the Trust is required to give notice of the
record date, or the date such Distributions are payable, to the NYSE (or other
applicable self-regulatory organization) or to holders of the Preferred
Securities, but in any event at least one Business Day before such record date.
Subject to the foregoing, there is no limitation on the number of times that
the Company may elect to begin an Extension Period.
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ADDITIONAL SUMS
If the Trust or the Property Trustee is required to pay any additional
taxes, duties or other governmental charges as a result of the occurrence of a
Tax Event, the Company will pay to the recordholders of the Subordinated
Debentures as additional amounts (referred to herein as "Additional
Payments") on the Subordinated Debentures such additional amounts as may be
required so that the net amounts received and retained by the Trust after
paying any such additional taxes, duties or other governmental charges will not
be less than the amounts the Trust would have received had such additional
taxes, duties or other governmental charges not been imposed.
REDEMPTION
The Company will have the right to redeem the Subordinated Debentures prior
to maturity (i) on or after June 30, 2003, in whole at any time or in part from
time to time, or (ii) at any time in whole (but not in part), within 180 days
following the occurrence of a Tax Event, a Capital Treatment Event or an
Investment Company Event, in each case at a redemption price equal to the
accrued and unpaid interest on the Subordinated Debentures so redeemed to the
date fixed for redemption, plus 100% of the principal amount thereof. Any such
redemption prior to the Stated Maturity will be subject to prior approval of
the Federal Reserve if then required under applicable capital guidelines or
policies of the Federal Reserve.
"Tax Event" means the receipt by the Trust of an opinion of counsel
rendered by a law firm having a recognized tax and securities law practice to
the effect that, as a result of any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official administrative pronouncement or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or which pronouncement or decision is
announced on or after the date of issuance of the Preferred Securities under
the Trust Agreement, there is more than an insubstantial risk that (i) interest
payable by the Company on the Subordinated Debentures is not, or within 90 days
of the date of such opinion will not be, deductible by the Company, in whole or
in part, for United States federal income tax purposes, (ii) the Trust is, or
will be within 90 days after the date of such opinion of counsel, subject to
United States federal income tax with respect to income received or accrued on
the Subordinated Debentures, or (iii) the Trust is, or will be within 90 days
after the date of such opinion of counsel, subject to more than a de minimis
amount of other taxes, duties, assessments or other governmental charges. The
Company must request and receive an opinion with regard to such matters within
a reasonable period of time after it becomes aware of the possible occurrence
of any of the events described in clauses (i) through (iii) above.
"Capital Treatment Event" means the receipt by the Trust of an opinion of
counsel rendered by a law firm having a recognized banking law practice to the
effect that, as a result of any amendment to or any change (including any
announced prospective change) in the laws (or any regulations thereunder) of
the United States or any political subdivision thereof or therein, or as a
result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such proposed change, pronouncement or decision is announced on or
after the date of issuance of the Preferred Securities under the Trust
Agreement, there is more than an insubstantial risk of impairment of the
Company's ability to treat the aggregate Liquidation Amount of the Preferred
Securities (or any substantial portion thereof) as "Tier 1 Capital" (or the
then equivalent thereof) for purposes of the capital adequacy guidelines of the
Federal Reserve, as then applicable to the Company, provided, however, that the
inability of the Company to treat all or any portion of the Liquidation Amount
of the Preferred Securities as Tier 1 Capital shall not constitute the basis
for a Capital Treatment Event if such inability results from the Company having
cumulative preferred capital in excess of the amount which may qualify for
treatment as Tier 1 Capital under applicable capital adequacy guidelines of the
Federal Reserve.
"Investment Company Event" means the receipt by the Trust of an opinion
of counsel rendered by a law firm having a recognized tax and securities law
practice to the effect that, as a result of the occurrence of a change in law
or regulation or a change in interpretation or application of law or regulation
by any legislative body, court, governmental agency or regulatory authority,
the Trust is or will be considered an "investment company" that is required
to be registered under the Investment Company Act, which change becomes
effective on or after the date of original issuance of the Preferred
Securities.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Subordinated Debentures to
be redeemed at its registered address. Unless the Company defaults in
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payment of the redemption price for the Subordinated Debentures, on and after
the redemption date interest ceases to accrue on such Subordinated Debentures
or portions thereof called for redemption.
The Subordinated Debentures will not be subject to any sinking fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Preferred Securities--Liquidation
Distribution Upon Termination," under certain circumstances involving the
termination of the Trust, the Subordinated Debentures may be distributed to the
holders of the Preferred Securities in liquidation of the Trust after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law. Any such distribution will be subject to receipt of prior approval by the
Federal Reserve if then required under applicable policies or guidelines of the
Federal Reserve. If the Subordinated Debentures are distributed to the holders
of Preferred Securities upon the liquidation of the Trust, the Company will use
its best efforts to list the Subordinated Debentures on the NYSE or such stock
exchanges, if any, on which the Preferred Securities are then listed. There can
be no assurance as to the market price of any Subordinated Debentures that may
be distributed to the holders of Preferred Securities.
RESTRICTIONS ON CERTAIN PAYMENTS
If at any time (i) there has occurred a Debenture Event of Default, (ii)
the Company is in default with respect to its obligations under the Guarantee,
or (iii) the Company has given notice of its election of an Extension Period as
provided in the Indenture with respect to the Subordinated Debentures and has
not rescinded such notice, or such Extension Period, or any extension thereof,
is continuing, the Company will not (1) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock (other than (a) dividends
or distributions in common stock of the Company, any declaration of a non-cash
dividend in connection with the implementation of a shareholder rights plan, or
the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, and (b) purchases of common
stock of the Company related to the rights under any of the Company's benefit
plans for its directors, officers or employees), (2) make any payment of
principal, interest or premium, if any, on or repay or repurchase or redeem any
debt securities of the Company that rank pari passu with or junior in interest
to the Subordinated Debentures or make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any subsidiary of the
Company if such guarantee ranks pari passu or junior in interest to the
Subordinated Debentures (other than payments under the Guarantee), or (3)
redeem, purchase or acquire less than all of the Subordinated Debentures or any
of the Preferred Securities.
SUBORDINATION
The Indenture provides that the Subordinated Debentures are subordinated
and junior in right of payment to all Senior Debt, Subordinated Debt and
Additional Senior Obligations of the Company. Upon any payment or distribution
of assets to creditors upon any liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors, marshaling of assets
or any bankruptcy, insolvency, debt restructuring or similar proceedings in
connection with any insolvency or bankruptcy proceedings of the Company, the
holders of Senior Debt, Subordinated Debt and Additional Senior Obligations of
the Company will first be entitled to receive payment in full of principal of
(and premium, if any) and interest, if any, on such Senior Debt, Subordinated
Debt and Additional Senior Obligations of the Company before the holders of
Subordinated Debentures will be entitled to receive or retain any payment in
respect of the principal of or interest on the Subordinated Debentures.
In the event of the acceleration of the maturity of any Subordinated
Debentures, the holders of all Senior Debt, Subordinated Debt and Additional
Senior Obligations of the Company outstanding at the time of such acceleration
will first be entitled to receive payment in full of all amounts due thereon
(including any amounts due upon acceleration) before the holders of the
Subordinated Debentures will be entitled to receive or retain any payment in
respect of the principal of or interest on the Subordinated Debentures.
No payments on account of principal or interest in respect of the
Subordinated Debentures may be made if there has occurred and is continuing a
default in any payment with respect to Senior Debt, Subordinated Debt or
Additional Senior Obligations of the Company or an event of default with
respect to any Senior Debt, Subordinated
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Debt or Additional Senior Obligations of the Company resulting in the
acceleration of the maturity thereof, or if any judicial proceeding is pending
with respect to any such default.
"Debt" means, with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such person for money borrowed, (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses, (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business), (v) every capital lease obligation of such Person, and (vi) and
every obligation of the type referred to in clauses (i) through (v) of another
Person and all dividends of another Person the payment of which, in either
case, such Person has guaranteed or is responsible or liable, directly or
indirectly, as obligor or otherwise.
"Senior Debt" means, with respect to the Company, the principal of (and
premium, if any) and interest, if any (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the
Company whether or not such claim for post-petition interest is allowed in such
proceeding), on Debt, whether incurred on or prior to the date of the Indenture
or thereafter incurred, unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Subordinated Debentures
or to other Debt which is pari passu with, or subordinated to, the Subordinated
Debentures; provided, however, that Senior Debt will not be deemed to include
(i) any Debt of the Company which when incurred and without respect to any
election under section 1111(b) of the United States Bankruptcy Code of 1978, as
amended, was without recourse to the Company, (ii) any Debt of the Company to
any of its subsidiaries, (iii) any Debt to any employee of the Company, (iv)
any Debt which by its terms is subordinated to trade accounts payable or
accrued liabilities arising in the ordinary course of business to the extent
that payments made to the holders of such Debt by the holders of the
Subordinated Debentures as a result of the subordination provisions of the
Indenture would be greater than they otherwise would have been as a result of
any obligation of such holders to pay amounts over to the obligees on such
trade accounts payable or accrued liabilities arising in the ordinary course of
business as a result of subordination provisions to which such Debt is subject,
and (v) Debt which constitutes Subordinated Debt.
"Subordinated Debt" means, with respect to the Company, the principal of
(and premium, if any) and interest, if any (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization relating
to the Company whether or not such claim for post-petition interest is allowed
in such proceeding), on Debt, whether incurred on or prior to the date of the
Indenture or thereafter incurred, which is by its terms expressly provided to
be junior and subordinate to other Debt of the Company (other than the
Subordinated Debentures).
"Additional Senior Obligations" means, with respect to the Company, all
indebtedness, whether incurred on or prior to the date of the Indenture or
thereafter incurred, for claims in respect of derivative products such as
interest and foreign exchange rate contracts, commodity contracts and similar
arrangements; provided, however, that Additional Senior Obligations do not
include claims in respect of Senior Debt or Subordinated Debt or obligations
which, by their terms, are expressly stated to be not superior in right of
payment to the Subordinated Debentures or to rank pari passu in right of
payment with the Subordinated Debentures. "Claim," as used herein, has the
meaning assigned thereto in Section 101(4) of the United States Bankruptcy Code
of 1978, as amended.
The Indenture places no limitation on the amount of additional Senior Debt,
Subordinated Debt or Additional Senior Obligations that may be incurred by the
Company. The Company expects from time to time to incur additional indebtedness
constituting Senior Debt, Subordinated Debt and Additional Senior Obligations.
As of March 31, 1998, the Company had aggregate Senior Debt, Subordinated Debt
and Additional Senior Obligations of approximately $23.4 million. Because the
Company is a holding company, the Subordinated Debentures are effectively
subordinated to all existing and future liabilities of the Company
subsidiaries, including obligations to depositors of the Subsidiary Banks.
PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the Subordinated Debentures
will be made at the office of the Debenture Trustee in Boston, Massachusetts,
except that, at the option of the Company, payment of any interest may
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be made (i) by check mailed to the address of the Person entitled thereto as
such address appears in the register of holders of the Subordinated Debentures,
or (ii) by transfer to an account maintained by the Person entitled thereto as
specified in the register of holders of the Subordinated Debentures, provided
that proper transfer instructions have been received by the regular record
date. Payment of any interest on Subordinated Debentures will be made to the
Person in whose name such Subordinated Debenture is registered at the close of
business on the regular record date for such interest, except in the case of
defaulted interest. The Company may at any time designate additional paying
agents for the Subordinated Debentures or rescind the designation of any paying
agent for the Subordinated Debentures; however, the Company will at all times
be required to maintain a paying agent in each place of payment for the
Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any paying agent for the
Subordinated Debentures, or then held by the Company in trust, for the payment
of the principal of or interest on the Subordinated Debentures and remaining
unclaimed for two years after such principal or interest has become due and
payable will be repaid to the Company on May 31 of each year or (if then held
in trust by the Company) will be discharged from such trust, and the holder of
such Subordinated Debenture will thereafter look, as a general unsecured
creditor, only to the Company for payment thereof.
REGISTRAR AND TRANSFER AGENT
The Debenture Trustee will act as the registrar and the transfer agent for
the Subordinated Debentures. Subordinated Debentures may be presented for
registration of transfer (with the form of transfer endorsed thereon, or a
satisfactory written instrument of transfer, duly executed), at the office of
the registrar in Boston, Massachusetts. The Company may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts. The Company may at any time
designate additional transfer agents with respect to the Subordinated
Debentures. In the event of any redemption, neither the Company nor the
Debenture Trustee will be required to (i) issue, register the transfer of or
exchange Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of Subordinated
Debentures and ending at the close of business on the day of mailing of the
relevant notice of redemption, or (ii) transfer or exchange any Subordinated
Debentures so selected for redemption, except, in the case of any Subordinated
Debentures being redeemed in part, any portion thereof not to be redeemed.
MODIFICATION OF INDENTURE
The Company and the Debenture Trustee may, from time to time without the
consent of the holders of the Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies and qualifying, or maintaining
the qualification of, the Indenture under the Trust Indenture Act. The
Indenture contains provisions permitting the Company and the Debenture Trustee,
with the consent of the holders of not less than a majority in principal amount
of the outstanding Subordinated Debentures, to modify the Indenture; provided,
that no such modification may, without the consent of the holder of each
outstanding Subordinated Debenture affected by such proposed modification, (i)
extend the fixed maturity of the Subordinated Debentures, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon, or (ii) reduce the percentage of principal amount of
Subordinated Debentures, the holders of which are required to consent to any
such modification of the Indenture; provided that so long as any of the
Preferred Securities remain outstanding, no such modification may be made that
requires the consent of the holders of the Subordinated Debentures, and no
termination of the Indenture may occur, and no waiver of any Debenture Event of
Default may be effective, without the prior consent of the holders of at least
a majority of the aggregate Liquidation Amount of the Preferred Securities and
that if the consent of the holder of each Subordinated Debenture is required,
such modification will not be effective until each holder of Trust Securities
has consented thereto.
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DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Subordinated Debentures that has occurred and is
continuing constitutes an event of default (each, a "Debenture Event of
Default") with respect to the Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Subordinated
Debentures, when due (subject to the deferral of any due date in the case
of an Extension Period); or
(ii) failure to pay any principal on the Subordinated Debentures when
due whether at maturity, upon redemption by declaration or otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Indenture for 90 days after written notice
to the Company from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of the Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of the
Subordinated Debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee.
The Debenture Trustee, or the holders of not less than 25% in aggregate
outstanding principal amount of the Subordinated Debentures, may declare the
principal due and payable immediately upon a Debenture Event of Default. The
holders of a majority in aggregate outstanding principal amount of the
Subordinated Debentures may annul such declaration and waive the default if the
default (other than the non-payment of the principal of the Subordinated
Debentures which has become due solely by such acceleration) has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee.
Should the holders of the Subordinated Debentures fail to annul such
declaration and waive such default, the holders of a majority in aggregate
Liquidation Amount of the Preferred Securities will have such right.
The Company is required to file annually with the Debenture Trustee a
certificate as to whether or not the Company is in compliance with all the
conditions and covenants applicable to it under the Indenture.
If a Debenture Event of Default has occurred and is continuing, the
Property Trustee will have the right to declare the principal of and the
interest on such Subordinated Debentures, and any other amounts payable under
the Indenture, to be forthwith due and payable and to enforce its other rights
as a creditor with respect to such Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest on or
principal of the Subordinated Debentures on the payment date on which such
payment is due and payable, then a holder of Preferred Securities may institute
a legal proceeding directly against the Company for enforcement of payment to
such holder of the principal of or interest on such Subordinated Debentures
having a principal amount equal to the aggregate Liquidation Amount of the
Preferred Securities of such holder (a "Direct Action"). In connection with
such Direct Action, the Company will have a right of set-off under the
Indenture to the extent of any payment made by the Company to such holder of
Preferred Securities in the Direct Action. The Company may not amend the
Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the Preferred Securities. If the
right to bring a Direct Action is removed, the Trust may become subject to the
reporting obligations under the Exchange Act. The Company has the right under
the Indenture to set-off any payment made to such holder of Preferred
Securities by the Company in connection with a Direct Action.
The holders of the Preferred Securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the Subordinated Debentures unless there has been
an Event of Default under the Trust Agreement. See "Description of the
Preferred Securities--Events of Default; Notice."
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CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Company may not consolidate with or merge into any other Person or
convey or transfer its properties and assets substantially as an entirety to
any Person, and any Person may not consolidate with or merge into the Company
or sell, convey, transfer or otherwise dispose of its properties and assets
substantially as an entirety to the Company, unless (i) in the event the
Company consolidates with or merges into another Person or conveys or transfers
its properties and assets substantially as an entirety to any Person, the
successor Person is organized under the laws of the United States or any State
or the District of Columbia, and such successor Person expressly assumes by
supplemental indenture the Company's obligations on the Subordinated
Debentures, (ii) immediately after giving effect thereto, no Debenture Event of
Default, and no event which, after notice or lapse of time or both, would
become a Debenture Event of Default, has occurred and is continuing, and (iii)
certain other conditions as prescribed in the Indenture are met.
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to the
Company's obligations to pay certain sums due pursuant to the Indenture and to
provide certain officers' certificates and opinions of counsel described
therein) and the Company will be deemed to have satisfied and discharged the
Indenture when, among other things, all Subordinated Debentures not previously
delivered to the Debenture Trustee for cancellation (i) have become due and
payable, or (ii) will become due and payable at their Stated Maturity within
one year or are to be called for redemption within one year, and the Company
deposits or causes to be deposited with the Debenture Trustee funds, in trust,
for the purpose and in an amount sufficient to pay and discharge the entire
indebtedness on the Subordinated Debentures not previously delivered to the
Debenture Trustee for cancellation, for the principal and interest to the date
of the deposit or to the Stated Maturity or redemption date, as the case may
be.
GOVERNING LAW
The Indenture and the Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of Delaware.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee has and is subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Debenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Subordinated Debentures, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which
might be incurred thereby. The Debenture Trustee is not required to expend or
risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Debenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
MISCELLANEOUS
The Company has agreed, pursuant to the Indenture, for so long as Trust
Securities remain outstanding, (i) to maintain directly or indirectly 100%
ownership of the Common Securities of the Trust (provided that certain
successors which are permitted pursuant to the Indenture may succeed to the
Company's ownership of the Common Securities), (ii) not to voluntarily
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 (a) in connection with a distribution of
Subordinated Debentures to the holders of the Preferred Securities in
liquidation of the Trust, or (b) in connection with certain mergers,
consolidations or amalgamations permitted by the Trust Agreement, and (iii) to
use its reasonable efforts, consistent with the terms and provisions of the
Trust Agreement, to cause the Trust to remain classified as a grantor trust and
not as an association taxable as a corporation for United States federal income
tax purposes.
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DESCRIPTION OF THE GUARANTEE
The Preferred Securities Guarantee Agreement (the "Guarantee") will be
executed and delivered by the Company concurrently with the issuance of the
Preferred Securities for the benefit of the holders of the Preferred
Securities. The Guarantee will be qualified as an indenture under the Trust
Indenture Act. The Guarantee Trustee will act as indenture trustee under the
Guarantee for purposes of complying with the provisions of the Trust Indenture
Act. The Guarantee Trustee, State Street Bank and Trust Company, will hold the
Guarantee for the benefit of the holders of the Preferred Securities. The
following summary of the material terms and provisions of the Guarantee does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the Guarantee and the Trust Indenture
Act. Wherever particular defined terms of the Guarantee are referred to, but
not defined herein, such defined terms are incorporated herein by reference.
The form of the Guarantee has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
GENERAL
The Company will, pursuant to the Guarantee, irrevocably agree to pay in
full on a subordinated basis, to the extent set forth therein, the Guarantee
Payments (as defined below) to the holders of the Preferred Securities, as and
when due, regardless of any defense, right of set-off or counterclaim that the
Trust may have or assert other than the defense of payment; provided, however,
that only when the Guarantee is taken together with the obligations of the
Company under the Trust Agreement, the Subordinated Debentures, the Indenture
and the Expense Agreement do the Company and the Trust believe that the
Company's guarantee of the obligations of the Trust under the Preferred
Securities constitute a full and unconditional guarantee. The following
payments with respect to the Preferred Securities, to the extent not paid by or
on behalf of the Trust (the "Guarantee Payments"), will be subject to the
Guarantee: (i) any accrued and unpaid Distributions required to be paid on the
Preferred Securities, to the extent that the Trust has funds available therefor
at such time, (ii) the Redemption Price with respect to any Preferred
Securities called for redemption to the extent that the Trust has funds
available therefor at such time, and (iii) upon a voluntary or involuntary
dissolution, winding up or liquidation of the Trust (other than in connection
with the distribution of Subordinated Debentures to the holders of Preferred
Securities or a redemption of all of the Preferred Securities), the lesser of
(a) the amount of the Liquidation Distribution, to the extent the Trust has
funds available therefor at such time, and (b) the amount of assets of the
Trust remaining available for distribution to holders of Preferred Securities
in liquidation of the Trust. The obligation of the Company to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Company to the holders of the Preferred Securities or by causing the Trust to
pay such amounts to such holders.
The Guarantee will not apply to any payment of Distributions except to the
extent the Trust has funds available therefor. If the Company does not make
interest payments on the Subordinated Debentures held by the Trust, the Trust
will not pay Distributions on the Preferred Securities and will not have funds
legally available therefor.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Debt,
Subordinated Debt and Additional Senior Obligations of the Company in the same
manner as the Subordinated Debentures. The Guarantee does not place a
limitation on the amount of additional Senior Debt, Subordinated Debt or
Additional Senior Obligations that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Debt, Subordinated Debt and Additional Senior Obligations.
The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other Person). The Guarantee will
not be discharged except by payment of the Guarantee Payments in full to the
extent not paid by the Trust or upon distribution of the Subordinated
Debentures to the holders of the Preferred Securities. Because the Company is a
holding company, the right of the Company to participate in any distribution of
assets of any Subsidiary Bank upon such Subsidiary Bank's liquidation or
reorganization or otherwise is subject to the prior claims of creditors of that
Subsidiary Bank, except to the extent the Company may itself be recognized as a
creditor of that Subsidiary Bank. The Company's obligations under the
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Guarantee, therefore, will be effectively subordinated to all existing and
future liabilities of the Company subsidiaries, and claimants should look only
to the assets of the Company for payments thereunder.
VOTING RIGHTS; AMENDMENTS AND ASSIGNMENT
The affirmative consent of the holders of at least 66 2/3% of the
outstanding Preferred Securities will be required by the Trust for amendments
to the Guarantee that would adversely affect the rights or privileges of the
holders of the Preferred Securities. No vote of the holders of Preferred
Securities will be required with respect to any amendments to the Guarantee
which do not adversely affect the rights or privileges of such holders. See
"Description of the Preferred Securities--Voting Rights; Amendment of Trust
Agreement." All guarantees and agreements contained in the Guarantee will bind
the successors, assigns, receivers, trustees and representatives of the Company
and will inure to the benefit of the holders of the Preferred Securities then
outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
Any holder of Preferred Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee
or any other Person.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with
all the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after
default with respect to the Guarantee, must exercise the same degree of care
and skill as a prudent person would exercise or use in the conduct of his or
her own affairs. Subject to such provisions, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of any Preferred Securities, unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon (a)
full payment of the Redemption Price of the Preferred Securities, (b) full
payment of the amounts payable upon liquidation of the Trust, or (c)
distribution of the Subordinated Debentures to the holders of the Preferred
Securities. The Guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of the Preferred Securities must
restore payment of any sums paid under such Preferred Securities or the
Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of Delaware.
EXPENSE AGREEMENT
The Company will, pursuant to the Agreement as to Expenses and Liabilities
entered into by it under the Trust Agreement (the "Expense Agreement"),
irrevocably and unconditionally guarantee to each person or entity to whom the
Trust becomes indebted or liable, the full payment of any costs, expenses or
liabilities of the Trust, other than obligations of the Trust to pay to the
holders of the Preferred Securities or other similar interests in the Trust of
the amounts due such holders pursuant to the terms of the Preferred Securities
or such other similar interests, as the
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case may be. Third party creditors of the Trust may proceed directly against
the Company under the Expense Agreement, regardless of whether such creditors
had notice of the Expense Agreement.
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent the Trust has funds available for the payment of such
Distributions) are irrevocably guaranteed by the Company as and to the extent
set forth under "Description of the Guarantee." The Company and the Trust
believe that, taken together, the obligations of the Company under the
Subordinated Debentures, the Indenture, the Trust Agreement, the Expense
Agreement, and the Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee, on a subordinated basis, of payment of Distributions
and other amounts due on the Preferred Securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these
documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the obligations of the Trust under the Preferred
Securities. If and to the extent that the Company does not make payments on the
Subordinated Debentures, the Trust will not pay Distributions or other amounts
due on the Preferred Securities. The Guarantee does not cover payment of
Distributions when the Trust does not have sufficient funds to pay such
Distributions. In such event, the remedy of a holder of Preferred Securities is
to institute a legal proceeding directly against the Company for enforcement of
payment of such Distributions to such holder. The obligations of the Company
under the Guarantee are subordinate and junior in right of payment to all
Senior Debt, Subordinated Debt and Additional Senior Obligations of the
Company.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Preferred Securities, primarily
because (i) the aggregate principal amount of the Subordinated Debentures will
be equal to the sum of the aggregate stated Liquidation Amount of the Trust
Securities, (ii) the interest rate and interest and other payment dates on the
Subordinated Debentures will match the Distribution rate and Distribution and
other payment dates for the Preferred Securities, (iii) the Company will pay
for all and any costs, expenses and liabilities of the Trust (except the
obligations of the Trust to holders of the Preferred Securities), and (iv) the
Trust Agreement further provides that the Trust will not engage in any activity
that is not consistent with the limited purposes of the Trust.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any Preferred Security may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, the Trust
or any other Person. A default or event of default under any Senior Debt,
Subordinated Debt or Additional Senior Obligations of the Company would not
constitute a default or Event of Default. In the event, however, of payment
defaults under, or acceleration of, Senior Debt, Subordinated Debt or
Additional Senior Obligations of the Company, the subordination provisions of
the Indenture provide that no payments may be made in respect of the
Subordinated Debentures until such Senior Debt, Subordinated Debt or Additional
Senior Obligations has been paid in full or any payment default thereunder has
been cured or waived. Failure to make required payments on the Subordinated
Debentures would constitute an Event of Default.
LIMITED PURPOSE OF THE TRUST
The Preferred Securities evidence a preferred undivided beneficial interest
in the assets of the Trust. The Trust exists for the exclusive purposes of (i)
issuing the Trust Securities representing undivided beneficial interests in the
assets of the Trust, (ii) investing the gross proceeds of the Trust Securities
in the Subordinated Debentures issued by the Company, and (iii) engaging in
only those other activities necessary, advisable, or incidental thereto. A
principal
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difference between the rights of a holder of a Preferred Security and the
rights of a holder of a Subordinated Debenture is that a holder of a
Subordinated Debenture is entitled to receive from the Company the principal
amount of and interest accrued on Subordinated Debentures held, while a holder
of Preferred Securities is entitled to receive Distributions from the Trust (or
from the Company under the Guarantee) if and to the extent the Trust has funds
available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
the Trust involving the liquidation of the Subordinated Debentures, the holders
of the Preferred Securities will be entitled to receive, out of assets held by
the Trust, the Liquidation Distribution in cash. See "Description of the
Preferred Securities--Liquidation Distribution Upon Termination." Upon any
voluntary or involuntary liquidation or bankruptcy of the Company, the Property
Trustee, as holder of the Subordinated Debentures, would be a subordinated
creditor of the Company, subordinated in right of payment to all Senior Debt,
Subordinated Debt and Additional Senior Obligations of the Company (as set
forth in the Indenture), but entitled to receive payment in full of principal
and interest before any shareholders of the Company receive payments or
distributions. Since the Company is the guarantor under the Guarantee and has
agreed to pay for all costs, expenses and liabilities of the Trust (other than
the obligations of the Trust to the holders of its Preferred Securities), the
positions of a holder of the Preferred Securities and a holder of the
Subordinated Debentures relative to other creditors and to shareholders of the
Company in the event of liquidation or bankruptcy of the Company are expected
to be substantially the same.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the material United States federal income tax
consequences to purchasers of the Preferred Securities and, insofar as it
relates to matters of law and legal conclusions, reflects the opinion of
Jackson Walker L.L.P., counsel to the Company. This summary is based upon
current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations issued thereunder and current administrative
rulings and court decisions, all of which are subject to change at any time,
with possible retroactive effect. Subsequent changes may cause the federal
income tax consequences to vary substantially from the consequences described
below. Furthermore, the authorities on which the following summary is based are
subject to various interpretations, and it is therefore possible that the
United States federal income tax treatment of the purchase, ownership, and
disposition of the Preferred Securities may differ from the treatment described
below.
No attempt has been made in the following summary to comment on all United
States federal income tax matters affecting purchasers of the Preferred
Securities. Moreover, this summary generally focuses on holders of the
Preferred Securities who are individual citizens or residents of the United
States, corporations and partnerships created or organized in or under the laws
of the United States or any political subdivision thereof, an estate, the
income of which is includible in its gross income for United States federal
income tax purposes without regard to its source, or 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 persons have the
authority to control all substantial decisions of the trust ("U.S. Holders"),
and who acquire the Preferred Securities on their original issue at their
offering price and hold the Preferred Securities as capital assets. This
summary has only limited application to dealers in securities, corporations,
estates, trusts or nonresident aliens and does not address all the federal
income tax consequences that may be relevant to holders who may be subject to
special tax treatment, such as, for example, banks, thrifts, real estate
investment trusts, regulated investment companies, insurance companies, dealers
in securities or currencies, tax-exempt investors, or persons that will hold
the Preferred Securities as a position in a "straddle," as part of a
"synthetic security" or "hedge," as part of a "conversion transaction" or
other integrated investment, or as other than a capital asset. This summary
also does not address the tax consequences to persons that have a functional
currency other than the U.S. dollar or the tax consequences to shareholders,
partners or beneficiaries of a holder of the Preferred Securities. Further, it
does not include any description of any alternative minimum tax consequences or
the tax laws of any state or local government or of any foreign government that
may be applicable to the Preferred Securities. Accordingly, each prospective
investor should consult, and should rely exclusively on, the investor's own tax
advisors in analyzing the federal, state, local and foreign tax consequences of
the purchase, ownership or disposition of the Preferred Securities.
CLASSIFICATION OF THE SUBORDINATED DEBENTURES
The Company intends to take the position that the Subordinated Debentures
will be classified for United States federal income tax purposes as
indebtedness of the Company under current law, and, by acceptance of a
Preferred Security, each holder covenants to treat the Subordinated Debentures
as indebtedness and the Preferred Securities as evidence of an indirect
beneficial ownership interest in the Subordinated Debentures. The determination
for United States federal income tax purposes of whether an instrument is to be
classified as indebtedness or equity of the issuer is highly factual and the
controlling authorities are subject to varying interpretations. Therefore, no
assurance can be given that the Company's position and a holder's agreed
treatment will not be challenged by the Internal Revenue Service or, if
challenged, that such a challenge will not be successful. The Company is aware
of at least one case, currently pending in the United States Tax Court, in
which the Internal Revenue Service is challenging the issuer's classification
as indebtedness of certain instruments with features similar to but not the
same as those of the Subordinated Debentures. If the Subordinated Debentures
were determined to constitute equity rather than indebtedness of the Company,
the Company would not be entitled to deduct the stated interest payments
thereon and a Tax Event would occur. The remainder of this summary assumes that
the Subordinated Debentures will be classified for United States federal income
tax purposes as indebtedness of the Company.
78
<PAGE> 83
CLASSIFICATION OF THE TRUST
Under current law and assuming full compliance with the terms of the Trust
Agreement and Indenture (and certain other documents described herein), the
Trust will be classified for United States federal income tax purposes as a
grantor trust and not as an association taxable as a corporation. Accordingly,
for United States federal income tax purposes, each holder of the Preferred
Securities generally will be treated as owning an undivided beneficial interest
in the Subordinated Debentures, and upon the occurrence of an Extension Period
each holder will be required to include in its gross income any accrued OID
with respect to its allocable share of the Subordinated Debentures whether or
not cash is actually distributed to such holder.
POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
Pursuant to current Treasury regulations (the "Regulations"), a debt
instrument will be deemed to be issued with OID if there is more than a
"remote" contingency that periodic stated interest payments due on the
instrument will not be timely paid. Because the exercise by the Company of its
option to defer the payment of stated interest on the Subordinated Debentures
would prevent the Company from declaring dividends on any class of equity and
would prevent the Company from making any payments with respect to debt
securities that rank pari passu or junior to the Subordinated Debentures, the
Company believes that the likelihood of its exercising the option is "remote"
within the meaning of the Regulations. As a result, the Company intends to take
the position that the Subordinated Debentures will not be deemed to be issued
with OID. Accordingly, based on this position, stated interest payments on the
Subordinated Debentures will be includible in the ordinary income of a holder
at the time that such payments are paid or accrued in accordance with the
holder's regular method of accounting. Because the Regulations have not yet
been addressed in any published rulings or other published interpretations
issued by the Internal Revenue Service, it is possible that the Internal
Revenue Service could take a position contrary to the position taken by the
Company.
If the Company were to exercise its option to defer the payment of stated
interest on the Subordinated Debentures, the Subordinated Debentures would be
treated, solely for purposes of the OID rules, as being "reissued" at such
time with OID. The amount of interest income includible in the taxable income
of a holder of the Subordinated Debentures would be determined on the basis of
a constant yield method over the remaining term of the instrument regardless of
the holder's method of tax accounting, and the actual receipt of future
payments of stated interest on the Subordinated Debentures would no longer be
separately reported as taxable income. Consequently, a holder of the Preferred
Securities would be required to include OID in ordinary income, on a current
basis, over the period that the instrument is held even though the Company
would not be making any actual cash payments during the Extension Period. The
amount of OID that would accrue, in the aggregate, during the Extension Period
would be approximately equal to the amount of the cash payment due at the end
of such period.
If the Company's option to defer interest payments is not treated as
"remote," the Subordinated Debentures would be treated as originally issued
with OID in an amount equal to the aggregate stated interest payable over the
term of the Subordinated Debentures. That OID generally would be included in a
holder's gross income over such term on an economic accrual basis, regardless
of the holder's regular method of accounting.
Because income on the Preferred Securities will constitute interest income
for United States federal income tax purposes, corporate holders of the
Preferred Securities will not be entitled to claim a dividends received
deduction in respect of such income.
MARKET DISCOUNT AND ACQUISITION PREMIUM
Holders of the Preferred Securities other than a holder who purchased the
Preferred Securities upon original issuance may be considered to have acquired
their undivided interests in the Subordinated Debentures with "market
discount" or "acquisition premium" as such phrases are defined for United
States federal income tax purposes. Such holders are advised to consult their
tax advisors as to the income tax consequences of the acquisition, ownership
and disposition of the Preferred Securities.
79
<PAGE> 84
RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under "Description of the
Preferred Securities--Redemption" and "--Liquidation Distribution Upon
Termination," the Subordinated Debentures may be distributed to holders of the
Preferred Securities upon a liquidation of the Trust. Under current United
States federal income tax law, such a distribution would be treated as a
nontaxable event to each such holder and would result in such holder having an
adjusted tax basis in the Subordinated Debentures received in the liquidation
equal to such holder's adjusted tax basis in the Preferred Securities
immediately before the distribution. A holder's holding period in the
Subordinated Debentures so received in liquidation of the Trust would include
the period for which such holder held the Preferred Securities.
If, however, a Tax Event were to occur which resulted in the Trust being
treated as an association taxable as a corporation, the distribution would
likely constitute a taxable event to holders of the Preferred Securities. Under
certain circumstances described herein, the Subordinated Debentures may be
redeemed for cash and the proceeds of such redemption distributed to holders in
redemption of their Preferred Securities. Under current law, such a redemption
would, for United States federal income tax purposes, constitute a taxable
disposition of the redeemed Preferred Securities, and a holder would recognize
gain or loss as if the holder sold such Preferred Securities for cash. See
"Description of the Preferred Securities--Redemption" and "--Liquidation
Distribution Upon Termination."
DISPOSITION OF PREFERRED SECURITIES
Upon the sale of the Preferred Securities, a holder will recognize a gain
or loss in an amount equal to the difference between its adjusted tax basis in
the Preferred Securities and the amount realized in the sale (except to the
extent of any amount received in respect of accrued but unpaid interest not
previously included in income). A holder's adjusted tax basis in the Preferred
Securities generally will be its initial purchase price increased by OID (if
any) previously includible in the holder's gross income to the date of
disposition and decreased by payments (if any) received on the Preferred
Securities in respect of OID to the date of disposition. Such gain or loss
generally will be a capital gain or loss. In the case of non-corporate
taxpayers, the tax rates applicable to capital gains from the disposition of
Preferred Securities generally will vary depending upon whether, at the time of
disposition, the Preferred Securities have been held for more than 12 months or
more than 18 months. Pending legislation, if enacted, will eliminate the
18-month holding period effective for taxable years ending after December 31,
1997.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest (or OID if the Subordinated
Debentures are treated as having been issued, or reissued, with OID) with
respect to the underlying Subordinated Debentures. A holder who disposes of its
Preferred Securities between record dates for payments of distributions thereon
will be required to include in ordinary income (i) any portion of the amount
realized that is attributable to such accrued but unpaid interest to the extent
not previously included in income, or (ii) any amount of OID, in either case,
that has accrued on its pro rata share of the underlying Subordinated
Debentures during the taxable year of sale through the date of disposition. Any
such income inclusion will increase the holder's adjusted tax basis in its
Preferred Securities disposed of. To the extent that the amount realized in the
sale is less than the holder's adjusted tax basis, a holder will recognize a
capital loss. Subject to certain limited exceptions applicable to non-corporate
taxpayers, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
EFFECT OF CHANGES IN TAX LAWS
Certain legislative proposals were made in 1996 and 1997 that, if enacted,
could have adversely affected the ability of the Company to deduct interest
paid on the Subordinated Debentures. These proposals were not, however,
incorporated into the legislation enacted on August 5, 1997 as the Taxpayer
Relief Act of 1997. Nevertheless, there can be no assurance that other
legislation enacted after the date hereof will not otherwise adversely affect
the ability of the Company to deduct the interest payable on the Subordinated
Debentures. Consequently, there can be no assurance that a Tax Event will not
occur. A Tax Event would permit the Company, upon approval of the Federal
Reserve if then required under applicable capital guidelines or policies of the
Federal Reserve, to cause a redemption of the Preferred Securities before, as
well as after, June 30, 2003. See "Risk Factors--Risk Factors Relating to the
Preferred Securities--Tax Event, Capital Treatment Event or Investment Company
Event; Redemption."
80
<PAGE> 85
BACKUP WITHHOLDING AND INFORMATION REPORTING
Interest paid on the Subordinated Debentures, or the amount of OID accrued
on the Subordinated Debentures, if applicable, held of record by individual
citizens or residents of the United States, or certain trusts, estates, and
partnerships, will be reported to the Internal Revenue Service on Forms 1099,
which forms should be mailed to such holders of the Preferred Securities by
January 31 following each calendar year. Payments made on, and proceeds from
the sale of, the Preferred Securities may be subject to a "backup"
withholding tax (currently at 31%) unless the holder complies with certain
identification and other requirements. Any amounts withheld under the backup
withholding rules generally will be allowed as a credit against the holder's
United States federal income tax liability, provided the required information
is timely provided to the Internal Revenue Service.
THE UNITED STATES FEDERAL INCOME TAX SUMMARY SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON THE
PARTICULAR SITUATION OF A HOLDER OF THE PREFERRED SECURITIES. HOLDERS OF THE
PREFERRED SECURITIES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES
FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Employee benefit plans that are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code
("Plans"), generally may purchase Preferred Securities, subject to the
investing fiduciary's determination that the investment in Preferred Securities
satisfies ERISA's fiduciary standards and other requirements applicable to
investments by the Plan.
In any case, the Company and/or any of its affiliates may be considered a
"party in interest" (within the meaning of ERISA) or a "disqualified
person" (within the meaning of Section 4975 of the Code) with respect to
certain plans (generally, Plans maintained or sponsored by, or contributed to
by, any such persons with respect to which the Company or an affiliate is a
fiduciary or Plans for which the Company or an affiliate provides services).
The acquisition and ownership of Preferred Securities by a Plan (or by an
individual retirement arrangement or other Plans described in Section
4975(e)(1) of the Code) with respect to which the Company or any of its
affiliates is considered a party in interest or a disqualified person may
constitute or result in a prohibited transaction under ERISA or Section 4975 of
the Code, unless such Preferred Securities are acquired pursuant to and in
accordance with an applicable exemption.
As a result, Plans with respect to which the Company or any of its
affiliates is a party in interest or a disqualified person should not acquire
Preferred Securities unless such Preferred Securities are acquired pursuant to
and in accordance with an applicable exemption. Any other Plans or other
entities whose assets include Plan assets subject to ERISA or Section 4975 of
the Code proposing to acquire Preferred Securities should consult with their
own counsel.
81
<PAGE> 86
UNDERWRITING
The Underwriters named below, represented by Stifel, Nicolaus & Company,
Incorporated and Hoefer & Arnett, Inc. (collectively, the "Representatives"),
have severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, to purchase from
the Trust the number of Preferred Securities set forth opposite their
respective names below. The several Underwriters have agreed in the
Underwriting Agreement, subject to the terms and conditions set forth therein,
to purchase all the Preferred Securities offered hereby if any of the Preferred
Securities are purchased. In the event of default by an Underwriter, the
Underwriting Agreement provides that, in certain circumstances, purchase
commitments of the nondefaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Stifel, Nicolaus & Company, Incorporated............................................................
Hoefer & Arnett, Inc................................................................................
</TABLE>
The Representatives have advised the Trust that they propose initially to
offer the Preferred Securities to the public at the public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of $ per Preferred Security. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per Preferred Security to certain other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed. Because the National Association of Securities Dealers, Inc.
("NASD") is expected to view the Preferred Securities as interests in a
direct participation program, the offering of the Preferred Securities is being
made in compliance with the applicable provisions of Rule 2810 of the NASD's
Conduct Rules.
In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Subordinated Debentures of the Company,
the Underwriting Agreement provides that the Company will pay as compensation
to the Underwriters for arranging the investment therein of such proceeds, an
amount in immediately available funds of $ per Preferred Security (or
$ in the aggregate) for the accounts of the several Underwriters.
The Trust has granted the Underwriters an option to purchase up to an
additional 240,000 Preferred Securities at the initial public offering price.
Such option, which expires 30 days from the date of this Prospectus, may be
exercised solely to cover over-allotments. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment,
subject to certain conditions, to purchase approximately the same percentage of
the additional Preferred Securities that the number of Preferred Securities to
be purchased initially by the Underwriter is of the 1,600,000 Preferred
Securities initially purchased by the Underwriters.
To the extent that the Underwriters exercise their option to purchase
additional Preferred Securities, the Trust will issue and sell to the Company
additional Common Securities in an aggregate Liquidation Amount equal to at
least 3% of the total capital of the Trust, and the Company will issue and sell
to the Trust Subordinated Debentures in an aggregate principal amount equal to
the aggregate Liquidation Amount of the additional Preferred Securities being
purchased pursuant to the option.
Although application has been made to have the Preferred Securities
approved for listing on the New York Stock Exchange, no assurances can be made
as to the liquidity of such Preferred Securities or that an active and liquid
trading market will develop or, if developed, that it will continue. The
offering price and distribution rate have been determined by negotiations among
representatives of the Company and the Underwriters, and the offering price of
the Preferred Securities may not be indicative of the market price following
the offering.
The Trust and the Company have agreed to indemnify the Underwriters
against, or contribute to payments that the Underwriters may be required to
make in respect of, certain liabilities, including liabilities under the
Securities Act.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, the Company and its subsidiaries and
affiliates in the ordinary course of business.
82
<PAGE> 87
In connection with the offering of the Preferred Securities, the
Underwriters and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the Securities
and Exchange Commission's Regulation M that are intended to stabilize, maintain
or otherwise affect the market price of the Preferred Securities. Such
transactions may include over-allotment transactions in which an Underwriter
creates a short position for its own account by selling more Preferred
Securities than it is committed to purchase from the Trust. In such case, to
cover all or part of the short position, the Underwriters may exercise the
over-allotment option described above or may purchase Preferred Securities in
the open market following completion of the initial offering of the Preferred
Securities. The Underwriters also may engage in stabilizing transactions in
which they bid for, and purchase, Preferred Securities at a level above that
which might otherwise prevail in the open market for the purpose of preventing
or retarding a decline in the market price of the Preferred Securities. The
Underwriters also may reclaim any selling concessions allowed to a dealer if
the Underwriters repurchase Preferred Securities distributed by that dealer.
Any of the foregoing transactions may result in the maintenance of a price for
the Preferred Securities at a level above that which might otherwise prevail in
the open market. Neither the Company nor any Underwriter makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Preferred
Securities. The Underwriters are not required to engage in any of the foregoing
transactions and, if commenced, such transactions may be discontinued at any
time without notice.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the enforceability of the Trust Agreement and the formation of the
Trust will be passed upon by Richards, Layton & Finger, special Delaware
counsel to the Company and the Trust. Certain legal matters for the Company and
the Trust, including the validity of the Guarantee and the Subordinated
Debentures, will be passed upon for the Company and the Trust by Jackson Walker
L.L.P., Dallas, Texas, counsel to the Company and the Trust. Certain legal
matters will be passed upon for the Underwriters by Bryan Cave LLP, St. Louis,
Missouri. Counsel for the Company, the Trust and the Underwriters will rely on
the opinion of Richards, Layton & Finger as to matters of Delaware law. Certain
matters relating to United States federal income tax considerations will be
passed upon for the Company by Jackson Walker L.L.P.
EXPERTS
The consolidated financial statements of FBA and FCB are included in this
Prospectus in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, for the periods indicated in their reports
thereon which appear elsewhere herein and upon authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of Redwood are included in this
Prospectus in reliance upon the report of Coopers & Lybrand, L.L.P.,
independent certified public accountants, for the periods indicated in their
reports thereon which appear elsewhere herein and upon authority of said firm
as experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's annual report on Form 10-K for the year ended December 31,
1997 and its quarterly report on Form 10-Q for the quarter ended March 31, 1998
which have been filed by the Company with the Commission (File No. 0-8937) are
incorporated herein by reference.
Any statement contained in a document incorporated hereby reference shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A
COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE IN SUCH DOCUMENTS). WRITTEN REQUESTS FOR SUCH COPIES SHOULD BE
DIRECTED TO ALLEN H. BLAKE, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER,
FIRST BANKS AMERICA, INC., 11901 OLIVE BOULEVARD, CREVE COEUR, MISSOURI 63141.
TELEPHONE REQUESTS MAY BE DIRECTED TO (314) 995-8700.
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<PAGE> 88
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form S-2
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by the Company and the Trust with the Securities and
Exchange Commission (the "Commission") under the Securities Act, with respect
to the Preferred Securities, the Subordinated Debentures and the Guarantee.
This Prospectus does not contain all of the information set forth in such
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, although it does include a summary
of the material terms of the Trust Agreement, the Indenture and the Guarantee.
Reference is made to such Registration Statement and to the exhibits relating
thereto for further information with respect to the Company, the Trust, the
Preferred Securities, the Subordinated Debentures and the Guarantee. Any
statements contained herein concerning the provisions of any document filed as
an exhibit to the Registration Statement or otherwise filed with the Commission
or incorporated by reference herein are not necessarily complete, and, in each
instance, reference is made to the copy of such document so filed for a more
complete description of the matter involved. Each such statement is qualified
in its entirety by such reference.
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Commission. The Trust is not currently subject to the
information reporting requirements of the Exchange Act and, although the Trust
will become subject to such requirements upon the effectiveness of the
Registration Statement, the Trust intends to seek and expects to receive an
exemption therefrom. Accordingly, it is not expected that the Trust will be
filing separate reports under the Exchange Act. The Company's reports, proxy
statements and other information can be inspected and copied at the following
public reference facilities maintained by the Commission: 450 Fifth Street,
N.W., Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York, New
York 10048; and the Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may also be obtained by
mail from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. The Commission
maintains an Internet web site that contains reports, proxy and information
statements and other information regarding issuers who file electronically with
the Commission. The address of that site is http://www.sec.gov.
No separate financial statements of the Trust have been included herein.
The Company does not consider that such financial statements would be material
to holders of Preferred Securities because (i) all of the voting securities of
the Trust will be owned by the Company, a reporting company under the Exchange
Act; (ii) the Trust has no independent operations but exists solely for the
sole purpose of issuing securities representing undivided beneficial interests
in the assets of the Trust and investing the proceeds thereof in Subordinated
Debentures issued by the Company, and (iii) the obligations of the Company
described herein to provide certain indemnities in respect of and be
responsible for certain costs, expenses, debts and liabilities of the Trust
under the Indenture and pursuant to the Trust Agreement, the guarantee issued
by Company with respect to the Preferred Securities, the Subordinated
Debentures purchased by the Trust and the related Indenture, taken together,
constitute, in the belief of the Company and the Trust, a full and
unconditional guarantee of payments due on the Preferred Securities. See
"Description of the Subordinated Debentures" and "Description of the
Guarantee."
84
<PAGE> 89
<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report........................................................................ F-2
Consolidated Balance Sheets as of March 31, 1998 (unaudited) and December 31, 1997 and 1996......... F-3
Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997 (unaudited)
and for each of the years ended December 31, 1997, 1996 and 1995.................................. F-5
Consolidated Statements of Changes in Stockholders' Equity for the three months ended March 31, 1998
(unaudited) and for each of the years ended December 31, 1997, 1996 and 1995...................... F-6
Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997 (unaudited)
and for each of the years ended December 31, 1997, 1996 and 1995.................................. F-7
Notes to Consolidated Financial Statements.......................................................... F-8
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report........................................................................ F-28
Consolidated Balance Sheets as of December 31, 1997 and 1996........................................ F-29
Consolidated Statements of Operations for each of the years ended December 31, 1997 and 1996........ F-31
Consolidated Statements of Changes in Stockholders' Equity for each of the years ended December 31,
1997 and 1996..................................................................................... F-32
Consolidated Statements of Cash Flows for each of the years ended December 31, 1997 and 1996........ F-33
Notes to Consolidated Financial Statements.......................................................... F-34
REDWOOD BANCORP AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report........................................................................ F-49
Consolidated Statements of Financial Condition as of March 31, 1998 (unaudited) and December 31,
1997 and 1996..................................................................................... F-50
Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997 (unaudited)
and for each of the years ended December 31, 1997 and 1996........................................ F-51
Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 1998
(unaudited) and for each of the years ended December 31, 1997 and 1996............................ F-52
Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997 (unaudited)
and for each of the years ended December 31, 1997 and 1996........................................ F-53
Notes to Consolidated Financial Statements.......................................................... F-54
</TABLE>
F-1
<PAGE> 90
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
KPMG PEAT MARWICK LLP LOGO
The Board of Directors and Stockholders
First Banks America, Inc.:
We have audited the accompanying consolidated balance sheets
of First Banks America, Inc. and subsidiaries (the Company) as of
December 31, 1997, 1996 and 1995, and the related consolidated
statements of operations, changes in stockholders' equity and
cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The consolidated
financial statements give retroactive effect to the merger of
First Commercial Bancorp, Inc. and subsidiary on February 2,
1998, which has been accounted for as a combination of entities
under common control as described in the notes to the
consolidated financial statements. Generally accepted accounting
principles prescribe giving effect to a consummated business
combination accounted for as a combination of entities under
common control in financial statements that do not include the
dates of consummation. These financial statements do not extend
through the date of consummation; however, they will become the
historical consolidated financial statements of First Banks
America, Inc. and subsidiaries after financial statements
covering the date of consummation of the business combination are
issued.
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 First Banks America, Inc. and subsidiaries
as of December 31, 1997, 1996, and 1995, and the results of their
operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles
applicable after financial statements are issued for a period
which includes the date of consummation of the business
combination.
/s/ KPMG PEAT MARWICK LLP
June 5, 1998
F-2
<PAGE> 91
<TABLE>
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------
1998 1997 1996
--------- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks........................................... $ 32,651 32,257 21,753
Interest-bearing deposits with other financial institutions with
maturities of three months or less.............................. 2,271 690 146
Federal funds sold................................................ 42,250 2,215 20,975
-------- ------- -------
Total cash and cash equivalents........................... 77,172 35,162 42,874
-------- ------- -------
Investment securities available for sale, at fair value............... 141,131 148,181 125,139
Loans:
Commercial and financial.......................................... 113,312 109,763 80,781
Real estate construction and development.......................... 96,035 93,454 58,045
Real estate mortgage.............................................. 166,160 149,951 93,864
Consumer and installment.......................................... 71,017 75,023 105,340
Loans held for sale............................................... -- 5,708 --
-------- ------- -------
Total loans................................................... 446,524 433,899 338,030
Unearned discount................................................. (2,425) (2,444) (1,659)
Allowance for possible loan losses................................ (12,063) (11,407) (10,744)
-------- ------- -------
Net loans..................................................... 432,036 420,048 325,627
-------- ------- -------
Bank premises and equipment, net of accumulated depreciation.......... 11,382 10,697 8,263
Intangibles associated with the purchase of subsidiaries.............. 8,794 7,189 3,999
Accrued interest receivable........................................... 4,062 4,819 3,545
Foreclosed property, net.............................................. 725 601 977
Deferred tax assets................................................... 13,739 14,164 15,602
Other assets.......................................................... 3,368 2,803 3,061
-------- ------- -------
Total assets...................................................... $692,409 643,664 529,087
======== ======= =======
<CAPTION>
The accompanying notes are an integral part of the consolidated financial statements.
F-3
<PAGE> 92
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, (CONTINUED)
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
MARCH 31, ------------------
1998 1997 1996
--------- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES
Deposits:
Demand:
Non-interest-bearing.......................................... $101,270 97,393 80,187
Interest-bearing.............................................. 73,433 73,199 70,266
Savings........................................................... 158,625 147,623 96,565
Time deposits:
Time deposits of $100 or more................................. 57,725 52,472 40,963
Other time deposits........................................... 209,504 185,840 167,961
-------- ------- -------
Total deposits............................................ 600,557 556,527 455,942
Short-term borrowings................................................. 3,453 3,687 2,797
Promissory note payable............................................... 13,450 14,900 14,000
Accrued interest payable.............................................. 4,803 4,185 2,002
Deferred tax liabilities.............................................. 1,049 1,092 968
Payable to former shareholders of Surety Bank......................... -- 3,829 --
Accrued expenses and other liabilities................................ 5,756 5,058 6,178
12% convertible debentures............................................ 6,500 6,500 6,500
Minority interest in subsidiary....................................... -- 2,795 2,505
-------- ------- -------
Total liabilities......................................... 635,568 598,573 490,892
-------- ------- -------
STOCKHOLDERS' EQUITY
Common stock:
Common stock, $0.15 par value; 6,666,666 shares authorized;
3,238,417 shares, 2,144,865 shares and 1,875,076 shares issued
at March 31, 1998, December 31, 1997 and 1996, respectively..... 486 322 282
Class B common stock, $.15 par value; 4,000,000 shares authorized;
2,500,000 shares issued and outstanding......................... 375 375 375
Capital surplus....................................................... 60,173 47,329 42,862
Retained earnings (deficit), since elimination of accumulated deficit
of $259,117 effective December 31, 1994............................. 2,183 1,083 (2,450)
Common treasury stock, at cost; 496,056 shares, 386,458 shares and
280,430 shares at March 31, 1998, December 31, 1997 and 1996,
respectively........................................................ (6,814) (4,350) (2,838)
Accumulated other comprehensive income................................ 438 332 (36)
-------- ------- -------
Total stockholders' equity................................ 56,841 45,091 38,195
-------- ------- -------
Total liabilities and stockholders' equity................ $692,409 643,664 529,087
======== ======= =======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-4
<PAGE> 93
<TABLE>
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
----------------- ------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans.............................. $10,568 7,453 33,393 25,137 20,087
Investment securities................................... 2,033 1,781 7,870 6,257 5,426
Federal funds sold and other............................ 395 377 1,254 1,988 1,043
------- ----- ------ ------ ------
Total interest income............................... 12,996 9,611 42,517 33,382 26,556
------- ----- ------ ------ ------
Interest expense:
Deposits:
Interest-bearing demand............................. 349 354 1,398 756 578
Savings............................................. 1,454 766 3,747 2,819 2,389
Time deposits of $100 or more....................... 775 529 2,144 2,008 1,610
Other time deposits................................. 2,784 2,314 9,427 8,353 6,258
Promissory note payable and other borrowings............ 537 545 2,439 1,597 2,299
------- ----- ------ ------ ------
Total interest expense.............................. 5,899 4,508 19,155 15,533 13,134
------- ----- ------ ------ ------
Net interest income................................. 7,097 5,103 23,362 17,849 13,422
Provision for possible loan losses.......................... 300 550 2,000 2,405 6,416
------- ----- ------ ------ ------
Net interest income after provision for possible
loan losses....................................... 6,797 4,553 21,362 15,444 7,006
------- ----- ------ ------ ------
Noninterest income:
Service charges on deposit accounts..................... 739 575 2,239 2,258 1,682
Loan sales and servicing income......................... -- -- 40 70 159
Other income............................................ 319 296 932 1,072 1,284
Gain (loss) on sales of securities, net................. 92 -- 76 185 (2,996)
------- ----- ------ ------ ------
Total noninterest income............................ 1,150 871 3,287 3,585 129
------- ----- ------ ------ ------
Noninterest expense:
Salaries and employee benefits.......................... 2,135 1,550 6,226 5,249 5,358
Occupancy, net of rental income......................... 491 571 2,166 1,832 1,615
Furniture and equipment................................. 347 267 1,149 1,003 895
Federal Deposit Insurance Corporation premiums.......... 43 38 119 497 493
Postage, printing and supplies.......................... 167 148 496 744 396
Legal, examination and professional fees................ 890 750 3,241 2,777 1,337
Data processing......................................... 475 327 1,084 735 755
Communications.......................................... 200 164 673 623 619
Losses and expenses on sale of foreclosed property, net
of gains.............................................. 157 (9) (350) 1,148 643
Other................................................... 1,152 687 2,873 3,129 2,037
------- ----- ------ ------ ------
Total noninterest expense........................... 6,057 4,493 17,677 17,737 14,148
------- ----- ------ ------ ------
Income (loss) before provision for income tax
expense (benefit) and minority interest in
(income) loss of subsidiary....................... 1,890 931 6,972 1,292 (7,013)
Provision for income tax expense (benefit).................. 790 361 3,145 470 (2,188)
------- ----- ------ ------ ------
Income (loss) before minority interest in (income)
loss of subsidiary................................ 1,100 570 3,827 822 (4,825)
Minority interest in (income) loss of subsidiary............ -- (86) (294) (131) 11
------- ----- ------ ------ ------
Net income (loss)................................... $ 1,100 484 3,533 691 (4,814)
======= ===== ====== ====== ======
Earnings (loss) per common share:
Basic................................................... $ 0.22 0.12 0.87 0.16 (1.19)
Diluted................................................. 0.22 0.12 0.86 0.16 (1.19)
======= ===== ====== ====== ======
Weighted average common stock outstanding (in thousands).... 4,911 4,082 4,069 4,225 4,032
======= ===== ====== ====== ======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-5
<PAGE> 94
<TABLE>
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE YEARS ENDED DECEMBER 31, 1997
AND THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<CAPTION>
ACCUM-
ULATED
OTHER TOTAL
CLASS B COMPRE- RETAINED COMMON COMPRE- STOCK-
COMMON COMMON CAPITAL HENSIVE EARNINGS TREASURY HENSIVE HOLDERS'
STOCK STOCK SURPLUS INCOME (DEFICIT) STOCK INCOME EQUITY
------ ------- ------- ------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated balances, January 1, 1995........ $206 375 39,133 -- -- -- -- 39,714
Year ended December 31, 1995:
Comprehensive income:
Net loss.............................. -- -- -- (4,814) (4,814) -- -- (4,814)
Other comprehensive income, net of
tax<F1>--
Unrealized gains on securities, net of
reclassification adjustment<F2>..... -- -- -- 81 -- -- 81 81
------
Comprehensive income.................. (4,733)
======
Exercise of stock options................. 4 -- 111 -- -- -- 115
Issuance of common stock for acquisition
of FCB.................................. 70 -- 6,600 -- -- -- 6,670
Compensation paid in stock................ -- -- 27 -- -- -- 27
Repurchases of common stock............... -- -- -- -- (828) -- (828)
---- --- ------ ------ ------ ---- ------
Consolidated balances, December 31, 1995...... 280 375 45,871 (4,814) (828) 81 40,965
Year ended December 31, 1996:
Comprehensive income:
Net income............................ -- -- -- 691 691 -- -- 691
Other comprehensive income, net of
tax<F1>--
Unrealized losses on securities, net
of reclassification adjustment<F2>.. -- -- -- (17) -- -- (17) (17)
------
Comprehensive income.................. 674
======
Exercise of stock options................. 2 -- 36 -- -- -- 38
Compensation paid in stock................ -- -- 10 -- -- -- 10
Repurchase of outstanding warrants........ -- -- (1,281) -- -- -- (1,281)
Repurchases of common stock............... -- -- -- -- (2,010) -- (2,010)
Pre-merger transactions of FCB............ -- -- (1,774) 1,673 -- (100) (201)
---- --- ------ ------ ------ ---- ------
Consolidated balances, December 31, 1996...... 282 375 42,862 (2,450) (2,838) (36) 38,195
Year ended December 31, 1997:
Comprehensive income:
Net income............................ -- -- -- 3,533 3,533 -- -- 3,533
Other comprehensive income, net of
tax<F1>--
Unrealized gains on securities, net of
reclassification adjustments<F2>.... -- -- -- 368 -- -- 368 368
------
Comprehensive income.................. 3,901
======
Issuance of common stock for purchase
accounting acquisition of Surety Bank... 40 -- 4,723 -- -- -- 4,763
Exercise of stock options................. -- -- 15 -- -- -- 15
Redemption of stock options............... -- -- (290) -- -- -- (290)
Compensation paid in stock................ -- -- 13 -- -- -- 13
Repurchases of common stock............... -- -- -- -- (1,512) -- (1,512)
Pre-merger transactions of FCB............ -- -- 6 -- -- -- 6
---- --- ------ ------ ------ ---- ------
Consolidated balances, December 31, 1997...... 322 375 47,329 1,083 (4,350) 332 45,091
Quarter ended March 31, 1998 (unaudited):
Comprehensive income:
Net income............................ -- -- -- 1,100 1,100 -- -- 1,100
Other comprehensive income, net of
tax<F1>--
Unrealized gains on securities, net of
reclassification adjustment<F2>..... -- -- -- 106 -- -- 106 106
------
Comprehensive income.................. 1,206
======
Issuance of common stock for acquisition
of minority interest of FCB............. 43 -- 2,965 -- -- -- 3,008
Conversion of note payable................ 121 -- 9,879 -- -- -- 10,000
Repurchases of common stock............... -- -- -- -- (2,464) -- (2,464)
---- --- ------ ------ ------ ---- ------
Consolidated balances, March 31, 1998......... $486 375 60,173 2,183 (6,814) 438 56,841
==== === ====== ====== ====== ==== ======
<FN>
- ----------
<F1>Components of other comprehensive income are shown net of tax.
<F2>Disclosure of reclassification amount:
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1998 1997 1996 1995
--------- ---- ---- ----
<S> <C> <C> <C> <C>
Unrealized gains (losses) arising during the period......... 198 444 168 (2,915)
Less: reclassification adjustment for gains (losses)
included in net income.................................... 92 76 185 (2,996)
--- --- --- ------
Unrealized gains (losses) on securities..................... 106 368 (17) 81
=== === === ======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-6
<PAGE> 95
<TABLE>
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS EXPRESSED IN THOUSANDS)
<CAPTION>
MARCH 31, YEARS ENDED DECEMBER 31,
-------------- --------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 1,100 484 3,533 691 (4,814)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, amortization and accretion, net....... 467 89 1,169 153 509
Provision for possible loan losses.................. 300 550 2,000 2,405 6,416
Provision (benefit) for income taxes................ 790 361 3,145 470 (2,188)
Payments of income taxes............................ (196) -- (1,943) -- --
(Gain) loss on sales of securities, net............. (92) -- (76) (185) 2,996
Decrease (increase) in accrued interest
receivable........................................ 967 197 (1,274) (852) 114
Interest accrued on liabilities..................... 5,899 4,508 19,155 15,533 13,134
Payments of interest on liabilities................. (5,345) (4,010) (16,972) (14,913) (12,862)
Other operating activities, net..................... 550 (471) (29) 274 269
-------- ------- -------- -------- --------
Net cash provided by operating activities....... 4,440 1,708 8,708 3,576 3,574
-------- ------- -------- -------- --------
Cash flows from investing activities:
Cash paid for acquired entities, net of cash and cash
equivalents received.................................. 3,241 -- 3,072 10,715 51,423
Sales of investment securities.......................... -- -- 11,073 20,564 70,995
Maturities of investment securities..................... 32,850 41,365 91,362 248,107 55,351
Purchases of investment securities...................... (25,399) (56,208) (112,730) (256,304) (149,205)
Net decrease (increase) in loans........................ 15,739 8,318 (44,872) (17,093) 15,899
Recoveries of loans previously charged-off.............. 530 560 2,288 2,439 820
Purchases of bank premises and equipment................ (807) (89) (822) (240) (725)
Net decrease in lease financing......................... -- -- -- 991 --
Proceeds from sales of other real estate................ 230 59 1,500 2,805 2,394
Other investing activities.............................. (11) (22) (259) (23) (6,414)
-------- ------- -------- -------- --------
Net cash provided by (used in) investing
activities................................... 26,373 (6,017) (49,388) 11,961 40,538
-------- ------- -------- -------- --------
Cash flows from financing activities:
Other (decreases) increases in deposits:
Demand and savings deposits......................... (1,452) (4,382) 34,675 (20,290) (6,279)
Time deposits....................................... 10,321 895 (1,540) (20,341) 6,727
Decrease in federal funds purchased and other short-term
borrowings............................................ (3,524) -- -- (352) (5,257)
Decrease in Federal Home Loan Bank advances............. (291) (271) (1,122) (3,957) (13,749)
Increase (decrease) in securities sold under agreements
to repurchase......................................... 57 4,791 1,836 (324) (18,722)
Increase in promissory note payable..................... 8,550 -- 900 12,946 --
Repurchase of common stock for treasury and warrant..... (2,464) (331) (1,512) (3,290) (828)
Repurchase of stock option.............................. -- -- (290) -- --
Proceeds from exercise of stock options................. -- 4 15 38 115
Proceeds from the issuance of convertible debentures.... -- -- -- -- 6,500
Pre-merger transactions of FCB.......................... -- -- 6 3,217 --
-------- ------- -------- -------- --------
Net cash provided by (used in) financing
activities................................... 11,197 706 32,968 (32,353) (31,493)
-------- ------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................. 42,010 (3,603) (7,712) (16,816) 12,619
Cash and cash equivalents, beginning of year................ 35,162 42,874 42,874 59,690 47,071
-------- ------- -------- -------- --------
Cash and cash equivalents, end of year...................... $ 77,172 39,271 35,162 42,874 59,690
======== ======= ======== ======== ========
Noncash investing and financing activities:
Loans transferred to foreclosed real estate............. $ 245 309 585 1,385 1,274
Issuance of common stock in purchase accounting
acquisition........................................... 3,008 -- 4,763 -- --
Conversion of promissory note payable to common stock... 10,000 -- -- -- --
Loans transferred from loans held for sale.............. -- -- -- -- 7,253
Pre-merger transaction of FCB--exchange of common stock
for dividend payable.................................. -- -- -- 643 --
Receivable from sale of investment securities........... -- -- -- -- 4,915
======== ======= ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-7
<PAGE> 96
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements of First Banks America,
Inc. and subsidiaries (FBA or the Company), have been prepared in accordance
with generally accepted accounting principles and conform to practices
prevalent among financial institutions. The following is a summary of the more
significant policies followed by FBA:
BASIS OF PRESENTATION
The consolidated financial statements of FBA have been prepared in
accordance with generally accepted accounting principles and conform to
predominant practices within the banking industry. Management of FBA has made a
number of estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to prepare
the consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
Certain 1996 and 1995 amounts have been reclassified to conform with the 1997
presentation.
The Board of Directors of FBA elected to implement an accounting adjustment
referred to as a "quasi-reorganization," effective December 31, 1994. In
accordance with accounting provisions applicable to a quasi-reorganization, the
assets and liabilities of FBA were adjusted to fair value and the accumulated
deficit was eliminated as of December 31, 1994.
RESTATEMENT
Effective February 2, 1998, FBA completed its acquisition of First
Commercial Bancorp, Inc. (FCB) and FCB's wholly owned subsidiary, First
Commercial Bank (First Commercial), in a transaction accounted for as a
combination of entities under common control. First Banks, Inc., St. Louis,
Missouri (First Banks), owned a majority interest in both FBA and FCB.
The consolidated financial statements give retroactive effect to the
transaction and, as a result, the consolidated balance sheets, statements of
operations and statements of cash flows are presented as if the combining
entities had been consolidated for all periods presented, which are subsequent
to First Banks' acquisition of FCB on August 23, 1995. As required by generally
accepted accounting principles, the restated consolidated financial statements
become the historical consolidated financial statements upon issuance of the
financial statements for the period that includes the date of the transaction.
The consolidated statements of stockholders' equity reflect the accounts of FBA
as if the common stock issued to First Banks in exchange for its majority
interest in FCB had been outstanding for all periods subsequent to August 23,
1995. First Banks' ownership interest in FCB was approximately 96.1% from
August 23, 1995 to May 1996 and 61.5% from June 1996 to February 2, 1998. The
remaining interest in FCB acquired by FBA is reflected in the consolidated
financial statements as minority interest for the period from August 23, 1995
to February 2, 1998. First Banks owned 71.8% of FBA as of March 31, 1998.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the parent
company and its subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated.
FBA operates through three banking subsidiaries, BankTEXAS National
Association, headquartered in Houston, Texas (BankTEXAS), First Bank of
California, headquartered in Roseville, California (FB California) and First
Commercial, headquartered in Sacramento, California, collectively referred to
as the Subsidiary Banks.
CASH AND CASH EQUIVALENTS
Cash, due from banks, federal funds sold, and interest-bearing deposits
with original maturities of three months or less are considered to be cash and
cash equivalents for purposes of the consolidated statements of cash flows.
F-8
<PAGE> 97
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Subsidiary Banks are required to maintain certain daily reserve
balances in accordance with regulatory requirements. These reserve balances
were $4.6 million and $3.5 million at December 31, 1997 and 1996, respectively.
INVESTMENT SECURITIES
The classification of investment securities as available for sale or held
to maturity is determined at the date of purchase. FBA does not engage in the
trading of investment securities.
Investment securities classified as available for sale are those debt and
equity securities for which FBA has no immediate plan to sell, but which may be
sold in the future if circumstances warrant. Available-for-sale securities are
stated at current fair value. Realized gains and losses are included in
noninterest income upon commitment to sell, based on the amortized cost of the
individual security sold. Unrealized gains and losses are recorded, net of
related income tax effects, in a separate component of stockholders' equity.
All previous fair value adjustments included in stockholders' equity are
reversed upon sale.
Investment securities designated as held to maturity are those debt
securities which FBA has the positive intent and ability to hold until
maturity. Held-to-maturity securities are stated at amortized cost, in which
the amortization of premiums and accretion of discounts are recognized over the
contractual maturities or estimated lives of the individual securities,
adjusted for anticipated prepayments, using the level-yield method.
At December 31, 1997 and 1996, all investment securities were classified as
available for sale.
LOANS
Loans held for portfolio are carried at cost, adjusted for amortization of
premiums and accretion of discounts using a method which approximates the
level-yield method. Interest and fees on loans are recognized as income using
the interest method. Loans held for portfolio are stated at cost as FBA has the
ability and it is management's intention to hold them to maturity.
The accrual of interest on loans is discontinued when it appears that
interest or principal may not be paid in a timely manner in the normal course
of business. Generally, payments received on nonaccrual and impaired loans are
recorded as principal reductions. Interest income is recognized after all
principal has been repaid or an improvement in the condition of the loan has
occurred which would warrant resumption of interest accruals.
A loan is considered impaired when it is probable a creditor will be unable
to collect all amounts due, both principal and interest, according to the
contractual terms of the loan agreement. When measuring impairment, the
expected future cash flows of an impaired loan are discounted at the loan's
effective interest rate. Alternatively, impairment is measured by reference to
an observable market price, if one exists, or the fair value of the collateral
for a collateral-dependent loan. Regardless of the historical measurement
method used, FBA measures impairment based on the fair value of the collateral
when the creditor determines foreclosure is probable. Additionally, impairment
of a restructured loan is measured by discounting the total expected future
cash flows at the loan's effective rate of interest as stated in the original
loan agreement. FBA continues to use its existing nonaccrual methods for
recognizing interest income on impaired loans.
LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of cost or market
value which is determined on an individual loan basis. Gains or losses on the
sale of loans held for sale are determined on a specific identification method.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is maintained at a level considered
adequate to provide for potential losses. The provision for possible loan
losses is based on a periodic analysis of the loans by management, considering,
among other factors, current economic conditions, loan portfolio composition,
past loan loss experience, independent
F-9
<PAGE> 98
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
appraisals, loan collateral and payment experience. In addition to the
allowance for estimated losses on impaired loans, an overall unallocated
allowance is established to provide for unidentified credit losses which are
inherent in the portfolio. As adjustments become necessary, they are reflected
in the results of operations in the periods in which they become known.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed primarily using the
straight-line method over the estimated useful lives of the related assets.
Amortization of leasehold improvements is calculated using the straight-line
method over the shorter of the useful life of the improvement or term of the
lease. Bank premises and improvements are depreciated over 15 to 29 years and
equipment over two to ten years.
INTANGIBLES ASSOCIATED WITH THE PURCHASE OF SUBSIDIARIES
The excess of cost over net assets acquired of purchased subsidiaries is
amortized using the straight-line method over the estimated periods to be
benefitted, which has been estimated at 15 years.
FORECLOSED PROPERTY
Foreclosed property, consisting of real estate acquired through foreclosure
or deed in lieu of foreclosure, is stated at the lower of fair value less
applicable selling costs or cost at the time the property is acquired. The
excess of cost over fair value of the property at the date of acquisition is
charged to the allowance for possible loan losses.
INCOME TAXES
FBA and its eligible subsidiaries file a consolidated federal income tax
return. Each subsidiary pays its allocation of federal income taxes to FBA, or
receives payment from FBA to the extent that tax benefits are realized.
Separate state franchise tax returns are filed in Texas and Delaware for the
appropriate entities. FBA and its subsidiaries join in filing Illinois and
California unitary income tax returns with First Banks, as First Banks'
ownership is greater than 50%. FCB and First Commercial file separate federal
income tax returns which are separate from that of FBA.
FINANCIAL INSTRUMENTS
A financial instrument is defined as cash, evidence of an ownership
interest in an entity, or a contract that conveys or imposes on an entity the
contractual right or obligation to either receive or deliver cash or another
financial instrument.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
FBA uses financial instruments to reduce the interest rate risk arising
from its financial assets and liabilities. These instruments involve, in
varying degrees, elements of interest rate risk and credit risk in excess of
the amount recognized in the consolidated balance sheets. "Interest rate
risk" is defined as the possibility that interest rates may move unfavorably
from the perspective of FBA. The risk that a counterparty to an agreement
entered into by FBA may default is defined as "credit risk." These financial
instruments include one interest rate cap agreement.
FBA is party to commitments to extend credit and commercial and standby
letters of credit in the normal course of business to meet the financing needs
of its customers. These commitments involve, in varying degrees, elements of
interest rate risk and credit risk in excess of the amount recognized in the
consolidated balance sheets.
F-10
<PAGE> 99
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INTEREST RATE FUTURES CONTRACTS
Prior to 1996, interest rate futures contracts were utilized to manage the
interest rate risk of the available-for-sale securities portfolio. Gains and
losses on interest rate futures contracts, which qualified as hedges, were
deferred. Amortization of the net deferred gains or losses was applied to the
interest income of the available-for-sale securities portfolio using the
straight-line method. The net deferred gains and losses were applied to the
carrying value of the available-for-sale securities portfolio as part of the
mark to market valuation. When the hedged assets were sold, the related gain or
loss on the interest rate futures contract was immediately recognized in the
consolidated statements of operations.
INTEREST RATE CAP AGREEMENTS
Interest rate cap agreements are accounted for on an accrual basis with the
net interest differential being recognized as an adjustment to interest expense
of the related liability. Premiums and fees paid upon the purchase of interest
rate cap agreements are amortized to interest expense over the life of the
agreements using the interest method. In the event of early termination of an
interest rate cap agreement, the net proceeds received or paid are deferred and
amortized over the shorter of the remaining contract life or the maturity of
the related liability. If, however, the amount of the underlying hedged
liability is repaid, then the gain or loss on the agreement is recognized
immediately in the consolidated statements of operations. The unamortized
premiums and fees paid are included in other assets in the accompanying
consolidated balance sheets.
EARNINGS (LOSS) PER COMMON SHARE
FBA adopted the provisions of SFAS 128, Earnings Per Share (SFAS 128), on a
retroactive basis effective December 31, 1997. Accordingly, earnings (loss) per
common share (EPS) data has been restated to conform with the provisions of
SFAS 128.
SFAS 128 provides for the calculation of "Basic" and "Diluted" EPS.
Basic EPS is computed by dividing the income (loss) available to common
stockholders (the numerator) by the weighted average number of common shares
outstanding (the denominator) during the year. The computation of diluted EPS
is similar except the denominator is increased to include the number of
additional common shares that would have been outstanding if the dilutive
potential shares had been issued. In addition, in computing the dilutive effect
of convertible securities, the numerator is adjusted to add back (a) any
convertible preferred dividends and (b) the after-tax amount of interest
recognized in the period associated with any convertible debt. The
implementation of SFAS 128 did not have a material impact on the calculation of
EPS.
(2) ACQUISITIONS
On November 1, 1996, FBA completed its acquisition of Sunrise Bancorp, a
California corporation (Sunrise), and its wholly owned subsidiary, Sunrise
Bank, in exchange for $17.5 million in cash. At the time of the transaction,
Sunrise had $110.8 million in total assets, $45.5 million in cash and cash
equivalents and investment securities, $61.1 million in total loans, net of
unearned discount, and $91.1 million in total deposits. The acquisition was
funded from available cash and borrowings of $14.0 million under a promissory
note payable (Note Payable) with First Banks. First Banks owns a majority of
the outstanding voting stock of FBA, representing 65.9% and 68.8% at December
31, 1997 and 1996, respectively.
On December 1, 1997, FBA completed its acquisition of Surety Bank in
exchange for 264,622 shares of FBA common stock and cash of $3.8 million. The
cash portion of this transaction, which was paid to the former shareholders of
Surety Bank in January 1998, was funded by an advance under the Note Payable.
At the time of the transaction, Surety had $72.8 million in total assets, $14.9
million in cash and cash equivalents and investment securities, $54.4 million
in total loans, net of unearned discount, and $67.5 million in total deposits.
F-11
<PAGE> 100
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Sunrise was merged into a wholly owned subsidiary of FBA. Sunrise Bank and
Surety Bank were merged into FB California, a newly-formed commercial bank
charter of FBA. The acquisitions of Sunrise and Surety Bank were accounted for
under the purchase method of accounting and, accordingly, the consolidated
financial statements include the financial position and results of operations
for the period subsequent to the acquisition dates, and the assets acquired and
liabilities assumed were recorded at fair value at the acquisition date. The
excess of the cost over the fair value of the net assets acquired was $3.2
million and $2.8 million for Sunrise and Surety Bank, respectively, and is
being amortized over 15 years.
On February 2, 1998, FBA and FCB were merged. Under the terms of the
Agreement and Plan of Merger (Agreement), FCB was merged into FBA, and FCB's
wholly owned subsidiary, First Commercial Bank, was merged into FB California,
an indirect subsidiary bank of FBA. The FCB shareholders received .8888 shares
of FBA common stock for each share of FCB common stock that they held. In
total, FCB shareholders received approximately 751,728 shares of FBA common
stock. The transaction also provided for First Banks to receive 804,000 shares
of FBA common stock in exchange for $10.0 million of the Note Payable. In
addition, FCB's convertible debentures of $6.5 million, which are owned by
First Banks, were exchanged for convertible debentures of FBA.
FCB had six banking offices located in Sacramento, Roseville (2), San
Francisco, Concord and Campbell, California. At December 31, 1997, FCB had
total assets of $191.6 million and net income of $764,000 for the year then
ended.
First Banks owned a majority interest in both FBA and FCB. Consistent with
the accounting treatment for a combination of entities under common control,
the merger was accounted for by FBA as follows:
* First Banks' interest in FCB was accounted for by FBA at First Banks'
historical cost. First Banks' historical cost basis in FCB was determined
under the purchase method of accounting, effective upon First Banks'
acquisition of First Commercial on August 23, 1995. Accordingly, the
consolidated financial statements of First Banks include the financial
position and results of operations for the periods subsequent to the
acquisition date, and the assets acquired and liabilities assumed were
recorded at fair value at the acquisition date.
Effective with the merger, because the two entities were under the common
control of First Banks, the consolidated financial statements of FBA were
restated in 1998 to reflect First Banks' interest in the financial
condition and results of operations of FCB for the periods subsequent to
August 23, 1995.
* The amount attributable to the interests of the minority shareholders in
the fair value of the net assets of FCB was accounted for by FBA under the
purchase method of accounting. Accordingly, such amount was reflected by
FBA at fair value, as determined by the market value of FBA common stock
exchanged for the minority interest pursuant to the Agreement.
F-12
<PAGE> 101
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following information presents unaudited pro forma condensed results of
operations of FBA, combined with the acquisition of Surety Bank, as if FBA had
completed the transaction on January 1, 1996. In addition, the minority
shareholders' interest in the net assets of FCB is presented as if FBA had
acquired First Banks' interest on January 1, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---- ----
(DOLLARS EXPRESSED IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net interest income...................................... $26,589 20,442
Provision for possible loan losses....................... 2,255 2,730
Net income (loss)........................................ 3,662 57
======= ======
Weighted average shares of common stock outstanding
(in thousands)......................................... 5,427 4,913
======= ======
Earnings (loss) per common share:
Basic................................................ $ 0.67 0.01
Diluted.............................................. 0.67 0.01
======= ======
</TABLE>
The unaudited pro forma condensed results of operations reflect the
application of the purchase method of accounting and certain other assumptions.
Purchase accounting adjustments have been applied to investment securities,
bank premises and equipment, deferred tax assets and liabilities and excess
cost to reflect the assets acquired and liabilities assumed at fair value. The
resulting premiums and discounts are amortized or accreted to income consistent
with the accounting policies of FBA.
The results of operations of Sunrise are not included in the pro forma
combined condensed statements of operations for the year ended December 31,
1996 as the historical results of operations for the period are not
representative of normal operating results subsequent to its acquisition by
FBA.
On February 2, 1998, FBA completed its acquisition of Pacific Bay Bank in
exchange for cash of $4.2 million. This transaction was funded by an advance
under the Note Payable. At the time of the transaction, Pacific Bay Bank had
$38.3 million in total assets; $7.4 million in cash and cash equivalents; $29.7
million in total loans, net of unearned discount; and, $35.2 million in total
deposits.
F-13
<PAGE> 102
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) INVESTMENTS IN DEBT AND EQUITY SECURITIES
The amortized cost, contractual maturity, unrealized gains and losses and
fair value of investment securities available for sale at December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
MATURITY
------------------------------------ TOTAL GROSS
AFTER AMOR- UNREALIZED WEIGHTED
1 YEAR 1-5 5-10 10 TIZED --------------- FAIR AVERAGE
OR LESS YEARS YEARS YEARS COST GAINS LOSSES VALUE YIELD
------- ----- ----- ----- ----- ----- ------ ----- --------
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997:
Carrying value:
U.S. Treasury.................... $21,061 56,249 -- -- 77,310 498 (1) 77,807 6.04%
U.S. government agencies and
corporations:
Mortgage-backed.............. -- 14,059 47 6,755 20,861 38 (28) 20,871 6.03
Other........................ 8,488 34,974 -- -- 43,462 41 (38) 43,465 6.15
Federal Home Loan Bank and
Federal Reserve Bank stock (no
stated maturity)............... 6,038 -- -- -- 6,038 -- -- 6,038 5.87
------- ------- ---- ----- ------- ------ ----- ------- ----
Total................... $35,587 105,282 47 6,755 147,671 577 (67) 148,181 6.07
======= ======= ==== ===== ======= ====== ===== ======= ====
Market value:
Debt securities.................. $29,575 105,728 47 6,793
Equity securities................ 6,038 -- -- --
------- ------- ---- -----
Total................... $35,613 105,728 47 6,793
======= ======= ==== =====
Weighted average yield............... 5.87% 6.06% 6.56% 7.23%
======= ======= ==== =====
December 31, 1996:
Carrying value:
U.S. Treasury.................... $35,051 14,119 -- -- 49,170 81 -- 4,9251 5.52%
U.S. government agencies and
corporations:
Mortgage-backed.............. 470 24,373 -- 8,857 33,700 29 (153) 33,576 6.01
Other........................ 24,988 12,040 -- -- 37,028 14 (26) 37,016 5.41
Federal Home Loan Bank and
Federal Reserve Bank stock (no
stated maturity)............... 5,296 -- -- -- 5,296 -- -- 5,296 5.87
------- ------- ---- ----- ------- ------ ----- ------- ----
Total................... $65,805 50,532 -- 8,857 125,194 124 (179) 125,139 5.63
======= ======= ==== ===== ======= ====== ===== ======= ====
Market value:
Debt securities.................. $60,528 50,455 -- 8,860
Equity securities................ 5,296 -- -- --
------- ------- ---- -----
Total................... $65,824 50,455 -- 8,860
======= ======= ==== =====
Weighted average yield............... 5.30% 5.80% --% 7.17%
======= ======= ==== =====
</TABLE>
Proceeds from sales of securities were $11.1 million, $20.6 million and
$71.0 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Gross gains of $76,000, $185,000 and $2.2 million were realized
on those sales for the years ended December 31, 1997, 1996 and 1995,
respectively. No losses were realized on those sales for the years ended
December 31, 1997, 1996 and 1995. For 1995, the net gains on sales of
securities were offset by the recognition of $5.1 million of hedging losses.
The Subsidiary Banks maintain investments in the Federal Home Loan Bank
(FHLB) and the Federal Reserve Bank (FRB). These investments are recorded at
cost, which represents redemption value. The investment in FHLB stock is
maintained at a minimum amount equal to the greater of 1% of the aggregate
outstanding balance of loans secured by residential real estate, or 5% of
advances from the FHLB. The investment in the FRB stock is maintained at a
minimum of 6% of the Subsidiary Banks' capital stock and capital surplus.
Investment securities with a carrying value of approximately $22.5 million
and $12.1 million at December 31, 1997 and 1996, respectively, were pledged in
connection with deposits of public and trust funds, securities sold under
agreements to repurchase and for other purposes as required by law.
F-14
<PAGE> 103
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the allowance for possible loan losses for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Balance, January 1.......................... $10,744 10,616 2,756
Acquired allowance for possible loan
losses.................................... 30 2,338 4,797
------- ------ ------
10,774 12,954 7,553
------- ------ ------
Loans charged-off........................... (3,655) (7,054) (4,173)
Recoveries of loans previously
charged-off............................... 2,288 2,439 820
------- ------ ------
Net loans charged-off........... (1,367) (4,615) (3,353)
------- ------ ------
Provision charged to operations............. 2,000 2,405 6,416
------- ------ ------
Balance, December 31........................ $11,407 10,744 10,616
======= ====== ======
</TABLE>
At December 31, 1997 and 1996, FBA had $2.8 million and $3.0 million,
respectively, of loans on nonaccrual status. Interest on nonaccrual loans which
would have been recorded under the original terms of the loans was $385,000,
$476,000 and $93,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. Of these amounts, $297,000, $256,000 and $70,000 was actually
recorded as interest income on such loans in 1997, 1996 and 1995, respectively.
In conjunction with the restatement of the financial statements (see Note 1),
the interest amounts for 1995 do not include FCB, as the information was not
practicable to obtain due to the discontinuance of FCB's former data processing
system.
At December 31, 1997 and 1996, FBA had $3.3 million and $4.6 million of
impaired loans, which is represented by loans on nonaccrual status and consumer
installment loans 60 days or more past due. The impaired loans had no specific
reserves at December 31, 1997 and 1996. The average recorded investment in
impaired loans was $3.7 million and $5.1 million for the years ended December
31, 1997 and 1996, respectively.
FBA's primary market areas are Houston, Dallas, Irving and McKinney, Texas
and Sacramento, San Francisco, Roseville, Rancho Cordova, Concord, Campbell,
Vallejo and Fairfield, California. At December 31, 1997, approximately 60.5% of
the total loan portfolio and 61.4% of the commercial, financial and
agricultural loan portfolio were to borrowers within these regions.
In general, FBA is a secured lender. At December 31, 1997, approximately
96.6% of the loan portfolio was secured. Collateral is required in accordance
with the normal credit evaluation process based upon the creditworthiness of
the customer and the credit risk associated with the particular transaction.
(5) BANK PREMISES AND EQUIPMENT
Bank premises and equipment were comprised of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
(DOLLARS EXPRESSED
IN THOUSANDS)
<S> <C> <C>
Land..................................................... $ 4,114 3,314
Buildings and improvements............................... 5,684 3,929
Furniture, fixtures and equipment........................ 4,384 2,923
Construction in progress................................. 387 46
------- ------
Total........................................ 14,569 10,212
Less accumulated depreciation............................ 3,872 1,949
------- ------
Bank premises and equipment, net............. $10,697 8,263
======= ======
</TABLE>
F-15
<PAGE> 104
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
totaled $851,000, $858,000 and $1.2 million, respectively.
FBA leases land, office properties and some items of equipment under
operating leases. Certain of the leases contain renewal options and escalation
clauses. Total rent expense was $1.0 million, $826,000 and $1.0 million for the
years ended December 31, 1997, 1996 and 1995, respectively. Future minimum
lease payments under noncancellable operating leases extend through 2019 as
follows:
<TABLE>
<CAPTION>
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C>
Year ending December 31:
1998............................................ $1,378
1999............................................ 859
2000............................................ 550
2001............................................ 389
2002............................................ 287
Thereafter...................................... 3,055
------
Total minimum lease payments............ $6,518
======
</TABLE>
FBA leases a portion of its owned banking facilities to unrelated parties.
Total rental income was $762,000, $428,000 and $322,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
(6) PROMISSORY NOTE PAYABLE
FBA borrowed $14.9 million and $14.0 million at December 31, 1997 and 1996,
respectively, from First Banks under a $20.0 million Note Payable. The
borrowings under the Note Payable bear interest at an annual rate of one-
quarter percent less than the "Prime Rate" as reported in the Wall Street
Journal. The principal and accrued interest under the Note Payable are due and
payable on October 31, 2001. The interest expense under the Note Payable was
$1.18 million and $194,000 for the years ended December 31, 1997 and 1996,
respectively. The accrued and unpaid interest under the Note Payable was $1.37
million and $194,000 at December 31, 1997 and 1996, respectively. There were no
balances outstanding during 1995.
(7) EARNINGS PER COMMON SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations for the periods indicated:
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Year ended December 31, 1997:
Basic EPS--income available to common stockholders...... $3,533 4,069 $0.87
Effect of dilutive securities--stock options............ -- 27
------ -----
Diluted EPS--income available to common stockholders.... $3,533 4,096 $0.86
====== ===== =====
Year ended December 31, 1996:
Basic EPS--income available to common stockholders...... $ 691 4,225 $0.16
Effect of dilutive securities:
Stock options....................................... -- 61
Warrants............................................ -- 91
------ -----
Diluted EPS--income available to common stockholders.... $ 691 4,377 $0.16
====== ===== =====
</TABLE>
F-16
<PAGE> 105
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The 12% convertible debentures were anti-dilutive for the periods presented
and therefore, have not been included in the EPS calculations. As a result of
the net loss incurred in 1995, the effects of stock options and warrants were
anti-dilutive for the year then ended.
(8) INCOME TAXES
Total income tax expense of $3.1 million, $470,000, and a tax benefit of
$2.2 million for the years ended December 31, 1997, 1996 and 1995,
respectively, were attributable to income from continuing operations.
Income tax expense (benefit) for the years ended December 31 consists of:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Current income tax expense (benefit):
Federal..................................... $ 947 (509) (105)
State....................................... 383 2 --
------ ---- ------
1,330 (507) (105)
------ ---- ------
Deferred income tax expense (benefit):
Federal...................................... 1,356 23 (2,083)
State........................................ 55 588 --
------ ---- ------
1,411 611 (2,083)
------ ---- ------
Change in valuation allowance.................... 404 366 --
------ ---- ------
Total................................ $3,145 470 (2,188)
====== ==== ======
</TABLE>
The effective rates of federal income taxes for the years ended December 31
differ from statutory rates of taxation as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before provision for income tax
expense (benefit).............................. $6,972 $1,292 $(7,013)
====== ====== =======
Tax expense (benefit) at federal income tax
rate........................................... $2,440 35% 452 35.0% $(2,455) (35.0)%
Effects of differences in tax reporting:
Change in the deferred tax valuation
allowance.................................. 404 5.8 366 28.3 -- --
Change in tax attributes available to be
carried forward............................ -- -- (605) (46.8) -- --
State income taxes........................... 285 4.1 385 29.8 -- --
Other........................................ 16 0.2 (128) (9.9) 267 3.8
------ ---- ------ ----- ------- -----
Income tax expense (benefit) at effective rate... $3,145 45.1% $ 470 36.4% $(2,188) (31.2)%
====== ==== ====== ===== ======= =====
</TABLE>
F-17
<PAGE> 106
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
---- ----
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses..................... $ 3,971 3,488
Foreclosed property.................................... 677 1,959
Alternative minimum tax credit......................... 736 727
Postretirement medical plan............................ 247 353
Quasi-reorganization adjustment of bank premises....... 1,377 1,427
Other.................................................. 1,104 1,321
Net operating loss carryforwards....................... 13,092 12,906
------- ------
Gross deferred tax assets........................... 21,204 22,181
Valuation allowance..................................... (7,040) (6,579)
------- ------
Net deferred tax assets............................. 14,164 15,602
------- ------
Deferred tax liabilities:
FHLB stock dividends.................................... 409 230
Bank premises and equipment............................. 533 466
Other................................................... 150 272
------- ------
Gross deferred tax liabilities...................... 1,092 968
------- ------
Net deferred tax assets............................. $13,072 14,634
======= ======
</TABLE>
The realization of FBA's net deferred tax assets is based on the
expectation of future taxable income and the utilization of tax planning
strategies. Based on these factors, management believes it is more likely than
not that FBA will realize the recognized net deferred tax asset of $13.1
million. The net change in the valuation allowance, related to deferred tax
assets, was an increase of $461,000 for the year ended December 31, 1997. FCB
files a separate tax return and based on the surrounding facts and
circumstances, management believes the realization of the tax benefit related
to these tax net operating losses is not likely to occur.
Changes to the deferred tax asset valuation allowance for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C>
Balance, January 1...................................... $6,579 5,554
Current year deferred provision, change in deferred tax
valuation allowance................................... 404 366
Purchase acquisitions................................... 57 659
------ -----
Balance, December 31.................................... $7,040 6,579
====== =====
</TABLE>
The valuation allowance for deferred tax assets at December 31, 1997 and
1996 includes $747,000 which, if recognized, will be credited to intangibles
associated with the purchase of subsidiaries. The valuation allowance for
deferred tax assets at December 31, 1997 and 1996 includes $5.9 million,
respectively, which, if recognized, will be credited to capital surplus under
the terms of the quasi-reorganizations implemented for FBA and FCB as of
December 31, 1994 and 1996, respectively.
F-18
<PAGE> 107
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1997, FBA has separate limitation year (SRLY) net operating
loss carryforwards (NOLs) of $22.5 million and alternative minimum tax credits
of $288,000. Their utilization is subject to annual limitations. Additionally,
FBA has non-SRLY NOLs of $11.8 million.
The NOLs for FBA at December 31, 1997 expire as follows:
<TABLE>
<CAPTION>
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C>
Year ending December 31:
1998.......................................... $ 4,140
1999.......................................... 2,641
2000.......................................... 103
2001 through 2010............................. 27,417
-------
Total..................................... $34,301
=======
</TABLE>
With the completion of the acquisition of FCB, the NOL carryforwards
generated prior to the transaction were subject to an annual limitation in
subsequent tax years. The following schedule reflects the NOL carryforwards
that will be available to offset future taxable income of FCB and do not affect
the taxable income of FBA.
At December 31, 1997, for federal income tax purposes, FCB had NOL
carryforwards of approximately $2.9 million. The NOL carryforwards at December
31, 1997 expire as follows:
<TABLE>
<CAPTION>
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C>
Year ending December 31:
2008.......................................... $ 394
2009.......................................... 747
2011.......................................... 660
2017.......................................... 1,064
------
Total..................................... $2,865
======
</TABLE>
(9) 12% CONVERTIBLE DEBENTURES
In 1995, FCB issued to First Banks two 5-year, 12% convertible debentures
in exchange for $6.5 million. The principal and any accrued but unpaid interest
thereon is convertible at any time prior to maturity, at the option of First
Banks, into FBA common stock at $14.06 per share. At maturity, any unpaid
principal and accrued interest will be converted into FBA common stock at
$14.06 per share. The initial debenture of $1.5 million was issued on October
31, 1995 and matures on October 31, 2000. The second debenture was issued on
December 28, 1995 and matures on December 28, 2000. Cash may be paid with
respect to either the principal or interest on the debentures only when, in the
sole and absolute discretion of the Board of Directors of FBA, it is determined
that FBA has sufficient funds to make such payment in accordance with all
applicable regulatory requirements.
Accrued and unpaid interest on the debentures was $1.6 million and $831,000
at December 31, 1997 and 1996, respectively. At December 31, 1997, the
principal and accrued but unpaid interest on the debentures could have been
converted into an aggregate of 577,632 shares of FBA common stock.
(10) EMPLOYEE BENEFIT PLANS
401(K) PLAN
FBA has a savings and incentive plan covering substantially all employees.
Under the plan, employer matching contributions are determined annually by
FBA's Board of Directors. Employee contributions are limited to 15% of an
employee's compensation not to exceed $9,500 for 1997. Total employer
contributions under the plan were
F-19
<PAGE> 108
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$63,000, $40,000 and $41,000 for the years ended December 31, 1997, 1996 and
1995, respectively. The plan assets are held and managed under a trust
agreement with the trust department of an affiliated bank.
PENSION PLAN
FBA has a noncontributory defined benefit pension plan covering
substantially all officers and employees. The accumulation of benefits under
the plan were discontinued during 1994. During 1997, 1996 and 1995, no
contributions were made to the pension plan and FBA did not incur any
expenditures associated with the pension plan. FBA is in the process of
terminating this plan and does not expect to incur a significant gain or loss.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Prior to August 31, 1994, FBA made certain health care and life insurance
benefits available for substantially all of its retired employees, a portion of
the cost of which was paid by FBA. The estimated cost of such postretirement
benefits was accrued as an expense during the period of an employee's active
service to FBA. During 1994, FBA reevaluated the cost of this plan and changed
it to provide contributions for coverage only to those individuals receiving
benefits on August 31, 1994. In conjunction with the plan restructuring, FBA
fully recognized the estimated cost of the future benefits payable under the
plan. Employees retiring after that date are allowed to purchase coverage, but
must pay the entire cost associated with such coverage.
(11) DIRECTORS' STOCK BONUS PLAN
The 1993 Directors' Stock Bonus Plan provides for annual grants of FBA
common stock to the nonemployee directors of FBA. Directors' compensation of
$13,000, $10,000 and $27,000 was recorded relating to this plan for the years
ended December 31, 1997, 1996 and 1995, respectively. These amounts represented
the market values of the 1,000 shares granted for the years ended December 31,
1997, 1996 and 1995, respectively.
The plan is self-operative, and the timing, amounts, recipients and terms
of individual grants are determined automatically. On July 1 of each year, each
nonemployee director automatically receives a grant of 500 shares of common
stock. The maximum number of plan shares that may be issued shall not exceed
16,667 shares and 9,667 shares remain to be issued at December 31, 1997. The
plan will expire on July 1, 2001.
(12) COMMITMENTS AND CONTINGENCIES
FBA is a party to commitments to extend credit and commercial and standby
letters of credit in the normal course of business to meet the financing needs
of its customers. These instruments involve, to varying degrees, elements of
credit risk and interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The interest rate risk associated with these
credit commitments relates primarily to the commitments to originate fixed-rate
loans. The credit risk amounts are equal to the contractual amounts, assuming
the amounts are fully advanced and the collateral or other security is of no
value. FBA uses the same credit policies in granting commitments and
conditional obligations as it does for on-balance-sheet items.
Commitments to extend credit at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C>
Credit card commitments.............. $ 1,978 3,140
Other loan commitments............... 237,973 134,879
Standby letters of credit............ 2,173 226
======== =======
</TABLE>
Credit card and other loan commitments are agreements to lend to a customer
as long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being
F-20
<PAGE> 109
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. Each customer's creditworthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if deemed necessary upon
extension of credit, is based on credit evaluation of the customer. Collateral
held varies but may include accounts receivable, inventory, property, plant,
equipment, income-producing commercial properties and single family residential
properties. Collateral is generally required except for consumer credit card
commitments.
Standby letters of credit are conditional commitments issued to guarantee
the performance of a customer to a third party. The letters of credit are
primarily issued to support private borrowing arrangements and commercial
transactions. Most letters of credit extend for less than one year. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. Upon issuance of the
commitments, FBA holds marketable securities, certificates of deposit,
inventory or other assets as collateral supporting those commitments for which
collateral is deemed necessary.
(13) STOCKHOLDERS' EQUITY
STOCK OPTIONS
On April 19, 1990, the Board of Directors of FBA adopted the 1990 Stock
Option Plan (1990 Plan). The 1990 Plan currently provides that no more than
200,000 shares of common stock will be available for stock options. One-fourth
of each stock option becomes exercisable at the date of the grant and at each
anniversary date of the grant. The options expire ten years from the date of
the grant. There were no options granted under this plan during the three years
ended December 31, 1997.
At December 31, 1997, there were 36,833 shares available for future stock
options and 13,334 shares of common stock reserved for the exercise of
outstanding options. Transactions relating to the 1990 Plan for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- --------------------
AVERAGE AVERAGE AVERAGE
OPTION OPTION OPTION
AMOUNT PRICE AMOUNT PRICE AMOUNT PRICE
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding options, January 1................ 57,500 $3.75 67,500 $3.75 98,133 $3.75
Options exercised and redeemed................ (44,166) 3.75 (10,000) 3.75 (30,633) 3.75
------- ------- -------
Outstanding options, December 31.............. 13,334 3.75 57,500 3.75 67,500 3.75
======= ===== ======= ===== ======= =====
Options exercisable, December 31.............. 13,334 57,500 67,500
======= ======= =======
</TABLE>
WARRANTS
In connection with a previous restructuring of FBA, a warrant to purchase
common stock was granted to the Federal Deposit Insurance Corporation (FDIC).
On October 1, 1996, FBA purchased the outstanding warrant to acquire 131,336
shares of FBA common stock at $0.75 per share from the FDIC for an aggregate
amount of $1.28 million. The purchase of the warrant was applied as a reduction
of capital surplus.
DISTRIBUTION OF EARNINGS OF THE SUBSIDIARY BANKS
The Subsidiary Banks are restricted by various state and federal
regulations as to the amount of dividends which are available for payment of
dividends to FBA. Under the most restrictive of these requirements, the future
payment of dividends from the Subsidiary Banks is limited to approximately $2.6
million at December 31, 1997, unless prior permission of the regulatory
authorities is obtained.
F-21
<PAGE> 110
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) TRANSACTIONS WITH RELATED PARTIES
FBA purchases certain services and supplies from or through First Banks.
FBA's financial position and operating results could significantly differ from
those that would be obtained if FBA's relationship with First Banks did not
exist.
First Banks provides management services to FBA and its Subsidiary Banks.
Management services are provided under a management fee agreement whereby FBA
compensates First Banks on an hourly basis for its use of personnel for various
functions including internal audit, loan review, income tax preparation and
assistance, accounting, asset/liability and investment services, loan servicing
and other management and administrative services. Fees paid under this
agreement were $1.4 million, $1.3 million and $521,000 for the years ended
December 31, 1997, 1996 and 1995 respectively. The fees paid for management
services are at least as favorable as could have been obtained from an
unaffiliated third party.
Because of the affiliation with First Banks and the geographic proximity of
certain of their offices, FBA shares the cost of certain personnel and services
used by FBA and First Banks. This includes the salaries and benefits of certain
loan and administrative personnel. The allocation of the shared costs are
charged and/or credited under the terms of cost sharing agreements entered into
during 1996. Because this involves distributing essentially fixed costs over a
larger asset base, it allows each bank to receive the benefit of personnel and
services at a reduced cost. Fees paid under these agreements were $709,000 and
$412,000 for the years ended December 31, 1997 and 1996, respectively.
Effective April 1, 1997, First Services L.P., a limited partnership
indirectly owned by First Banks' Chairman and his children through its general
partners and limited partners, began providing data processing and various
related services to FBA under the terms of data processing agreements.
Previously, these services were provided by a subsidiary of First Banks. Fees
paid under these agreements were $1.0 million, $692,000 and $374,000 for the
years ended December 31, 1997, 1996 and 1995, respectively. The fees paid for
data processing services are at least as favorable as could have been obtained
from an unaffiliated third party.
FBA's Subsidiary Banks had $66.9 million and $39.3 million in whole loans
and loan participations outstanding at December 31, 1997 and 1996,
respectively, that were purchased from banks affiliated with First Banks. In
addition, FBA's Subsidiary Banks had sold $54.7 million and $28.7 million in
whole loans and loan participations to affiliates of First Banks at December
31, 1997 and 1996, respectively. These loans and loan participations were
acquired and sold at interest rates and terms prevailing at the dates of their
purchase or sale and under standards and policies followed by FBA's Subsidiary
Banks.
FBA has borrowed $14.9 million and $14.0 million at December 31, 1997 and
1996, respectively, from First Banks under a $20 million Note Payable, dated
November 4, 1997. This Note Payable replaces a $15 million note payable under
similar terms to First Banks. The borrowings under the Note Payable bear
interest at an annual rate of one-quarter percent less than the "Prime Rate"
as reported in the Wall Street Journal. The interest expense was $1.18 million
and $194,000 for the years ended December 31, 1997 and 1996, respectively. The
principal and accrued interest under the Note Payable are due and payable on
October 31, 2001. The accrued and unpaid interest under the Note Payable was
$1.37 million and $194,000 at December 31, 1997 and 1996, respectively.
First Banks purchased convertible debentures of FCB of $1.5 million and
$5.0 million on October 31, 1995 and December 28, 1995, respectively, as more
fully discussed in Note 9. The related interest expense for these debentures
was $791,000, $793,000 and $38,000 for the years ended December 31, 1997, 1996
and 1995, respectively.
Outside of normal customer relationships, no directors, executive officers
or stockholders holding over 5% of FBA's voting stock, and no corporations or
firms with which such persons or entities are associated, currently maintain or
have maintained, any significant business or personal relationships with FBA or
its subsidiaries, other than that which arises by virtue of such position or
ownership interest in FBA, except as described above.
F-22
<PAGE> 111
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) INTEREST RATE RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK
Derivative financial instruments held by FBA at December 31, 1997 and 1996
consist of an interest rate cap agreement with a notional amount of $10.0
million and credit exposure of $222,000 and $335,000, respectively.
FBA's interest rate cap agreement limits the interest expense associated
with certain of its interest-bearing liabilities. In exchange for an initial
fee, the interest rate cap agreement entitles FBA to receive interest payments
when a specified index rate exceeds a predetermined rate. The agreement
outstanding at December 31, 1997 and 1996 effectively limits the interest rate
to 5.0% on $10 million of interest-bearing liabilities from October 15, 1997 to
May 15, 2000. At December 31, 1997 and 1996, the unamortized costs were
$242,000 and $353,000, respectively, and were included in other assets. The
amount receivable under the agreement was $8,000 at December 31, 1997. There
were no amounts receivable under the agreement at December 31, 1996.
Previously, FBA sold interest rate futures contracts and purchased options
on interest rate futures contracts to hedge the interest rate risk of its
available-for-sale securities portfolio. There were no outstanding positions of
interest rate futures for the years ended December 31, 1997 and 1996. For the
year ended December 31, 1995, FBA incurred a net loss on interest rate futures
contracts of $5.95 million, of which $806,000 was amortized to income as a
yield adjustment to the investment security portfolio and $5.14 million was
included in the cost basis in determining the gain or loss upon the sale of the
securities. There were no gains or losses from interest rate futures contracts
for the years ended December 31, 1997 and 1996.
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values of financial instruments are management's estimate of the
values at which the instruments could be exchanged in a transaction between
willing parties. These estimates are subjective and may vary significantly from
amounts that would be realized in actual transactions. In addition, other
significant assets are not considered financial assets including deferred tax
assets and bank premises and equipment. Further, the tax ramifications related
to the realization of the unrealized gains and losses can have a significant
effect on the fair value estimates and have not been considered in any of the
estimates.
F-23
<PAGE> 112
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The estimated fair value of FBA's financial instruments at December 31 were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents.......................... $ 35,162 35,162 42,874 42,874
Investment securities.............................. 148,181 148,181 125,139 125,139
Net loans.......................................... 420,048 421,874 325,627 328,166
Accrued interest receivable........................ 4,819 4,819 3,545 3,545
Liabilities:
Demand and savings deposits........................ $318,215 318,215 247,018 247,018
Time deposits...................................... 238,312 239,344 208,924 209,291
Accrued interest payable........................... 4,185 4,185 2,002 2,002
12% convertible debentures......................... 6,500 6,500 6,500 6,500
Borrowings......................................... 18,587 18,587 16,797 16,797
Off-balance-sheet:
Interest rate cap agreement........................ $ 242 222 353 335
Unfunded loan commitments.......................... -- -- -- --
</TABLE>
The following methods and assumptions were used in estimating the fair
value of financial instruments:
FINANCIAL ASSETS:
Cash and cash equivalents and accrued interest receivable: The carrying
values reported in the consolidated balance sheets approximate fair value.
Investment securities: Fair value for securities available for sale were
the amounts reported in the consolidated balance sheets. If quoted market
prices were not available, fair values were based upon quoted market prices of
comparable instruments.
Net loans: The fair value for most loans was estimated utilizing discounted
cash flow calculations that applied interest rates currently being offered for
similar loans to borrowers with similar risk profiles. The carrying values for
loans are net of the allowance for possible loan losses and unearned discount.
FINANCIAL LIABILITIES:
Deposits: The fair value disclosed for deposits generally payable on demand
(i.e., non-interest-bearing and interest-bearing demand, savings and money
market accounts) were considered equal to their respective carrying amounts as
reported in the consolidated balance sheets. The fair value disclosed for
demand deposits does not include the benefit that results from the low-cost
funding provided by deposit liabilities compared to the cost of borrowing funds
in the market. The fair value for certificates of deposit was estimated
utilizing a discounted cash flow calculation that applied interest rates
currently being offered on similar certificates to a schedule of aggregated
monthly maturities of time deposits.
Borrowings, 12% convertible debentures and accrued interest payable: The
carrying values reported in the consolidated balance sheets approximate fair
value.
F-24
<PAGE> 113
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OFF-BALANCE-SHEET:
Interest rate cap agreement: The fair value of the interest rate cap
agreement is estimated by comparison to market rates quoted on new agreements
with similar creditworthiness.
Unfunded loan commitments: The majority of the commitments to extend credit
and commercial and standby letters of credit contain variable interest rates
and credit deterioration clauses and, therefore, the carrying value of these
credit commitments approximates fair value.
(17) REGULATORY CAPITAL
The Subsidiary Banks are subject to various regulatory capital requirements
administered by the federal and state 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 Subsidiary Banks' financial statements. Under capital
adequacy guidelines and the regulatory framework for Prompt Corrective Action,
the Subsidiary Banks must meet specific capital guidelines that involve
quantitative measures of the Subsidiary Banks' assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Subsidiary Banks' capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weighting and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Subsidiary Banks to maintain certain minimum capital ratios. The
Subsidiary Banks are required to maintain a minimum risk-based capital to
risk-weighted assets ratio of 8.0%, with at least 4.0% being "Tier 1" capital
(as defined in the regulations). In addition, a minimum leverage ratio (Tier 1
capital to average assets) of 3.0% plus an additional cushion of 100 to 200
basis points is expected. In order to be considered well capitalized under
Prompt Corrective Action provisions, a bank is required to maintain a risk
weighted asset ratio of at least 10%, a Tier 1 to risk weighted assets ratio of
at least 6%, and a leverage ratio of at least 5%. As of December 31, 1996, the
date of the most recent notification from FBA's primary regulator, each of the
Subsidiary Banks were categorized as well capitalized under the regulatory
framework for Prompt Corrective Action. Management believes, as of December 31,
1997, each of the Subsidiary Banks was well capitalized as defined by the FDIC
Improvement Act.
At December 31, 1997 and 1996, FBA's and the Subsidiary Banks' capital
ratios were as follows:
<TABLE>
<CAPTION>
RISK-BASED CAPITAL RATIOS
--------------------------------------
TOTAL TIER 1 LEVERAGE RATIO
--------------- --------------- ---------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FBA................................................ 6.88% 6.62% 5.62% 5.35% 4.96% 4.46%
BankTEXAS.......................................... 12.26 10.29 11.00 9.04 8.90 7.53
FB California...................................... 13.03 -- 11.77 -- 13.80 --
Sunrise Bank<F1>................................... -- 17.67 -- 16.39 -- 10.88
First Commercial<F2>............................... 11.25 12.18 9.98 10.89 7.96 8.21
<FN>
- --------
<F1>Sunrise Bank was merged into FB California on December 1, 1997.
<F2>First Commercial was merged into FB California on February 2, 1998.
</TABLE>
(18) CONTINGENT LIABILITIES
In the ordinary course of business, there are various legal proceedings
pending against FBA and/or the Subsidiary Banks. Management, in consultation
with legal counsel, is of the opinion the ultimate resolution of these
proceedings will have no material effect on the financial condition or results
of operations of FBA or the Subsidiary Banks.
F-25
<PAGE> 114
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(19) PARENT COMPANY ONLY FINANCIAL INFORMATION
<TABLE>
CONDENSED BALANCE SHEETS
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---- ----
(DOLLARS EXPRESSED IN
THOUSANDS)
<S> <C> <C>
Assets:
Cash.................................................... $ 1,075 802
Investment in subsidiaries.............................. 68,095 55,469
Deferred tax assets..................................... 3,532 3,297
Other assets............................................ 659 667
------- ------
Total assets........................................ $73,361 60,235
======= ======
Liabilities and stockholders' equity:
Dividends payable....................................... $ -- 251
Promissory note payable................................. 14,900 14,000
12% convertible debentures.............................. 6,500 6,500
Accrued and other liabilities........................... 6,870 1,289
------- ------
Total liabilities................................... 28,270 22,040
Stockholders' equity........................................ 45,091 38,195
------- ------
Total liabilities and stockholders' equity.............. $73,361 60,235
======= ======
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
---- ---- ----
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Income:
Dividends from subsidiaries............................. $ 1,625 -- --
Other................................................... 31 219 315
------- ------ ------
Total income........................................ 1,656 219 315
------- ------ ------
Expense:
Interest................................................ 2,064 1,138 140
Other................................................... 686 505 32
------- ------ ------
Total expense....................................... 2,750 1,643 172
------- ------ ------
(Loss) income before income tax (benefit) expense... (1,094) (1,424) 143
Income tax (benefit) expense............................ (686) (492) 68
------- ------ ------
(Loss) income before equity in undistributed income
(loss) of subsidiaries............................ (408) (932) 75
Equity in undistributed income (loss) of subsidiaries... 3,941 1,623 (4,889)
------- ------ ------
Net income (loss)................................... $ 3,533 691 (4,814)
======= ====== ======
</TABLE>
F-26
<PAGE> 115
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---- ---- ----
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income (loss)....................................... $ 3,533 691 (4,814)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Credit for deferred income taxes.................... 688 126 --
Equity in undistributed (income) loss of
subsidiaries...................................... (3,941) (1,623) 4,889
Dividends from subsidiaries......................... 1,625 -- --
Other, net.......................................... (1,028) (2,134) (552)
------- ------- -------
Net cash provided by (used in) operating
activities.................................... 877 (2,940) (477)
------- ------- -------
Investing activities:
Cash received from acquired entities.................... -- -- 200
Purchase of investment securities....................... -- (12,618) (21,191)
Proceeds from maturity of investment securities......... -- 7,152 8,345
Proceeds from sales of investment securities............ -- 4,496 25,752
Capital contributions to subsidiaries................... -- (17,052) (3,750)
Pre-merger transactions of FCB.......................... -- (1,938) --
------- ------- -------
Net cash provided by (used in) investing
activities.................................... -- (19,960) 9,356
------- ------- -------
Financing activities:
Increase in promissory note payable..................... 900 14,000 --
Exercise of stock options............................... 15 38 115
Repurchase of common stock for treasury................. (1,512) (2,010) (828)
Pre-merger transactions of FCB.......................... (7) 2,933 --
------- ------- -------
Net cash provided by (used in) financing
activities.................................... (604) 14,961 (713)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents................................... 273 (7,939) 8,166
Cash and cash equivalents at beginning of year.............. 802 8,741 575
------- ------- -------
Cash and cash equivalents at end of year.................... $ 1,075 802 8,741
======= ======= =======
Noncash investing and financing activities:
Issuance of common stock in purchase accounting
acquisition........................................... $ 4,763 -- --
Cash paid for interest.................................. -- 475 110
Pre-merger transaction of FCB--exchange of common stock
for dividend payable.................................. -- 643 --
======= ======= =======
</TABLE>
(20) SUBSEQUENT EVENTS
As described in Note 2 to the consolidated financial statements, FBA
completed the acquisitions of FCB and Pacific Bay Bank on February 2, 1998 in
exchange for 751,728 shares of FBA common stock and cash of $4.2 million,
respectively. The total assets of FCB and Pacific Bay Bank were $192.5 million
and $38.3 million, respectively, at the date of the transactions.
The accounting treatment for the acquisition of FCB is summarized in Note 2
to the consolidated financial statements. The acquisition of Pacific Bay Bank
was accounted for under the purchase method of accounting and was funded
through an advance under the Note Payable. The excess of the cost over the fair
value of the net assets acquired was $1.63 million and $1.52 million for FCB
and Pacific Bay Bank, respectively, and is being amortized over 15 years.
F-27
<PAGE> 116
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
INDEPENDENT AUDITORS' REPORT
KPMG PEAT MARWICK LLP LOGO
The Board of Directors and Stockholders
First Commercial Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of First
Commercial Bancorp, Inc. and subsidiary (the Company) as of December 31, 1997
and 1996, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Commercial Bancorp, Inc. and subsidiary as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
May 22, 1998
F-28
<PAGE> 117
<TABLE>
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
DECEMBER 31,
------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks................................. $ 8,720 9,410
Federal funds sold...................................... -- 11,500
-------- -------
Total cash and cash equivalents..................... 8,720 20,910
-------- -------
Investment securities available for sale, at fair value..... 64,390 38,229
Loans:
Commercial and financial................................ 40,672 32,756
Real estate construction and development................ 26,853 13,807
Real estate mortgage.................................... 46,233 39,103
Consumer and installment................................ 5,100 9,244
-------- -------
Total loans......................................... 118,858 94,910
Unearned discount....................................... (840) (413)
Allowance for possible loan losses...................... (4,692) (4,597)
-------- -------
Net loans........................................... 113,326 89,900
-------- -------
Bank premises and equipment, net of accumulated
depreciation.............................................. 2,018 1,894
Accrued interest receivable................................. 1,856 1,197
Other real estate........................................... 220 192
Other assets................................................ 1,113 711
-------- -------
Total assets........................................ $191,643 153,033
======== =======
<CAPTION>
The accompanying notes are an integral part of the consolidated financial statements.
F-29
<PAGE> 118
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
------------------
1997 1996
---- ----
<S> <C> <C>
LIABILITIES
Deposits:
Demand:
Non-interest-bearing................................ $ 30,997 24,026
Interest-bearing.................................... 16,188 16,956
Savings................................................. 56,850 30,042
Time deposits:
Time deposits of $100 or more....................... 14,095 9,284
Other time deposits................................. 54,455 55,828
-------- -------
Total deposits.................................. 172,585 136,136
Short-term borrowings....................................... 880 705
Accrued interest payable.................................... 1,939 1,098
Accrued expenses and other liabilities...................... 2,082 2,264
Notes payable............................................... 400 --
12% convertible debentures.................................. 6,500 6,500
-------- -------
Total liabilities............................... 184,386 146,703
-------- -------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 5,000,000 shares
authorized; no shares issued and outstanding.............. -- --
Common stock, $1.25 par value, 10,000,000 shares authorized;
845,779 and 846,127 shares issued and outstanding at
December 31, 1997 and 1996, respectively.................. 1,058 1,058
Capital surplus............................................. 5,265 5,272
Retained earnings since elimination of accumulated deficit
of $30,881, effective December 31, 1996................... 764 --
Net fair value adjustment for securities available for
sale...................................................... 170 --
-------- -------
Total stockholders' equity...................... 7,257 6,330
-------- -------
Total liabilities and stockholders' equity...... $191,643 153,033
======== =======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-30
<PAGE> 119
<TABLE>
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans.............................. $ 10,234 8,643
Investment securities................................... 2,797 2,738
Federal funds sold and other............................ 603 555
-------- -------
Total interest income............................... 13,634 11,936
-------- -------
Interest expense:
Deposits:
Interest-bearing demand............................. 224 269
Savings............................................. 1,397 965
Time deposits of $100 or more....................... 513 599
Other time deposits................................. 3,268 2,802
Other borrowings........................................ 919 905
-------- -------
Total interest expense.............................. 6,321 5,540
-------- -------
Net interest income................................. 7,313 6,396
Provision for possible loan losses.......................... -- 1,155
-------- -------
Net interest income after provision for possible
loan losses....................................... 7,313 5,241
-------- -------
Noninterest income:
Service charges on deposit accounts and customer service
fees.................................................. 607 751
Other income............................................ 116 986
-------- -------
Total noninterest income............................ 723 1,737
-------- -------
Noninterest expense:
Salaries and employee benefits.......................... 2,007 2,177
Occupancy, net of rental income......................... 726 881
Furniture and equipment................................. 344 390
Federal Deposit Insurance Corporation premiums.......... 17 337
Postage, printing and supplies.......................... 150 477
Legal, examination and professional fees................ 1,236 1,501
Data processing......................................... 369 401
Communications.......................................... 152 202
(Gain) loss on sale of other real estate, net of
expenses.............................................. (47) 1,002
Other................................................... 931 712
-------- -------
Total noninterest expense........................... 5,885 8,080
-------- -------
Income (loss) before provision (benefit) for income
taxes.............................................. 2,151 (1,102)
Provision (benefit) for income taxes........................ 1,387 (532)
-------- -------
Net income (loss) available to common
stockholders....................................... $ 764 (570)
======== =======
Net earnings (loss) per common share:
Basic................................................... $ 0.90 (0.77)
Diluted................................................. 0.90 (0.77)
======== =======
Weighted average common stock outstanding................... 845,779 738,260
======== =======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-31
<PAGE> 120
<TABLE>
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TWO YEARS ENDED DECEMBER 31, 1997
(DOLLARS EXPRESSED IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<CAPTION>
NET FAIR
VALUE
ADJUSTMENT
FOR TOTAL
RETAINED SECURITIES STOCK-
COMMON CAPITAL EARNINGS AVAILABLE HOLDERS'
STOCK SURPLUS (DEFICIT) FOR SALE EQUITY
------ ------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996..................... $ 697 33,251 (30,311) (58) 3,579
Net loss..................................... -- -- (570) -- (570)
Net fair value adjustment for securities
available for sale......................... -- -- -- 104 104
Proceeds received from sale of 288,720 shares
of common stock............................ 361 2,856 -- -- 3,217
Effect of quasi-reorganization, effective
December 31, 1996.......................... -- (30,835) 30,881 (46) --
------ ------- -------- ------ ------
Balance, December 31, 1996................... 1,058 5,272 -- -- 6,330
Net income................................... -- -- 764 -- 764
Repurchase of fractional shares.............. -- (7) -- -- (7)
Net fair value adjustment for securities
available for sale......................... -- -- -- 170 170
------ ------- -------- ------ ------
Balance, December 31, 1997................... $1,058 5,265 764 170 7,257
====== ======= ======== ====== ======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-32
<PAGE> 121
<TABLE>
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS EXPRESSED IN THOUSANDS)
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 764 (570)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, amortization and accretion, net....... 359 148
Provision for possible loan losses.................. -- 1,155
Provision (benefit) for income taxes................ 1,387 (532)
Payments of income taxes............................ (1,730) --
(Increase) decrease in accrued interest
receivable......................................... (659) 232
Interest accrued on liabilities..................... 6,321 5,540
Payments of interest on liabilities................. (5,480) (4,929)
Other operating activities, net..................... (257) 1,979
-------- -------
Net cash provided by operating activities....... 705 3,023
-------- -------
Cash flows from investing activities:
Proceeds from maturities of investment securities....... 36,557 86,884
Purchases of investment securities...................... (62,604) (50,643)
Recoveries of loans previously charged-off.............. 1,006 1,047
Net increase in loans................................... (24,841) (24,574)
Purchases of bank premises and equipment................ (335) (49)
Net decrease in lease financing......................... -- 991
Proceeds from sales of other real estate................ 480 2,297
Other investing activities.............................. -- (23)
-------- -------
Net cash (used in) provided by investing
activities.................................... (49,737) 15,930
-------- -------
Cash flows from financing activities:
Other increases (decreases) in deposits:
Demand and savings deposits......................... 33,011 (12,846)
Time deposits....................................... 3,438 (7,182)
Proceeds from the issuance of common stock.............. -- 3,217
Increase in notes payable............................... 400 --
Repurchase of fractional shares......................... (7) --
-------- -------
Net cash provided by (used in) financing
activities.................................... 36,842 (16,811)
-------- -------
Net (decrease) increase in cash and cash
equivalents................................... (12,190) 2,142
Cash and cash equivalents at beginning of year.............. 20,910 18,768
-------- -------
Cash and cash equivalents at end of year.................... $ 8,720 20,910
======== =======
Noncash investing and financing activities:
Exchange of common stock for dividends payable.......... $ -- 643
Net decrease in other real estate as a result of
foreclosure or financing, and other related
transactions........................................... 409 1,099
======== =======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-33
<PAGE> 122
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements of First Commercial
Bancorp, Inc. and subsidiary (FCB or the Company) have been prepared in
accordance with generally accepted accounting principles and conform to
practices prevalent among financial institutions.
FCB operates a commercial banking business through its banking subsidiary,
First Commercial Bank (First Commercial or the Bank or the Subsidiary Bank).
First Commercial is headquartered in Sacramento with five branch offices
located in Roseville (two branches), San Francisco, Concord and Campbell,
California.
FCB is majority owned by First Banks, Inc., St. Louis, Missouri (First
Banks). First Banks owns 61.5% of the outstanding stock at December 31, 1997
and 1996, and accordingly, has effective control over the management and
policies of FCB and the election of its directors.
The following is a summary of the more significant policies followed by
FCB:
BASIS OF PRESENTATION
The consolidated financial statements of FCB have been prepared in
accordance with generally accepted accounting principles and conform to
predominant practices within the banking industry. Management of FCB has made a
number of estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to prepare
the consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
Certain 1996 amounts have been reclassified to conform with the 1997
presentation.
The Board of Directors of FCB elected to implement an accounting adjustment
referred to as a "quasi-reorganization," effective December 31, 1996. In
accordance with accounting provisions applicable to a quasi-reorganization, the
assets and liabilities were adjusted to fair value and the accumulated deficit
was eliminated. The implementation of the quasi-reorganization did not have a
significant impact on the results of operations of FCB.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the parent
company and the Bank. All significant intercompany accounts and transactions
have been eliminated.
CASH AND CASH EQUIVALENTS
Cash, due from banks and federal funds sold are considered to be cash and
cash equivalents for purposes of the consolidated statements of cash flows.
The Subsidiary Bank is required to maintain certain daily reserve balances
in accordance with regulatory requirements. These reserve balances were $1.0
million and $918,000 at December 31, 1997 and 1996, respectively.
INVESTMENT SECURITIES
The classification of investment securities as available for sale or held
to maturity is determined at the date of purchase. FCB does not engage in the
trading of investment securities.
Investment securities classified as available for sale are those debt and
equity securities for which FCB has no immediate plan to sell, but which may be
sold in the future if circumstances warrant. Available-for-sale securities are
stated at current fair value. Realized gains and losses are included in
noninterest income upon commitment to sell, based on the amortized cost of the
individual security sold. Unrealized gains and losses are recorded, net of
related income tax effects, in a separate component of stockholders' equity.
All previous fair value adjustments included in stockholders' equity are
reversed upon sale.
F-34
<PAGE> 123
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Investment securities designated as held to maturity are those debt
securities which FCB has the positive intent and ability to hold until
maturity. Held-to-maturity securities are stated at amortized cost, in which
the amortization of premiums and accretion of discounts are recognized over the
contractual maturities or estimated lives of the individual securities,
adjusted for anticipated prepayments, using the level-yield method.
At December 31, 1997 and 1996, all investment securities were classified as
available for sale.
LOANS
Loans are carried at cost, adjusted for amortization of premiums and
accretion of discounts using a method which approximates the level-yield
method. Interest and fees on loans are recognized as income using the interest
method. Loans are stated at cost as FCB has the ability and it is management's
intention to hold them to maturity.
The accrual of interest on loans is discontinued when it appears that
interest or principal may not be paid in a timely manner in the normal course
of business. Generally, payments received on nonaccrual and impaired loans are
recorded as principal reductions. Interest income is recognized after all
principal has been repaid or an improvement in the condition of the loan has
occurred which would warrant resumption of interest accruals.
A loan is considered impaired when it is probable a creditor will be unable
to collect all amounts due, both principal and interest, according to the
contractual terms of the loan agreement. When measuring impairment, the
expected future cash flows of an impaired loan are discounted at the loan's
effective interest rate. Alternatively, impairment is measured by reference to
an observable market price, if one exists, or the fair value of the collateral
for a collateral-dependent loan. Regardless of the historical measurement
method used, FCB measures impairment based on the fair value of the collateral
when the creditor determines foreclosure is probable. Additionally, impairment
of a restructured loan is measured by discounting the total expected future
cash flows at the loan's effective rate of interest as stated in the original
loan agreement. FCB continues to use its existing nonaccrual methods for
recognizing interest income on impaired loans.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is maintained at a level considered
adequate to provide for potential losses. The provision for possible loan
losses is based on a periodic analysis of the loans by management, considering,
among other factors, current economic conditions, loan portfolio composition,
past loan loss experience, independent appraisals, loan collateral and payment
experience. In addition to the allowance for estimated losses on impaired
loans, an overall unallocated allowance is established to provide for
unidentified credit losses which are inherent in the portfolio. As adjustments
become necessary, they are reflected in the results of operations in the
periods in which they become known.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed primarily using the
straight-line method over the estimated useful lives of the related assets.
Amortization of leasehold improvements is calculated using the straight-line
method over the shorter of the useful life of the improvement or term of the
lease. Bank premises and improvements are depreciated over 15 to 29 years and
equipment over two to ten years.
OTHER REAL ESTATE
Real estate acquired through foreclosure or deed in lieu of foreclosure, is
stated at the lower of fair value less applicable selling costs or cost at the
time the property is acquired. The excess of cost over fair value of the
property at the date of acquisition is charged to the allowance for possible
loan losses. Subsequent reductions in carrying value to reflect current fair
value or costs incurred in maintaining the properties are charged to expense as
incurred.
F-35
<PAGE> 124
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES
FCB and First Commercial will file separate federal income tax returns for
the periods subsequent to the common stock offering, as more fully discussed in
Note 2 to the accompanying consolidated financial statements. FCB and First
Commercial will each pay their respective portion of federal income taxes or
receive payments to the extent that tax benefits are realized. For the periods
prior to the common stock offering, FCB and First Commercial each paid their
respective portion of federal income taxes to, or received payments from, First
Banks to the extent that tax benefits were available within First Banks'
consolidated group.
FINANCIAL INSTRUMENTS
A financial instrument is defined as cash, evidence of an ownership
interest in an entity, or a contract that conveys or imposes on an entity the
contractual right or obligation to either receive or deliver cash or another
financial instrument.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
FCB is party to commitments to extend credit and commercial and standby
letters of credit in the normal course of business to meet the financing needs
of its customers. These commitments involve, in varying degrees, elements of
interest rate risk and credit risk in excess of the amount recognized in the
consolidated balance sheets.
EARNINGS (LOSS) PER COMMON SHARE
FCB adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 128, Earnings Per Share (SFAS 128), on a retroactive basis effective
December 31, 1997. Accordingly, earnings (loss) per common share (EPS) data has
been restated to conform with the provisions of SFAS 128.
SFAS 128 provides for the calculation of a "Basic" and "Diluted" EPS.
Basic EPS is computed by dividing the income (loss) available to common
shareholders (the numerator) by the weighted average number of common shares
outstanding (the denominator) during the year. The computation of dilutive EPS
is similar except the denominator is increased to include the number of
additional common shares that would have been outstanding if the dilutive
potential shares had been issued. In addition, in computing the dilutive effect
of convertible securities, the numerator is adjusted to add back (a) any
convertible preferred dividends and (b) the after-tax amount of interest
recognized in the period associated with any convertible debt. The
implementation of SFAS 128 did not have a material impact on the calculation of
EPS.
(2) CAPITAL TRANSACTION
On February 16, 1996, after its Amended Registration Statement was declared
effective by the Securities and Exchange Commission, FCB commenced an offering
of an aggregate of 477,520 shares of newly-issued common stock (Rights
Offering). The Rights Offering was composed of: (a) an offering to its existing
shareholders, other than First Banks, of 400,000 shares at $12.50 per share;
(b) an offering to individuals who were not shareholders of FCB of a maximum of
80,000 of the shares available in the Rights Offering which were not otherwise
subscribed; and (c) an offering of 77,520 shares in exchange for certain
outstanding dividend obligations and accrued interest thereon of FCB. The
Rights Offering was completed during the second quarter of 1996 and
approximately 288,720 shares were issued in exchange for $2.97 million in cash
and $643,000 of outstanding dividend obligations. The Rights Offering provided
$3.22 million of capital to FCB, net of underwriting expenditures of $373,000.
As a result of the Rights Offering, First Banks' ownership was reduced from
93.3% at December 31, 1995 to 61.5% at the end of the second quarter in 1996.
F-36
<PAGE> 125
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) INVESTMENTS IN DEBT SECURITIES
As part of the quasi-reorganization discussed in Note 1, effective December
31, 1996, carrying values of the Company's investment security portfolio were
adjusted to current fair value and the balance of the net fair value adjustment
of securities available for sale, reflected as a separate component of
stockholders' equity, was eliminated. As a result of this procedure, the
carrying value was increased by $70,000.
The amortized cost, contractual maturity, unrealized gains and losses and
fair value of investment securities available for sale at December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
MATURITY TOTAL GROSS
------------------- AMOR- UNREALIZED WEIGHTED
1 YEAR 1-5 TIZED -------------- FAIR AVERAGE
OR LESS YEARS COST GAINS LOSSES VALUE YIELD
------- ----- ----- ----- ------ ----- --------
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997:
Carrying value:
U.S. Treasury.................... $10,061 29,179 39,240 258 -- 39,498 6.08%
U.S. government agencies and
corporations:
Mortgage-backed............ -- 610 610 -- (8) 602 5.05
Other...................... 2,005 22,273 24,278 35 (23) 24,290 6.17
------- ------ ------ ----- --- ------
Total.................. $12,066 52,062 64,128 293 (31) 64,390 6.10
======= ====== ====== ===== === ====== ====
Market value-debt securities........... $12,085 52,305
======= ======
Weighted average yield................. 5.94% 6.14%
======= ======
December 31, 1996:
Carrying value:
U.S. Treasury...................... $15,035 8,047 23,082 -- -- 23,082 5.66%
U.S. government agencies and
corporations:
Mortgage-backed................ 470 705 1,175 -- -- 1,175 4.92
Other.......................... 6,901 7,071 13,972 -- -- 13,972 5.59
------- ------ ------ ----- --- ------
Total.................. $22,406 15,823 38,229 -- -- 38,229 5.61
======= ====== ====== ===== === ====== ====
Market value-debt securities........... $22,406 15,823
======= ======
Weighted average yield................. 5.23% 6.16%
======= ======
</TABLE>
The expected maturities of investment securities may differ from
contractual maturities since borrowers have the right to call or prepay the
obligations with or without prepayment penalties.
There were no sales of securities for the years ended December 31, 1997 and
1996.
Investment securities with a carrying value of approximately $8.6 million
and $3.7 million at December 31, 1997 and 1996, respectively, were pledged in
connection with deposits of public and trust funds, securities sold under
agreements to repurchase and for other purposes as required or permitted by
law.
F-37
<PAGE> 126
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the allowance for possible loan losses for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(DOLLARS EXPRESSED
IN THOUSANDS)
<S> <C> <C>
Balance, January 1................................... $4,597 5,388
------ ------
Loans charged-off.................................... (911) (2,993)
Recoveries of loans previously charged-off........... 1,006 1,047
------ ------
Net loans (charged-off) recovered............ 95 (1,946)
------ ------
Provision charged to operations...................... -- 1,155
------ ------
Balance, December 31................................. $4,692 4,597
====== ======
</TABLE>
At December 31, 1997 and 1996, FCB had $435,000 and $864,000, respectively,
of loans on nonaccrual status. Interest on nonaccrual loans which would have
been recorded under the original terms of the loans was $87,000 and $315,000
for the years ended December 31, 1997 and 1996, respectively. Of these amounts,
$38,000 and $184,000 was actually recorded as interest income on such loans in
1997 and 1996, respectively.
Impaired loans, which is represented by loans on nonaccrual status, had no
specific reserves at December 31, 1997 and 1996. The average recorded
investment in impaired loans was $761,000 and $2.9 million for the years ended
December 31, 1997 and 1996, respectively.
(5) BANK PREMISES AND EQUIPMENT
Bank premises and equipment were comprised of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
(DOLLARS EXPRESSED
IN THOUSANDS)
<S> <C> <C>
Land.................................................. $ 890 890
Buildings and improvements............................ 689 695
Furniture, fixtures and equipment..................... 345 304
Construction in progress.............................. 301 5
------ -----
Total......................................... 2,225 1,894
Less accumulated depreciation......................... 207 --
------ -----
Bank premises and equipment, net of
accumulated depreciation.................... $2,018 1,894
====== =====
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 totaled
$211,000 and $305,000, respectively.
F-38
<PAGE> 127
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FCB leases land, office properties and some items of equipment under
operating leases. Certain of the leases contain renewal options and escalation
clauses. Total rent expense was $376,000 and $476,000 for the years ended
December 31, 1997 and 1996, respectively. Future minimum lease payments under
noncancellable operating leases extend through 2019 as follows:
<TABLE>
<CAPTION>
(DOLLARS EXPRESSED
IN THOUSANDS)
<S> <C>
Year ending December 31:
1998.................................................... $ 365
1999.................................................... 328
2000.................................................... 328
2001.................................................... 194
2002.................................................... 103
Thereafter.............................................. 560
------
Total minimum lease payments........................ $1,878
======
</TABLE>
FCB leases a portion of its owned banking facilities to unrelated parties.
Total rental income was $22,000 and $9,000 for the years ended December 31,
1997 and 1996, respectively.
(6) PROMISSORY NOTE PAYABLE
On December 31, 1997, FCB borrowed $400,000 under a $1.0 million promissory
note payable (Note Payable) to First Banks. There were no similar borrowings
during 1996. The borrowings under the Note Payable bear interest at an annual
rate of one-quarter percent less than the "Prime Rate" as reported in the
Wall Street Journal. The principal and accrued interest under the Note Payable
are due and payable on October 31, 2001.
(7) EARNINGS PER COMMON SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations for the periods indicated:
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(DOLLARS EXPRESSED IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Year ended December 31, 1997:
Basic EPS--income available to common stockholders...... $ 764 846 $ 0.90
======
Effect of 12% convertible debentures.................... -- --
----- ---
Diluted EPS--income available to common stockholders.... $ 764 846 $ 0.90
===== === ======
Year ended December 31, 1996:
Basic EPS--income available to common stockholders...... $(570) 738 $(0.77)
======
Effect of 12% convertible debentures.................... -- --
----- ---
Diluted EPS--income available to common stockholders.... $(570) 738 $(0.77)
===== === ======
</TABLE>
Effects of the 12% convertible debentures were anti-dilutive for the years
presented.
F-39
<PAGE> 128
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) INCOME TAXES
Income tax expense (benefit) attributable to income from continuing
operations for the years ended December 31 consists of:
<TABLE>
<CAPTION>
1997 1996
---- ----
(DOLLARS EXPRESSED
IN THOUSANDS)
<S> <C> <C>
Current income tax expense (benefit):............... $ 947 (509)
Federal......................................... 383 2
------ ----
State........................................... 1,330 (507)
------ ----
Deferred income tax expense (benefit):
Federal......................................... (347) (982)
State........................................... -- 591
------ ----
(347) (391)
------ ----
Increase in valuation allowance..................... 404 366
------ ----
Total....................................... $1,387 (532)
====== ====
</TABLE>
The effective rates of federal income taxes for the years ended December 31
differ from statutory rates of taxation as follows:
<TABLE>
<CAPTION>
1997 1996
------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C>
Income (loss) before provision (benefit) for income taxes... $2,151 $(1,102)
====== =======
Tax expense (benefit) at federal income tax rate............ $ 753 35.0% $ (386) (35.0)%
Effects of differences in tax reporting:
Change in the deferred tax valuation allowance.......... 404 18.8 366 33.2
Change in tax attributes available to be carried
forward............................................... -- -- (605) (54.9)
State income taxes.......................................... 249 11.6 385 34.9
Other, net.................................................. (19) (0.9) (292) (26.5)
------ ---- ------- -----
Provision (benefit) for income taxes.................... $1,387 64.5% $ (532) (48.3)%
====== ==== ======= =====
</TABLE>
F-40
<PAGE> 129
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
---- ----
(DOLLARS EXPRESSED
IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses..................... $ 1,769 1,734
Other real estate...................................... 44 103
Alternative minimum tax credit......................... 448 448
Depreciation on bank premises and equipment............ 152 144
Interest on nonaccrual loans........................... 5 24
Other.................................................. 521 425
Net operating loss carryforwards....................... 1,006 394
------- ------
Gross deferred tax assets........................... 3,945 3,272
Valuation allowance.................................... (3,593) (3,189)
------- ------
Net deferred tax assets............................. 352 83
------- ------
Deferred tax liabilities:
Gains on investment securities currently not allowable
for tax purposes...................................... 92 25
Accretion.............................................. 17 34
------- ------
Gross deferred tax liabilities...................... 109 59
------- ------
Net deferred tax assets............................. $ 243 24
======= ======
</TABLE>
Changes to the deferred tax asset valuation allowance for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(DOLLARS EXPRESSED
IN THOUSANDS)
<S> <C> <C>
Balance, January 1.................................... $3,189 2,823
Current year deferred provision, change in deferred
tax valuation allowance............................. 404 366
------ -----
Balance, December 31.................................. $3,593 3,189
====== =====
</TABLE>
Due to the uncertainty of future operating results, it was determined the
valuation allowance established for FCB should substantially offset any net
deferred tax asset. The valuation allowance for deferred tax assets at December
31, 1997 and 1996, respectively, includes $3.2 million which, if recognized,
will be credited to capital surplus under the terms of the quasi-reorganization
implemented by FCB as of December 31, 1996.
With the completion of the acquisition of FCB and the Bank by First Banks,
the federal and state net operating loss carryforwards (NOLs) generated prior
to the transactions are subject to an annual limitation under Internal Revenue
Code and California Revenue and Taxation Code for all subsequent tax years. The
federal and state annual limitation is $87,739. The following schedules reflect
the NOLs that will be available, after consideration of these limitations, to
offset future taxable income. If taxable income for a post-transaction year
does not equal or exceed the annual limitation, the unused limitation is
carried forward to increase the limitation amount for the succeeding years
until the excess limitation is utilized. FCB has alternative minimum tax
credits of $448,000 which have no expiration date. These credits are also
subject to an annual limitation and can be utilized subsequent to the
utilization of the NOLs.
F-41
<PAGE> 130
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The NOLs for FCB were approximately $2.9 million at December 31, 1997 and
expire as follows:
<TABLE>
<CAPTION>
(DOLLARS EXPRESSED
IN THOUSANDS)
<S> <C>
Year ending December 31:
2008.................................................... $ 394
2009.................................................... 747
2011.................................................... 660
2017.................................................... 1,064
------
Total............................................... $2,865
======
</TABLE>
For California income tax purposes, FCB had NOLs of approximately $106,000
at December 31, 1997. These NOLs expire as follows:
<TABLE>
<CAPTION>
(DOLLARS EXPRESSED
IN THOUSANDS)
<S> <C>
Year ending December 31:
1998.................................................... $ 77
1999.................................................... 29
----
Total............................................... $106
====
</TABLE>
(9) 12% CONVERTIBLE DEBENTURES
In 1995, FCB issued to First Banks two 5-year, 12% convertible debentures
in exchange for $6.5 million. The principal and any accrued but unpaid interest
thereon is convertible at any time prior to maturity, at the option of First
Banks, into FCB common stock at $12.50 per share. At maturity, any unpaid
principal and accrued interest will be converted into FCB common stock at
$12.50 per share. The initial debenture of $1.5 million was issued on October
31, 1995 and matures on October 31, 2000. The second debenture was issued on
December 28, 1995 and matures on December 28, 2000. Cash may be paid with
respect to either the principal or interest on the debentures only when, in the
sole and absolute discretion of the Board of Directors of FCB, it is determined
that FCB has sufficient funds to make such payment in accordance with all
applicable regulatory requirements. The debentures are secured by all of the
shares of the Bank common stock held by FCB.
Accrued and unpaid interest on the debentures was $1.6 million and $831,000
at December 31, 1997 and 1996, respectively. At December 31, 1997, the
principal and accrued interest on the debentures could have been converted into
an aggregate of 649,720 shares of FCB common stock. If the debentures had been
converted as of December 31, 1997, First Banks' ownership interest would have
been 78.2%.
(10) DIVIDENDS PAYABLE
On December 31, 1991, the Board of Directors of FCB declared a $40.00 per
share cash dividend on its common stock. This dividend was payable in four
installments during 1992. On July 9, 1992, the Company made a decision to
suspend payment of the third and fourth quarter dividends which totaled $20.00
per share. FCB continued to accrue interest on these suspended dividends at the
current legal rate until such time as the dividends were paid to stockholders
of record as of June 15, 1992 and September 14, 1992. In connection with its
Rights Offering to shareholders, as described in Note 2, FCB exchanged common
stock with certain of those individuals eligible to receive the accrued and
unpaid 1992 dividends. FCB exchanged one share of FCB common stock for each
$12.50 of dividends and accrued interest in satisfaction of $643,000 of that
obligation. As of December 31, 1996, the aggregate accrued dividends and
accrued but unpaid interest thereon was $351,000, and such obligation was fully
paid in 1997.
F-42
<PAGE> 131
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) EMPLOYEE BENEFIT PLANS
401(K) PLAN
FCB has a self-administered savings and incentive plan covering
substantially all employees. Under the plan, employer matching contributions
are determined annually by FCB's Board of Directors. Employee contributions are
limited to 15% of an employee's compensation not to exceed $9,500 for 1997.
Total employer contributions under the plan were $20,000 and $17,000 for the
years ended December 31, 1997 and 1996, respectively. The plan assets are held
and managed under a trust agreement with the trust department of an affiliated
bank.
Postretirement benefits other than pensions and postemployment benefits are
generally not provided for FCB's employees.
(12) COMMITMENTS AND CONTINGENCIES
FCB is a party to commitments to extend credit and commercial and standby
letters of credit in the normal course of business to meet the financing needs
of its customers. These instruments involve, to varying degrees, elements of
credit risk and interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The interest rate risk associated with these
credit commitments relates primarily to the commitments to originate fixed-rate
loans. The credit risk amounts are equal to the contractual amounts, assuming
the amounts are fully advanced and the collateral or other security is of no
value. FCB uses the same credit policies in granting commitments and
conditional obligations as it does for on-balance-sheet items.
Commitments to extend credit at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(DOLLARS EXPRESSED
IN THOUSANDS)
<S> <C> <C>
Commitments to extend credit.............................. $99,129 42,425
Standby letters of credit................................. 250 49
======= ======
</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 are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Each customer's
creditworthiness is evaluated on a case-by-case basis. The amount of collateral
obtained, if deemed necessary upon extension of credit, is based on credit
evaluation of the customer. Collateral held varies, but may include accounts
receivable, inventory, property, plant, equipment, income-producing commercial
properties and single family residential properties.
Standby letters of credit are conditional commitments issued to guarantee
the performance of a customer to a third party. The letters of credit are
primarily issued to support private borrowing arrangements and commercial
transactions. Most letters of credit extend for less than one year. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. Upon issuance of the
commitments, FCB holds marketable securities, certificates of deposit,
inventory or other assets as collateral supporting those commitments for which
collateral is deemed necessary.
(13) DISTRIBUTION OF EARNINGS OF THE SUBSIDIARY BANK
The Subsidiary Bank is restricted by various state and federal regulations
as to the amount of dividends which are available for payment to FCB. Under the
most restrictive of these requirements, the future payment of dividends from
the Subsidiary Bank is limited to approximately $1.6 million at December 31,
1997, unless prior permission of the regulatory authorities is obtained.
F-43
<PAGE> 132
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) TRANSACTIONS WITH RELATED PARTIES
FCB purchases certain services and supplies from or through First Banks.
FCB's financial position and operating results could significantly differ from
those that would be obtained if FCB's relationship with First Banks did not
exist.
First Banks provides management services to FCB and its Subsidiary Bank.
Management services are provided under a management fee agreement whereby FCB
compensates First Banks on an hourly basis for its use of personnel for various
functions including internal audit, loan review, income tax preparation and
assistance, accounting, asset/liability and investment services, loan servicing
and other management and administrative services. Fees paid under this
agreement were $478,000 and $618,000 for the years ended December 31, 1997 and
1996, respectively. The fees paid for management services are at least as
favorable as could have been obtained from an unaffiliated third party. In
addition, FCB paid First Banks $183,000 and $66,000 for correspondent banking
services for the years ending of December 31, 1997 and 1996, respectively.
Because of the affiliation with First Banks and the geographic proximity of
certain of their offices, FCB shares the cost of certain personnel and services
used by FCB and First Banks. This includes the salaries and benefits of certain
loan and administrative personnel. The allocation of the shared costs are
charged and/or credited under the terms of cost sharing agreements entered into
during 1997. Because this involves distributing essentially fixed costs over a
larger asset base, it allows each bank to receive the benefit of personnel and
services at a reduced cost. Net fees paid under these agreements were $326,000
and $412,000 for the years ended December 31, 1997 and 1996, respectively.
Effective April 1, 1997, First Services L.P., a limited partnership
indirectly owned by First Banks' Chairman and his children through its general
partners and limited partners, began providing data processing and various
related services to FCB under the terms of data processing agreements.
Previously, these services were provided by a subsidiary of First Banks. Fees
paid under these agreements were $362,000 and $381,000 for the years ended
December 31, 1997 and 1996, respectively. The fees paid for data processing
services are at least as favorable as could have been obtained from an
unaffiliated third party.
First Commercial had $24.9 million and $17.9 million in whole loans and
loan participations outstanding at December 31, 1997 and 1996, respectively,
that were purchased from banks affiliated with First Banks. In addition, First
Commercial had sold $12.0 million and $2.0 million in whole loans and loan
participations to affiliates of First Banks at December 31, 1997 and 1996,
respectively. These loans and loan participations were acquired and sold at
interest rates and terms prevailing at the dates of their purchase or sale and
under standards and policies followed by First Commercial.
As more fully discussed in Note 6, FCB borrowed $400,000 from First Banks
on December 31, 1997.
Outside of normal customer relationships, no directors, executive officers
or stockholders holding over 5% of FCB's voting stock, and no corporations or
firms with which such persons or entities are associated, currently maintain or
have maintained, any significant business or personal relationships with FCB or
its subsidiary, other than that which arises by virtue of such position or
ownership interest in FCB, except as described above.
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values of financial instruments are management's estimate of the
values at which the instruments could be exchanged in a transaction between
willing parties. These estimates are subjective and may vary significantly from
amounts that would be realized in actual transactions. In addition, other
significant assets are not considered financial assets including deferred tax
assets and bank premises and equipment. Further, the tax ramifications related
to the realization of the unrealized gains and losses can have a significant
effect on the fair value estimates and have not been considered in any of the
estimates.
F-44
<PAGE> 133
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The estimated fair value of FCB's financial instruments at December 31 were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(DOLLARS EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents............................. $ 8,720 8,720 20,910 20,910
Investment securities................................. 64,390 64,390 38,229 38,229
Net loans............................................. 113,326 113,963 89,900 89,900
Accrued interest receivable........................... 1,856 1,856 1,197 1,197
======== ======== ======= ========
Liabilities:
Demand and savings deposits........................... $104,035 104,035 71,024 71,024
Time deposits......................................... 68,550 68,907 65,112 65,112
Accrued interest payable.............................. 1,939 1,939 1,098 1,098
12% convertible debentures............................ 6,500 6,500 6,500 6,500
Notes payable and other short-term borrowings......... 1,280 1,280 705 705
======== ======== ======= ========
Off-balance-sheet:
Unfunded loan commitments............................. $ -- -- -- --
======== ======== ======= ========
</TABLE>
The following methods and assumptions were used in estimating the fair
value of financial instruments:
FINANCIAL ASSETS:
Cash and cash equivalents and accrued interest receivable: The carrying
values reported in the consolidated balance sheets approximate fair value.
Investment securities: Fair value for securities available for sale were
the amounts reported in the consolidated balance sheets. If quoted market
prices were not available, fair values were based upon quoted market prices of
comparable instruments.
Net loans: The fair value for most loans was estimated utilizing discounted
cash flow calculations that applied interest rates currently being offered for
similar loans to borrowers with similar risk profiles. The carrying values for
loans are net of the allowance for possible loan losses and unearned discount.
FINANCIAL LIABILITIES:
Deposits: The fair value disclosed for deposits generally payable on demand
(i.e., non-interest-bearing and interest-bearing demand, savings and money
market accounts) was considered equal to their respective carrying amounts as
reported in the consolidated balance sheets. The fair value disclosed for
demand deposits does not include the benefit that results from the low-cost
funding provided by deposit liabilities compared to the cost of borrowing funds
in the market. The fair value for certificates of deposit was estimated
utilizing a discounted cash flow calculation that applied interest rates
currently being offered on similar certificates to a schedule of aggregated
monthly maturities of time deposits.
Convertible debentures, notes payable, short-term borrowings and accrued
interest payable: The carrying values reported in the consolidated balance
sheets approximate fair value.
F-45
<PAGE> 134
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OFF-BALANCE-SHEET:
Unfunded loan commitments: The majority of the commitments to extend credit
and commercial and standby letters of credit contain variable interest rates
and credit deterioration clauses and, therefore, the carrying value of these
credit commitments approximates fair value.
(16) REGULATORY CAPITAL
The Subsidiary Bank is subject to various regulatory capital requirements
administered by the federal and state 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 Subsidiary Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for Prompt Corrective Action,
the Subsidiary Bank must meet specific capital guidelines that involve
quantitative measures of the Subsidiary Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Subsidiary Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weighting and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Subsidiary Bank to maintain certain minimum capital ratios. The
Subsidiary Bank is required to maintain a minimum risk-based capital to
risk-weighted assets ratio of 8.0%, with at least 4.0% being "Tier 1" capital
(as defined in the regulations). In addition, a minimum leverage ratio (Tier 1
capital to average assets) of 3.0% plus an additional cushion of 100 to 200
basis points is expected. In order to be considered well capitalized under
Prompt Corrective Action provisions, a bank is required to maintain a risk
weighted asset ratio of at least 10%, a Tier 1 to risk weighted assets ratio of
at least 6%, and a leverage ratio of at least 5%. As of December 31, 1996, the
date of the most recent notification from FCB's primary regulator, First
Commercial was categorized as well capitalized under the regulatory framework
for Prompt Corrective Action. Management believes, as of December 31, 1997,
First Commercial was well capitalized as defined by the FDIC Improvement Act.
At December 31, 1997 and 1996, FCB's and the Bank's capital ratios were as
follows:
<TABLE>
<CAPTION>
RISK-BASED CAPITAL RATIOS
--------------------------------------
TOTAL TIER 1 LEVERAGE RATIO
--------------- --------------- --------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FCB.............................................. 6.34% 6.95% 5.06% 5.66% 4.03% 4.25%
First Commercial................................. 11.89 13.13 10.61 11.84 8.43 8.87
</TABLE>
(17) CONTINGENT LIABILITIES
In the ordinary course of business, there are various legal proceedings
pending against FCB and/or the Subsidiary Bank. Management, in consultation
with legal counsel, is of the opinion the ultimate resolution of these
proceedings will have no material effect on the financial condition or results
of operations of FCB or the Subsidiary Bank.
F-46
<PAGE> 135
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) PARENT COMPANY ONLY FINANCIAL INFORMATION
<TABLE>
CONDENSED BALANCE SHEETS
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
---- ----
(DOLLARS EXPRESSED
IN THOUSANDS)
<S> <C> <C>
Assets:
Cash.................................................... $ 153 363
Investment in subsidiary................................ 14,943 13,144
Deferred tax assets..................................... 225 --
Other assets............................................ 502 524
------- ------
Total assets........................................ $15,823 14,031
======= ======
Liabilities and stockholders' equity:
Dividends payable....................................... $ -- 251
Promissory note payable................................. 400 --
12% convertible debentures.............................. 6,500 6,500
Accrued and other liabilities........................... 1,666 950
------- ------
Total liabilities................................... 8,566 7,701
Stockholders' equity........................................ 7,257 6,330
------- ------
Total liabilities and stockholders' equity.............. $15,823 14,031
======= ======
</TABLE>
<TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
---- ----
(DOLLARS EXPRESSED
IN THOUSANDS)
<S> <C> <C>
Income:
Dividends from subsidiary............................... $ 200 --
Other................................................... 15 8
------ ------
Total income........................................ 215 8
------ ------
Expense:
Interest................................................ 888 892
Other................................................... 190 167
------ ------
Total expense....................................... 1,078 1,059
------ ------
Loss before income tax expense (benefit) and equity
in undistributed income of subsidiary............. (863) (1,051)
Income tax expense (benefit)............................ 2 (366)
------ ------
Loss before equity in undistributed income of
subsidiary........................................ (865) (685)
Equity in undistributed income of subsidiary............ 1,629 115
------ ------
Net income (loss)................................... $ 764 (570)
====== ======
</TABLE>
F-47
<PAGE> 136
FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
---- ----
(DOLLARS EXPRESSED
IN THOUSANDS)
<S> <C> <C>
Operating activities:
Net income (loss)....................................... $ 764 (570)
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Equity in undistributed income of subsidiary........ (1,629) (115)
Dividends from subsidiary........................... 200 --
Other, net.......................................... 62 (147)
------- ------
Net cash used in operating activities........... (603) (832)
------- ------
Investing activities--capital contributions to subsidiary... -- (1,938)
------- ------
Financing activities:
Proceeds from the issuance of common stock.............. -- 3,217
Repurchase of fractional shares......................... (7) --
Increase in promissory note payable..................... 400 --
Decrease in advances from subsidiary.................... -- (284)
------- ------
Net cash provided by financing activities....... 393 2,933
------- ------
Net increase (decrease) in cash and cash
equivalents.................................. (210) 163
Cash and cash equivalents at beginning of year.......... 363 200
------- ------
Cash and cash equivalents at end of year................ $ 153 363
======= ======
Noncash financing activities:
Exchange of common stock for dividends payable.......... $ -- (643)
======= ======
</TABLE>
(19) SUBSEQUENT EVENTS
On February 2, 1998, FCB and First Banks America, Inc., St. Louis, Missouri
(FBA), a 71.8% owned subsidiary of First Banks, were merged. Under the terms of
the Agreement and Plan of Merger (Agreement), FCB was merged into FBA, and
First Commercial was merged into First Bank of California, an indirect
subsidiary bank of FBA. The FCB shareholders received .8888 shares of FBA
common stock for each share of FCB common stock that they held. In total, FCB
shareholders received approximately 751,728 shares of FBA common stock,
including 462,176 shares received by First Banks in exchange for its 61.5%
ownership of FCB. The transaction also provided for First Banks to receive
804,000 shares of FBA common stock in exchange for $10.0 million of FBA's
promissory note payable to First Banks. In addition, FCB's convertible
debentures of $6.5 million, which are owned by First Banks, were exchanged for
comparable debentures in FBA.
F-48
<PAGE> 137
REDWOOD BANCORP AND SUBSIDIARIES
REPORT OF INDEPENDENT ACCOUNTANTS
Shareholder and Board of Directors of
Redwood Bancorp and Subsidiaries:
We have audited the consolidated statements of financial
condition of Redwood Bancorp and its subsidiaries (the Company)
as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholder's equity, and cash flows
for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of the Redwood Bancorp and its
subsidiaries at December 31, 1997 and 1996, and the results of
its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
San Francisco, California
June 19, 1998
F-49
<PAGE> 138
<TABLE>
REDWOOD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
ASSETS MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
--------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and due from banks................................ $ 6,033,556 $ 8,672,217 $ 8,140,106
Federal funds sold..................................... 3,000,000 1,200,000 5,000,000
Investment securities:
Held-to-maturity................................... 6,224,893 4,228,570 2,249,207
Available-for-sale................................. 10,442,575 14,489,971 9,347,368
Loans, net............................................. 118,880,353 109,483,706 100,994,646
Bank premises and equipment, net....................... 783,633 796,241 785,118
Interest receivable.................................... 954,064 921,150 804,215
Goodwill............................................... 3,919,862 3,964,918 4,145,142
Other assets........................................... 1,767,394 1,715,421 2,594,849
------------ ------------ ------------
Total assets............................... $152,006,330 $145,472,194 $134,060,651
============ ============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Deposits........................................... $130,110,833 $126,772,656 $117,379,755
Interest payable and other liabilities............. 1,159,278 1,227,427 737,717
Other borrowings................................... 2,910,000 -- --
------------ ------------ ------------
Total liabilities.......................... 134,180,111 128,000,083 118,117,472
------------ ------------ ------------
Shareholder's equity:
Common stock, $3.33 par value; authorized 1,000,000
shares; issued and outstanding 250,000 shares in
1997 and 1996.................................... 832,500 832,500 832,500
Surplus............................................ 10,639,969 10,639,969 10,639,969
Retained earnings.................................. 6,412,661 5,988,022 4,567,627
Accumulated other comprehensive income (loss)...... (58,911) 11,620 (96,917)
------------ ------------ ------------
Total shareholder's equity................. 17,826,219 17,472,111 15,943,179
------------ ------------ ------------
Total liabilities and shareholder's
equity.............................. $152,006,330 $145,472,194 $134,060,651
============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-50
<PAGE> 139
<TABLE>
REDWOOD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
--------------------- ----------------------
1998 1997 1997 1996
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans............... $2,700,750 $2,404,315 $10,417,676 $ 8,791,684
Interest on federal funds sold........... 28,323 67,688 243,921 232,516
Interest on investment securities........ 309,244 197,446 1,018,486 967,244
Interest on deposits in other financial
institutions........................... -- -- -- 13,572
---------- ---------- ----------- -----------
Total interest income............ 3,038,317 2,669,449 11,680,083 10,005,01
Interest expense............................. 1,078,079 907,212 3,863,742 3,442,833
---------- ---------- ----------- -----------
Net interest income before
provision for loan losses...... 1,960,238 1,762,237 7,816,341 6,562,183
Provision for loan losses.................... -- -- -- --
---------- ---------- ----------- -----------
Net interest income after
provision for loan losses...... 1,960,238 1,762,237 7,816,341 6,562,183
---------- ---------- ----------- -----------
Noninterest income:
Customer service fees.................... 63,134 56,587 372,429 363,706
Other.................................... 174,626 150,985 28,317 30,247
---------- ---------- ----------- -----------
Total noninterest income......... 237,760 207,572 400,746 393,953
---------- ---------- ----------- -----------
Noninterest expense:
Salaries and employee benefits........... 799,503 931,258 3,362,288 3,085,229
Occupancy and equipment.................. 233,574 226,523 933,728 966,284
Deposit insurance and regulatory
assessments............................ 9,387 8,482 35,220 35,371
Professional services.................... 74,910 30,500 82,729 166,700
Insurance................................ 34,889 38,324 143,729 147,695
Data processing.......................... 56,282 57,012 216,326 221,279
Forms and supplies....................... 26,616 29,360 105,065 101,007
Telecommunication and postage............ 44,647 40,142 147,366 150,085
Corporate expenses....................... 9,000 21,000 56,000 57,000
Goodwill amortization.................... 45,056 45,056 180,224 180,224
Other.................................... 103,145 75,877 378,166 311,541
---------- ---------- ----------- -----------
Total noninterest expense........ 1,437,009 1,503,534 5,640,841 5,422,415
---------- ---------- ----------- -----------
Income before income taxes....... 760,989 466,275 2,576,246 1,533,721
Income tax expense (benefit)................. 336,350 216,000 1,155,851 (1,773,000)
---------- ---------- ----------- -----------
Net income................................... $ 424,639 $ 250,275 $ 1,420,395 $ 3,306,721
========== ========== =========== ===========
Net income per share--basic.................. $ 1.70 $ 1.00 $ 5.68 $ 13.23
========== ========== =========== ===========
Net income per share--diluted................ $ 1.70 $ 1.00 $ 5.68 $ 13.23
========== ========== =========== ===========
Weighted average common stock outstanding.... $ 250,000 $ 250,000 $ 250,000 $ 250,000
========== ========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-51
<PAGE> 140
<TABLE>
REDWOOD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<CAPTION>
ACCUMU-
LATED OTHER
COMMON STOCK COMPRE- COMPRE-
------------------ HENSIVE RETAINED HENSIVE
SHARES AMOUNT SURPLUS INCOME EARNINGS INCOME TOTAL
------ ------ ------- ------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995... 250,000 $832,500 $10,639,969 $1,260,906 $ 55,971 $12,789,346
Comprehensive Income:
Net Income............... -- -- -- $3,306,721 3,306,721 -- 3,306,721
Other comprehensive
income--Unrealized
losses on securities... -- -- -- (152,888) -- (152,888) (152,888)
----------
Comprehensive Income..... -- -- -- $3,153,833 -- -- --
-------- -------- ----------- ========== ========== ========= ===========
Balance, December 31, 1996... 250,000 832,500 10,639,969 4,567,627 (96,917) 15,943,179
Comprehensive Income:
Net Income............... -- -- -- $1,420,395 1,420,395 -- 1,420,395
Other comprehensive
income--Unrealized
losses on securities... -- -- -- 108,537 -- 108,537 108,537
----------
Comprehensive Income..... -- -- -- $1,528,932 -- -- --
-------- -------- ----------- ========== ========== ========= ===========
Balance, December 31, 1997... 250,000 832,500 10,639,969 5,988,022 11,620 17,472,111
Quarter ended March 31, 1998
(unaudited):
Comprehensive Income:
Net Income............... -- -- -- $ 424,639 424,639 -- 424,639
Other comprehensive
income--Unrealize
losses on securities... -- -- -- (70,531) -- (70,531) (70,531)
----------
Comprehensive Income..... -- -- -- $ 354,108 -- -- --
-------- -------- ----------- ========== ---------- --------- -----------
Balance, March 31, 1998...... 250,000 $832,500 $10,639,969 $6,412,661 $ (58,911) $17,826,219
======== ======== =========== ========== ========= ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-52
<PAGE> 141
<TABLE>
REDWOOD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
---------------------- -----------------------
1998 1997 1997 1996
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $ 424,639 $ 250,275 $ 1,420,395 $ 3,306,721
Reconciliation to net cash provided
by operating activities:
Deferred income tax.............. -- 160,300 826,000 (1,982,000)
Depreciation and leasehold
amortization................... 57,457 50,550 212,703 225,429
Amortization and accretion of
premiums and discounts......... (31,062) 26,551 (219,090) (185,772)
Goodwill amortization............ 45,046 45,046 180,224 180,224
Net increase (decrease) in
deferred loan fees............. 33,982 10,554 (6,734) 81,407
Increase in interest receivable
and other assets............... (84,887) (51,408) (63,513) (3,752)
Increase (decrease) in interest
payable and other liabilities.. (68,149) (155,826) 489,710 (144,076)
Gain on sale of other real estate
owned.......................... -- -- (12,084) --
----------- ----------- ------------ ------------
Net cash provided by
operating activities....... 377,026 336,042 2,827,611 1,478,181
----------- ----------- ------------ ------------
Cash flows from investing activities:
Purchase of:
Held-to-maturity securities...... (4,997,500) (1,000,000) (5,000,000) (2,940,333)
Available-for-sale securities.... (5,000,000) (1,497,500) (9,970,184) (7,455,899)
Proceeds from:
Maturities of held-to-maturity
securities..................... 3,000,000 -- 3,041,583 2,181,859
Maturities of available-for-sale
securities..................... 9,009,114 -- 5,134,262 9,670,112
Net change in interest-earning deposits
in other financial institutions........ -- -- -- 322,520
Loan originations and purchases, net of
repayments and participations.......... (9,430,629) 2,087,656 (8,608,504) (21,611,266)
Purchase of bank premises and
equipment.............................. (44,849) (10,273) (223,820) (165,133)
Proceeds from sale of other real estate
owned.................................. -- -- 138,262 --
----------- ----------- ------------ ------------
Net cash used in investing
activities................. (7,463,864) (420,117) (15,488,401) (19,998,140)
----------- ----------- ------------ ------------
Cash flows from financing activities:
Net change in deposits............... 3,338,177 (929,896) 9,392,901 13,237,354
Net change in other borrowings....... 2,910,000 -- -- --
----------- ----------- ------------ ------------
Net cash provided by
financing activities....... 6,248,177 (929,896) 9,392,901 13,237,354
----------- ----------- ------------ ------------
Net decrease in cash and cash
equivalents................ (838,661) (1,013,971) (3,267,889) (5,282,605)
Cash and cash equivalents at beginning of
year................................... 9,872,217 13,140,106 13,140,106 18,422,711
----------- ----------- ------------ ------------
Cash and cash equivalents at end of
year................................... $ 9,033,556 $12,126,135 $ 9,872,217 $ 13,140,106
=========== =========== ============ ============
Other cash flow information:
Interest paid........................ $ 1,047,453 $ 902,925 $ 3,824,888 $ 3,436,800
=========== =========== ============ ============
Income taxes paid.................... -- -- $ 260,000 $ 211,500
=========== =========== ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-53
<PAGE> 142
REDWOOD BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Redwood Bancorp (Bancorp or the Company) is owned by Empire Holdings, Inc.,
a wholly owned subsidiary of Empire Holdings, Ltd., a closely held bank holding
company with no other significant operations. Redwood Bank (the Bank) is
Bancorp's principal subsidiary and the primary operating entity of the
consolidated group. All intercompany transactions have been eliminated.
NATURE OF OPERATIONS
Bancorp operates four branches in the San Francisco Bay Area. Bancorp's
primary source of revenue is through providing commercial and real estate loans
to customers, who are predominantly small and middle-market businesses. The
cost of funds relates to various deposit products offered to these same
businesses and individuals.
INTERIM RESULTS (UNAUDITED)
The accompanying statements of financial position as of March 31, 1998, and
statements of operations, shareholder's equity and cash flows for the
three-month periods ended March 31, 1998 and 1997, are unaudited. In the
opinion of management, these statements have been prepared on the same basis as
the audited financial statements and include all adjustments, consisting of
only normal recurring adjustments, necessary for the fair presentation of the
results of the interim periods.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and certain
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of certain revenues and
certain expenses during the reporting period. Actual results could differ from
those estimates.
CASH EQUIVALENTS
For the purposes of reporting cash flows, cash equivalents include federal
funds sold. Generally, federal funds are sold for one-day periods.
Substantially all cash equivalents held in other financial institutions exceed
existing deposit insurance coverage.
INTEREST-EARNING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS
Interest-earning deposits in other financial institutions generally have
one year original maturities and no individual deposit exceeds $100,000.
Accordingly, these deposits are recorded at cost, which approximates market.
INVESTMENT SECURITIES:
Bancorp classifies and accounts for debt and equity securities as follows:
* Held-to-Maturity--Debt securities that management has the positive intent
and ability to hold until maturity are classified as held-to-maturity and
are carried at their remaining unpaid principal balance, net of
unamortized premiums or unaccreted discounts. Premiums are amortized and
discounts are accreted using the level interest yield method over the
estimated remaining term of the underlying security.
F-54
<PAGE> 143
REDWOOD BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
* Trading Securities--Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are
classified as trading securities and reported at market value, with
unrealized gains and losses included in earnings. The Bank held no trading
securities during 1997 and 1996.
* Available-For-Sale--Debt and equity securities that will be held for
indefinite periods of time, including securities that may be sold in
response to changes in market interest or prepayment rates, needs for
liquidity and changes in the availability of and the yield of alternative
investments are classified as available-for-sale. After amortization or
accretion of any premiums or discounts, these assets are carried at market
value. Market value is determined using published quotes as of the close
of business. Unrealized gains and losses are excluded from earnings and
reported net of tax as a separate component of stockholders' equity until
realized.
Realized gains and losses on held-to-maturity and available-for-sale
securities are computed using the specific identification method using
amortized cost.
LOANS
Loans held for investment are carried at amortized cost. Bancorp's loan
portfolio consists of commercial, installment, real estate construction and
other real estate loans generally collateralized by first and second deeds of
trust on real estate, business assets, or personal property.
Interest income is accrued daily on the outstanding loan balances using the
simple interest method. Loans are generally placed on nonaccrual status when
the borrowers are past due 90 days and when payment in full of principal or
interest is not expected. At the time a loan is placed on nonaccrual status,
any interest income previously accrued but not collected is reversed.
Bancorp charges loan origination and commitment fees. Net loan origination
fees are deferred and amortized to interest income over the life of the loan on
a method that produces a level yield. Loan commitment fees related to lines of
credit are amortized to interest income over the commitment period. If a loan
is paid-off prior to maturity, the remaining unamortized deferred fee is
immediately recognized to interest income.
ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses is maintained at a level deemed appropriate by
management to provide for known and unidentified losses in the loan portfolio.
The allowance is based upon management's assessment of various factors
affecting the collectibility of the loans and commitments to extend credit,
including current and projected economic conditions, past credit experience,
delinquency status, the value of the underlying collateral, if any, and the
continuing review of the portfolio of loans and commitments.
The allowance for loan losses is based on estimates, and ultimate losses
may vary from the current estimates. These estimates are reviewed periodically
and, as adjustments become necessary, they are reported in earnings in the
periods in which they become known.
A loan is considered impaired based on current information and events, if
it is probable that the Bancorp will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms
of the loan agreement. The allowance for losses on impaired loans is measured
under one of three prescribed methods. Since most of the Bancorp's loans are
collateral dependent, the calculation of the allowance on impaired loans is
generally based on the fair value of the collateral. Income recognition on
impaired loans conforms to the method the Bancorp uses for income recognition
on nonaccrual loans.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are computed on
the straight-line basis over the shorter of the estimated useful lives of the
assets or the term of the lease.
F-55
<PAGE> 144
REDWOOD BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OTHER REAL ESTATE OWNED
Other real estate owned consists of properties acquired through foreclosure
and is stated at the lower of cost or fair market value less estimated costs to
sell. Estimated losses that result from the ongoing periodic valuation of these
properties are charged to current earnings with a provision for losses on
foreclosed property in the period in which they are identified. Operating
expenses of such properties, net of related income, are included in other
expenses.
INCOME TAXES
Bancorp is included in the consolidated federal income tax returns of
Empire Holdings, Inc. and files its own state income tax returns. Income taxes
have been computed on the separate results of Bancorp based on the provisions
of its tax sharing agreements with Empire Holdings, Inc. These agreements
generally provide that Bancorp will be charged or reimbursed based on the tax
effect of its earnings or losses in the combined and consolidated tax returns.
Deferred income taxes reflect the estimated future tax effects of temporary
differences between amount of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws and regulations.
GOODWILL
Goodwill represents the excess of the purchase price over the estimated
fair value of identifiable net assets associated with the purchase of Bancorp
in March 1980. Goodwill is being amortized over 40 years on a straight-line
basis.
PER SHARE DATA
Net income per share is stated in accordance with SFAS No. 128, Earnings
Per Share. Basic net income per share is computed by dividing net income
available to common shareholders (the numerator) by the weighted average number
of common shares outstanding during the year (denominator). Diluted net income
per share is computed by dividing diluted net income available to common
shareholders by the weighted average number of common shares and common
equivalent shares outstanding. There were no common equivalent shares
outstanding during 1997 and 1996.
(2) INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities at
December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997
---------------------------------------------------------
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ---------- ---------- ------
<S> <C> <C> <C> <C>
Held-to-maturity:
U.S. Government Agencies................... $ 4,228,570 $ 754 -- $ 4,229,324
----------- ------- --------- -----------
4,228,570 754 -- 4,229,324
----------- ------- --------- -----------
Available-for-sale:
U.S. Treasury Securities................... 2,000,348 1,527 -- 2,001,875
U.S. Government Agencies................... 12,478,003 10,093 -- 12,488,096
----------- ------- --------- -----------
14,478,351 11,620 -- 14,489,971
----------- ------- --------- -----------
$18,706,921 $12,374 -- $18,719,295
=========== ======= ========= ===========
</TABLE>
F-56
<PAGE> 145
REDWOOD BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1996
---------------------------------------------------------
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ---------- ---------- ------
<S> <C> <C> <C> <C>
Held-to-maturity:
U.S. Treasury Securities................... $ 979,385 $3,256 -- $ 982,641
U.S. Government Agencies................... 1,269,822 -- $ (4,280) 1,265,542
----------- ------ --------- -----------
2,249,207 3,256 (4,280) 2,248,183
----------- ------ --------- -----------
Available-for-sale:
U.S. Treasury Securities................... 1,999,864 1,387 -- 2,001,251
U.S. Government Agencies................... 7,444,421 -- (98,304) 7,346,117
----------- ------ --------- -----------
9,444,285 1,387 (98,304) 9,347,368
----------- ------ --------- -----------
$11,693,492 $4,643 $(102,584) $11,595,551
=========== ====== ========= ===========
</TABLE>
At December 31, 1997 and 1996, securities with carrying amounts of
$6,992,099 and $8,965,398 were pledged to secure public deposits.
The amortized cost and estimated market value of investment securities at
December 31, 1997 by contractual maturity, is as follows:
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
--------- ------
<S> <C> <C>
Held-to-maturity:
Over five through ten years................. $ 3,000,000 $ 3,007,454
Over ten years.............................. 1,228,570 1,221,870
----------- -----------
4,228,570 4,229,324
----------- -----------
Available for Sale:
One year or less............................ 7,992,634 7,997,174
Over one through five years................. 5,983,500 5,988,494
Over five through ten years................. 502,217 504,303
----------- -----------
14,478,351 14,489,971
----------- -----------
$18,706,921 $18,719,295
=========== ===========
</TABLE>
(3) LOANS AND ALLOWANCE FOR LOAN LOSSES
The loan portfolio at December 31, 1997 and 1996 consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Commercial.................................... $ 12,219,400 $ 12,600,149
Real estate--mortgage......................... 80,168,678 69,257,087
Real estate--construction..................... 10,566,258 11,557,092
Installment and other loans................... 8,193,617 8,258,278
Acceptances of other banks.................... -- 999,855
------------ ------------
111,147,953 102,672,461
Less:
Deferred loan fees........................ (477,622) (484,356)
Allowance for loan losses................. (1,186,625) (1,193,459)
------------ ------------
$109,483,706 $100,994,646
============ ============
</TABLE>
F-57
<PAGE> 146
REDWOOD BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Bancorp concentrates its lending activities in commercial loans and real
estate loans made primarily to businesses and individuals within the San
Francisco Bay Area.
The change in the allowance for loan losses for the years ended December
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance at beginning of year...................... $1,193,459 $1,210,127
Provision for loan losses......................... -- --
Loans charged off................................. (13,249) (38,170)
Recoveries........................................ 6,415 21,502
---------- ----------
Balance at end of year............................ $1,186,625 $1,193,459
========== ==========
</TABLE>
At December 31, 1997 and 1996, loans on nonaccrual status totaled
$1,354,003 and $2,470,127. Foregone interest on these loans for 1997 and 1996
were $123,941 and $230,667.
At December 31, 1997 and 1996, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114 totaled $641,431
and $626,689 with a corresponding valuation allowance of $103,792 and $239,176,
respectively. The average recorded investment in impaired loans in 1997 and
1996 was $634,060 and $370,845, respectively. From the time each loan was
classified as impaired, no interest income was recognized on such loans in 1997
or 1996.
At December 31, 1997 and 1996, loans pledged to secure public deposits were
$322,660 and $425,394, respectively.
(4) BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1997 and 1996 consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land............................................ $ 228,923 $ 228,923
Building........................................ 661,392 672,368
Furniture and fixtures.......................... 447,662 696,769
Equipment....................................... 1,515,192 2,424,191
Leasehold improvements.......................... 1,872,058 1,830,899
----------- -----------
4,725,227 5,853,150
Less accumulated depreciation and
amortization.................................. (3,928,986) (5,068,032)
----------- -----------
$ 796,241 $ 785,118
=========== ===========
</TABLE>
Depreciation and amortization expense for the year ended December 31, 1997
and 1996 were $212,697 and $225,429.
(5) DEPOSITS
At December 31, 1997 and 1996, deposits consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Noninterest-bearing demand.................... $ 27,427,159 $ 27,115,692
Savings and interest-bearing demand........... 55,152,181 50,545,444
Certificates of deposit issued in amounts less
than $100,000............................... 26,936,714 26,246,053
Certificates of deposit of $100,000 or more... 17,256,602 13,472,566
------------ ------------
Total............................. $126,772,656 $117,379,755
============ ============
</TABLE>
F-58
<PAGE> 147
REDWOOD BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The maturity of certificates accounts are as follows:
<TABLE>
<S> <C>
1998........................... $39,545,316
1999........................... 3,829,000
2000........................... 479,000
2001........................... 120,000
2002 and thereafter.................. 220,000
-----------
$44,193,316
===========
</TABLE>
(6) INCOME TAXES
The components of the provision (benefit) for federal and state income
taxes are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Currently payable:
Federal...................................... $ 30,851 $ 23,000
State........................................ 265,000 186,000
---------- -----------
Total................................ 295,851 209,000
---------- -----------
Deferred:
Federal...................................... 19,000 27,000
State........................................ (45,000) 14,000
Reduction of income tax due to utilization of
net operating loss carryforward............ 886,000 514,000
Reduction in valuation allowance............. -- (2,537,000)
---------- -----------
Total................................ 860,000 (1,982,000)
---------- -----------
Income tax expense (benefit)..... $1,155,851 $(1,773,000)
========== ===========
</TABLE>
Reconciliation of the statutory tax rate to the effective tax rate is as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Statutory federal tax rate............................. 35.0% 35.0%
State tax, net of federal income tax effect.............. 5.6% 8.9%
Reduction in deferred tax asset valuation allowance...... -- (165.4)%
Other, net............................................... 4.3% 5.9%
---- ------
44.9% (115.6)%
==== ======
</TABLE>
The components of net deferred income tax assets and liabilities as of
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Allowance for loan losses......................... $ 237,000 $ 239,000
Fixed assets...................................... 148,000 147,000
Deferred loan fees................................ 20,000 32,000
Net operating loss carryforward................... 803,000 1,689,000
State tax, net of federal income tax effect....... 196,000 151,000
AMT credit carryforward........................... 53,000 34,000
Other............................................. 3,000 (6,000)
---------- ----------
Total deferred tax assets............. $1,460,000 $2,286,000
========== ==========
</TABLE>
As of December 31, 1997, Bancorp had federal net operating loss
carryforwards of $2,363,000 available to reduce future financial statement
income based on the provisions of its tax sharing, agreement with Empire
Holdings, Inc. In addition, Bancorp is a member of the Empire Holdings, Inc.
and subsidiaries consolidated tax return filing group.
F-59
<PAGE> 148
REDWOOD BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1997, the Empire Holdings consolidated group had federal
net operating loss carryforwards available, on a tax basis, to reduce future
taxable income as follows:
<TABLE>
<CAPTION>
NET OPERATING EXPIRATION
LOSS CARRYOVER DATE
- -------------- ----------
<C> <C>
$ 70,000 ........................................... 2002
2,846,000 ........................................... 2003
245,000 ........................................... 2004
3,000 ........................................... 2005
658,000 ........................................... 2006
5,000 ........................................... 2007
164,000 ........................................... 2008
26,000 ........................................... 2009
----------
$4,017,000
==========
</TABLE>
(7) EMPLOYEE BENEFIT PLAN
Bancorp has a 401(k) savings plan covering substantially all employees of
Bancorp. Under the provisions of the plan, employees who elect to participate
are allowed to make "deferred contributions" (as defined in the Plan
Agreement) of up to 15% of their annual salary. In addition, the Bank will make
matching contributions equal to 50% of each employee's elective deferral and at
year end 1% of the employee's annual salary. Contributions by Bancorp for the
year ended December 31, 1997 and 1996 amounted to $107,200 and $104,954,
respectively.
(8) RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bancorp has made loans and advances
under lines of credit to directors and officers and their related interests. An
analysis of loans to related parties for 1997 and 1996 are shown below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance, beginning of year.......... -- $ 100,000
Advances............................ -- 886,000
Payments............................ -- (986,000)
--------- ---------
Balance, end of year................ -- --
========= =========
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
The Bank is required by federal regulations to maintain certain minimum
average balances with the Federal Reserve Bank, based primarily on the Bank's
daily demand deposit balances. Required deposits held with the Federal Reserve
Bank as of December 31, 1997 and 1996 were $1,479,000 and $1,482,000, and the
Bank had a balance of $6,213,000 and $5,177,000 with the Federal Reserve Bank
at these dates.
Bancorp has entered into various noncancelable operating lease arrangements
for three branch offices. Future minimum lease payments as of December 31, 1997
are as follows:
<TABLE>
<CAPTION>
FUTURE
MINIMUM
LEASE PAYMENTS
--------------
<S> <C>
1998.......................................... $385,683
1999.......................................... 19,400
--------
$405,083
========
</TABLE>
F-60
<PAGE> 149
REDWOOD BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Certain of the leases contain renewal options and rent escalation clauses
based upon certain economic indices. Net rental expense for bank premises and
equipment under operating leases for the year ended December 31, 1997 and 1996
was $477,398 and $475,395.
Bancorp is involved in legal actions arising from normal business
activities. Management, upon the advice of legal counsel handling such actions,
believes that the ultimate resolution of these actions will not have a material
effect on the financial position of Bancorp.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Bancorp 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. To
date, these financial instruments include commitments to extend credit which
involve elements of credit and interest rate risk in excess of the amount
recognized in the statement of financial position.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being 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 deemed necessary by the Bancorp upon commitments to extend credit,
is based on management's credit evaluation of the counter-party. Collateral
held varies but usually consists of residential and commercial property.
Standby letters of credit are performance assurances made on behalf of
customers who have a contractual obligation to produce or deliver goods or
services or otherwise perform. Credit risk in these transactions arises from
the possibility that a customer may not be able to repay the Bank if the letter
of credit is drawn upon. As with commitments to extend credit, the Bank
evaluates each customer's creditworthiness on a case-by-case basis.
At December 31, 1997 and 1996, Bancorp had $18,883,206 and $16,244,782 of
commitments to extend credit and $366,968 and $226,968 in standby letters of
credit.
(10) REGULATORY CAPITAL REQUIREMENTS
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 classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1997, that
the Bank meets all capital adequacy requirements to which it is subject.
F-61
<PAGE> 150
REDWOOD BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the regulatory capital position of the Bank
as of December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
TO BE WELL-
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
-------------------- -------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk Weighted
Assets).......................... $13,803 12.0% >=$9,237 >=8.0% >=$11,546 >=10.0%
Tier I Capital (to Risk Weighted
Assets).......................... $12,617 10.9% >=$4,618 >=4.0% >=$ 6,928 >= 6.0%
Tier I Capital (to Average
Assets).......................... $12,617 9.0% >=$5,611 >=4.0% >=$ 7,014 >= 5.0%
As of December 31, 1996:
Total Capital (to Risk Weighted
Assets).......................... $11,514 10.6% >=$8,663 >=8.0% >=$10,829 >=10.0%
Tier I Capital (to Risk Weighted
Assets).......................... $10,320 9.5% >=$4,331 >=4.0% >=$ 6,497 >= 6.0%
Tier I Capital (to Average
Assets).......................... $10,320 8.5% >=$4,837 >=4.0% >=$ 6,046 >= 5.0%
</TABLE>
As of December 31, 1997 and 1996, the regulatory capital position of
Bancorp approximated the Bank's.
As of December 31, 1997, the Bank was categorized 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, Tier I leverage ratios as set forth in the table, and not be
subject to a capital directive.
In addition, the California State Banking Department limits the amount of
dividends that can be paid without its prior approval for all state chartered
banks. The limitation for a given year is the lesser of the Bank's retained
earnings or its net income for the last three fiscal years, less the amount of
any distributions made by the Bank's during such period. As of December 31,
1997, the Bank could pay dividends of up to $4,829,074 without prior approval.
Lastly, in September 1992, Bancorp entered into an agreement with the
Federal Reserve Bank whereby Bancorp cannot pay dividends unless the Bank
maintains a Tier 1 capital ratio of at least 7.0%, a Tier 1 risk-based capital
ratio of at least 4% and a total risk-based capital ratio of 8%.
(11) FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair value estimates are determined as of a specific date in time utilizing
quoted market prices, where available, or various assumptions and estimates. As
the assumptions underlying these estimates change, the fair value of the
financial instruments will change. The use of assumptions and various valuation
techniques, as well as the absence of secondary markets for certain financial
instruments, will likely reduce the comparability of fair value disclosures
between financial institutions. Additionally, Bancorp has not disclosed highly
subjective values of other nonfinancial instruments. Accordingly, the aggregate
fair value amounts presented do not represent and should not be construed to
represent the full underlying value of the Bank.
The methods and assumptions used to estimate the fair values of each class
of financial instruments are as follows:
CASH AND CASH EQUIVALENTS
The carrying value of cash and cash equivalents approximates fair value due
to the relatively short term nature of these instruments.
INTEREST EARNING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS
The carrying value of interest earning deposits in other financial
institutions approximates fair value due to the short term nature of all such
deposits in the Bancorp's portfolio.
F-62
<PAGE> 151
REDWOOD BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INVESTMENT SECURITIES, HELD TO MATURITY
Fair value of securities and investments is based on quoted market prices.
If quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
LOANS RECEIVABLE
In order to determine the fair values for loans, the loan portfolio was
segmented based on loan type, credit quality and repricing characteristics. For
certain variable rate loans with no significant credit concerns and frequent
pricings, estimated fair values are based on the carrying values. The fair
values of other loans are estimated using discounted cash flow analyses. The
discount rates used in these analyses are generally based on origination rates
for similar loans of comparable credit quality. Maturity estimates of
installment loans are based on historical experience with prepayments.
DEPOSITS
The fair values for deposits, subject to immediate withdrawal such as
interest and noninterest bearing, and savings deposit accounts, are equal to
the amount payable on demand at the reporting date (i.e., their carrying amount
on the balance sheet). Fair values for fixed rate certificates of deposits are
estimated by discounting future cash flows using interest rates currently
offered on time deposits with similar remaining maturities.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents.......... $ 9,872,217 $ 9,872,217 $ 13,140,106 $ 13,140,106
Investment securities.............. 18,718,541 18,719,295 11,596,575 11,595,551
Loans receivable, net.............. 109,483,706 109,442,971 100,994,646 100,924,569
------------ ------------ ------------ ------------
$138,074,464 $138,034,483 $125,731,327 $125,660,226
============ ============ ============ ============
Financial liabilities:
Deposits........................... $126,772,656 $126,832,967 $117,379,755 $117,420,827
============ ============ ============ ============
</TABLE>
(12) PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
The financial statements of Bancorp (parent company only) follow:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
BALANCE SHEETS
Cash........................................................ $ 307 $ 567
Investment in subsidiaries.................................. 16,594,254 14,369,612
Deferred tax assets......................................... 877,550 1,573,000
----------- -----------
Total assets.................................... $17,472,111 $15,943,179
=========== ===========
Shareholder's equity:
Common stock............................................ $ 832,500 $ 832,500
Surplus................................................. 10,639,969 10,639,969
Retained earnings....................................... 5,988,022 4,567,627
Accumulated other comprehensive income (loss), net of
tax................................................... 11,620 (96,917)
----------- -----------
Total shareholder's equity.................................. $17,472,111 $15,943,179
=========== ===========
</TABLE>
F-63
<PAGE> 152
REDWOOD BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
INCOME STATEMENTS
Expenses:
Goodwill amortization................................... $ (180,224) $ (180,224)
----------- -----------
Total expenses.......................................... (180,224) (180,224)
Loss before taxes and equity in undistributed net income of
subsidiaries.............................................. (180,224) (180,224)
Income tax benefit.......................................... -- 1,573,000
----------- -----------
Income (loss) before equity in undistributed net income of
subsidiaries.............................................. (180,224) 1,392,776
Equity in undistributed net income of subsidiaries.......... 1,600,619 1,913,945
----------- -----------
Net Income.................................................. $ 1,420,395 $ 3,306,721
=========== ===========
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
STATEMENTS OF CASH FLOWS
Cash flows--operating activities:
Net Income.............................................. $ 1,420,395 $ 3,306,721
Reconciliation of net income to net cash from
operations:
Equity in undistributed net income of
subsidiaries...................................... (1,600,619) (1,913,945)
Goodwill amortization............................... 180,224 180,224
Deferred income tax................................. 695,450 (1,573,000)
----------- -----------
Operating cash flows, net................................... 695,450 --
Cash flows--investing activities:
Capital contribution to the subsidiaries................ (695,710) --
----------- -----------
Investing cash flows, net........................... (695,710) --
Net decrease in cash........................................ (260) --
----------- -----------
Cash at beginning of the year............................... 567 567
Cash at end of the year..................................... $ 307 $ 567
=========== ===========
</TABLE>
(13) SUBSEQUENT EVENT
On June 8, 1998, the sole shareholder of Bancorp signed an Agreement in
Principle to sell all of Bancorp's outstanding shares to First Banks AmericaInc.
The transaction is expected to be completed in the fourth quarter of 1998,
subject to regulatory approval.
F-64
<PAGE> 153
- --------------------------------------------------------------------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................................ 2
Summary Consolidated Financial Data............... 7
Risk Factors...................................... 8
Use of Proceeds................................... 16
Market for the Preferred Securities............... 16
Accounting Treatment.............................. 16
Capitalization.................................... 17
Pro Forma Financial Information................... 19
Management's Discussion and Analysis.............. 26
Business.......................................... 48
Supervision and Regulation........................ 51
Description of the Preferred Securities........... 57
Description of the Subordinated Debentures........ 66
Description of the Guarantee...................... 74
Relationship Among the Preferred Securities, the
Subordinated Debentures and the Guarantee....... 76
Certain Federal Income Tax Consequences........... 78
ERISA Considerations.............................. 81
Underwriting...................................... 82
Validity of Securities............................ 83
Experts........................................... 83
Incorporation of Certain Documents by Reference... 83
Available Information............................. 84
Index to Consolidated Financial Statements........ F-1
</TABLE>
------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FIRST BANKS
AMERICA, INC., FIRST AMERICA CAPITAL TRUST OR THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF FIRST BANKS AMERICA, INC. SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,600,000 PREFERRED SECURITIES
FIRST AMERICA
CAPITAL TRUST
% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED, AS DESCRIBED HEREIN, BY
FIRST BANKS
AMERICA, INC.
------------------------
$40,000,000
% SUBORDINATED DEBENTURES
OF
FIRST BANKS AMERICA, INC.
------------------------
Prospectus
, 1998
------------------------
STIFEL, NICOLAUS & COMPANY
INCORPORATED
HOEFER & ARNETT, INC.
- --------------------------------------------------------------------------------
<PAGE> 154
FIRST BANKS AMERICA, INC.
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 13,940
NASD Filing Fee............................................. 5,100
New York Stock Exchange Listing Fee......................... 27,140
Blue Sky Qualification Fees and Expenses.................... 3,000
Accounting Fees and Expenses................................ 65,000
Legal Fees and Expenses..................................... 100,000
Trustees' Fees and Expenses................................. 12,000
Printing and Engraving Expenses............................. 15,000
Miscellaneous............................................... 8,820
--------
Total............................................... $250,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") permits
a corporation to indemnify its directors and officers or former directors or
officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers. Such law provides further
that the indemnification permitted thereunder shall not be deemed exclusive of
any other rights to which the directors and officers may be entitled under
FBA's Restated Certificate of Incorporation, By-laws, any agreement or
otherwise.
Reference is made to Article X of FBA's By-laws, which provides for
indemnification of directors, officers, employees and agents of FBA under
certain circumstances. The provisions of such By-laws and Section 145 of the
DGCL may be sufficiently broad to indemnify FBA's directors, officers,
employees and agents for certain liabilities arising under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling FBA pursuant to
the foregoing provisions, FBA has been informed that, in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Pursuant to a policy of directors' and officers' liability insurance, with
total annual limits of $10.0 million, officers and directors of FBA are
insured, subject to the limits, retention, exceptions and other terms and
conditions of such policy, against liability for any actual or alleged error,
misstatement, misleading statement, act or omission, or neglect or breach of
duty by the directors or officers of FBA in the discharge of their duties
solely in their capacity as directors or officers of FBA, individually or
collectively, or any matter claimed against them solely by reason of their
being directors or officers of FBA.
Under the Trust Agreement, FBA will agree to indemnify each of the Trustees
of the Trust or any predecessor Trustee for the Trust, and to hold each Trustee
harmless against, any loss, damage, claims, liability or expense incurred
without negligence or bad faith on its part, arising out of or including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
under the Trust Agreement.
FBA and the Trust have agreed to indemnify the Underwriters, and the
Underwriters have agreed to indemnify the Trust and FBA against certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended. Reference is made to the form of Underwriting Agreement filed as
Exhibit 1.1 herewith.
II-1
<PAGE> 155
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
(a) Exhibits
<C> <S>
1.1 Form of Underwriting Agreement.
4.1 Form of Indenture.
4.2 Form of Subordinated Debenture (included as an exhibit to
Exhibit 4.1).
4.3 Certificate of Trust of First America Capital Trust.
4.4 Trust Agreement of First America Capital Trust.
4.5 Form of Amended and Restated Trust Agreement.
4.6 Form of Preferred Security Certificate (included as an
exhibit to Exhibit 4.5).
4.7 Form of Preferred Securities Guarantee Agreement.
4.8 Form of Agreement as to Expenses and Liabilities (included
as an exhibit to Exhibit 4.5).
5.1 Opinion of Jackson Walker L.L.P. as to the validity of the
issuance of the Subordinated Debentures.
5.2 Opinion of Richards, Layton & Finger, special Delaware
counsel, as to the legality of the Preferred Securities.
8.1 Opinion of Jackson Walker L.L.P. as to certain federal
income tax matters.
10(a) BancTEXAS Group Inc. 1990 Stock Option Plan (as amended July
22, 1993)(filed as Exhibit 10(c) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993, and
incorporated herein by reference).
10(b) 1993 Directors' Stock Bonus Plan (filed as Exhibit 10(k) to
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993 and incorporated herein by reference).
10(c) Stock Purchase and Operating Agreement by and between First
Banks, Inc., a Missouri Corporation and the Company, dated
May 19, 1994 (filed as Exhibit 10(d) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994 and incorporated herein by reference).
10(d) Management Agreement by and between First Banks, Inc., and
BankTEXAS N.A., dated November 17, 1994 (filed as Exhibit
10(h) to the Company's Annual Report on From 10-K for the
year ended December 31, 1994 and incorporated herein by
reference).
10(e) Financial Management Policy by and between First Banks,
Inc., and the Company, dated September 15, 1994 (filed as
Exhibit 10(j) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994 and incorporated herein
by reference).
10(f) Federal Funds Agency Agreement by and between First Banks,
Inc., and the Company, dated September 15, 1994 (filed as
Exhibit 10(k) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994 and incorporated herein
by reference).
10(g) Funds Management Policy by and between First Bank and
BankTEXAS N.A., dated December 1, 1997.
10(h) Management Services Agreement by and between First Banks,
Inc., and Sunrise Bank of California dated December 16, 1996
(filed as Exhibit 10(j) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference).
II-2
<PAGE> 156
10(i) Service Agreement by and between First Serv, Inc., and
Sunrise Bank of California (relating to data processing
services) dated November 21, 1996 (filed as Exhibit 10(k) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference).
10(j) Federal Funds Agency Agreement by and between First Banks,
Inc., and Sunrise Bank of California dated November 19, 1996
(filed as Exhibit 10(1) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference).
10(k) Funds Management Policy by and between First Banks, Inc.,
and Sunrise Bank of California dated November 19, 1996
(filed as Exhibit 10(m) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference).
10(l) Agreement and Plan of Reorganization dated July 28, 1997, by
and between FBA and Surety Bank (filed as Exhibit 2 to the
Company's Current Report on Form 8-K dated August 7, 1997
and incorporated herein by reference).
10(m) Agreement and Plan of Merger by and between FBA and Pacific
Bay Bank dated September 22, 1997 (filed as Exhibit 2(b) to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 and incorporated herein by
reference).
10(n) Agreement and Plan of Merger by and between FBA and FCB
dated October 3, 1997 (filed as Exhibit 2(c) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 and incorporated herein by
reference).
10(o) Promissory note payable to First Banks, Inc., dated November
4, 1997 (filed as Exhibit 0(o) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997
and incorporated herein by reference.
10(p) Cost sharing agreement by and among First Bank & Trust,
Sunrise Bank of California, Sundowner Corporation and First
Banks America, Inc. (filed as Exhibit 10(g) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1997 and incorporated herein by reference).
10(q) Service Agreement by and between First Services, L.P., and
BankTEXAS, N.A., dated April 1, 1997 (filed as Exhibit 10(r)
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by
reference).
10(r) Service Agreement by and between First Services, L.P., and
First Bank of California, dated April 1, 1997 (filed as
Exhibit 10(s) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997 and incorporated herein
by reference).
10(s) Debenture by and between First Bank America, Inc., and First
Banks, Inc., dated February 2, 1998 (filed as Exhibit 10(t)
to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 and incorporated herein by
reference).
10(t) Brokerage Service/Lease Agreement by and between BankTEXAS,
N.A. and First Brokerage America L.L.C. dated June 1, 1998.
12.1 Statements Regarding Computation of Ratio of Earnings to
Fixed Charges.
13.1 Annual Report on Form 10-K for the year ended December 31,
1997.
13.2 Quarterly Report on Form 10-Q for the quarter ended March
31, 1998.
23.1 Consents of KPMG Peat Marwick LLP, Independent Accountants.
23.2 Consent of Jackson Walker L.L.P. (included in their opinions
filed herewith as Exhibits 5.1 and 8.1).
23.3 Consent of Richards, Layton & Finger (included in their
opinions filed herewith as Exhibit 5.2).
23.4 Consent of Coopers & Lybrand, L.L.P., Independent
Accountants.
II-3
<PAGE> 157
24.1 Power of Attorney (included on the signature page).
25.1 Form T-1 Statement of Eligibility of State Street Bank and
Trust Company to act as trustee under the Indenture.
25.2 Form T-1 Statement of Eligibility of State Street Bank and
Trust Company to act as trustee under the Amended and
Restated Trust Agreement.
25.3 Form T-1 Statement of Eligibility of State Street Bank and
Trust Company to act as trustee under the Preferred
Securities Guarantee Agreement.
(b) Financial Statement Schedules--Not applicable as all
required information is contained in the financial
statements and the notes thereto or in the selected
financial data.
</TABLE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, (the "Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the provisions described under
"Item 15--Indemnification of Directors and Officers" above, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The Company hereby undertakes that: (1) For purposes of determining any
liability under the 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 Company pursuant to Rule
424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and (2) For
the purpose of determining any liability under the Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE> 158
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in St. Louis, Missouri on July 1, 1998.
FIRST BANKS AMERICA, INC.
By: /s/ JAMES F. DIERBERG
---------------------------
James F. Dierberg
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in St. Louis, Missouri on July 1, 1998.
FIRST AMERICA CAPITAL TRUST
By: /s/ JAMES F. DIERBERG
---------------------------
James F. Dierberg, Trustee
Chief Executive Officer
By: /s/ ALLEN H. BLAKE
---------------------------
Allen H. Blake, Trustee
By: /s/ LAURENCE J. BROST
---------------------------
Laurence J. Brost, Trustee
II-5
<PAGE> 159
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James F. Dierberg, and Allen H. Blake, and each
of them (with full power to each of them to act alone), his or her true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement, including any Registration
Statement for the same offering that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES F. DIERBERG Chairman of the Board, President and July 1, 1998
- ---------------------------------------- Chief Executive Officer
James F. Dierberg
/s/ ALLEN H. BLAKE Chief Financial Officer and Principal July 1, 1998
- ---------------------------------------- Accounting Officer)
Allen H. Blake
/s/ CHARLES A. CROCCO, JR. Director July 1, 1998
- ----------------------------------------
Charles A. Crocco, Jr.
/s/ ALBERT M. LAVEZZO Director July 1, 1998
- ----------------------------------------
Albert M. Lavezzo
/s/ EDWARD T. STORY, JR. Director July 1, 1998
- ----------------------------------------
Edward T. Story, Jr.
/s/ MARK T. TURKCAN Director July 1, 1998
- ----------------------------------------
Mark T. Turkcan
/s/ DONALD W. WILLIAMS Director July 1, 1998
- ----------------------------------------
Donald W. Williams
</TABLE>
II-6
<PAGE> 160
<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
4.1 Form of Indenture.
4.2 Form of Subordinated Debenture (included as an exhibit to Exhibit 4.1).
4.3 Certificate of Trust of First America Capital Trust.
4.4 Trust Agreement of First America Capital Trust.
4.5 Form of Amended and Restated Trust Agreement.
4.6 Form of Preferred Security Certificate (included as an exhibit to Exhibit 4.5).
4.7 Form of Preferred Securities Guarantee Agreement.
4.8 Form of Agreement as to Expenses and Liabilities (included as an exhibit to Exhibit 4.5).
5.1 Opinion of Jackson Walker L.L.P. as to the validity of the issuance of the Subordinated Debentures.
5.2 Opinion of Richards, Layton & Finger, special Delaware counsel, as to the legality of the Preferred Securities.
8.1 Opinion of Jackson Walker L.L.P. as to certain federal income tax matters.
10(a) BancTEXAS Group Inc. 1990 Stock Option Plan (as amended July 22, 1993)(filed as Exhibit 10(c) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, and incorporated herein by reference).
10(b) 1993 Directors' Stock Bonus Plan (filed as Exhibit 10(k) to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993 and incorporated herein by reference).
10(c) Stock Purchase and Operating Agreement by and between First Banks, Inc., a Missouri Corporation and the Company,
dated May 19, 1994 (filed as Exhibit 10(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994 and incorporated herein by reference).
10(d) Management Agreement by and between First Banks, Inc., and BankTEXAS N.A., dated November 17, 1994 (filed as
Exhibit 10(h) to the Company's Annual Report on From 10-K for the year ended December 31, 1994 and incorporated
herein by reference).
10(e) Financial Management Policy by and between First Banks, Inc., and the Company, dated September 15, 1994 (filed as
Exhibit 10(j) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated
herein by reference).
10(f) Federal Funds Agency Agreement by and between First Banks, Inc., and the Company, dated September 15, 1994 (filed
as Exhibit 10(k) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated
herein by reference).
10(g) Funds Management Policy by and between First Bank and BankTEXAS N.A., dated December 1, 1997.
10(h) Management Services Agreement by and between First Banks, Inc., and Sunrise Bank of California dated December 16,
1996 (filed as Exhibit 10(j) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference).
10(i) Service Agreement by and between First Serv, Inc., and Sunrise Bank of California (relating to data processing
services) dated November 21, 1996 (filed as Exhibit 10(k) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference).
10(j) Federal Funds Agency Agreement by and between First Banks, Inc., and Sunrise Bank of California dated November 19,
1996 (filed as Exhibit 10(l) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference).
II-7
<PAGE> 161
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10(k) Funds Management Policy by and between First Banks, Inc., and Sunrise Bank of California dated November 19, 1996
(filed as Exhibit 10(m) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference).
10(l) Agreement and Plan of Reorganization dated July 28, 1997, by and between FBA and Surety Bank (filed as Exhibit 2 to
the Company's Current Report on Form 8-K dated August 7, 1997 and incorporated herein by reference).
10(m) Agreement and Plan of Merger by and between FBA and Pacific Bay Bank dated September 22, 1997 (filed as Exhibit
2(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 and incorporated
herein by reference).
10(n) Agreement and Plan of Merger by and between FBA and FCB dated October 3, 1997 (filed as Exhibit 2(c) to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 and incorporated herein by
reference).
10(o) Promissory note payable to First Banks, Inc., dated November 4, 1997 (filed as Exhibit 0(o) to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 and incorporated herein by reference.
10(p) Cost sharing agreement by and among First Bank & Trust, Sunrise Bank of California, Sundowner Corporation and First
Banks America, Inc. (filed as Exhibit 10(g) to the Company's Annual Report on Form 10-K for the year ended December
31, 1997 and incorporated herein by reference).
10(q) Service Agreement by and between First Services, L.P., and BankTEXAS, N.A., dated April 1, 1997 (filed as Exhibit
10(r) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by
reference).
10(r) Service Agreement by and between First Services, L.P., and First Bank of California, dated April 1, 1997 (filed as
Exhibit 10(s) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated
herein by reference).
10(s) Debenture by and between First Bank America, Inc., and First Banks, Inc., dated February 2, 1998 (filed as Exhibit
10(t) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein
by reference).
10(t) Brokerage Service/Lease Agreement by and between BankTEXAS, N.A. and First Brokerage America L.L.C. dated June 1,
1998.
12.1 Statements Regarding Computation of Ratio of Earnings to Fixed Charges.
13.1 Annual Report on Form 10-K for the year ended December 31, 1997.
13.2 Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
23.1 Consents of KPMG Peat Marwick LLP, Independent Accountants.
23.2 Consent of Jackson Walker L.L.P. (included in their opinions filed herewith as Exhibits 5.1 and 8.1).
23.3 Consent of Richards, Layton & Finger (included in their opinions filed herewith as Exhibit 5.2).
23.4 Consent of Coopers & Lybrand, L.L.P., Independent Accountants.
24.1 Power of Attorney (included on the signature page).
25.1 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under the Indenture.
25.2 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under the Amended and
Restated Trust Agreement.
25.3 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under the Preferred
Securities Guarantee Agreement.
</TABLE>
II-8
<PAGE> 1
1,600,000 Preferred Securities
First America Capital Trust
% Cumulative Trust Preferred Securities
-----
(Liquidation Amount of $25 per Preferred Security)
UNDERWRITING AGREEMENT
----------------------
, 1998
--------------
STIFEL, NICOLAUS & COMPANY, INCORPORATED
500 North Broadway
St. Louis, Missouri 63102
HOEFER & ARNETT, INC.
353 Sacramento Street, 10th Floor
San Francisco, California 94111
As Representatives of the Several Underwriters
named in Schedule I hereto
Dear Sirs:
First Banks America, Inc., a Delaware corporation (the "Company")
and its financing subsidiary, First America Capital Trust, a Delaware
business trust (the "Trust", and hereinafter together with the Company, the
"Offerors"), propose that the Trust issue and sell to the several
underwriters listed on Schedule I hereto (the "Underwriters"), pursuant to
the terms of this Agreement, 1,600,000 of the Trust's % Cumulative Trust
----
Preferred Securities, with a liquidation amount of $25.00 per preferred
security (the "Preferred Securities"), to be issued under the Trust Agreement
(as hereinafter defined), the terms of which are more fully described in the
Prospectus (as hereinafter defined). The aforementioned 1,600,000 Preferred
Securities to be sold to the Underwriters are herein called the "Firm
Preferred Securities". Solely for the purpose of covering over-allotments in
the sale of the Firm Preferred Securities, the Offerors further propose that
the Trust issue and sell to the Underwriters, at their option, up to an
additional 240,000 Preferred Securities (the "Option Preferred Securities")
upon exercise of the over-allotment option granted in Section 1 hereof. The
Firm Preferred Securities and any Option Preferred Securities are herein
collectively referred to as the "Designated Preferred Securities". Stifel,
Nicolaus & Company, Incorporated and Hoefer & Arnett, Inc. are acting jointly
as representatives of the Underwriters and in such capacity are sometimes
herein referred to as the "Representatives."
The Offerors hereby confirm as follows their agreement with each
of the Underwriters in connection with the proposed purchase of the
Designated Preferred Securities.
<PAGE> 2
1. Sale, Purchase and Delivery of Designated Preferred Securities;
---------------------------------------------------------------
Description of Designated Preferred Securities.
- -----------------------------------------------
(a) On the basis of the representations, warranties and
agreements herein contained, and subject to the terms and conditions herein
set forth, the Offerors hereby agree that the Trust shall issue and sell to
each of the Underwriters and each of the Underwriters agrees, severally and
not jointly, to purchase from the Trust, at a purchase price of $25.00 per
share (the "Purchase Price"), the respective number of Firm Preferred
Securities set forth opposite the name of such Underwriter in Schedule I
hereto. Because the proceeds from the sale of the Firm Preferred Securities
will be used to purchase from the Company its Debentures (as hereinafter
defined and as described in the Prospectus), the Company shall pay to each
Underwriter a commission of $ per Firm Preferred Security purchased (the
-----
"Firm Preferred Securities Commission"). The Representatives may by notice
to the Company amend Schedule I to add, eliminate or substitute names set
forth therein (other than to eliminate the name of the Representatives) and
to amend the number of firm Preferred Securities to be purchased by any firm
or corporation listed thereon, provided that the total number of Firm
Preferred Securities listed on Schedule I shall equal 1,600,000.
In addition, on the basis of the representations, warranties and
agreements herein contained and subject to the terms and conditions herein
set forth, the Trust hereby grants to the Underwriters, severally and not
jointly, an option to purchase all or any portion of the 240,000 Option
Preferred Securities, and upon the exercise of such option in accordance with
this Section 1, the Offerors hereby agree that the Trust shall issue and sell
to the Underwriters, severally and not jointly, all or any portion of the
Option Preferred Securities at the same Purchase Price per share paid for the
Firm Preferred Securities. If any Option Preferred Securities are to be
purchased, each Underwriter, severally and not jointly, agrees to purchase
from the Trust that proportion (subject to adjustment as the Representatives
may determine to avoid fractional shares) of the number of Option Preferred
Securities to be purchased that the number of Firm Preferred Securities set
forth opposite the name of such Underwriter in Schedule I hereto (or such
number increased as set forth in Section 9 hereof) bears to 1,600,000.
Because the proceeds from the sale of the Option Preferred Securities will be
used to purchase from the Company its Debentures, the Company shall pay to
the Underwriters a commission of $ per Option Preferred Security for
-----
each Option Preferred Security purchased (the "Option Preferred Securities
Commission"). The option hereby granted (the "Option") shall expire 30 days
after the date upon which the Registration Statement (as hereinafter defined)
becomes effective and may be exercised only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Preferred Securities. The Option may be exercised in
whole or in part at any time (but not more than once) by you giving notice
(confirmed in writing) to the Trust setting forth the number of Option Preferred
Securities as to which the Underwriters are exercising the Option and the time,
date and place for payment and delivery of certificates for such Option
Preferred Securities. Such time and date of payment and delivery for the Option
Preferred Securities (the "Option Closing Date") shall be determined by you,
but shall not be earlier than two nor later than five full business days
after the exercise of such Option, nor in any event prior to the Closing Date
(as hereinafter defined). The Option Closing Date may be the same as the
Closing Date.
2
<PAGE> 3
Payment of the Purchase Price and the Firm Preferred Securities
Commission and delivery of certificates for the Firm Preferred Securities
shall be made at the offices of Stifel, Nicolaus & Company, Incorporated, 500
North Broadway, St. Louis, Missouri 63102, or such other place as shall be
agreed to by you and the Offerors, at 10:00 a.m., St. Louis time, on
, 1998, or at such other time not more than five full business
- -------------
days thereafter as the Offerors and you shall determine (the "Closing Date").
If the Underwriters exercise the option to purchase any or all of the Option
Preferred Securities, payment of the Purchase Price and Option Preferred
Securities Commission and delivery of certificates for such Option Preferred
Securities shall be made on the Option Closing Date at the Underwriters'
offices, or at such other place as the Offerors and you shall determine.
Such payments shall be made to an account designated by the Trust by wire
transfer or certified or bank cashier's check, in same day funds, in the
amount of the Purchase Price therefor, against delivery by or on behalf of
the Trust to you for the respective accounts of the several Underwriters of
certificates for the Designated Preferred Securities to be purchased by the
Underwriters.
The Agreement contained herein with respect to the timing of the
Closing Date and Option Closing Date is intended to, and does, constitute an
express agreement, as described in Rule 15c6-1(c) and (d) promulgated under
the 1934 Act (as defined herein), for a settlement date other than four
business days after the date of the contract.
Certificates for Designated Preferred Securities to be purchased
by the Underwriters shall be delivered by the Offerors in fully registered
form in such authorized denominations and registered in such names as you
shall request in writing not later than 12:00 noon, St. Louis time, two
business days prior to the Closing Date and, if applicable, the Option
Closing Date. Certificates for Designated Preferred Securities to be
purchased by the Underwriters shall be made available by the Offerors to you
for inspection, checking and packaging at such office as you may designate in
writing not later than 1:00 p.m., St. Louis time, on the last business day
prior to the Closing Date and, if applicable, on the last business day prior
to the Option Closing Date.
Time shall be of the essence, and delivery of the certificates
for the Designated Preferred Securities at the time and place specified
pursuant to this Agreement is a further condition of the obligations of each
Underwriter hereunder.
(b) The Offerors propose that the Trust issue the Designated
Preferred Securities pursuant to an Amended and Restated Trust Agreement
among State Street Bank and Trust Company, as Property Trustee, Wilmington
Trust Company, as Delaware Trustee, the Administrative Trustees named
therein, (collectively, the "Trustees"), and the Company, in substantially
the form heretofore delivered to the Underwriters, said Agreement being
hereinafter referred to as the "Trust Agreement". In connection with the
issuance of the Designated Preferred Securities, the Company proposes (i) to
issue its Subordinated Debentures ( the "Debentures") pursuant to an
Indenture, to be dated as of , 1998, between the Company and
------------
State Street Bank and Trust Company, as Trustee (the "Indenture") and (ii) to
guarantee certain payments on the Designated Preferred Securities pursuant to
a Guarantee
3
<PAGE> 4
Agreement between the Company and State Street Bank and Trust Company, as
guarantee trustee (the "Guarantee"), to the extent described therein.
2. Representations and Warranties.
------------------------------
(a) The Offerors jointly and severally represent and warrant
to, and agree with, each of the Underwriters that:
(i) The reports filed with the Securities and
Exchange Commission (the "Commission") by the Company under the Securities
Exchange Act of 1934, as amended (the "1934 Act") and the rules and
regulations thereunder (the "1934 Act Regulations") at the time they
were filed with the Commission, complied as to form in all material
respects with the requirements of the 1934 Act and the 1934 Act
Regulations and did not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
in which they were made, not misleading.
(ii) The Offerors have prepared and filed with the
Commission a registration statement on Form S-2 (File Numbers 333-
-----
and 333- -01) for the registration of the Designated Preferred
-----
Securities, the Guarantee and $46,000,000 aggregate principal amount of
Debentures under the Securities Act of 1933, as amended (the "1933
Act"), including the related prospectus subject to completion, and one
or more amendments to such registration statement may have been so
filed, in each case in conformity in all material respects with the
requirements of the 1933 Act, the rules and regulations promulgated
thereunder (the "1933 Act Regulations") and the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act") and the rules and
regulations thereunder. Copies of such registration statement,
including any amendments thereto, each Preliminary Prospectus (as
defined herein) contained therein and the exhibits, financial
statements and schedules to such registration statement, as finally
amended and revised, have heretofore been delivered by the Offerors to
the Representatives. After the execution of this Agreement, the
Offerors will file with the Commission (A) if such registration
statement, as it may have been amended, has been declared by the
Commission to be effective under the 1933 Act, a prospectus in the form
most recently included in an amendment to such registration statement
(or, if no such amendment shall have been filed, in such registration
statement), with such changes or insertions as are required by Rule
430A of the 1933 Act Regulations ("Rule 430A") or permitted by Rule
424(b) of the 1933 Act Regulations ("Rule 424(b)") and as have been
provided to and not objected to by the Representatives prior to (or as
are agreed to by the Representatives subsequent to) the execution of
this Agreement, or (B) if such registration statement, as it may have
been amended, has not been declared by the Commission to be effective
under the 1933 Act, an amendment to such registration statement,
including a form of final prospectus, necessary to permit such
registration statement to become effective, a copy of which amendment
has been furnished to and not objected to by the Representatives prior
to (or is agreed to by the Representatives subsequent to) the execution
of this Agreement. As used in this Agreement, the term "Registration
Statement" means such registration
4
<PAGE> 5
statement, as amended at the time when it was or is declared effective
under the 1933 Act, including (1) all financial schedules and exhibits
thereto, (2) all documents (or portions thereof) incorporated by reference
therein filed under the 1934 Act, and (3) any information omitted
therefrom pursuant to Rule 430A and included in the Prospectus (as
hereinafter defined); the term "Preliminary Prospectus" means each
prospectus subject to completion filed with such registration statement or
any amendment thereto including all documents (or portions thereof)
incorporated by reference therein under the 1934 Act (including the
prospectus subject to completion, if any, included in the Registration
Statement and each prospectus filed pursuant to Rule 424(a) under the 1933
Act); and the term "Prospectus" means the prospectus first filed with the
Commission pursuant to Rule 424(b)(1) or (4) or, if no prospectus is
required to be filed pursuant to Rule 424(b)(1) or (4), the prospectus
included in the Registration Statement, in each case including the
financial schedules and all documents (or portions thereof) incorporated
by reference therein under the 1934 Act. The date on which the
Registration Statement becomes effective is hereinafter referred to as
the "Effective Date."
(iii) The documents incorporated by reference in the
Preliminary Prospectus or Prospectus or from which information is so
incorporated by reference, when they became effective or were filed
with the Commission, as the case may be, complied in all material
respects with the requirements of the 1934 Act and the 1934 Act
Regulations, and when read together and with the other information in
the Preliminary Prospectus or Prospectus, as the case may be, at the
time the Registration Statement became or becomes effective and at the
Closing Date and any Option Closing Date, did not or will not, as the
case may be, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading.
(iv) No order preventing or suspending the use of any
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) has been issued by the Commission, nor has the
Commission, to the knowledge of the Offerors, threatened to issue such
an order or instituted proceedings for that purpose. Each Preliminary
Prospectus, at the time of filing thereof, (A) complied in all material
respects with the requirements of the 1933 Act and the 1933 Act
Regulations and (B) did not contain an untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
---------
however, that this representation and warranty does not apply to
--------
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Offerors by any of the
Underwriters expressly for inclusion in the Prospectus beneath the
heading "Underwriting" and the last sentence on the cover page of the
Prospectus (such information referred to herein as the "Underwriters'
Information").
(v) At the Effective Date and at all times subsequent
thereto, up to and including the Closing Date and, if applicable, the
Option Closing Date, the Registration Statement and any post-effective
amendment thereto (A) complied and will comply in all
5
<PAGE> 6
material respects with the requirements of the 1933 Act, the 1933 Act
Regulations and the Trust Indenture Act (and the rules and regulations
thereunder) and (B) did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, not misleading. At
the Effective Date and at all times when the Prospectus is required to be
delivered in connection with offers and sales of Designated Preferred
Securities, including, without limitation, the Closing Date and, if
applicable, the Option Closing Date, the Prospectus, as amended or
supplemented, (A) complied and will comply in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations and
the Trust Indenture Act (and the rules and regulations thereunder) and
(B) did not contain and will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
---------
however, that this representation and warranty does not apply to
--------
Underwriters' Information.
(vi) (A) The Company is duly organized, validly
existing and in good standing under the laws of the State of Delaware,
with full corporate and other power and authority to own, lease and
operate its properties and conduct its business as described in and
contemplated by the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus)
and as currently being conducted and is duly registered as a bank holding
company under the Bank Holding Company Act of 1956, as amended (the
"BHC Act").
(B) The Trust has been duly created and is
validly existing as a statutory business trust in good standing under the
Delaware Business Trust Act with the power and authority (trust and
other) to own its property and conduct its business as described in the
Registration Statement and Prospectus, to issue and sell its common
securities (the "Common Securities") to the Company pursuant to the
Trust Agreement, to issue and sell the Designated Preferred Securities,
to enter into and perform its obligations under this Agreement and to
consummate the transactions herein contemplated; the Trust has no
subsidiaries and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or
the ownership of its property requires such qualification, except to
the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Trust; the Trust has
conducted and will conduct no business other than the transactions
contemplated by this Agreement and described in the Prospectus; the
Trust is not a party to or bound by any agreement or instrument other
than this Agreement, the Trust Agreement and the agreements and
instruments contemplated by the Trust Agreement and described in the
Prospectus; the Trust has no liabilities or obligations other than
those arising out of the transactions contemplated by this Agreement
and the Trust Agreement and described in the Prospectus; the Trust is
not a party to or subject to any action, suit or proceeding of any
nature; the Trust is not, and at the Closing Date or any Option Closing
Date will not be, to the knowledge of the Offerors, classified as an
association taxable as a corporation for United States federal income
tax purposes; and the Trust is, and as of
6
<PAGE> 7
the Closing Date or any Option Closing Date will be, treated as a
consolidated subsidiary of the Company pursuant to generally accepted
accounting principles.
(vii) The Company has three (3) subsidiaries. They are
listed on Exhibit A attached hereto and incorporated herein (the
---------
"Subsidiaries"). The Company does not own or control, directly or
indirectly, more than 5% of any class of equity security of any
corporation, association or other entity other than the Subsidiaries.
BankTEXAS National Association and First Bank of California are
collectively referred to as the "Banks". Each Subsidiary is a bank,
bank holding company or business trust duly incorporated, validly
existing and in good standing under the laws of its respective
jurisdiction of incorporation. Each such Subsidiary has full corporate
and other power and authority to own, lease and operate its properties
and to conduct its business as described in and contemplated by the
Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus) and as currently
being conducted. The deposit accounts of each Bank are insured by the
Bank Insurance Fund administered by the Federal Deposit Insurance
Corporation (the "FDIC") up to the maximum amount provided by law,
except to the extent the Prospectus discloses such deposit accounts are
insured by the Savings Association Insurance Fund ("SAIF") and to such
extent the deposit accounts are so insured up to the maximum amount
provided by law; and no proceedings for the modification, termination
or revocation of any such insurance are pending or, to the knowledge of
the Offerors, threatened.
(viii) The Company and each of the Subsidiaries is duly
qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases property
or conducts its business so as to require such qualification and in
which the failure to so qualify would, individually or in the
aggregate, have a material adverse effect on the condition (financial
or otherwise), earnings, business, prospects or results of operations
of the Company and the Subsidiaries on a consolidated basis. All of
the issued and outstanding shares of capital stock of the Subsidiaries
(A) have been duly authorized and are validly issued, (B) are fully
paid and nonassessable except to the extent such shares may be deemed
assessable under 12 U.S.C. Section 55 or 12 U.S.C. Section 1831o or
under applicable state banking law, and (C) except as disclosed in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), are directly owned by the Company free and
clear of any security interest, mortgage, pledge, lien, encumbrance,
restriction upon voting or transfer, preemptive rights, claim or
equity.
(ix) The capital stock of the Company and the equity
securities of the Trust conform to the description thereof contained in
the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus). The outstanding shares of capital stock
and equity securities of each Offeror have been duly authorized and
validly issued and are fully paid and nonassessable, and no such shares
were issued in violation of the preemptive or similar rights of any
security holder of an Offeror; no person has any preemptive or similar
right to purchase any shares of capital stock or equity securities of
the Offerors. Except as disclosed in the Prospectus, (or, if the
Prospectus is not in
7
<PAGE> 8
existence, the most recent Preliminary Prospectus) there are no
outstanding rights, options or warrants to acquire any securities of the
Offerors or the Subsidiaries, and there are no outstanding securities
convertible into or exchangeable for any securities of the Offerors or the
Subsidiaries and no restrictions upon the voting or transfer of any
capital stock of the Company or equity securities of the Trust pursuant to
the Company's corporate charter or bylaws, the Trust Agreement or any
agreement or other instrument to which an Offeror is a party or by which
an Offeror is bound other than the restrictions on transfer of the
Company's Class B Common Stock as set forth in that certain Stock Purchase
and Operating Agreement by and between First Banks, Inc. and the Company
dated May 19, 1994.
(x) (A) The Trust has all requisite power and
authority to issue, sell and deliver the Designated Preferred
Securities in accordance with and upon the terms and conditions set
forth in this Agreement, the Trust Agreement, the Registration
Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). All corporate and
trust action required to be taken by the Offerors for the
authorization, issuance, sale and delivery of the Designated Preferred
Securities in accordance with such terms and conditions has been
validly and sufficiently taken. The Designated Preferred Securities,
when delivered in accordance with this Agreement, will be duly and
validly issued and outstanding, will be fully paid and nonassessable
undivided beneficial interests in the assets of the Trust, will be
entitled to the benefits of the Trust Agreement, will not be issued in
violation of or subject to any preemptive or similar rights, and will
conform to the description thereof in the Registration Statement and
the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) and the Trust Agreement. None of the
Designated Preferred Securities, immediately prior to delivery, will be
subject to any security interest, lien, mortgage, pledge, encumbrance,
restriction upon voting or transfer, preemptive rights, claim, equity
or other defect.
(B) The Debentures have been duly and validly
authorized, and, when duly and validly executed, authenticated and
issued as provided in the Indenture and delivered to the Trust pursuant
to the Trust Agreement, will constitute valid and legally binding
obligations of the Company entitled to the benefits of the Indenture
and will conform to the description thereof contained in the
Prospectus.
(C) The Guarantee has been duly and validly
authorized, and, when duly and validly executed and delivered to the
guarantee trustee for the benefit of the Trust, will constitute a valid
and legally binding obligation of the Company and will conform to the
description thereof contained in the Prospectus.
(D) The Agreement as to Expenses and Liabilities
between the Company and the Trust (the "Expense Agreement") has been
duly and validly authorized, and, when duly and validly executed and
delivered by the Company, will constitute a valid and legally binding
obligation of the Company and will conform to the description thereof
contained in the Prospectus.
8
<PAGE> 9
(xi) The Offerors and the Subsidiaries have complied
in all material respects with all federal, state and local statutes,
regulations, ordinances and rules applicable to the ownership and
operation of their properties or the conduct of their businesses as
described in and contemplated by the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and as currently being conducted.
(xii) The Offerors and the Subsidiaries have all
material permits, easements, consents, licenses, franchises and other
governmental and regulatory authorizations from all appropriate
federal, state, local or other public authorities ("Permits") as are
necessary to own and lease their properties and conduct their
businesses in the manner described in and contemplated by the
Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus) and as currently
being conducted in all material respects. All such Permits are in full
force and effect and each of the Offerors and the Subsidiaries are in
all material respects complying therewith, and no event has occurred
that allows, or after notice or lapse of time would allow, revocation
or termination thereof or will result in any other material impairment
of the rights of the holder of any such Permit, subject in each case to
such qualification as may be adequately disclosed in the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus). Such Permits contain no restrictions that would
materially impair the ability of the Company or the Subsidiaries to
conduct their businesses in the manner consistent with their past
practices. Neither the Offerors nor any of the Subsidiaries has
received notice or otherwise has knowledge of any proceeding or action
relating to the revocation or modification of any such Permit.
(xiii) Neither of the Offerors nor any of the
Subsidiaries is in breach or violation of its corporate charter, by-laws
or other governing documents (including without limitation, the Trust
Agreement) in any material respect. Neither of the Offerors nor any of
the Subsidiaries is, and to the knowledge of the Offerors no other party
is, in violation, breach or default (with or without notice or lapse of
time or both) in the performance or observance of any term, covenant,
agreement, obligation, representation, warranty or condition contained
in (A) any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease, franchise, license, Permit or any other
agreement or instrument to which it is a party or by which it or any of
its properties may be bound, which breach, violation or default could
have material adverse consequences to the Offerors and the Subsidiaries
on a consolidated basis, and to the knowledge of the Offerors, no other
party has asserted that the Offerors or any of the Subsidiaries is in
such violation, breach or default (provided that the foregoing shall
not apply to defaults by borrowers from the Banks), or (B) except as
disclosed in the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus), any order, decree, judgment,
rule or regulation of any court, arbitrator, government, or
governmental agency or instrumentality, domestic or foreign, having
jurisdiction over the Offerors or the Subsidiaries or any of their
respective properties the breach, violation or default of which could
have a material adverse effect on the condition, financial or
otherwise, earnings,
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<PAGE> 10
affairs, business, prospects, or results of operations of the Offerors and
the Subsidiaries on a consolidated basis.
(xiv) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated by this
Agreement, the Trust Agreement, the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) do not and will not conflict with, result in
the creation or imposition of any material lien, claim, charge,
encumbrance or restriction upon any property or assets of the Offerors
or the Subsidiaries or the Designated Preferred Securities pursuant to,
constitute a breach or violation of, or constitute a default under,
with or without notice or lapse of time or both, any of the terms,
provisions or conditions of the charter or by-laws of the Company or
the Subsidiaries, the Trust Agreement, the Guarantee, the Indenture,
any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease, franchise, license, Permit or any other
agreement or instrument to which the Offerors or the Subsidiaries is a
party or by which any of them or any of their respective properties may
be bound or any order, decree, judgment, rule or regulation of any
court, arbitrator, government, or governmental agency or
instrumentality, domestic or foreign, having jurisdiction over the
Offerors or the Subsidiaries or any of their respective properties
which conflict, creation, imposition, breach, violation or default
would have either singly or in the aggregate a material adverse effect
on the condition, financial or otherwise, earnings, affairs, business,
prospects or results of operations of the Offerors and the Subsidiaries
on a consolidated basis. No authorization, approval, consent or order
of or filing, registration or qualification with, any person
(including, without limitation, any court, governmental body or
authority) is required in connection with the transactions contemplated
by this Agreement, the Trust Agreement, the Indenture, the Guarantee,
the Registration Statement and the Prospectus, except such as have been
obtained under the 1933 Act, the Trust Indenture Act and from the New
York Stock Exchange relating to the listing of the Designated Preferred
Securities, and such as may be required under state securities laws or
Interpretations or Rules of the National Association of Securities
Dealers, Inc. ("NASD") in connection with the purchase and distribution
of the Designated Preferred Securities by the Underwriters.
(xv) The Offerors have all requisite corporate power
and authority to enter into this Agreement and this Agreement has been
duly and validly authorized, executed and delivered by the Offerors and
constitutes the legal, valid and binding agreement of the Offerors,
enforceable against the Offerors in accordance with its terms, except
as the enforcement thereof may be limited by general principles of
equity and by bankruptcy or other laws relating to or affecting
creditors' rights generally and except as any indemnification or
contribution provisions thereof may be limited under applicable
securities laws. Each of the Indenture, the Trust Agreement, the
Guarantee and the Expense Agreement has been duly authorized by the
Company, and, when executed and delivered by the Company on the Closing
Date, each of said agreements will constitute a valid and legally
binding obligation of the Company and will be enforceable against the
Company in accordance with its terms, except as the enforcement thereof
may be limited
10
<PAGE> 11
by general principles of equity and by bankruptcy or other laws relating
to or affecting creditors' rights generally and except as any
indemnification or contribution provisions thereof may be limited under
applicable securities laws. Each of the Indenture, the Trust Agreement
and the Guarantee has been duly qualified under the Trust Indenture Act
and will conform to the description thereof contained in the Prospectus.
(xvi) The Company and the Subsidiaries have good and
marketable title in fee simple to all real property and good title to
all personal property owned by them and material to their business, in
each case free and clear of all security interests, liens, mortgages,
pledges, encumbrances, restrictions, claims, equities and other defects
except such as are referred to in the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) or such as
do not materially affect the value of such property in the aggregate
and do not materially interfere with the use made or proposed to be
made of such property; and all of the leases under which the Company or
the Subsidiaries hold real or personal property are valid, existing and
enforceable leases and in full force and effect with such exceptions as
are not material and do not materially interfere with the use made or
proposed to be made of such real or personal property, and neither the
Company nor any of the Subsidiaries is in default in any material
respect of any of the terms or provisions of any leases.
(xvii) KPMG Peat Marwick LLP, who have certified certain
of the consolidated financial statements of the Company and the
Subsidiaries including the notes thereto, included by incorporation by
reference or otherwise in the Registration Statement and Prospectus,
are independent public accountants with respect to the Company and the
Subsidiaries, as required by the 1933 Act and the 1933 Act Regulations.
(xviii) Coopers & Lybrand, who have certified certain of
the consolidated financial statements of Redwood Bancorp, a California
corporation ("Redwood"), including the notes thereto, included by
incorporation by reference or otherwise in the Registration Statement
and Prospectus, are independent public accountants with respect to
Redwood, as required by the 1933 Act and the 1933 Act Regulations.
(xix) The consolidated financial statements including
the notes thereto, included by incorporation by reference or otherwise in
the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) with respect
to the Company and the Subsidiaries comply in all material respects
with the 1933 Act and the 1933 Act Regulations and present fairly the
consolidated financial position of the Company and the Subsidiaries as
of the dates indicated and the consolidated results of operations, cash
flows and shareholders' equity of the Company and the Subsidiaries for
the periods specified and have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis.
The selected and summary consolidated financial data concerning the
Offerors and the Subsidiaries included in the Registration Statement
and the Prospectus (or such Preliminary Prospectus) comply in all
material respects with the 1933 Act and the 1933
11
<PAGE> 12
Act Regulations, present fairly the information set forth therein, and
have been compiled on a basis consistent with that of the consolidated
financial statements of the Offerors and the Subsidiaries in the
Registration Statement and the Prospectus (or such Preliminary
Prospectus). The other financial, statistical and numerical information
included in the Registration Statement and the Prospectus (or such
Preliminary Prospectus) complies in all material respects with the 1933
Act and the 1933 Act Regulations, presents fairly the information shown
therein, and to the extent applicable have been compiled on a basis
consistent with the consolidated financial statements of the Company and
the Subsidiaries included in the Registration Statement and the Prospectus
(or such Preliminary Prospectus).
(xx) To the best knowledge and belief of the Company
after due inquiry the consolidated financial statements of Redwood and
its subsidiaries, including Redwood's wholly owned banking subsidiary,
Redwood Bank, a California state banking corporation, including the
notes thereto, included by incorporation by reference or otherwise in
the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) with respect
to Redwood and its subsidiaries comply in all material respects with
the 1933 Act and the 1933 Act Regulations and present fairly the
consolidated financial position of Redwood and its subsidiaries as of
the dates indicated and the consolidated results of operations, cash
flows and shareholders' equity of Redwood and its subsidiaries for the
periods specified and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis. To the
best knowledge and belief of the Company after due inquiry the selected
and summary consolidated financial data concerning Redwood and its
subsidiaries and included in the Registration Statement and the
Prospectus (or such Preliminary Prospectus) comply in all material
respects with the 1933 Act and the 1933 Act Regulations, present fairly
the information set forth therein, and have been compiled on a basis
consistent with that of the consolidated financial statements of
Redwood and its subsidiaries in the Registration Statement and the
Prospectus (or such Preliminary Prospectus). To the best knowledge and
belief of the Company after due inquiry the other financial,
statistical and numerical information included in the Registration
Statement and the Prospectus (or such Preliminary Prospectus) complies
in all material respects with the 1933 Act and the 1933 Act
Regulations, presents fairly the information shown therein, and to the
extent applicable have been compiled on a basis consistent with the
consolidated financial statements of Redwood and its subsidiaries
included in the Registration Statement and the Prospectus (or such
Preliminary Prospectus).
(xxi) The pro forma condensed consolidating financial
statements of the Company, the Subsidiaries, Redwood and Redwood's
subsidiaries and the pro forma summary information for such entities
included by incorporation by reference or otherwise in the Registration
Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) comply in form in
all material respects with the applicable accounting requirements of
the 1933 Act and the 1933 Act
12
<PAGE> 13
Regulations and the pro forma adjustments to the historical amounts in the
compilation of those statements comply with such accounting requirements
and are reasonable.
(xxii) All of the representations and warranties of the
Company, and to the best knowledge and belief of the Company after due
inquiry all of the representations and warranties of Redwood, contained
in that certain [Acquisition Agreement] by and between Redwood and the
Company dated as of , 1998 ("[Acquisition] Agreement") are
-----------
true and correct in all material respects, and all of the covenants and
agreements of the Company contained in the [Acquisition] Agreement
which by their terms were to be complied with as of the date hereof
have been complied with by the Company in all material respects, except
to the extent that a breach of such representations and warranties or
noncompliance with such covenants and agreements does not have a
material adverse effect on the condition (financial or otherwise),
earnings, business, prospects or results of the Company, the
Subsidiaries, Redwood and its subsidiaries on a consolidated basis.
The Company does not know of any facts or circumstances inconsistent
with the consummation of the transactions contemplated by the
[Acquisition] Agreement in accordance with its terms and as described
in the Registration Statement and the Prospectus (or, if the Prospectus
is not in existence the most recent Preliminary Prospectus) or of any
facts and circumstances which lead the Company to believe that such
consummation in accordance with the terms of the [Acquisition]
Agreement and as described in the Registration Statement or such
Prospectus will not occur. The Company is not aware of any material
disagreements between the Company and Redwood regarding the terms of
the [Acquisition] Agreement or interpretation thereof.
(xxiii) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), except as otherwise stated therein:
(A) neither of the Offerors nor any of the
Subsidiaries has sustained any loss or interference with its
business from fire, explosion, flood or other calamity, whether
or not covered by insurance, or from any labor dispute or court
or governmental action, order or decree which is material to the
condition (financial or otherwise), earnings, business, prospects
or results of operations of the Offerors and the Subsidiaries on
a consolidated basis;
(B) there has not been any material adverse
change in, or any development which is reasonably likely to have
a material adverse effect on, the condition (financial or
otherwise), earnings, business, prospects or results of
operations of the Offerors and the Subsidiaries on a consolidated
basis, whether or not arising in the ordinary course of business;
(C) neither of the Offerors nor any of the
Subsidiaries has incurred any liabilities or obligations, direct
or contingent, or entered into any material transactions, other
than in the ordinary course of business which is
13
<PAGE> 14
material to the condition (financial or otherwise), earnings,
business, prospects or results of operations of the Offerors and the
Subsidiaries on a consolidated basis;
(D) neither of the Offerors have declared or
paid any dividend and neither of the Offerors nor any of the
Subsidiaries has become delinquent in the payment of principal or
interest on any outstanding borrowings; and
(E) there has not been any change in the capital
stock, equity securities, long-term debt, obligations under
capital leases or, other than in the ordinary course of business,
short-term borrowings of the Offerors or the Subsidiaries.
(xxiv) Except as set forth in the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus), no charge, investigation, action, suit
or proceeding is pending or, to the knowledge of the Offerors,
threatened, against or affecting the Offerors or the Subsidiaries or
any of their respective properties before or by any court or any
regulatory, administrative or governmental official, commission, board,
agency or other authority or body, or any arbitrator, wherein an
unfavorable decision, ruling or finding could have a material adverse
effect on the consummation of this Agreement or the transactions
contemplated herein or the condition (financial or otherwise),
earnings, affairs, business, prospects or results of operations of the
Offerors and the Subsidiaries on a consolidated basis or which is
required to be disclosed in the Registration Statement or the
Prospectus (or such Preliminary Prospectus) and is not so disclosed.
(xxv) There are no contracts or other documents
required to be filed as exhibits to the Registration Statement by the 1933
Act or the 1933 Act Regulations or the Trust Indenture Act (or any rules
or regulations thereunder) which have not been filed as exhibits or
incorporated by reference to the Registration Statement, or that are
required to be summarized in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) that are not
so summarized.
(xxvi) Neither of the Offerors has taken, directly or
indirectly, any action causing or resulting in or which has constituted
or which might reasonably be expected to cause or result in
stabilization or manipulation of any security of the Offerors in
connection with the sale or resale of the Designated Preferred
Securities in violation of the Commission's rules and regulations,
including, but not limited to, Regulation M, nor is either Offeror
aware of any such action having been taken or to be taken by any
affiliate of the Offerors.
(xxvii) The Offerors and the Subsidiaries own, or possess
adequate rights to use, all patents, copyrights, trademarks, service
marks, trade names and other rights necessary to conduct the businesses
now conducted by them in all material respects or as described in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and neither the Offerors nor the Subsidiaries
have received any notice of infringement or conflict with asserted
rights of others with respect to any
14
<PAGE> 15
patents, copyrights, trademarks, service marks, trade names or other
rights which, individually or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse
effect on the condition (financial or otherwise), earnings, affairs,
business, prospects or results of operations of the Offerors and the
Subsidiaries on a consolidated basis, and the Offerors do not know of any
basis for any such infringement or conflict.
(xxviii) Except as adequately disclosed in the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), no labor dispute involving the Company or the Subsidiaries
exists or, to the knowledge of the Offerors, is imminent which might be
expected to have a material adverse effect on the condition (financial
or otherwise), earnings, affairs, business, prospects or results of
operations of the Offerors and the Subsidiaries on a consolidated basis
or which is required to be disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus). Neither the Company nor any of the Subsidiaries have
received notice of any existing or threatened labor dispute by the
employees of any of its principal suppliers, customers or contractors
which might be expected to have a material adverse effect on the
condition (financial or otherwise), earnings, affairs, business,
prospects or results of operations of the Company and the Subsidiaries
on a consolidated basis.
(xxix) The Offerors and the Subsidiaries have timely and
properly prepared and filed all necessary federal, state, local and
foreign tax returns which are required to be filed and have paid all
taxes shown as due thereon and have paid all other taxes and
assessments to the extent that the same shall have become due, except
such as are being contested in good faith or where the failure to so
timely and properly prepare and file would not have a material adverse
effect on the condition (financial or otherwise), earnings, affairs,
business, prospects or results of operations of the Offerors and the
Subsidiaries on a consolidated basis. The Offerors have no knowledge
of any tax deficiency which has been or might be assessed against the
Offerors or the Subsidiaries which, if the subject of an unfavorable
decision, ruling or finding, would have a material adverse effect on
the condition (financial or otherwise), earnings, affairs, business,
prospects or results of operations of the Offerors and the Subsidiaries
on a consolidated basis.
(xxx) Each of the material contracts, agreements and
instruments described or referred to in the Registration Statement or
the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) and each contract, agreement and
instrument filed as an exhibit to the Registration Statement is in full
force and effect and is the legal, valid and binding agreement of the
Offerors or the Subsidiaries, enforceable in accordance with its terms,
except as the enforcement thereof may be limited by general principles
of equity and by bankruptcy or other laws relating to or affecting
creditors' rights generally. Except as disclosed in the Prospectus (or
such Preliminary Prospectus), to the knowledge of the Offerors, no
other party to any such agreement is (with or without notice or lapse
of time or both) in breach or default in any material respect
thereunder.
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<PAGE> 16
(xxxi) No relationship, direct or indirect, exists
between or among the Offerors or the Subsidiaries, on the one hand, and
the directors, officers, trustees, shareholders, customers or suppliers
of the Offerors or the Subsidiaries, on the other hand, which is
required to be described in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) which is not adequately described therein.
(xxxii) No person has the right to request or require the
Offerors or the Subsidiaries to register any securities for offering
and sale under the 1933 Act by reason of the filing of the Registration
Statement with the Commission or the issuance and sale of the
Designated Preferred Securities except as adequately disclosed in the
Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).
(xxxiii) The Designated Preferred Securities have been
approved for listing on the New York Stock Exchange subject to official
notice of issuance.
(xxxiv) Except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), there are no contractual encumbrances or
restrictions or material legal restrictions required to be described
therein, on the ability of the Subsidiaries (A) to pay dividends or
make any other distributions on its capital stock or to pay any
indebtedness owed to the Offerors, (B) to make any loans or advances
to, or investments in, the Offerors or (C) to transfer any of its
property or assets to the Offerors.
(xxxv) Neither of the Offerors is an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended (the "Investment Company Act").
(xxxvi) The Offerors have not distributed and will not
distribute prior to the Closing Date any prospectus in connection with
the Offering, other than a Preliminary Prospectus, the Prospectus, the
Registration Statement and the other materials permitted by the 1933
Act and the 1933 Act Regulations and reviewed by the Representatives.
3. Offering by the Underwriters. After the Registration Statement
----------------------------
becomes effective or, if the Registration Statement is already effective,
after this Agreement becomes effective, the Underwriters propose to offer the
Firm Preferred Securities for sale to the public upon the terms and
conditions set forth in the Prospectus. The Underwriters may from time to
time thereafter reduce the public offering price and change the other selling
terms, provided the proceeds to the Trust shall not be reduced as a result of
such reduction or change. Because the NASD is expected to view the Preferred
Securities as interests in a direct participation program, the offering of
the Preferred Securities is being made in compliance with the applicable
provisions of Rule 2810 of the NASD's Conduct Rules.
16
<PAGE> 17
The Underwriters may reserve and sell such of the Designated
Preferred Securities purchased by the Underwriters as the Underwriters may
elect to dealers chosen by it (the "Selected Dealers") at the public offering
price set forth in the Prospectus less the applicable Selected Dealers'
concessions set forth therein, for re-offering by Selected Dealers to the
public at the public offering price. The Underwriters may allow, and
Selected Dealers may re-allow, a concession set forth in the Prospectus to
certain other brokers and dealers.
4. Certain Covenants of the Offerors. The Offerors jointly and
---------------------------------
severally covenant with the Underwriters as follows:
(a) The Offerors shall use their best efforts to cause the
Registration Statement and any amendments thereto, if not effective at the
time of execution of this Agreement, to become effective as promptly as
possible. If the Registration Statement has become or becomes effective
pursuant to Rule 430A and information has been omitted therefrom in reliance
on Rule 430A, then, the Offerors will prepare and file in accordance with
Rule 430A and Rule 424(b) copies of the Prospectus or, if required by Rule
430A, a post-effective amendment to the Registration Statement (including the
Prospectus) containing all information so omitted and will provide evidence
satisfactory to the Representatives of such timely filing.
(b) The Offerors shall notify you immediately, and confirm such
notice in writing:
(i) when the Registration Statement, or any post-
effective amendment to the Registration Statement, has become
effective, or when the Prospectus or any supplement to the Prospectus
or any amended Prospectus has been filed;
(ii) of the receipt of any comments or requests from
the Commission relating to the Registration Statement or the
Prospectus;
(iii) of any request of the Commission to amend or
supplement the Registration Statement, any Preliminary Prospectus or
the Prospectus or for additional information; and
(iv) of the issuance by the Commission or any state
or other regulatory body of any stop order or other order suspending
the effectiveness of the Registration Statement, preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, or
suspending the qualification of any of the Designated Preferred
Securities for offering or sale in any jurisdiction or the institution
or threat of institution of any proceedings for any of such purposes.
The Offerors shall use their best efforts to prevent the issuance of
any such stop order or of any other such order and if any such order is
issued, to cause such order to be withdrawn or lifted as soon as
possible.
(c) The Offerors shall furnish to the Underwriters, from time
to time without charge, as soon as available, as many copies as the
Underwriters may reasonably request of (i) the registration statement as
originally filed and of all amendments thereto, in executed form, including
exhibits, whether filed before or after the Registration Statement becomes
effective, (ii)
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<PAGE> 18
all exhibits and documents incorporated therein or filed therewith, (iii) all
consents and certificates of experts in executed form, (iv) each Preliminary
Prospectus and all amendments and supplements thereto, and (v) the Prospectus,
and all amendments and supplements thereto.
(d) During the time when a prospectus is required to be
delivered under the 1933 Act, the Offerors shall comply to the best of their
ability with the 1933 Act and the 1933 Act Regulations and the 1934 Act and
the 1934 Act Regulations so as to permit the completion of the distribution
of the Designated Preferred Securities as contemplated herein and in the
Trust Agreement and the Prospectus. The Offerors shall not file any
amendment to the registration statement as originally filed or to the
Registration Statement and shall not file any amendment thereto or make any
amendment or supplement to any Preliminary Prospectus or to the Prospectus of
which you shall not previously have been advised in writing and provided a
copy a reasonable time prior to the proposed filings thereof or to which you
or counsel for the Underwriters shall object. If it is necessary, in the
Company's reasonable opinion or in the reasonable opinion of the Company's
counsel to amend or supplement the Registration Statement or the Prospectus
in connection with the distribution of the Designated Preferred Securities,
the Offerors shall forthwith amend or supplement the Registration Statement
or the Prospectus, as the case may be, by preparing and filing with the
Commission (provided the Underwriters or counsel for the Underwriters does
not reasonably object), and furnishing to you, such number of copies as you
may reasonably request of an amendment or amendments of, or a supplement or
supplements to, the Registration Statement or the Prospectus, as the case may
be (in form and substance reasonably satisfactory to you and counsel for the
Underwriters). If any event shall occur as a result of which it is necessary
to amend or supplement the Prospectus to correct an untrue statement of a
material fact or to include a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or if for any reason it is necessary at any time to amend or
supplement the Prospectus to comply with the 1933 Act and the 1933 Act
Regulations, the Offerors shall, subject to the second sentence of this
subsection (d), forthwith amend or supplement the Prospectus by preparing and
filing with the Commission, and furnishing to you, such number of copies as
you may reasonably request of an amendment or amendments of, or a supplement
or supplements to, the Prospectus (in form and substance satisfactory to you
and counsel for the Underwriters) so that, as so amended or supplemented, the
Prospectus shall not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(e) The Offerors shall cooperate with you and counsel for the
Underwriters in order to qualify the Designated Preferred Securities for
offering and sale under the securities or blue sky laws of such jurisdictions
as you may reasonably request and shall continue such qualifications in
effect so long as may be advisable for distribution of the Designated
Preferred Securities; provided, however, that the Offerors shall not be
required to qualify to do business as a foreign corporation or file a general
consent to service of process in any jurisdiction in connection with the
foregoing. The Offerors shall file such statements and reports as may be
required by the laws of each jurisdiction in which the Designated Preferred
Securities have been qualified as above. The Offerors will notify you
immediately of, and confirm in writing, the
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<PAGE> 19
suspension of qualification of the Designated Preferred Securities or threat
thereof in any jurisdiction.
(f) The Offerors shall make generally available to their
security holders in the manner contemplated by Rule 158 of the 1933 Act
Regulations and furnish to you as soon as practicable, but in any event not
later than 16 months after the Effective Date, a consolidated earnings
statement of the Offerors conforming with the requirements of Section 11(a)
of the 1933 Act and Rule 158.
(g) The Offerors shall use the proceeds from the sale of the
Designated Preferred Securities to be sold by the Trust hereunder in the
manner specified in the Prospectus under the caption "Use of Proceeds."
(h) For five years from the Effective Date, the Offerors shall
furnish to the Representatives copies of all reports and communications
(financial or otherwise) furnished by the Offerors to the holders of the
Designated Preferred Securities as a class, copies of all reports and
financial statements filed with or furnished to the Commission (other than
portions for which confidential treatment has been obtained from the
Commission) or with any national securities exchange or self-regulatory
organization, and such other documents, reports and information concerning
the business and financial conditions of the Offerors as the Representatives
may reasonably request, other than such documents, reports and information
for which the Offerors has the legal obligation not to reveal to the
Representatives.
(i) For a period of 30 days from the Effective Date, the
Offerors shall not, directly or indirectly, offer for sale, sell or agree to
sell or otherwise dispose of any Designated Preferred Securities other than
pursuant to this Agreement, any other beneficial interests in the assets of
the Trust or any securities of the Trust or the Company that are
substantially similar to the Designated Preferred Securities or the
Debentures, including any guarantee of such beneficial interests or
substantially similar securities, or securities convertible into or
exchangeable for or that represent the right to receive any such beneficial
interest or substantially similar securities, without the prior written
consent of the Representatives.
(j) The Offerors shall use their best efforts to cause the
Designated Preferred Securities to become listed on the New York Stock
Exchange, or in lieu thereof another national securities exchange or the
Nasdaq National Market, and to remain so listed for at least five years from
the Effective Date or for such shorter period as may be specified in a
written consent of the Representatives, provided this shall not prevent the
Company from redeeming the Designated Preferred Securities pursuant to the
terms of the Trust Agreement. If the Designated Preferred Securities are
exchanged for Debentures, the Company will use its best efforts to have the
Debentures promptly listed on the New York Stock Exchange or other
organization on which the Designated Preferred Securities are then listed,
and to have the Debentures promptly registered under the Exchange Act.
(k) Subsequent to the date of this Agreement and through the
date which is the later of (i) the day following the date on which the
Underwriters' option to purchase the Option Preferred Securities shall expire
or (ii) the day following the Option Closing Date with respect to
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<PAGE> 20
any Option Preferred Securities that the Underwriters shall elect to purchase,
except as described in or contemplated by the Prospectus, neither the Offerors
nor any of the Subsidiaries shall take any action (or refrain from taking any
action) which will result in the Offerors or the Subsidiaries incurring any
material liability or obligation, direct or contingent, or enter into any
material transaction, except in the ordinary course of business, and there will
not be any material change in the financial position, capital stock, or any
material increase in long-term debt, obligations under capital leases or
short-term borrowings of the Offerors and the Subsidiaries on a consolidated
basis.
(l) The Offerors shall not, for a period of 180 days after the
date hereof, without the prior written consent of the Representatives,
purchase, redeem or call for redemption, or prepay or give notice of
prepayment (or announce any redemption or call for redemption, or any
repayment or notice of prepayment) of the Offerors' securities.
(m) The Offerors shall not take, directly or indirectly, any
action designed to result in or which has constituted or which might
reasonably be expected to cause or result in stabilization or manipulation of
the price of any security of the Offerors in connection with the sale or
resale of the Designated Preferred Securities in violation of the
Commission's rules and regulations, including, but not limited to, Regulation
M, and the Offerors are not aware of any such action taken or to be taken by
any affiliate of the Offerors.
(n) Prior to the Closing Date (and, if applicable, the Option
Closing Date), the Offerors will not issue any press release or other
communication directly or indirectly or hold any press conference with
respect to the Offerors, the Subsidiaries or the offering of the Designated
Preferred Securities (the "Offering") without your prior written consent.
5. Payment of Expenses. Whether or not this Agreement is terminated
-------------------
or the sale of the Designated Preferred Securities to the Underwriters is
consummated, the Company covenants and agrees that it will pay or cause to be
paid (directly or by reimbursement) all costs and expenses incident to the
performance of the obligations of the Offerors under this Agreement,
including:
(a) the preparation, printing, filing, delivery and shipping of
the initial registration statement, the Preliminary Prospectus or
Prospectuses, the Registration Statement and the Prospectus and any
amendments or supplements thereto, and the printing, delivery and shipping of
this Agreement and any other underwriting documents (including, without
limitation, selected dealers agreements), the certificates for the Designated
Preferred Securities and the Preliminary and Final Blue Sky Memoranda and any
legal investment surveys and any supplements thereto;
(b) all fees, expenses and disbursements of the Offerors'
counsel and accountants;
(c) all fees and expenses incurred in connection with the
qualification of the Designated Preferred Securities, Debentures and the
Guarantee under the securities or blue sky laws of such jurisdictions as you
may request, including all filing fees and fees and
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disbursements of counsel for the Underwriters in connection therewith,
including, without limitation, in connection with the preparation of the
Preliminary and Final Blue Sky Memoranda and any legal investment surveys and
any supplements thereto;
(d) all fees and expenses incurred in connection with filings
made with the NASD;
(e) any applicable fees and other expenses incurred in
connection with the listing of the Designated Preferred Securities and, if
applicable, the Guarantee and the Debentures on the New York Stock Exchange;
(f) the cost of furnishing to you copies of the initial
registration statements, any Preliminary Prospectus, the Registration
Statement and the Prospectus and all amendments or supplements thereto;
(g) the costs and charges of any transfer agent or registrar
and the fees and disbursements of counsel for any transfer agent or
registrar;
(h) all costs and expenses (including stock transfer taxes)
incurred in connection with the printing, issuance and delivery of the
Designated Preferred Securities to the Underwriters;
(i) all expenses incident to the preparation, execution and
delivery of the Trust Agreement, the Indenture and the Guarantee; and
(j) all other costs and expenses incident to the performance of
the obligations of the Company hereunder and under the Trust Agreement that
are not otherwise specifically provided for in this Section 5.
If the sale of Designated Preferred Securities contemplated by
this Agreement is not completed due to the termination pursuant to the terms
hereof (other than pursuant to Section 9 hereof), the Company will pay you
your accountable out-of-pocket expenses in connection herewith or in
contemplation of the performance of your obligations hereunder, including
without limitation travel expenses, reasonable fees, expenses and
disbursements of counsel or other out-of-pocket expenses incurred by you in
connection with any discussion of the Offering or the contents of the
Registration Statement, any investigation of the Offerors and the
Subsidiaries, or any preparation for the marketing, purchase, sale or
delivery of the Designated Preferred Securities, in each case following
presentation of reasonably detailed invoices therefor.
If the sale of Designated Preferred Securities contemplated by
this Agreement is completed, the Company shall not be responsible for payment
of fees or disbursements of counsel for the Underwriters other than in
accordance with paragraph (c) above, or for the reimbursement of any expenses
of the Underwriters.
6. Conditions of the Underwriters' Obligations. The obligations of
-------------------------------------------
the Underwriters to purchase and pay for the Firm Preferred Securities and,
following exercise of the option
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granted by the Offerors in Section 1 of this Agreement, the Option Preferred
Securities, are subject, in your sole discretion, to the accuracy of and
compliance with the representations and warranties and agreements of the
Offerors herein as of the date hereof and as of the Closing Date (or in the case
of the Option Preferred Securities, if any, as of the Option Closing Date), to
the accuracy of the written statements of the Offerors made pursuant to the
provisions hereof, to the performance by the Offerors of their covenants and
obligations hereunder and to the following additional conditions:
(a) If the Registration Statement or any amendment thereto
filed prior to the Closing Date has not been declared effective prior to the
time of execution hereof, the Registration Statement shall become effective
not later than 10:00 a.m., St. Louis time, on the first business day
following the time of execution of this Agreement, or at such later time and
date as you may agree to in writing. If required, the Prospectus and any
amendment or supplement thereto shall have been timely filed in accordance
with Rule 424(b) and Rule 430A under the 1933 Act and Section 4(a) hereof.
No stop order suspending the effectiveness of the Registration Statement or
any amendment or supplement thereto shall have been issued under the 1933 Act
or any applicable state securities laws and no proceedings for that purpose
shall have been instituted or shall be pending, or, to the knowledge of the
Offerors or the Representatives, shall be contemplated by the Commission or
any state authority. Any request on the part of the Commission or any state
authority for additional information (to be included in the Registration
Statement or Prospectus or otherwise) shall have been disclosed to you and
complied with to your satisfaction and to the satisfaction of counsel for the
Underwriters.
(b) No Underwriter shall have advised the Company at or before
the Closing Date (and, if applicable, the Option Closing Date) that the
Registration Statement or any post-effective amendment thereto, or the
Prospectus or any amendment or supplement thereto, contains an untrue
statement of a fact which, in your opinion, is material or omits to state a
fact which, in your opinion, is material and is required to be stated therein
or is necessary to make statements therein (in the case of the Prospectus or
any amendment or supplement thereto, in light of the circumstances under
which they were made) not misleading.
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the Trust
Agreement, and the Designated Preferred Securities, and the authorization and
form of the Registration Statement and Prospectus, other than financial
statements and other financial data, and all other legal matters relating to
this Agreement and the transactions contemplated hereby or by the Trust
Agreement shall be satisfactory in all material respects to counsel for the
Underwriters, and the Offerors and the Subsidiaries shall have furnished to
such counsel all documents and information relating thereto that they may
reasonably request to enable them to pass upon such matters.
(d) Jackson Walker L.L.P., counsel for the Offerors, shall have
furnished to you their signed opinion, dated the Closing Date or the Option
Closing Date, as the case may be, in form and substance satisfactory to
counsel for the Underwriters, to the effect that:
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(i) The Company has been duly incorporated and is
validly existing and in good standing under the laws of the State of
Delaware, and is duly registered as a bank holding company under the
BHC Act. Each of the Subsidiaries is duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Each of the Company and the Subsidiaries has full
corporate power and authority to own or lease its properties and to
conduct its business as such business is described in the Prospectus
and is currently conducted in all material respects. To the best of
such counsel's knowledge, all outstanding shares of capital stock of
the Subsidiaries have been duly authorized and validly issued and are
fully paid and nonassessable except to the extent such shares may be
deemed assessable under 12 U.S.C. Section 1831 and, to the best of such
counsel's knowledge, except as disclosed in the Prospectus, there are
no outstanding rights, options or warrants to purchase any such shares
or securities convertible into or exchangeable for any such shares;
(ii) The capital stock, Debentures and Guarantee of
the Company and the equity securities of the Trust conform to the
description thereof contained in the Prospectus in all material
respects. To the best of such counsel's knowledge, the capital stock
of the Company authorized and issued as of March 31, 1998 is as set
forth under the caption "Capitalization" in the Prospectus, has been
duly authorized and validly issued, and is fully paid and
nonassessable. To the best of such counsel's knowledge, there are no
outstanding rights, options or warrants to purchase, no other
outstanding securities convertible into or exchangeable for, and no
commitments, plans or arrangements to issue, any shares of capital
stock of the Company or equity securities of the Trust, except as
described in the Prospectus;
(iii) The issuance, sale and delivery of the Designated
Preferred Securities and Debentures in accordance with the terms and
conditions of this Agreement and the Indenture have been duly
authorized by all necessary actions of the Offerors. All of the
Designated Preferred Securities have been duly and validly authorized
and, when delivered in accordance with this Agreement will be duly and
validly issued, fully paid and nonassessable, and will conform to the
description thereof in the Registration Statement, the Prospectus and
the Trust Agreement. The Designated Preferred Securities have been
approved for listing on the New York Stock Exchange subject to official
notice of issuance. There are no preemptive or other rights to
subscribe for or to purchase, and other than as disclosed in the
Prospectus no restrictions upon the voting or transfer of, any shares
of capital stock or equity securities of the Offerors or the
Subsidiaries pursuant to the corporate charter, by-laws or other
governing documents (including without limitation, the Trust Agreement)
of the Offerors or the Subsidiaries, or, to the best of such counsel's
knowledge, any agreement or other instrument to which either Offeror or
any of the Subsidiaries is a party or by which either Offeror or any of
the Subsidiaries may be bound;
(iv) The Offerors have all requisite corporate and
trust power to enter into and perform their obligations under this
Agreement, and this Agreement has been duly and validly authorized,
executed and delivered by the Offerors and constitutes the
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legal, valid and binding obligations of the Offerors enforceable in
accordance with its terms, except as the enforcement hereof or thereof may
be limited by general principles of equity and by bankruptcy or other laws
relating to or affecting creditors' rights generally, and except as the
indemnification and contribution provisions hereof may be limited under
applicable laws and certain remedies may not be available in the case
of a non-material breach;
(v) Each of the Indenture, the Trust Agreement and
the Guarantee has been duly qualified under the Trust Indenture Act,
has been duly authorized, executed and delivered by the Company, and is
a valid and legally binding obligation of the Company enforceable in
accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, receivership, moratorium and other laws
affecting the rights and remedies of creditors generally and of general
principles of equity;
(vi) The Debentures have been duly authorized,
executed, authenticated and delivered by the Company, are entitled to
the benefits of the Indenture and are legal, valid and binding
obligations of the Company enforceable against the Company in
accordance with their terms, subject to the effect of bankruptcy,
insolvency, reorganization, receivership, moratorium and other laws
affecting the rights and remedies of creditors generally and of general
principles of equity;
(vii) The Expense Agreement has been duly authorized,
executed and delivered by the Company, and is a valid and legally
binding obligation of the Company enforceable in accordance with its
terms, subject to the effect of bankruptcy, insolvency, reorganization,
receivership, moratorium and other laws affecting the rights and
remedies of creditors generally and of general principles of equity;
(viii) To the best of such counsel's knowledge, neither
of the Offerors nor any of the Subsidiaries is in breach or violation
of, or default under, with or without notice or lapse of time or both,
its corporate charter, by-laws or governing document (including without
limitation, the Trust Agreement). The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement, and the Trust Agreement do not and will
not conflict with, result in the creation or imposition of any material
lien, claim, charge, encumbrance or restriction upon any property or
assets of the Offerors or the Subsidiaries or the Designated Preferred
Securities pursuant to, or constitute a material breach or violation
of, or constitute a material default under, with or without notice or
lapse of time or both, any of the terms, provisions or conditions of
the charter, by-laws or governing document (including without
limitation, the Trust Agreement) of the Offerors or the Subsidiaries,
or to the best of such counsel's knowledge, any material contract,
indenture, mortgage, deed of trust, loan or credit agreement, note,
lease, franchise, license or any other agreement or instrument to which
either Offeror or the Subsidiaries is a party or by which any of them
or any of their respective properties may be bound or any order,
decree, judgment, franchise, license, Permit, rule or regulation of any
court, arbitrator, government, or governmental agency or
instrumentality, domestic or foreign, known to such counsel
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having jurisdiction over the Offerors or the Subsidiaries or any of their
respective properties which, in each case, is material to the Offerors
and the Subsidiaries on a consolidated basis. No authorization,
approval, consent or order of, or filing, registration or qualification
with, any person (including, without limitation, any court,
governmental body or authority) is required under Delaware law in
connection with the transactions contemplated by this Agreement in
connection with the purchase and distribution of the Designated
Preferred Securities by the Underwriters;
(ix) To the best of such counsel's knowledge, holders
of securities of the Offerors either do not have any right that, if
exercised, would require the Offerors to cause such securities to be
included in the Registration Statement or have waived such right. To
the best of such counsel's knowledge, neither the Offerors nor any of
the Subsidiaries is a party to any agreement or other instrument which
grants rights for or relating to the registration of any securities of
the Offerors;
(x) Except as set forth in the Registration Statement
and the Prospectus, to the best of such counsel's knowledge, (i) no
action, suit or proceeding at law or in equity is pending or threatened
in writing to which the Offerors or the Subsidiaries is or may be a
party, and (ii) no action, suit or proceeding is pending or threatened
in writing against or affecting the Offerors or the Subsidiaries or any
of their properties, before or by any court or governmental official,
commission, board or other administrative agency, authority or body, or
any arbitrator, wherein an unfavorable decision, ruling or finding
could reasonably be expected to have a material adverse effect on the
consummation of this Agreement or the issuance and sale of the
Designated Preferred Securities as contemplated herein or the condition
(financial or otherwise), earnings, affairs, business, or results of
operations of the Offerors and the Subsidiaries on a consolidated basis
or which is required to be disclosed in the Registration Statement or
the Prospectus and is not so disclosed;
(xi) No authorization, approval, consent or order of
or filing, registration or qualification with, any person (including,
without limitation, any court, governmental body or authority) is
required in connection with the transactions contemplated by this
Agreement, the Trust Agreement, the Registration Statement and the
Prospectus, except such as have been obtained under the 1933 Act, and
the Trust Indenture Act, and except such as may be required under state
securities laws or Interpretations or Rules of the NASD in connection
with the purchase and distribution of the Designated Preferred
Securities by the Underwriters;
(xii) The Registration Statement and the Prospectus and
any amendments or supplements thereto and any documents incorporated
therein by reference (other than the financial statements or other
financial data included therein or omitted therefrom and Underwriters'
Information, as to which such counsel need express no opinion) comply
as to form in all material respects with the requirements of the 1933
Act and the 1933 Act Regulations as of their respective dates of
effectiveness;
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(xiii) To the best of such counsel's knowledge, there
are no contracts, agreements, leases or other documents of a character
required to be disclosed in the Registration Statement or Prospectus or
to be filed as exhibits to the Registration Statement that are not so
disclosed or filed;
(xiv) The statements under the captions "Supervision
and Regulation", "Description of the Preferred Securities",
"Description of the Subordinated Debentures", "Description of the
Guarantee", "Relationship Among the Preferred Securities, the
Subordinated Debentures and the Guarantee", "Certain Federal Income Tax
Consequences", and "ERISA Considerations" in the Prospectus, insofar
as such statements constitute a summary of legal and regulatory
matters, documents or instruments referred to therein are accurate
descriptions of the matters summarized therein in all material respects
and fairly present the information called for with respect to such
legal matters, documents and instruments, other than financial and
statistical data as to which said counsel shall not be required to
express any opinion or belief;
(xv) Such counsel has been advised by the staff of the
Commission that the Registration Statement has become effective under
the 1933 Act; any required filing of the Prospectus pursuant to Rule
424(b) has been made within the time period required by Rule 424(b); to
the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for a stop order are pending or threatened by the
Commission;
(xvi) Except as described in or contemplated by the
Prospectus, to the best of such counsel's knowledge, there are no
contractual encumbrances or restrictions, or material legal
restrictions required to be described therein on the ability of the
Subsidiaries (A) to pay dividends or make any other distributions on
its capital stock or to pay indebtedness owed to the Offerors, (B) to
make any loans or advances to, or investments in, the Offerors or (C)
to transfer any of its property or assets to the Offerors; and
(xvii) To the best of such counsel's knowledge, (A) the
business and operations of the Offerors and the Subsidiaries comply in
all material respects with all statutes, ordinances, laws, rules and
regulations applicable thereto and which are material to the Offerors
and the Subsidiaries on a consolidated basis, except in those instances
where non-compliance would not materially impair the ability of the
Offerors and the Subsidiaries to conduct their business; and (B) the
Offerors and the Subsidiaries possess and are operating in all material
respects in compliance with the terms, provisions and conditions of all
Permits that are required to conduct their businesses as described in
the Prospectus and that are material to the Offerors and the
Subsidiaries on a consolidated basis, except in those instances where
the loss thereof or non-compliance therewith would not have a material
adverse effect on the condition (financial or otherwise), earnings,
affairs, business, prospects or results of operations of the Offerors
and the Subsidiaries on a consolidated basis; to the best of such
counsel's knowledge, all such Permits are valid and in full force and
effect, and, to the best of such counsel's knowledge, no action, suit
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or proceeding is pending or threatened which may lead to the
revocation, termination, suspension or non-renewal of any such Permit,
except in those instances where the loss thereof or non-compliance
therewith would not materially impair the ability of the Offerors or
the Subsidiaries to conduct their businesses.
In giving the above opinion, such counsel may state that, insofar
as such opinion involves factual matters, they have relied upon certificates
of officers of the Offerors including, without limitation, certificates as to
the identity of any and all material contracts, indentures, mortgages, deeds
of trust, loans or credit agreements, notes, leases, franchises, licenses or
other agreements or instruments, and all material permits, easements,
consents, licenses, franchises and government regulatory authorizations, for
purposes of paragraphs (viii), (xiii) and (xvii) hereof and certificates of
public officials. In giving such opinion, such counsel may rely as to
matters of Delaware law upon the opinion of Richards, Layton and Finger
described herein.
Such counsel shall also confirm that, in connection with the
preparation of the Registration Statement and Prospectus, such counsel has
participated in conferences with officers and Representatives of the Offerors
and with their independent public accountants and with you and your counsel,
at which conferences such counsel made inquiries of such officers,
Representatives and accountants and discussed in detail the contents of the
Registration Statement and Prospectus and the documents incorporated therein
by reference (without taking further action to verify independently the
statements made in the Registration Statement and the Prospectus, and without
assuming responsibility for the accuracy or completeness of such statements,
except to the extent expressly provided above) and such counsel has no reason
to believe (A) that the Registration Statement or any amendment thereto
(except for the financial statements and related schedules and statistical
data included therein or omitted therefrom or Underwriters' Information, as
to which such counsel need express no opinion), at the time the Registration
Statement or any such amendment became effective, contained any untrue
statement of a material fact or omitted to state any material fact required
to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading or (B)
that the Prospectus or any amendment or supplement thereto or the documents
incorporated therein by reference (except for the financial statements and
related schedules and statistical data included therein or omitted therefrom
or Underwriters' Information, as to which such counsel need express no
opinion), at the time the Registration Statement became effective (or, if the
term "Prospectus" refers to the prospectus first filed pursuant to Rule
424(b) of the 1933 Act Regulations, at the time the Prospectus was issued),
at the time any such amended or supplemented Prospectus was issued, at the
Closing Date and, if applicable, the Option Closing Date, contained or
contains any untrue statement of a material fact or omitted or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made, or (C) that there is any amendment to the Registration
Statement required to be filed that has not already been filed.
(e) Richards, Layton and Finger, special Delaware counsel to
the Offerors, shall have furnished to you their signed opinion, dated as of
Closing Date or the Option Closing Date, as the case may be, in form and
substance satisfactory to such counsel, to the effect that:
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(i) The Trust has been duly created and is validly
existing in good standing as a business trust under the Delaware
Business Trust Act and, under the Trust Agreement and the Delaware
Business Trust Act, has the trust power and authority to conduct its
business as described in the Prospectus.
(ii) The Trust Agreement is a legal, valid and binding
agreement of the Company, as sponsor, and the Trustees, and is
enforceable against the Company, as sponsor, and the Trustees, in
accordance with its terms.
(iii) Under the Trust Agreement and the Delaware
Business Trust Act, the execution and delivery of the Underwriting
Agreement by the Trust, and the performance by the Trust of its
obligations thereunder, have been authorized by all requisite trust
action on the part of the Trust.
(iv) The Designated Preferred Securities have been
duly authorized by the Trust Agreement, and when issued and sold in
accordance with the Trust Agreement, the Designated Preferred
Securities will be, subject to the qualifications set forth in
paragraph (v) below, fully paid and nonassessable beneficial interest
in the assets of the Trust and entitled to the benefits of the Trust
Agreement. The form of certificates to evidence the Designated
Preferred Securities has been approved by the Trust and is in due and
proper form and complies with all applicable requirements of the
Delaware Business Trust Act.
(v) Holders of Designated Preferred Securities, as
beneficial owners of the Trust, will be entitled to the same limitation
of personal liability extended to shareholders of private, for-profit
corporations organized under the General Corporation Law of the State
of Delaware. Such opinion may note that the holders of Designated
Preferred Securities may be obligated to make payments as set forth in
the Trust Agreement.
(vi) Under the Delaware Business Trust Act and the
Trust Agreement, the issuance of the Designated Preferred Securities is
not subject to preemptive rights.
(vii) The issuance and sale by the Trust of the
Designated Preferred Securities and the Common Securities, the
execution, delivery and performance by the Trust of this Agreement, and
the consummation of the transactions contemplated by this Agreement, do
not violate (a) the Trust Agreement, or (b) any applicable Delaware
law, rule or regulation.
Such opinion may state that it is limited to the laws of the
State of Delaware and that the opinion expressed in paragraph (ii) above is
subject to the effect upon the Trust Agreement of (i) bankruptcy, insolvency,
moratorium, receivership, reorganization, liquidation, fraudulent conveyance
and other similar laws relating to or affecting the rights and remedies of
creditors generally, (ii) principles of equity, including applicable law
relating to fiduciary duties (regardless of whether considered and applied in
a proceeding in equity or at law), and (iii) the
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effect of applicable public policy on the enforceability of provisions relating
to indemnification or contribution.
(f) Bryan Cave LLP, counsel for the Underwriters, shall have
furnished you their signed opinion, dated the Closing Date or the Option
Closing Date, as the case may be, with respect to the sufficiency of all
corporate procedures and other legal matters relating to this Agreement, the
validity of the Designated Preferred Securities, the Registration Statement,
the Prospectus and such other related matters as you may reasonably request
and there shall have been furnished to such counsel such documents and other
information as they may request to enable them to pass on such matters. In
giving such opinion, Bryan Cave LLP may rely as to matters of fact upon
statements and certifications of officers of the Offerors and of other
appropriate persons and may rely as to matters of law, other than law of the
United States and the State of Missouri, and upon the opinions of Jackson
Walker L.L.P. and Richards, Layton and Finger described herein.
(g) On the date of this Agreement and on the Closing Date (and,
if applicable, any Option Closing Date), the Representatives shall have
received from KPMG Peat Marwick LLP a letter, dated the date of this
Agreement and the Closing Date (and, if applicable, the Option Closing Date),
respectively, in form and substance satisfactory to the Representatives,
confirming that they are independent public accountants with respect to
Company (which shall be inclusive of the Subsidiaries for purposes of this
Section 6(g)), within the meaning of the 1933 Act and the 1933 Act
Regulations, and stating in effect that:
(i) In their opinion, the consolidated financial
statements of the Company audited by them and included in the
Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act and the 1933 Act
Regulations.
(ii) On the basis of the procedures specified by the
American Institute of Certified Public Accountants as described in SAS
No. 71, "Interim Financial Information", inquiries of officials of the
Company responsible for financial and accounting matters, and such
other inquiries and procedures as may be specified in such letter,
which procedures do not constitute an audit in accordance with U.S.
generally accepted auditing standards, nothing came to their attention
that caused them to believe that, if applicable, the unaudited interim
consolidated financial statements of the Company included in the
Registration Statement do not comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act
and 1933 Act Regulations or are not in conformity with U.S. generally
accepted accounting principles applied on a basis substantially
consistent, except as noted in the Registration Statement, with the
basis for the audited consolidated financial statements of the Company
included in the Registration Statement.
(iii) On the basis of limited procedures, not
constituting an audit in accordance with U.S. generally accepted
auditing standards, consisting of a reading of the unaudited interim
financial statements and other information referred to below, a reading
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of the latest available unaudited condensed consolidated financial
statements of the Company, inspection of the minute books of the
Company since the date of the latest audited financial statements of
the Company included or incorporated by reference in the Registration
Statement, inquiries of officials of the Company responsible for
financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) as of a specified date not more than five
days prior to the date of such letter, there have been any
changes in the consolidated capital stock of the Company, any
increase in the consolidated debt of the Company, any decreases
in consolidated total assets or shareholders equity of the
Company, or any changes, decreases or increases in other items
specified by the Representatives, in each case as compared with
amounts shown in the latest unaudited interim consolidated
statement of financial condition of the Company included in the
Registration Statement except in each case for changes, increases
or decreases which the Registration Statement specifically
discloses, have occurred or may occur or which are described in
such letter; and
(B) for the period from the date of the latest
unaudited interim consolidated financial statements of the
Company included in the Registration Statement to the specified
date referred to in Clause (iii)(A), there were any decreases in
the consolidated interest income, net interest income, or net
income of the Company or in the per share amount of net income of
the Company, or any changes, decreases or increases in any other
items specified by the Representatives, in each case as compared
with the comparable period of the preceding year and with any
other period of corresponding length specified by the
Representatives, except in each case for increases or decreases
which the Registration Statement discloses have occurred or may
occur, or which are described in such letter.
(iv) In addition to the audit referred to in their
report included in the Registration Statement and the limited
procedures, inspection of minute books, inquiries and other procedures
referred to in paragraphs (ii) and (iii) above, they have carried out
certain specified procedures, not constituting an audit in accordance
with U.S. generally accepted auditing standards, with respect to
certain amounts, percentages and financial information specified by the
Representatives which are derived from the general accounting records
and consolidated financial statements of the Company which appear in
the Registration Statement, and have compared such amounts, percentages
and financial information with the accounting records and the material
derived from such records and consolidated financial statements of the
Company have found them to be in agreement.
In the event that the letters to be delivered referred to above
set forth any such changes, decreases or increases as specified in Clauses
(iii)(A) or (iii)(B) above, or any exceptions from such agreement specified
in Clause (iv) above, it shall be a further condition to
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the obligations of the Underwriters that the Representatives shall have
determined, after discussions with officers of the Company responsible for
financial and accounting matters, that such changes, decreases, increases or
exceptions as are set forth in such letters do not (x) reflect a material
adverse change in the items specified in Clause (iii)(A) above as compared with
the amounts shown in the latest unaudited consolidated statement of financial
condition of the Company included in the Registration Statement, (y) reflect a
material adverse change in the items specified in Clause (iii)(B) above as
compared with the corresponding periods of the prior year or other period
specified by the Representatives, or (z) reflect a material change in items
specified in Clause (iv) above from the amounts shown in the Preliminary
Prospectus distributed by the Underwriters in connection with the offering
contemplated hereby or from the amounts shown in the Prospectus.
(h) On the date of this Agreement and on the Closing Date (and,
if applicable, any Option Closing Date), the Representatives shall have
received from Coopers & Lybrand a letter, dated the date of this Agreement
and the Closing Date (and, if applicable, the Option Closing Date),
respectively, in form and substance satisfactory to the Representatives,
confirming that it is an independent public accounting firm with respect to
Empire within the meaning of the 1933 Act and the 1933 Act Regulations, and
stating in effect that:
(i) In its opinion, the consolidated financial
statements of Empire audited by it and included in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the 1933 Act
Regulations.
(ii) On the basis of the procedures specified by the
American Institute of Certified Public Accountants as described in SAS
No. 71, "Interim Financial Information," inquiries of officials of
Empire responsible for financial and accounting matters, and such other
inquiries and procedures as may be specified in such letter, which
procedures do not constitute an audit in accordance with U.S. generally
accepted auditing standards, nothing came to their attention that
caused them to believe that, if applicable, the unaudited interim
consolidated financial statements of Empire included in the
Registration Statement do not comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act
and 1933 Act Regulations or are not in conformity with U.S. generally
accepted accounting principles applied on a basis substantially
consistent, except as noted in the Registration Statement, with the
basis for the audited consolidated financial statements of Empire
included in the Registration Statement.
(iii) On the basis of limited procedures, not
constituting an audit in accordance with U.S. generally accepted
auditing standards, consisting of a reading of the unaudited interim
financial statements and other information referred to below, a reading
of the latest available unaudited condensed consolidated financial
statements of Empire, inspection of the minute books of Empire since
the date of the latest audited financial statements of Empire included
or incorporated by reference in the Registration Statement, inquiries
of officials of Empire responsible for financial and accounting matters
and such
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<PAGE> 32
other inquiries and procedures as may be specified in such letter, nothing
came to its attention that caused it to believe that:
(A) as of a specified date not more than five
days prior to the date of such letter, there have been any
changes in the consolidated capital stock of Empire, any increase
in the consolidated debt of Empire, any decreases in consolidated
total assets or shareholders' equity of Empire, or any changes,
decreases or increases in other items specified by the
Representatives, in each case as compared with amounts shown in
the latest unaudited interim consolidated statement of financial
condition of Empire included in the Registration Statement except
in each case for changes, increases or decreases which the
Registration Statement specifically discloses, have occurred or
may occur or which are described in such letter; and
(B) for the period from the date of the latest
unaudited interim consolidated financial statements of Empire
included in the Registration Statement to the specified date
referred to in Clause (iii)(A), there were any decreases in the
consolidated interest income, net interest income, or net income
of Empire or in the per share amount of net income of Empire, or
any changes, decreases or increases in any other items specified
by the Representatives, in each case as compared with the
comparable period of the preceding year and with any other period
of corresponding length specified by the Representatives, except
in each case for increases or decreases which the Registration
Statement discloses have occurred or may occur, or which are
described in such letter;
(iv) In addition to the audit referred to in its
report included in the Registration Statement and the limited
procedures, inspection of minute books, inquiries and other procedures
referred to in paragraphs (ii) and (iii) above, they have carried out
certain specified procedures, not constituting an audit in accordance
with U.S. generally accepted auditing standards, with respect to
certain amounts, percentages and financial information specified by the
Representatives which are derived from the general accounting records
and consolidated financial statements of Empire which appear in the
Registration Statement, and have compared such amounts, percentages and
financial information with the accounting records and the material
derived from such records and consolidated financial statements of
Empire and have found them to be in agreement.
In the event that the letters to be delivered referred to above
set forth any such changes, decreases or increases as specified in Clauses
(iii)(A) or (iii)(B), above, or any exceptions from such agreement specified
in Clause (iv) above, it shall be a further condition to the obligations of
the Underwriters that the Representatives shall have determined, after
discussions with officers of Empire responsible for financial and accounting
matters, that such changes, decreases, increases or exceptions as are set
forth in such letters do not (x) reflect a material adverse change in the
items
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<PAGE> 33
specified in Clause (iii)(A) above as compared with the amounts shown
in the latest unaudited consolidated statement of financial condition of
Empire included in the Registration Statement, (y) reflect a material adverse
change in the items specified in Clause (iii)(B) above as compared with the
corresponding periods of the prior year or other period specified by the
Representatives, or (z) reflect a material change in items specified in
Clause (iv) above from the amounts shown in the Preliminary Prospectus
distributed by the Underwriters in connection with the offering contemplated
hereby or from the amounts shown in the Prospectus.
(i) At the Closing Date and, if applicable, the Option Closing
Date, you shall have received certificates of the chief executive officer and
the chief financial and accounting officer of the Company, which certificates
shall be deemed to be made on behalf of the Company dated as of the Closing
Date and, if applicable, the Option Closing Date, evidencing satisfaction of
the conditions of Section 6(a) and stating that (i) the representations and
warranties of the Company set forth in Section 2(a) hereof are accurate as of
the Closing Date and, if applicable, the Option Closing Date, and that the
Offerors have complied with all agreements and satisfied all conditions on
their part to be performed or satisfied at or prior to such Closing Date;
(ii) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any material
adverse change in the condition (financial or otherwise), earnings, affairs,
business, prospects or results of operations of the Offerors and the
Subsidiaries on a consolidated basis; (iii) since such dates there has not
been any material transaction entered into by the Offerors or the
Subsidiaries other than transactions in the ordinary course of business; and
(iv) they have carefully examined the Registration Statement and the
Prospectus as amended or supplemented and nothing has come to their attention
that would lead them to believe that either the Registration Statement or the
Prospectus, or any amendment or supplement thereto as of their respective
effective or issue dates, contained, and the Prospectus as amended or
supplemented at such Closing Date (and, if applicable, the Option Closing
Date), contains any untrue statement of a material fact, or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and (v) covering such other matters as you may
reasonably request. The officers' certificate of the Company shall further
state that no stop order affecting the Registration Statement is in effect
or, to their knowledge, threatened.
(j) At the Closing Date and, if applicable, the Option Closing
Date, you shall have received a certificate of an authorized representative
of the Trust to the effect that to the best of his or her knowledge based
upon a reasonable investigation, the representations and warranties of the
Trust in this Agreement are true and correct as though made on and as of the
Closing Date (and, if applicable, the Option Closing Date); the Trust has
complied with all the agreements and satisfied all the conditions required by
this Agreement to be performed or satisfied by the Trust on or prior to the
Closing Date and since the most recent date as of which information is given
in the Prospectus, except as contemplated by the Prospectus, the Trust has
not incurred any material liabilities or obligations, direct or contingent,
or entered into any material transactions not in the ordinary course of
business and there has not been any material adverse change in the condition
(financial or otherwise) of the Trust.
(k) On the Closing Date, you shall have received duly executed
counterparts of the Trust Agreement, the Guarantee, the Indenture and the
Expense Agreement.
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<PAGE> 34
(l) The NASD, upon review of the terms of the public offering
of the Designated Preferred Securities, shall not have objected to the
Underwriters' participation in such offering.
(m) Prior to the Closing Date and, if applicable, the Option
Closing Date, the Offerors shall have furnished to you and counsel for the
Underwriters all such other documents, certificates and opinions as they have
reasonably requested.
All opinions, certificates, letters and other documents shall be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you. The Offerors shall furnish you
with conformed copies of such opinions, certificates, letters and other
documents as you shall reasonably request.
If any of the conditions referred to in this Section 6 shall not
have been fulfilled when and as required by this Agreement, this Agreement
and all of the Underwriters' obligations hereunder may be terminated by you
on notice to the Company at, or at any time before, the Closing Date or the
Option Closing Date, as applicable. Any such termination shall be without
liability of the Underwriters to the Offerors.
7. Indemnification and Contribution.
--------------------------------
(a) The Offerors agree to jointly and severally indemnify and
hold harmless each Underwriter, each of its directors, officers and agents,
and each person, if any, who controls any Underwriter within the meaning of
the 1933 Act, against any and all losses, claims, damages, liabilities and
expenses (including reasonable costs of investigation and reasonable attorney
fees and expenses), joint or several, arising out of or based: (i) upon any
untrue statement or alleged untrue statement of a material fact made by the
Company or the Trust contained in Section 2(a) of this Agreement (or any
certificate delivered by the Company or the Trust pursuant to Sections 6(i),
6(j) or 6(m) hereof) or the registration statement as originally filed or the
Registration Statement, any Preliminary Prospectus or the Prospectus, or in any
amendment or supplement thereto; (ii) upon any blue sky application or other
document executed by the Company or the Trust specifically for that purpose or
based upon written information furnished by the Company or the Trust filed in
any state or other jurisdiction in order to qualify any of the Designated
Preferred Securities under the securities laws thereof (any such application,
document or information being hereinafter referred to as a "Blue Sky
Application"); (iii) upon any omission or alleged omission to state a material
fact in the registration statement as originally filed or the Registration
Statement, the Preliminary Prospectus or the Prospectus, or in any amendment
or supplement thereto, or in any Blue Sky Application required to be stated
therein or necessary to make the statements therein not misleading, and
against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation and attorney fees), joint or
several, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus or the
Prospectus, or in any amendment or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which
34
<PAGE> 35
they were made, not misleading; (iv) upon any failure of the consolidated
financial statements of Redwood and its subsidiaries described in Section
2(a)(xx) hereof, (x) to comply in all material respects with the 1933 Act and
the 1933 Act Regulations, (y) to present fairly the consolidated financial
position of Redwood and its subsidiaries as of the dates indicated, or (z) to
have been prepared in conformity with generally accepted accounting principles
applied on a consistent basis; (v) upon any failure of the selected and
summary financial data concerning Redwood and its subsidiaries described in
Section 2(a)(xx) hereof, (x) to comply in all material respects with the 1933
Act and the 1933 Act Regulations, (y) to present fairly the information set
forth therein, or (z) to have been compiled on a basis consistent with that of
the consolidated financial statements of Redwood and its subsidiaries in the
Registration Statement and the Prospectus (or such Preliminary Prospectus);
(vi) upon any failure of the financial, statistical and numerical information
concerning Redwood and its subsidiaries described in Section 2(a)(xx) hereof and
included in the Registration Statement and the Prospectus (or such Preliminary
Prospectus), (x) to comply in all material respects with the 1933 Act and the
1933 Act Regulations, (y) to present fairly the information shown therein, or
(z) to the extent applicable, to have been compiled on a basis consistent with
the consolidated financial statements of Redwood and its subsidiaries included
in the Registration Statement and the Prospectus (or such Preliminary
Prospectus); or (vii) the enforcement of this indemnification provision or the
contribution provisions of Section 7(d); and shall reimburse each such
indemnified party for any reasonable legal or other expenses as incurred, but
in no event less frequently than 30 days after each invoice is submitted,
incurred by them in connection with investigating or defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action, notwithstanding the possibility that payments for
such expenses might later be held to be improper, in which case such payments
shall be promptly refunded; provided, however, that the Offerors shall not be
liable in any such case to the extent, but only to the extent, that any such
losses, claims, damages, liabilities and expenses arise out of or are based
upon any untrue statement or omission or allegation thereof that has been made
therein or omitted therefrom in reliance upon and in conformity with the
Underwriters' Information; provided, that the indemnification contained in this
paragraph with respect to any Preliminary Prospectus shall not inure to
the benefit of any Underwriter (or of any person controlling any Underwriter)
to the extent any such losses, claims, damages, liabilities or expenses
directly results from the fact that such Underwriter sold Designated
Preferred Securities to a person to whom there was not sent or given, at or
prior to the written confirmation of such sale, a copy of the Prospectus (as
amended or supplemented if any amendments or supplements thereto shall have
been furnished to you in sufficient time to distribute same with or prior to
the written confirmation of the sale involved), if required by law, and if
such loss, claim, damage, liability or expense would not have arisen but for
the failure to give or send such person such document. The foregoing
indemnity agreement is in addition to any liability the Company or the Trust
may otherwise have to any such indemnified party.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless each Offeror, each of its directors, each of its
officers who signed the Registration Statement and each person, if any, who
controls an Offeror within the meaning of the 1933 Act, to the same extent as
required by the foregoing indemnity from the Company to each Underwriter, but
only with respect to the Underwriters' Information or in a Blue Sky
Application. The foregoing indemnity agreement is in addition to any
liability which any Underwriter may otherwise have to any such indemnified
party.
(c) If any action or claim shall be brought or asserted against
any indemnified party or any person controlling an indemnified party in
respect of which indemnity may be sought from the indemnifying party, such
indemnified party or controlling person shall promptly notify the
indemnifying party in writing, and the indemnifying party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory
to the indemnified party and the payment of all expenses; provided, however,
-----------------
that the failure so to notify the indemnifying party shall not relieve it
from any liability which it may have to an indemnified party otherwise than
under such paragraph, and further, shall only relieve it from liability under
such paragraph to the extent prejudiced thereby. Any indemnified party or
any such controlling person shall have the right to employ separate counsel
in any such action and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such indemnified
party or such controlling person unless (i) the employment thereof has been
specifically authorized by the indemnifying party in writing, (ii) the
indemnifying party has failed to assume the defense or to employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties
to any such action (including any impleaded parties) include both such
indemnified
35
<PAGE> 36
party or such controlling person and the indemnifying party and such indemnified
party or such controlling person shall have been advised by such counsel that
there may be one or more legal defenses available to it that are different from
or in addition to those available to the indemnifying party (in which case, if
such indemnified party or controlling person notifies the indemnifying party in
writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such action on behalf of such indemnified party or such
controlling person) it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys at any time and for all
such indemnified party and controlling persons, which firm shall be designated
in writing by the indemnified party (and, if such indemnified parties are
Underwriters, by you, as Representatives). Each indemnified party and each
controlling person, as a condition of such indemnity, shall use reasonable
efforts to cooperate with the indemnifying party in the defense of any such
action or claim. The indemnifying party shall not be liable for any settlement
of any such action effected without its written consent, but if there be a final
judgment for the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party and any such controlling
person from and against any loss, claim, damage, liability or expense by reason
of such settlement or judgment.
An indemnifying party shall not, without the prior written
consent of each indemnified party, settle, compromise or consent to the entry
of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnity may be sought hereunder (whether or
not such indemnified party or any person who controls such indemnified party
within the meaning of the 1933 Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes a release
of each such indemnified party reasonably satisfactory to each such
indemnified party and each such controlling person from all liability arising
out of such claim, action, suit or proceeding or unless the indemnifying
party shall confirm in a written agreement with each indemnified party, that
notwithstanding any federal, state or common law, such settlement, compromise
or consent shall not alter the right of any indemnified party or controlling
person to indemnification or contribution as provided in this Agreement.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraphs (a), (b) or (c) hereof in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Offerors on the one hand and
the Underwriters on the other from the offering of the Designated Preferred
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Offerors on the one hand
36
<PAGE> 37
and the Underwriters on the other in connection with the statements or omissions
that resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits received
by the Offerors on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Designated Preferred Securities (before deducting expenses) received by
the Offerors bear to the total underwriting discounts, commissions and
compensation received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault of the
Offerors on the one hand and of the Underwriters on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Offerors or by
the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Offerors and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this paragraph (d) were determined
by pro rata allocation or by any other method of allocation that does not
take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in the first sentence
of this paragraph (d) shall be deemed to include, subject to the limitations
set forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this paragraph (d), no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Designated Preferred Securities
underwritten by such Underwriter and distributed to the public were offered
to the public exceeds the amount of any damages that such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
For purposes of this paragraph (d), each person who controls an
Underwriter within the meaning of the 1933 Act shall have the same rights to
contribution as such Underwriter, and each person who controls an Offeror
within the meaning of the 1933 Act, each officer and trustee of an Offeror
who shall have signed the Registration Statement and each director of an
Offeror shall have the same rights to contribution as the Offerors subject in
each case to the preceding sentence. The obligations of the Offerors under
this paragraph (d) shall be in addition to any liability which the Offerors
may otherwise have and the obligations of the Underwriters under this
paragraph (d) shall be in addition to any liability that the Underwriters may
otherwise have.
(e) The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Offerors set forth in
this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter
or any person controlling an Underwriter or by or on behalf of the Offerors,
or such directors, trustees or officers (or any person controlling an Offeror,
(ii) acceptance of any Designated Preferred Securities and payment therefor
hereunder and (iii) any termination of this Agreement. A successor of any
Underwriter or of an Offeror, such directors, trustees or officers
37
<PAGE> 38
(or of any person controlling an Underwriter or an Offeror) shall be entitled to
the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7.
(f) The Company agrees to indemnify the Trust against any and
all losses, claims, damages or liabilities that may become due from the Trust
under this Section 7.
8. Termination. You shall have the right to terminate this
-----------
Agreement at any time at or prior to the Closing Date or, with respect to the
Underwriters' obligation to purchase the Option Preferred Securities, at any
time at or prior to the Option Closing Date, without liability on the part of
the Underwriters to the Offerors, if:
(a) Either Offeror shall have failed, refused, or been unable
to perform any agreement on its part to be performed under this Agreement, or
any of the conditions referred to in Section 6 shall not have been fulfilled,
when and as required by this Agreement;
(b) The Offerors or any of the Subsidiaries shall have
sustained any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree which
in the judgment of the Representatives materially impairs the investment
quality of the Designated Preferred Securities;
(c) There has been since the respective dates as of which
information is given in the Registration Statement or the Prospectus, any
materially adverse change in, or any development which is reasonably likely
to have a material adverse effect on, the condition (financial or otherwise),
earnings, affairs, business, prospects or results of operations of the
Offerors and the Subsidiaries on a consolidated basis, whether or not arising
in the ordinary course of business;
(d) There has occurred any outbreak of hostilities or other
calamity or crisis or material change in general economic, political or
financial conditions, or internal conditions, the effect of which on the
financial markets of the United States is such as to make it, in your
reasonable judgment, impracticable to market the Designated Preferred
Securities or enforce contracts for the sale of the Designated Preferred
Securities;
(e) Trading generally on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market shall have been
suspended, or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required, by any of
said exchanges or market system or by the Commission or any other
governmental authority;
(f) A banking moratorium shall have been declared by either
federal, Missouri, Texas or California authorities; or
(g) Any action shall have been taken by any government in
respect of its monetary affairs which, your reasonable judgment, has a
material adverse effect on the United States securities markets.
38
<PAGE> 39
If this Agreement shall be terminated pursuant to this Section 8,
the Offerors shall not then be under any liability to the Underwriters except
as provided in Sections 5 and 7 hereof.
9. Default of Underwriters. If any Underwriter or Underwriters
-----------------------
shall default in its or their obligations to purchase Designated Preferred
Securities hereunder, the other Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the
Designated Preferred Securities which such defaulting Underwriter or
Underwriters agreed but failed to purchase; provided, however, that the
-----------------
non-defaulting Underwriters shall be under no obligation to purchase such
Designated Preferred Securities if the aggregate number of Designated
Preferred Securities to be purchased by such non-defaulting Underwriters
shall exceed 110% of the aggregate underwriting commitments set forth in
Schedule I hereto, and provided further, that no non-defaulting Underwriter
- ---------- ----------------
shall be obligated to purchase Designated Preferred Securities to the extent
that the number of such Designated Preferred Securities is more than 110% of
such Underwriter's underwriting commitment set forth in Schedule I hereto.
----------
In the event that the non-defaulting Underwriters are not
obligated under the above paragraph to purchase the Designated Preferred
Securities which the defaulting Underwriter or Underwriters agreed but failed
to purchase, the Representatives may in their discretion arrange for one or
more of the Underwriters or for another party or parties to purchase such
Designated Preferred Securities on the terms contained herein. If within one
business day after such default the Representatives do not arrange for the
purchase of such Designated Preferred Securities, then the Company shall be
entitled to a further period of one business day within which to procure
another party or parties satisfactory to the Representatives to purchase such
Designated Preferred Securities on such terms.
In the event that the Representatives or the Company do not
arrange for the purchase of any Designated Preferred Securities to which a
default relates as provided above, this Agreement shall be terminated.
If the remaining Underwriters or substituted underwriters are
required hereby or agree to take up all or a part of the Designated Preferred
Securities of a defaulting Underwriter or Underwriters as provided in this
Section 9, (i) you shall have the right to postpone the Closing Date for a
period of not more than five full business days, in order to effect any changes
that, in the opinion of counsel for the Underwriters or the Company, may thereby
be made necessary in the Registration Statement or the Prospectus, or in any
other documents or agreements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus
which, in its opinion, may thereby be made necessary and (ii) the respective
numbers of Designated Preferred Securities to be purchased by the remaining
Underwriters or substituted underwriters shall be taken as the basis of their
underwriting obligation for all purposes of this Agreement. Nothing herein
contained shall relieve any defaulting Underwriter of any liability it may
have for damages occasioned by its default hereunder. Any termination of
this Agreement pursuant to this Section 9 shall be without liability on the
part of any non-defaulting Underwriter or the Company, except for expenses to
be paid or reimbursed pursuant to Section 5 and except for the provisions of
Section 7.
39
<PAGE> 40
10. Effective Date of Agreement. If the Registration Statement is
---------------------------
not effective at the time of execution of this Agreement, this Agreement
shall become effective on the Effective Date at the time the Commission
declares the Registration Statement effective. The Company shall immediately
notify the Underwriters when the Registration Statement becomes effective.
If the Registration Statement is effective at the time of
execution of this Agreement, this Agreement shall become effective at the
earlier of 11:00 a.m. St. Louis time, on the first full business day
following the day on which this Agreement is executed, or at such earlier
time as the Representatives shall release the Designated Preferred Securities
for initial public offering. The Representatives shall notify the Offerors
immediately after they have taken any action which causes this Agreement to
become effective.
Until such time as this Agreement shall have become effective, it
may be terminated by the Offerors, by notifying you or by you, as
Representatives of the several Underwriters, by notifying either Offeror,
except that the provisions of Sections 5 and 7 shall at all times be
effective.
11. Representations, Warranties and Agreements to Survive Delivery.
--------------------------------------------------------------
The representations, warranties, indemnities, agreements and other statements
of the Offerors and their officers and trustees set forth in or made pursuant
to this Agreement and the agreements of the Underwriters contained in Section
7 hereof shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of the Offerors or controlling persons
of either Offeror, or by or on behalf of the Underwriters or controlling
persons of the Underwriters or any termination or cancellation of this
Agreement and shall survive delivery of and payment for the Designated
Preferred Securities.
12. Notices. Except as otherwise provided in this Agreement, all
-------
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if delivered by hand, mailed by registered or
certified mail, return receipt requested, or transmitted by any standard form
of telecommunication and confirmed. Notices to either Offeror shall be sent
to 11901 Olive Boulevard, St. Louis, Missouri 63141, Attention: Allen H.
Blake (with a copy to Jackson Walker L.L.P., 901 Main Street, Suite 6000,
Dallas, Texas 75202, Attention: James S. Ryan, III, Esq. and to John S.
Daniels, Esq., 8117 Preston Road, Suite 800, Dallas, Texas 75225; and
notices to the Underwriters shall be sent to Stifel, Nicolaus & Company,
Incorporated, 500 North Broadway, Suite 1500, St. Louis, Missouri 63102,
Attention: Rick E. Maples and to Hoefer & Arnett, Inc., 353 Sacramento
Street, 10th Floor, San Francisco, California 94111, Attention: Peter H.
Peracca (with a copy to Bryan Cave LLP, 211 North Broadway, Suite 3600, St.
Louis, Missouri 63102, Attention: James L. Nouss, Jr., Esq.). In all
dealings with the Company under this Agreement, Stifel, Nicolaus & Company,
Incorporated and Hoefer & Arnett, Inc. shall act jointly as representatives
of and on behalf of the several Underwriters, and the Company shall be
entitled to Act and rely upon any statement, request, notice or agreement on
behalf of the Underwriters, made or given jointly by Stifel, Nicolaus &
Company, Incorporated and Hoefer & Arnett, Inc. on behalf of the
Underwriters, as if the same shall have been made or given in writing by the
Underwriters. No statement, request, notice, agreement or action issued or
taken in connection with the Offering by either Stifel, Nicolaus &
40
<PAGE> 41
Company, Incorporated or Hoefer & Arnett, Inc., acting alone, without the
express written agreement of the other party, shall be valid and binding against
the other or the several Underwriters.
13. Parties. The Agreement herein set forth is made solely for the
-------
benefit of the Underwriters and the Offerors and, to the extent expressed,
directors, trustees and officers of the Offerors, any person controlling the
Offerors or the Underwriters, and their respective successors and assigns.
No other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any
purchaser, in his status as such purchaser, from the Underwriters of the
Designated Preferred Securities.
14. Governing Law. This Agreement shall be governed by the laws of
-------------
the State of Missouri, without giving effect to the choice of law or
conflicts of law principles thereof.
15. Counterparts. This Agreement may be executed in one or more
------------
counterparts, and when a counterpart has been executed by each party hereto
all such counterparts taken together shall constitute one and the same
Agreement.
41
<PAGE> 42
If the foregoing is in accordance with the your understanding of
our agreement, please sign and return to us a counterpart hereof, whereupon
this shall become a binding agreement between the Company, the Trust and you
in accordance with its terms.
Very truly yours,
FIRST BANKS AMERICA, INC.
By:
---------------------------------
Name:
Title:
FIRST AMERICA CAPITAL TRUST
By:
---------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of , 1998.
------------
STIFEL, NICOLAUS & COMPANY, INCORPORATED
By:
--------------------------------------------
Name:
Title:
For itself and as Representative of the several
Underwriters named in Schedule I hereto.
HOEFER & ARNETT, INCORPORATED
By:
--------------------------------------------
Name:
Title:
For itself and as Representative of the several
Underwriters named in Schedule I hereto.
42
<PAGE> 43
<TABLE>
SCHEDULE I
----------
<CAPTION>
Underwriter Number of Preferred Securities
----------- ------------------------------
<S> <C>
Stifel, Nicolaus & Company, Incorporated
----------------
Hoefer & Arnett, Inc.
----------------
----------------
Total 1,600,000
================
</TABLE>
43
<PAGE> 44
EXHIBIT A
LIST OF SUBSIDIARIES
BankTEXAS National Association
First Bank of California
First America Capital Trust
<PAGE> 1
================================================================================
FIRST BANKS AMERICA, INC.
AND
STATE STREET BANK AND TRUST COMPANY,
AS TRUSTEE
INDENTURE
-----% SUBORDINATED DEBENTURES DUE 2028
DATED AS OF -------------, 1998.
================================================================================
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
ARTICLE I. DEFINITIONS 2
Section 1.1. Definitions of Terms 2
ARTICLE II. ISSUE, DESCRIPTION, TERMS, CONDITIONS REGISTRATION
AND EXCHANGE OF THE DEBENTURES 10
Section 2.1 Designation and Principal Amount 10
Section 2.2. Maturity 10
Section 2.3. Form and Payment 11
Section 2.4. [Intentionally Omitted] 11
Section 2.5. Interest 11
Section 2.6. Execution and Authentication 12
Section 2.7. Registration of Transfer and Exchange 13
Section 2.8. Temporary Debentures 14
Section 2.9. Mutilated, Destroyed, Lost or Stolen Debentures 14
Section 2.10. Cancellation 15
Section 2.11. Benefit of Indenture 15
Section 2.12. Authentication Agent 15
ARTICLE III. REDEMPTION OF DEBENTURES 16
Section 3.1. Redemption 16
Section 3.2. Special Event Redemption 16
Section 3.3. Optional Redemption by the Company 17
Section 3.4. Notice of Redemption 17
Section 3.5. Payment upon Redemption 18
Section 3.6. No Sinking Fund 19
ARTICLE IV. EXTENSION OF INTEREST PAYMENT PERIOD 19
Section 4.1. Extension of Interest Payment Period 19
Section 4.2. Notice of Extension 20
Section 4.3. Limitation on Transactions 20
ARTICLE V. PARTICULAR COVENANTS OF THE COMPANY 21
Section 5.1. Payment of Principal and Interest 21
Section 5.2. Maintenance of Agency 21
Section 5.3. Paying Agents 21
Section 5.4. Appointment to Fill Vacancy in Office of the Trustee 22
Section 5.5. Compliance with Consolidation Provisions 22
Section 5.6. Limitation on Transactions 22
Section 5.7. Covenants as to the Trust 23
Section 5.8. Covenants as to Purchases 23
<PAGE> 3
ARTICLE VI. THE DEBENTUREHOLDERS' LISTS AND REPORTS. BY THE
COMPANY AND THE TRUSTEE 23
Section 6.1. The Company to Furnish the Trustee Names and Addresses of
the Debentureholders 23
Section 6.2. Preservation of Information Communications with the
Debentureholders 24
Section 6.3. Reports by the Company 24
Section 6.4. Reports by the Trustee 25
ARTICLE VII. REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS ON
EVENT OF DEFAULT 25
Section 7.1. Events of Default 25
Section 7.2. Collection of Indebtedness and Suits for Enforcement by the
Trustee 27
Section 7.3. Application of Moneys Collected 28
Section 7.4. Limitation on Suits 29
Section 7.5. Rights and Remedies Cumulative; Delay or Omission not Waiver 29
Section 7.6. Control by the Debentureholders 30
Section 7.7. Undertaking to Pay Costs 31
ARTICLE VIII. 31
Section 8.1. Form of Debenture 31
Section 8.2. Original Issue of the Debentures 31
ARTICLE IX. CONCERNING THE TRUSTEE 31
Section 9.1. Certain Duties and Responsibilities of the Trustee 31
Section 9.2. Notice of Defaults 33
Section 9.3. Certain Rights of the Trustee 33
Section 9.4. The Trustee not Responsible for Recitals, Etc. 34
Section 9.5. May Hold the Debentures 34
Section 9.6. Moneys Held in Trust 35
Section 9.7. Compensation and Reimbursement 35
Section 9.8. Reliance on Officers' Certificate 35
Section 9.9. Disqualification; Conflicting Interests 35
Section 9.10. Corporate Trustee Required; Eligibility 36
Section 9.11. Resignation and Removal; Appointment of Successor 36
Section 9.12. Acceptance of Appointment by Successor 37
Section 9.13. Merger, Conversion, Consolidation or Succession to Business 38
Section 9.14. Preferential Collection of Claims against the Company 38
ARTICLE X. CONCERNING THE DEBENTUREHOLDERS 38
Section 10.1. Evidence of Action by the Holders 38
ii
<PAGE> 4
Section 10.2. Proof of Execution by the Debentureholders 39
Section 10.3. Who May be Deemed Owners 39
Section 10.4. Certain Debentures Owned by Company Disregarded 40
Section 10.5. Actions Binding on the Future Debentureholders 40
ARTICLE XI. SUPPLEMENTAL INDENTURES 40
Section 11.1. Supplemental Indentures without the Consent of the
Debentureholders 40
Section 11.2. Supplemental Indentures with Consent of the Debentureholders 41
Section 11.3. Effect of Supplemental Indentures 42
Section 11.4. The Debentures Affected by Supplemental Indentures 42
Section 11.5. Execution of Supplemental Indentures 42
ARTICLE XII. SUCCESSOR CORPORATION 43
Section 12.1. The Company may Consolidate, Etc. 43
Section 12.2. Successor Corporation Substituted 43
Section 12.3. Evidence of Consolidation, Etc. to Trustee 44
ARTICLE XIII. SATISFACTION AND DISCHARGE 44
Section 13.1. Satisfaction and Discharge of Indenture 44
Section 13.2. Discharge of Obligations 44
Section 13.3. Deposited Moneys to be Held in Trust 45
Section 13.4. Payment of Monies Held by Paying Agents 45
Section 13.5. Repayment to the Company 45
ARTICLE XIV. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS 45
Section 14.1. No Recourse 45
ARTICLE XV. MISCELLANEOUS PROVISIONS 46
Section 15.1. Effect on Successors and Assigns 46
Section 15.2. Actions by Successor 46
Section 15.3. Surrender of the Company Powers 46
Section 15.4. Notices 46
Section 15.5. Governing Law 47
Section 15.6. Treatment of the Debentures as Debt 47
Section 15.7. Compliance Certificates and Opinions 47
Section 15.8. Payments on Business Days 47
Section 15.9. Conflict with Trust Indenture Act 47
Section 15.10. Counterparts 47
Section 15.11. Separability 48
Section 15.12. Assignment 48
Section 15.13. Acknowledgment of Rights 48
iii
<PAGE> 5
ARTICLE XVI. SUBORDINATION OF THE DEBENTURES 49
Section 16.1. Agreement to Subordinate 49
Section 16.2. Default on Senior Debt, Subordinated Debt or Additional Senior
Obligations 49
Section 16.3. Liquidation; Dissolution; Bankruptcy 49
Section 16.4. Subrogation 51
Section 16.5. The Trustee to Effectuate Subordination 52
Section 16.6. Notice by the Company 52
Section 16.7. Rights of the Trustee; Holders of the Senior Indebtedness 52
Section 16.8. Subordination may not be Impaired 53
</TABLE>
iv
<PAGE> 6
<TABLE>
CROSS-REFERENCE TABLE
<CAPTION>
Section of
Trust Indenture Act Section of
of 1939, as amended Indenture
- ------------------- ---------
<S> <C>
310(a) 9.10
310(b) 9.9, 9.11
310(c) Not Applicable
311(a) 9.14
311(b) 9.14
311(c) Not Applicable
312(a) 6.1, 6.2(a)
312(b) 6.2(c)
312(c) 6.2(c)
313(a) 6.4(a)
313(b) 6.4(b)
313(c) 6.4(a), 6.4(b)
313(d) 6.4(c)
314(a) 6.3(a)
314(b) Not Applicable
314(c) 15.7
314(d) Not Applicable
314(e) 15.7
314(f) Not Applicable
315(a) 9.1(a), 9.3
315(b) 9.2
315(c) 9.1(a)
315(d) 9.1(b)
315(e) 7.7
316(a) 1.1, 7.6
316(b) 7.4(b)
316(c) 10.1(b)
317(a) 7.2
317(b) 5.3
318(a) 15.9
<CAPTION>
Note: This Cross-Reference Table does not constitute part of this Indenture
and shall not affect the interpretation of any of its terms or provisions.
</TABLE>
v
<PAGE> 7
INDENTURE
INDENTURE, dated as of June --, 1998, between FIRST BANKS AMERICA, INC.
a Delaware corporation (the "Company") and STATE STREET BANK AND TRUST
COMPANY, a trust company duly organized and existing 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
2028 (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, First America Capital Trust, a Delaware statutory business
trust (the "Trust"), has offered to the public $40,000,000 aggregate
liquidation amount of its Preferred Securities (as defined herein)
($46,000,000 if the Underwriters exercise their Option (as defined herein))
and proposes to invest the proceeds from such offering, together with the
proceeds of the issuance and sale by the Trust to the Company of $1,237,125
aggregate liquidation amount of its Common Securities (as defined herein)
($1,422,700 if the Underwriters exercise their option), in $41,237,125
aggregate principal amount of the Debentures ($47,422,700 if the Underwriters
exercise their Option); and
WHEREAS, the Company has requested that the Trustee execute and deliver
this Indenture; and
WHEREAS, all requirements necessary to make this Indenture a valid
instrument in accordance with its terms, and to make the Debentures, when
executed by the Company and authenticated and delivered by the Trustee, the
valid obligations of the Company, have been performed, and the execution and
delivery of this Indenture have been duly authorized in all respects; and
WHEREAS, to provide the terms and conditions upon which the Debentures
are to be authenticated, issued and delivered, the Company has duly
authorized the execution of this Indenture; and
WHEREAS, all things necessary to make this Indenture a valid agreement
of the Company, in accordance with its terms, have been done.
NOW, THEREFORE, in consideration of the premises and the purchase of
the Debentures by the holders thereof, it is mutually covenanted and agreed
as follows for the equal and ratable benefit of the holders of the
Debentures:
<PAGE> 8
ARTICLE I.
DEFINITIONS
Section 1.1. Definitions of Terms. The terms defined in this
Section 1.1 (except as in this Indenture otherwise expressly provided or
unless the context otherwise requires) for all purposes of this Indenture and
of any indenture supplemental hereto shall have the respective meanings
specified in this Section 1.1 and shall include the plural as well as the
singular. All other terms used in this Indenture that are defined in the
Trust Indenture Act, or that are by reference in the Trust Indenture Act
defined in the Securities Act (except as herein otherwise expressly provided
or unless the context otherwise requires), shall have the meanings assigned
to such terms in the Trust Indenture Act and in the Securities Act as in
force at the date of the execution of this instrument. All accounting terms
used herein and not expressly defined shall have the meanings assigned to
such terms in accordance with Generally Accepted Accounting Principles.
"Accelerated Maturity Date" means if the Company elects to accelerate
the Maturity Date in accordance with Section 2.2(c), the date selected by the
Company which is prior to the Scheduled Maturity Date, but is after June 30,
2003.
"Additional Payments" shall have the meaning set forth in Section 2.5(c).
"Additional Senior Obligations" means all indebtedness of the Company
whether incurred on or prior to the date of this Indenture or thereafter
incurred, for claims in respect of derivative products such as interest and
foreign exchange rate contracts, commodity contracts and similar arrangements;
provided, however, that Additional Senior Obligations does not include claims
- -------- -------
in respect of Senior Debt or Subordinated Debt or obligations which, by their
terms, are expressly stated to be not superior in right of payment to the
Debentures or to rank pari passu in right of payment with the Debentures. For
purposes of this definition, "claim" shall have the meaning assigned thereto
in Section 101(4) of the United States Bankruptcy Code of 1978, as amended.
"Administrative Trustees" shall have the meaning set forth in the Trust
Agreement.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10%
or more of the outstanding voting securities or other ownership interests of
the specified Person; (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person; (c) any Person
directly or indirectly controlling, controlled by, or under common control
with the specified Person; (d) a partnership in which the specified Person is
a general partner; (e) any officer or director of the specified Person; and
(f) if the specified Person is an individual, any entity of which the
specified Person is an officer, director or general partner.
"Authenticating Agent" means an authenticating agent with respect to
the Debentures appointed by the Trustee pursuant to Section 2.12.
2
<PAGE> 9
"Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or any
duly authorized committee of such Board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of
such certification.
"Business Day" means, with respect to the Debentures, any day other
than a Saturday or a Sunday or a day on which federal or state banking
institutions in the Borough of Manhattan, the City of New York, are
authorized or required by law, executive order or regulation to close, or a
day on which the Corporate Trust Office of the Trustee or the Property
Trustee is closed for business.
"Capital Treatment Event" means the receipt by the Trust of an Opinion
of Counsel, rendered by a law firm having a recognized banking law practice,
to the effect that, as a result of any amendment to or any change (including
any announced prospective change) in the laws (or any regulations thereunder)
of the United States or any political subdivision thereof or therein, or as a
result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change
is effective or such proposed change, pronouncement or decision is announced
on or after the date of issuance of the Preferred Securities under the Trust
Agreement, there is more than an insubstantial risk of impairment of the
Company's ability to treat the aggregate Liquidation Amount of the Preferred
Securities (or any substantial portion thereof) as "Tier 1 Capital" (or the
then equivalent thereof) for purposes of the capital adequacy guidelines of
the Federal Reserve, as then in effect and applicable to the Company,
provided, however, that the inability of the Company to treat all or any
- -------- -------
portion of the Liquidation Amount of the Preferred Securities as Tier 1
Capital shall not constitute the basis for a Capital Treatment Event if such
inability results from the Company having cumulative preferred stock,
minority interests in consolidated subsidiaries, or any other class of
security or interest which the Federal Reserve now or may hereafter accord
Tier 1 Capital treatment in excess of the amount which may qualify for
treatment as Tier 1 Capital under applicable capital adequacy guidelines of
the Federal Reserve.
"Certificate" means a certificate signed by the principal executive
officer, the principal financial officer, the principal accounting officer,
the treasurer or any vice president of the Company. The Certificate need not
comply with the provisions of Section 15.7.
"Change in 1940 Act Law" shall have the meaning set forth in the
definition of "Investment Company Event."
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this
3
<PAGE> 10
instrument such Commission is not existing and performing the duties now
assigned to it under the Trust Indenture Act, then the body performing such
duties at such time.
"Common Securities" means undivided beneficial interests in the assets
of the Trust which rank pari passu with the Preferred Securities; provided,
--------
however, that upon the occurrence of an Event of Default, the rights of
- -------
holders of Common Securities to payment in respect of (i) distributions, and
(ii) payments upon liquidation, redemption and otherwise, are subordinated to
the rights of holders of Preferred Securities.
"Company" means First Banks America, Inc., a corporation duly organized
and existing under the laws of the State of Delaware, and, subject to the
provisions of Article XII, shall also include its successors and assigns.
"Compounded Interest" shall have the meaning set forth in Section 4.1.
"Corporate Trust Office" means the office of the Trustee at which, at
any particular time, its corporate trust business shall be principally
administered, which office at the date hereof is located at Two International
Place, 4th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust
Department.
"Coupon Rate" shall have the meaning set forth in Section 2.5(a).
"Custodian" means any receiver, trustee, assignee, liquidator, or
similar official under any Bankruptcy Law.
"Debentures" shall have the meaning set forth in the Recitals hereto.
"Debentureholder," "holder of Debentures," "registered holder," or
other similar term, means the Person or Persons in whose name or names a
particular Debenture shall be registered on the books of the Company or the
Trustee kept for that purpose in accordance with the terms of this Indenture.
"Debenture Register" shall have the meaning set forth in Section
2.7(b).
"Debenture Registrar" shall have the meaning set forth in Section
2.7(b).
"Debt" means with respect to any Person, whether recourse is to all or
a portion of the assets of such Person and whether or not contingent, (a)
every obligation of such Person for money borrowed; (b) 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; (c) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (d)
every obligation of such Person issued or assumed as the deferred purchase
price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business); (e) every
capital lease obligation of such Person; and (f) and every
4
<PAGE> 11
obligation of the type referred to in clauses (a) through (e) of another Person
and all dividends of another Person the payment of which, in either case, such
Person has guaranteed or is responsible or liable, directly or indirectly, as
obligor or otherwise.
"Default" means any event, act or condition that with notice or lapse
of time, or both, would constitute an Event of Default.
"Deferred Payments" shall have the meaning set forth in Section 4.1.
"Dissolution Event" means that as a result of the occurrence and
continuation of a Special Event, the Trust is to be dissolved in accordance
with the Trust Agreement and the Debentures held by the Property Trustee are
to be distributed to the holders of the Trust Securities issued by the Trust
pro rata in accordance with the Trust Agreement.
"Distribution" shall have the meaning set forth in the Trust Agreement.
"Event of Default" means, with respect to the Debentures, any event
specified in Section 7.1, which has continued for the period of time, if any,
and after the giving of the notice, if any, therein designated.
"Exchange Act," means the Securities Exchange Act of 1934, as amended,
as in effect at the date of execution of this instrument.
"Extended Maturity Date" means if the Company elects to extend the
Maturity Date in accordance with Section 2.2(b), the date selected by the
Company which is after the Scheduled Maturity Date but before June 30, 2037.
"Extension Period" shall have the meaning set forth in Section 4.1.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System.
"Generally Accepted Accounting Principles" means such accounting
principles as are generally accepted at the time of any computation required
hereunder.
"Governmental Obligations" means securities that are (a) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged; or (b) 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
5
<PAGE> 12
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" shall have the meaning set forth in Section
2.5(a).
"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 having a recognized tax and securities law
practice, to the effect that, as a result of the occurrence of a change in
law or regulation or a change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law"), the Trust is or shall be considered
an "investment company" that is required to be registered under the
Investment Company Act, which Change in 1940 Act Law becomes effective on or
after the date of original issuance of the 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
Payments, if any.
"Ministerial Action" shall have the meaning set forth in Section 3.2.
"Officers' Certificate" means a certificate signed by the President or
a Vice President and by the Treasurer or an Assistant Treasurer or the
Controller or an Assistant Controller or the Secretary or an Assistant
Secretary of the Company that is delivered to the Trustee in accordance with
the terms hereof. 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 respect to the Debentures, means, as of
the date of determination, all of the Debentures theretofore executed and
delivered by the Trustee under this Indenture, except:
6
<PAGE> 13
(a) the Debentures theretofore canceled by the Trustee or any Paying
Agent, or delivered to the Trustee or any Paying Agent for cancellation;
(b) the Debentures for whose payment or redemption Governmental
Obligations or money in the necessary amount has been theretofore deposited
in trust with the Trustee or 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) for the holders of such
Debentures; provided that, if such Debentures are to be redeemed, notice of
such redemption has been duly given pursuant to Article III hereof; and
(c) the Debentures which have been paid or in lieu of which other
Debentures have been executed and delivered pursuant to Section 2.7;
provided, however, that in determining whether the holders of a majority or
- -------- -------
specified percentage in aggregate principal amount of the Debentures have
given any request, demand, authorization, direction, notice, consent or
waiver hereunder, the Debentures 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,
except that (i) in determining whether any Trustee shall be protected in
relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only the Debentures that such Trustee knows to be so owned
shall be so disregarded; and (ii) for purposes hereof, the Trust shall be
deemed not to be controlled by the Company. The Debentures so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Debentures and the pledgee is not a Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company or any such other obligor.
"Paying Agent" means any paying agent or co-paying agent appointed
pursuant to Section 5.3.
"Person" means any individual, corporation, partnership, joint-venture,
trust, limited liability company, joint-stock company, unincorporated
organization or government or any agency or political subdivision thereof.
"Predecessor Debenture" means every previous Debenture evidencing all or
a portion of the same debt as that evidenced by such particular Debenture;
and, for the purposes of this definition, any Debenture authenticated and
delivered under Section 2.9 in lieu of a lost, destroyed or stolen Debenture
shall be deemed to evidence the same debt as the lost, destroyed or stolen
Debenture.
"Preferred Securities" means undivided beneficial interests in the
assets of the Trust which rank pari passu with Common Securities issued by
the Trust; provided, however, that upon the occurrence of an Event of
-------- -------
Default, the rights of holders of Common Securities to payment in respect of
(a) distributions, and (b) payments upon liquidation, redemption and
otherwise, are subordinated to the rights of holders of Preferred Securities.
7
<PAGE> 14
"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 June 30, 2028.
"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 (a) 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; (b) any Debt of the Company to
any of its subsidiaries; (c) Debt to any employee of the Company; (d) Debt
which by its terms is subordinated to trade accounts payable or accrued
liabilities arising in the ordinary course of business to the extent that
payments made to the holders of such Debt by the holders of the Debentures as
a result of the subordination provisions of this Indenture would be greater
than they otherwise would have been as a result of any obligation of such
holders to pay amounts over to the obligees on such trade accounts payable or
accrued liabilities arising in the ordinary course of business as a result of
subordination provisions to which such Debt is subject; and (e) Debt which
constitutes Subordinated Debt.
"Senior Indebtedness" shall have the meaning set forth in Section 16.1.
"Special Event" means a Tax Event, a Capital Treatment Event or an
Investment Company Event.
"Subordinated Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for
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<PAGE> 15
reorganization relating to the Company whether or not such claim for
post-petition interest is allowed in such proceeding), on Debt (other than the
Debentures), 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.
"Subsidiary" means, with respect to any Person, (a) 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; (b) any
general partnership, joint venture, trust or similar entity, at least a
majority of whose outstanding partnership or similar interests shall at the
time be owned by such Person, or by one or more of its Subsidiaries, or by
such Person and one or more of its Subsidiaries; and (c) any limited
partnership of which such Person or any of its Subsidiaries is a general
partner.
"Tax Event" means the receipt by the Trust of an Opinion of Counsel,
rendered by a law firm having a recognized tax and securities law practice,
to the effect that, as a result of any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official administrative pronouncement or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or which pronouncement or decision is
announced on or after the date of issuance of the Preferred Securities under
the Trust Agreement, there is more than an insubstantial risk that (a) 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; (b) 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 (c) the Trust is, or shall be
within 90 days after the date of such Opinion of Counsel, subject to more
than a de minimis amount of other taxes, duties, assessments or other
governmental charges. The Trust or the Company shall request and receive such
Opinion of Counsel with regard to such matters within a reasonable period of
time after the Trust or the Company shall have become aware of the occurrence
or the possible occurrence of any of the events described in clauses (a)
through (c) above.
"Trust" means First America Capital Trust, a Delaware statutory
business trust.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated
June --, 1998, 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 Indenture Act," means the Trust Indenture Act of 1939, as
amended, subject to the provisions of Sections 11.1, 11.2, and 12.1, as in
effect at the date of execution of this instrument.
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"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
2028," limited in aggregate principal amount up to $47,422,700, which amount
shall be as set forth in any written order of the Company for the
authentication and delivery of Debentures pursuant to Section 2.6.
Section 2.2. Maturity.
(a) The Maturity Date shall be either:
(i) the Scheduled Maturity Date; or
(ii) if the Company elects to extend the Maturity Date beyond
the Scheduled Maturity Date in accordance with Section 2.2(b), the
Extended Maturity Date; or
(iii) if the Company elects to accelerate the Maturity Date to be
a date prior to the Scheduled Maturity Date in accordance with Section
2.2(c), the Accelerated Maturity Date.
(b) The Company may at any time before the day which is 90 days
before the Scheduled Maturity Date, elect to extend the Maturity Date to the
Extended Maturity Date, provided that the Company has received the prior
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve and further provided that the
following conditions in this Section 2.2(b) are satisfied both at the date
the Company gives notice in accordance with Section 2.2(d) of its election to
extend the Maturity Date and at the Scheduled Maturity Date:
(i) the Company is not in bankruptcy, otherwise insolvent or in
liquidation;
(ii) the Company is not in default in the payment of any
interest or principal on the Debentures; and
(iii) the Trust is not in arrears on payments of Distributions on
the Trust Securities issued by it and no deferred Distributions are
accumulated.
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(c) The Company may, on one occasion, at any time before the day
which is 90 days before the Scheduled Maturity Date and after June 30, 2003,
elect to shorten the Maturity Date to the Accelerated Maturity Date provided
that the Company has received the prior approval of the Federal Reserve if
then required under applicable capital guidelines or policies of the Federal
Reserve.
(d) If the Company elects to extend the Maturity Date in accordance
with Section 2.2(b), the Company shall give notice to the registered holders
of the Debentures, the Property Trustee and the Trust of the extension of the
Maturity Date and the Extended Maturity Date at least 90 days and no more
than 180 days before the Scheduled Maturity Date.
(e) If the Company elects to accelerate the Maturity Date in
accordance with Section 2.2(c), the Company shall give notice to the
registered holders of the Debentures, the Property Trustee and the Trust of
the acceleration of the Maturity Date and the Accelerated Maturity Date at
least 90 days and no more than 180 days before the Accelerated Maturity Date.
Section 2.3. Form and Payment. The Debentures shall be issued in
fully registered certificated form without interest coupons. Principal and
interest on the Debentures issued in certificated form shall be payable, the
transfer of such Debentures shall be registrable and such Debentures shall be
exchangeable for Debentures bearing identical terms and provisions at the
office or agency of the Trustee; provided, however, that payment of interest
-------- -------
may be made at the option of the Company by check mailed to the holder at
such address as shall appear in the Debenture Register or by wire transfer to
an account maintained by the holder as specified in the Debenture Register,
provided that the holder provides proper 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 Payments, if any) on
such Debentures held by the Property Trustee shall be made at such place and
to such account as may be designated by the Property Trustee.
Section 2.4. [Intentionally Omitted].
Section 2.5. Interest.
(a) Each Debenture shall bear interest at a 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 September 30, 1998), to the Person in
whose name such Debenture or any Predecessor Debenture is registered, at the
close of business on the regular record date for such interest installment,
which shall be the fifteenth day of the last month of the calendar quarter.
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(b) The amount of interest payable for any period shall be computed
on the basis of a 360-day year of twelve 30-day months. The amount of
interest payable for any period shorter than a full quarterly period for
which interest is computed shall be computed on the basis of the number of
days elapsed in a 360-day year of twelve 30-day months. In the event that any
date on which interest is payable on the Debentures is not a Business Day,
then payment of interest payable on such date shall be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay) with the same force and effect as if
made on the date such payment was originally payable.
(c) If, at any time while the Property Trustee is the holder of any
Debentures, the Trust or the Property Trustee is required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States, or any other taxing
authority, then, in any case, the Company shall pay as additional payments
("Additional Payments") on the Debentures held by the Property Trustee, such
additional amounts as shall be required so that the net amounts received and
retained by the Trust and the Property Trustee after paying such taxes,
duties, assessments or other governmental charges shall be equal to the
amounts the Trust and the Property Trustee would have received had no such
taxes, duties, assessments or other government charges been imposed.
Section 2.6. Execution and Authentication.
(a) The Debentures shall be signed on behalf of the Company by its
Chief Executive Officer, President or one of its Vice Presidents, under its
corporate seal attested by its Secretary or one of its Assistant Secretaries.
Signatures may be in the form of a manual or facsimile signature. The Company
may use the facsimile signature of any Person who shall have been a Chief
Executive Officer, President or Vice President thereof, or of any Person who
shall have been a Secretary or Assistant Secretary thereof, notwithstanding
the fact that at the time the Debentures shall be authenticated and delivered
or disposed of such Person shall have ceased to be the Chief Executive
Officer, President or a Vice President, or the Secretary or an Assistant
Secretary, of the Company. The seal of the Company may be in the form of a
facsimile of such seal and may be impressed, affixed, imprinted or otherwise
reproduced on the Debentures. The Debentures may contain such notations,
legends or endorsements required by law, stock exchange rule or usage. Each
Debenture shall be dated the date of its authentication by the Trustee.
(b) A Debenture shall not be valid until manually authenticated by an
authorized signatory of the Trustee, or by an Authenticating Agent. Such
signature shall be conclusive evidence that the Debenture so authenticated
has been duly authenticated and delivered hereunder and that the holder is
entitled to the benefits of this Indenture.
(c) At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Debentures executed by
the Company to the Trustee for authentication, together with a written order
of the Company for the authentication and delivery of such Debentures signed
by its Chief Executive Officer, President or any Vice President and its
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<PAGE> 19
Treasurer or any Assistant Treasurer, and the Trustee in accordance with such
written order shall authenticate and deliver such Debentures.
(d) In authenticating such Debentures and accepting the additional
responsibilities under this Indenture in relation to such Debentures, the
Trustee shall be entitled to receive, and (subject to Section 9.1) shall be
fully protected in relying upon, an Opinion of Counsel stating that the form
and terms thereof have been established in conformity with the provisions of
this Indenture.
(e) The Trustee shall not be required to authenticate such Debentures
if the issue of such Debentures pursuant to this Indenture shall affect the
Trustee's own rights, duties or immunities under the Debentures and this
Indenture or otherwise in a manner that is not reasonably acceptable to the
Trustee.
Section 2.7. Registration of Transfer and Exchange.
(a) Debentures may be exchanged upon presentation thereof at the
office or agency of the Company designated for such purpose or at the office
of the Debenture Registrar, for other Debentures and for a like aggregate
principal amount, upon payment of a sum sufficient to cover any tax or other
governmental charge in relation thereto, all as provided in this Section 2.7.
In respect of any Debentures so surrendered for exchange, the Company shall
execute, the Trustee shall authenticate and such office or agency shall
deliver in exchange therefor the Debenture or Debentures that the
Debentureholder making the exchange shall be entitled to receive, bearing
numbers not contemporaneously outstanding.
(b) The Company shall keep, or cause to be kept, at its office or
agency designated for such purpose or at the office of the Debenture
Registrar, or such other location designated by the Company a register or
registers (herein referred to as the "Debenture Register") in which, the
Company shall register the Debentures and the transfers of Debentures as in
this Article II provided and which at all reasonable times shall be open for
inspection by the Trustee. The registrar for the purpose of registering
Debentures and transfer of Debentures as herein provided shall initially be
the Trustee and thereafter as may be appointed by the Company as authorized
by Board Resolution (the "Debenture Registrar"). Upon surrender for transfer
of any Debenture at the office or agency of the Company designated for such
purpose, the Company shall execute, the Trustee shall authenticate and such
office or agency shall deliver in the name of the transferee or transferees a
new Debenture or Debentures for a like aggregate principal amount. All
Debentures presented or surrendered for exchange or registration of transfer,
as provided in this Section 2.7, shall be accompanied (if so required by the
Company or the Debenture Registrar) by a written instrument or instruments of
transfer, in form satisfactory to the Company or the Debenture Registrar,
duly executed by the registered holder or by such holder's duly authorized
attorney in writing.
(c) No service charge shall be made for any exchange or registration
of transfer of Debentures, or issue of new Debentures in case of partial
redemption, but the Company may
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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.
(d) The Company shall not be required (i) to issue, exchange or
register the transfer of any Debentures during a period beginning at the
opening of business 15 days before the day of the mailing of a notice of
redemption of less than all the Outstanding Debentures and ending at the
close of business on the day of such mailing; nor (ii) to register the
transfer of or exchange any Debentures or portions thereof called for
redemption.
Section 2.8. Temporary Debentures. Pending the preparation of
definitive Debentures, the Company may execute, and the Trustee shall
authenticate and deliver, temporary Debentures (printed, lithographed, or
typewritten). Such temporary Debentures shall be substantially in the form of
the definitive Debentures in lieu of which they are issued, but with such
omissions, insertions and variations as may be appropriate for temporary
Debentures, all as may be determined by the Company. Every temporary
Debenture shall be executed by the Company and be authenticated by the
Trustee upon the same conditions and in substantially the same manner, and
with like effect, as the definitive Debentures. Without unnecessary delay the
Company shall execute and shall furnish definitive Debentures and thereupon
any or all temporary Debentures may be surrendered in exchange therefor
(without charge to the holders), at the office or agency of the Company
designated for the purpose and the Trustee shall authenticate and such office
or agency shall deliver in exchange for such temporary Debentures an equal
aggregate principal amount of definitive Debentures, unless the Company
advises the Trustee to the effect that definitive Debentures need not be
executed and furnished until further notice from the Company. Until so
exchanged, the temporary Debentures shall be entitled to the same benefits
under this Indenture as definitive Debentures authenticated and delivered
hereunder.
Section 2.9. Mutilated, Destroyed, Lost or Stolen Debentures.
(a) In case any temporary or definitive Debenture shall become
mutilated or be destroyed, lost or stolen, the Company (subject to the next
succeeding sentence) shall execute, and upon the Company's request the
Trustee (subject as aforesaid) shall authenticate and deliver, a new
Debenture bearing a number not contemporaneously outstanding, in exchange and
substitution for the mutilated Debenture, or in lieu of and in substitution
for the Debenture so destroyed, lost 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 shall authenticate any such
substituted Debenture and deliver the same upon the written request or
authorization of the Chairman, President or any Vice President and the
Treasurer or any Assistant Treasurer of the Company. Upon the issuance of any
substituted Debenture, the Company may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
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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 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 the
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 the Senior
Indebtedness).
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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.
ARTICLE III.
REDEMPTION OF DEBENTURES
Section 3.1. Redemption. Subject to the Company having received
prior approval of the Federal Reserve, if then required under the applicable
capital guidelines or policies of the Federal Reserve, the Company may redeem
the Debentures issued hereunder on and after the dates set forth in and in
accordance with the terms of this Article III.
Section 3.2. Special Event Redemption. Subject to the Company
having received the prior approval of the Federal Reserve, if then required
under the applicable capital guidelines or policies of the Federal Reserve,
if a Special Event has occurred and is continuing, then, notwithstanding
Section 3.3(a) but subject to Section 3.3(b), the Company shall have the
right upon not less than 30 days' nor more than 60 days' notice to the
holders of the Debentures to redeem the Debentures, in whole but not in part,
for cash within 180 days following the occurrence of such Special Event (the
"180-Day Period") at a redemption price equal to 100% of the principal amount
to be redeemed plus any accrued and unpaid interest thereon to the date of
such redemption (the "Redemption Price"), provided that if at the time there
is available to the Company the opportunity to eliminate, within the 180-Day
Period, a Tax Event by taking some ministerial action (a "Ministerial
Action"), such as filing a form or making an election, or pursuing
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some other similar reasonable measure which has no adverse effect on the
Company, the Trust or the holders of the Trust Securities issued by the Trust,
the Company shall pursue such Ministerial Action in lieu of redemption, and,
provided further, that the Company shall have no right to redeem the Debentures
- ----------------
while it is pursuing any Ministerial Action pursuant to its obligations
hereunder, and, provided further, that, if it is determined that the taking of a
Ministerial Action would not eliminate the Tax Event within the 180 Day Period,
the Company's right to redeem the Debentures shall be restored and it shall have
no further obligations to pursue the Ministerial Action. The Redemption Price
shall be paid prior to 12:00 noon, New York time, on the date of such redemption
or such earlier time as the Company determines, provided that the Company shall
deposit with the Trustee an amount sufficient to pay the Redemption Price by
10:00 a.m., New York time, on the date such Redemption Price is to be paid.
Section 3.3. Optional Redemption by the Company.
(a) Subject to the provisions of Section 3.3(b), except as otherwise
may be specified in this Indenture, the Company shall have the right to
redeem the Debentures, in whole or in part, from time to time, on or after
June 30, 2003, 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, plus Deferred Payments, if any. Any redemption pursuant to this
Section 3.3(a) shall be made upon not less than 30 days' nor more than 60
days' notice to the holder of the Debentures, at the Redemption Price. If the
Debentures are only partially redeemed pursuant to this Section 3.3, the
Debentures shall be redeemed pro rata or by lot or in such other manner as
the Trustee shall deem appropriate and fair in its discretion. The Redemption
Price shall be paid prior to 12:00 noon, New York time, on the date of such
redemption or at such earlier time as the Company determines provided that
the Company shall deposit with the Trustee an amount sufficient to pay the
Redemption Price by 10:00 a.m., New York time, on the date such Redemption
Price is to be paid.
(b) If a partial redemption of the Debentures would result in the
delisting of the Preferred Securities issued by the Trust from the New York
Stock Exchange or any national securities exchange or other organization on
which the Preferred Securities are then listed or quoted, the Company shall
not be permitted to effect such partial redemption and may only redeem the
Debentures in whole.
Section 3.4. Notice of Redemption.
(a) In case the Company shall desire to exercise such right to redeem
all or, as the case may be, a portion of the Debentures in accordance with
the right reserved so to do, the Company shall, or shall cause the Trustee to
upon receipt of 45 days' written notice from the Company (which notice shall,
in the event of a partial redemption, include a representation to the effect
that such partial redemption shall not result in the delisting of the
Preferred Securities as described in Section 3.3(b) above), give notice of
such redemption to holders of the Debentures to be redeemed by mailing, first
class postage prepaid, a notice of such redemption not less than 30
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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 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' written 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 or any integral multiple thereof) of the
Debentures to be redeemed and shall thereafter promptly notify the Company in
writing of the numbers of the Debentures to be redeemed, in whole or in part.
The Company may, if and whenever it shall so elect pursuant to the terms
hereof, by delivery of instructions signed on its behalf by its President or
any Vice President, instruct the Trustee or any Paying Agent to call all or
any part of the Debentures for redemption and to give notice of redemption in
the manner set forth in this Section 3.4, such notice to be in the name of
the Company or its own name as the Trustee or such Paying Agent may deem
advisable. In any case in which notice of redemption is to be given by the
Trustee or any such Paying Agent, the Company shall deliver or cause to be
delivered to, or permit to remain with, the Trustee or such Paying Agent, as
the case may be, such Debenture Register, transfer books or other records, or
suitable copies or extracts therefrom, sufficient to enable the Trustee or
such Paying Agent to give any notice by mail that may be required under the
provisions of this Section 3.4.
Section 3.5. Payment upon Redemption.
(a) If the giving of notice of redemption shall have been completed
as above provided, the Debentures or portions of Debentures to be redeemed
specified in such notice shall become
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due and payable on the date and at the place stated in such notice at the
applicable Redemption Price, and interest on such Debentures or portions of
Debentures shall cease to accrue on and after the date fixed for redemption,
unless the Company shall default in the payment of such Redemption Price with
respect to any such Debenture or portion thereof. On presentation and surrender
of such Debentures on or after the date fixed for redemption at the place of
payment specified in the notice, said Debentures shall be paid and redeemed at
the Redemption Price (but if the date fixed for redemption is an Interest
Payment Date, the interest installment payable on such date shall be payable to
the registered holder at the close of business on the applicable record date
pursuant to Section 3.3).
(b) Upon presentation of any Debenture that is to be redeemed in part
only, the Company shall execute and the Trustee shall authenticate and the
office or agency where the Debenture is presented shall deliver to the holder
thereof, at the expense of the Company, a new Debenture of authorized
denomination in principal amount equal to the unredeemed portion of the
Debenture so presented.
Section 3.6. No Sinking Fund. The Debentures are not entitled to
the benefit of any sinking fund.
ARTICLE IV.
EXTENSION OF INTEREST PAYMENT PERIOD
Section 4.1. Extension of Interest Payment Period. So long as no
Event of Default has occurred and is continuing, the Company shall have the
right, at any time and from time to time during the term of the Debentures,
to defer payments of interest by extending the interest payment period of
such Debentures for a period not exceeding 20 consecutive quarters (the
"Extension Period"), during which Extension Period no interest shall be due
and payable; provided that no Extension Period may extend beyond the Maturity
Date. Interest, the payment of which has been deferred because of the
extension of the interest payment period pursuant to this Section 4.1, shall
bear interest thereon at the Coupon Rate compounded quarterly for each
quarter of the Extension Period ("Compounded Interest"). At the end of the
Extension Period, the Company shall calculate (and deliver such calculation
to the Trustee) and pay all interest accrued and unpaid on the Debentures,
including any Additional Payments and Compounded Interest (together,
"Deferred Payments") that shall be payable to the holders of the Debentures
in whose names the Debentures are registered in the Debenture Register on the
first record date after the end of the Extension Period. Before the
termination of any Extension Period, the Company may further extend such
period, provided that such period together with all such further extensions
thereof shall not exceed 20 consecutive quarters, or extend beyond the
Maturity Date of the Debentures. Upon the termination of any Extension Period
and upon the payment of all Deferred Payments then due, the Company may
commence a new Extension Period, subject to the foregoing requirements. No
interest shall be due and payable during an
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Extension Period, except at the end thereof, but the Company may prepay at any
time all or any portion of the interest accrued during an Extension Period.
Section 4.2. Notice Of Extension.
(a) If the Property Trustee is the only registered holder of the
Debentures at the time the Company selects an Extension Period, the Company
shall give written notice to the Administrative Trustees, the Property
Trustee and the Trustee of its selection of such Extension Period 2 Business
Days before the earlier of (i) the next succeeding date on which
Distributions on the Trust Securities issued by the Trust are payable; or
(ii) the date the Trust is required to give notice of the record date, or the
date such Distributions are payable, to the New York Stock Exchange or other
applicable self-regulatory organization or to holders of the Preferred
Securities issued by the Trust, but in any event at least 1 Business Day
before such record date.
(b) If the Property Trustee is not the only holder of the Debentures
at the time the Company selects an Extension Period, the Company shall give
the holders of the Debentures and the Trustee written notice of its selection
of such Extension Period at least 2 Business Days before the earlier of (i)
the next succeeding Interest Payment Date; or (ii) the date the Company is
required to give notice of the record or payment date of such interest
payment to the New York Stock Exchange or other applicable self-regulatory
organization or to holders of the Debentures.
(c) The quarter in which any notice is given pursuant to paragraphs
(a) or (b) of this Section 4.2 shall be counted as one of the 20 quarters
permitted in the maximum Extension Period permitted under Section 4.1.
Section 4.3. Limitation on Transactions. If (a) the Company
shall exercise its right to defer payment of interest as provided in Section
4.1; or (b) there shall have occurred any Event of Default, then (i) 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 (A) dividends or
distributions in common stock of the Company, or any declaration of a
non-cash dividend in connection with the implementation of a shareholder
rights plan, or the issuance of stock under any such plan in the future, or
the redemption or repurchase of any such rights pursuant thereto, and (B)
purchases of common stock of the Company related to the rights under any of
the Company's benefit plans for its directors, officers or employees); (ii)
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
that rank pari passu with or junior to the Debentures or make any guarantee
payments with respect to any guarantee by the Company of the debt securities
of any subsidiary of the Company if such guarantee ranks pari passu with or
junior in interest to the Debentures; provided, however, that notwithstanding
-------- -------
the foregoing the Company may make payments pursuant to its obligations under
the Preferred Securities Guarantee; and (iii) the Company shall not redeem,
purchase or acquire less than all of the Outstanding Debentures or any of the
Preferred Securities.
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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. Each
such payment of the principal of and interest on the Debentures shall relate
only to the Debentures, shall not be combined with any other payment of the
principal of or interest on any other obligation of the Company, and shall be
clearly and unmistakably identified as pertaining to the Debentures.
Section 5.2. Maintenance of Agency. So long as any of the
Debentures remain Outstanding, the Company shall maintain an office or agency
at such other location or locations as may be designated as provided in this
Section 5.2, where (a) Debentures may be presented for payment; (b)
Debentures may be presented as hereinabove authorized for registration of
transfer and exchange; and (c) notices and demands to or upon the Company in
respect of the Debentures and this Indenture may be given or served, such
designation to continue with respect to such office or agency until the
Company shall, by written notice signed by its President or 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. 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 initially act as the Paying Agent. If the
Company shall appoint one or more Paying Agents for the Debentures, other
than the Trustee, the Company shall cause each such Paying Agent to execute
and deliver to the Trustee an instrument in which such agent shall agree with
the Trustee, subject to the provisions of this Section 5.3:
(i) that it shall hold all sums held by it as such agent for
the payment of the principal of or interest on the Debentures (whether
such sums have been paid to it by the Company or by any other obligor
of such Debentures) in trust for the benefit of the Persons entitled
thereto;
(ii) that it shall give the Trustee notice of any failure by the
Company (or by any other obligor of such Debentures) to make any
payment of the principal of or interest on the Debentures when the same
shall be due and payable;
(iii) that it shall, at any time during the continuance of any
failure referred to in the preceding paragraph (a)(ii) above, upon the
written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent; and
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(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 the 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.
Section 5.6. Limitation on Transactions. If Debentures are issued
to the Trust or a trustee of the Trust in connection with the issuance of
Trust Securities by the Trust and (a) there shall have occurred any event
that would constitute an Event of Default; (b) the Company shall be in
default with respect to its payment of any obligations under the Preferred
Securities Guarantee relating to the Trust; or (c) if 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 Extension Period, or any extension thereof, shall be continuing, then
(i) 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 (A)
dividends or distributions in common stock of
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the Company, or any declaration of a non-cash dividend in connection with the
implementation of a shareholder rights plan, or the issuance of stock under any
such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto, and (B) purchases of common stock of the Company related to
the rights under any of the Company's benefit plans for its directors, officers
or employees); (ii) the Company shall not make any payment of principal,
interest or premium, if any, or repay, repurchase or redeem any debt securities
issued by the Company which rank pari passu with or junior in interest to the
Debentures; provided, however, that the Company may make payments pursuant to
-------- -------
its obligations under the Preferred Securities Guarantee; and (iii) the Company
shall not redeem, purchase or acquire less than all of the Outstanding
Debentures or any of the Preferred Securities.
Section 5.7. Covenants as to the Trust. For so long as the Trust
Securities of the Trust remain outstanding, the Company shall (a) 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;
(b) 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; (c) use its reasonable
efforts to cause the Trust (i) to remain a business trust, except in
connection with a distribution of Debentures, the redemption of all of the
Trust Securities of the Trust or certain mergers, consolidations or
amalgamations, each as permitted by the Trust Agreement; and (ii) to
otherwise continue not to be treated as an association taxable as a
corporation or partnership for United States federal income tax purposes; and
(d) use its reasonable efforts to cause each holder of Trust Securities to be
treated as owning an individual beneficial interest in the Debentures. In
connection with the distribution of the Debentures to the holders of the
Preferred Securities issued by the Trust upon a Dissolution Event, the
Company shall use its best efforts to list such Debentures on the New York
Stock Exchange or on such other exchange as the Preferred Securities are then
listed.
Section 5.8. Covenants as to Purchases. Except upon the exercise
by the Company of its right to redeem the Debentures pursuant to Section 3.2
upon the occurrence and continuation of a Special Event, the Company shall
not purchase any Debentures, in whole or in part, from the Trust prior to
June 30, 2003.
ARTICLE VI.
THE DEBENTUREHOLDERS' LISTS AND REPORTS
BY THE COMPANY AND THE TRUSTEE
Section 6.1. The Company to Furnish the Trustee Names and
Addresses of the Debentureholders. The Company shall furnish or cause to be
furnished to the Trustee (a) on a quarterly basis on each regular record date
(as described in Section 2.5) a list, in such form as the Trustee may
reasonably require, of the names and addresses of the holders of the
Debentures as of such regular record date, provided that the Company shall
not be obligated to furnish or cause to furnish such list at any time that
the list shall not differ in any respect from the most recent
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list furnished to the Trustee by the Company (in the event the Company fails to
provide such list on a quarterly basis, the Trustee shall be entitled to rely on
the most recent list provided by the Company); and (b) at such other times as
the Trustee may request in writing within 30 days after the receipt by the
Company 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 the
Debentureholders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the holders of
Debentures contained in the most recent list furnished to it as provided in
Section 6.1 and as to the names and addresses of holders of Debentures
received by the Trustee in its capacity as Debenture Registrar for the
Debentures (if acting in such capacity).
(b) The Trustee may destroy any list furnished to it as provided in
Section 6.1 upon receipt of a new list so furnished.
(c) Debentureholders may communicate as provided in Section 312(b) of
the Trust Indenture Act with other Debentureholders with respect to their
rights under this Indenture or under the Debentures.
Section 6.3. Reports by the Company.
(a) The Company covenants and agrees to file with the Trustee, within
15 days after the Company is required to file the same with the Commission,
copies of the annual reports and of the information, documents and other
reports (or copies of such portions of any of the foregoing as the Commission
may from time to time by rules and regulations prescribe) that the Company
may be required to file with the Commission pursuant to Section 13 or Section
15(d) of the Exchange Act; or, if the Company is not required to file
information, documents or reports pursuant to either of such sections, then
to file with the Trustee and the Commission, in accordance with the rules and
regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports that may be
required pursuant to Section 13 of the Exchange Act in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations.
(b) The Company covenants and agrees to file with the Trustee and the
Commission, in accordance with the rules and regulations prescribed from time
to time by the Commission, such additional information, documents and reports
with respect to compliance by the Company with the conditions and covenants
provided for in this Indenture as may be required from time to time by such
rules and regulations.
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(c) The Company covenants and agrees to transmit by mail, first class
postage prepaid, or reputable overnight delivery service that provides for
evidence of receipt, to the Debentureholders, as their names and addresses
appear upon the Debenture Register, within 30 days after the filing thereof
with the Trustee, such summaries of any information, documents and reports
required to be filed by the Company pursuant to subsections (a) and (b) of
this Section 6.3 as may be required by rules and regulations prescribed from
time to time by the Commission.
Section 6.4. Reports by the Trustee.
(a) On or before July 15 in each year in which any of the Debentures
are Outstanding, the Trustee shall transmit by mail, first class postage
prepaid, to the Debentureholders, as their names and addresses appear upon
the Debenture Register, a brief report dated as of the preceding May 15, if
and to the extent required under Section 313(a) of the Trust Indenture Act.
(b) The Trustee shall comply with Section 313(b) and 313(c) of the
Trust Indenture Act.
(c) A copy of each such report shall, at the time of such
transmission to Debentureholders, be filed by the Trustee with the Company,
with each stock exchange upon which any Debentures are listed (if so listed)
and also with the Commission. The Company agrees to notify the Trustee when
any Debentures become listed on any stock exchange.
ARTICLE VII.
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON EVENT OF DEFAULT
Section 7.1. Events of Default.
(a) Whenever used herein with respect to the Debentures, "Event of
Default" means any one or more of the following events that has occurred and
is continuing:
(i) the Company defaults in the payment of any installment of
interest upon any of the Debentures, as and when the same shall become
due and payable, and continuance of such default for a period of 30
days; provided, however, that a valid extension of an interest payment
-------- -------
period by the Company in accordance with the terms of this Indenture
shall not constitute a default in the payment of interest for this
purpose;
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(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 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 (A) commences a voluntary case; (B) consents to the
entry of an order for relief against it in an involuntary case; (C)
consents to the appointment of a Custodian of it or for all or
substantially all of its property; or (D) makes a general assignment
for the benefit of its creditors;
(v) a court of competent jurisdiction enters an order under any
Bankruptcy Law that (A) is for relief against the Company in an
involuntary case; (B) appoints a Custodian of the Company for all or
substantially all of its property; or (C) orders the liquidation of the
Company, and the order or decree remains unstayed and in effect for 90
days; or
(vi) the Trust shall have voluntarily or involuntarily
dissolved, wound-up its business or otherwise terminated its existence
except in connection with (A) the distribution of Debentures to holders
of Trust Securities in liquidation of their interests in the Trust; (B)
the redemption of all of the outstanding Trust Securities of the Trust;
or (C) certain mergers, consolidations or amalgamations, each as
permitted by the Trust Agreement.
(b) In each and every such case referred to in items (i) through (vi)
of Section 7.1(a), unless the principal of all the Debentures shall have
already become due and payable, either the Trustee or the holders of not less
than 25% in aggregate principal amount of the Debentures then Outstanding
hereunder, by notice in writing to the Company (and to the Trustee if given
by such Debentureholders) may declare the principal of all the Debentures to
be due and payable immediately, and upon any such declaration the same shall
become and shall be immediately due and payable, notwithstanding anything
contained in this Indenture or in the Debentures.
(c) At any time after the principal of the Debentures shall have been
so declared due and payable, and before any judgment or decree for the
payment of the moneys due shall have been obtained or entered as hereinafter
provided, the holders of a majority in aggregate principal amount of the
Debentures then Outstanding hereunder, by written notice to the Company and
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the Trustee, may rescind and annul such declaration and its consequences if:
(i) the Company has paid or deposited with the Trustee a sum sufficient to
pay all matured installments of interest upon all the Debentures and the
principal of any and all Debentures that shall have become due otherwise than
by acceleration (with interest upon such principal, and upon overdue
installments of interest, at the rate per annum expressed in the Debentures
to the date of such payment or deposit) and the amount payable to the Trustee
under Section 9.7; and (ii) any and all Events of Default under this
Indenture, other than the nonpayment of principal on Debentures that shall
not have become due by their terms, shall have been remedied or waived as
provided in Section 7.6. No such rescission and annulment shall extend to or
shall affect any subsequent default or impair any right consequent thereon.
(d) In case the Trustee shall have proceeded to enforce any right
with respect to Debentures under this Indenture and such proceedings shall
have been discontinued or abandoned because of such rescission or annulment
or for any other reason or shall have been determined adversely to the
Trustee, then and in every such case the Company and the Trustee shall be
restored respectively to 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 the Trustee.
(a) The Company covenants that (i) in case it shall default in the
payment of any installment of interest on any of the Debentures, and such
default shall have continued for a period of 30 days; or (ii) in case it
shall default in the payment of the principal of any of the Debentures when
the same shall have become due and payable, whether upon maturity of the
Debentures or upon redemption or upon declaration or otherwise, then, upon
demand of the Trustee, the Company shall pay to the Trustee, for the benefit
of the holders of the Debentures, the whole amount that then shall have been
become due and payable on all such Debentures for principal or interest, or
both, as the case may be, with interest upon the overdue principal; and (if
the Debentures are held by the Trust or a trustee of the Trust, without
duplication of any other amounts paid by the Trust or trustee in respect
thereof) upon overdue installments of interest at the rate per annum
expressed in the Debentures; and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, and the
amount payable to the Trustee under Section 9.7.
(b) If the Company shall fail to pay such amounts set forth in
Section 7.2(a) forthwith upon such demand, the Trustee, in its own name and
as trustee of an express trust, shall be entitled and empowered to institute
any action or proceedings at law or in equity for the collection of the sums
so due and unpaid, and may prosecute any such action or proceeding to
judgment or final decree, and may enforce any such judgment or final decree
against the Company or other obligor upon the Debentures and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or other obligor upon the Debentures, wherever
situated.
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(c) In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, readjustment, arrangement, composition or judicial
proceedings affecting the Company or the creditors or property thereof, the
Trustee shall have power to intervene in such proceedings and take any action
therein that may be permitted by the court and shall (except as may be
otherwise provided by law) be entitled to file such proofs of claim and other
papers and documents as may be necessary or advisable in order to have the
claims of the Trustee and of the holders of the Debentures allowed for the
entire amount due and payable by the Company under this Indenture at the date
of institution of such proceedings and for any additional amount that may
become due and payable by the Company after such date, and to collect and
receive any moneys or other property payable or deliverable on any such
claim, and to distribute the same after the deduction of the amount payable
to the Trustee under Section 9.7; and any receiver, assignee or trustee in
bankruptcy or reorganization is hereby authorized by each of the holders of
the Debentures to make such payments to the Trustee, and, in the event that
the Trustee shall consent to the making of such payments directly to such
Debentureholders, to pay to the Trustee any amount due it under Section 9.7.
(d) All rights of action and of asserting claims under this
Indenture, or under any of the terms established with respect to the
Debentures, may be enforced by the Trustee without the possession of any of
such Debentures, or the production thereof at any trial or other proceeding
relative thereto, and any such suit or proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for payment to the Trustee of any
amounts due under Section 9.7, be for the ratable benefit of the holders of
the Debentures. In case of an Event of Default hereunder, the Trustee may in
its discretion proceed to protect and enforce the rights vested in it by this
Indenture by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any of such rights, either at law or in
equity or in bankruptcy or otherwise, whether for the specific enforcement of
any covenant or agreement contained in this Indenture or in aid of the
exercise of any power granted in this Indenture, or to enforce any other
legal or equitable right vested in the Trustee by this Indenture or by law.
Nothing contained herein shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Debentureholder
any plan of reorganization, arrangement, adjustment or composition affecting
the Debentures or the rights of any holder thereof or to authorize the
Trustee to vote in respect of the claim of any Debentureholder in any such
proceeding.
Section 7.3. Application of Moneys Collected. Any moneys
collected by the Trustee pursuant to this Article VII with respect to the
Debentures shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such moneys on
account of principal or interest, upon presentation of the Debentures, and
notation thereon of the payment, if only partially paid, and upon surrender
thereof if fully paid:
FIRST: To the payment of costs and expenses of collection and of all
amounts payable to the Trustee under Section 9.7;
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SECOND: To the payment of all Senior Indebtedness if and to the extent
required by Article XVI; and
THIRD: To the payment of the amounts then due and unpaid upon the
Debentures for principal and interest, in respect of which or for the
benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and
payable on such Debentures for principal and interest, respectively.
Section 7.4. Limitation on Suits.
(a) Except as provided in Section 15.13 hereof, no holder of any
Debenture shall have any right by virtue or by availing of any provision of
this Indenture to institute any suit, action or proceeding in equity or at
law upon or under or with respect to this Indenture or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless (i) such
holder previously shall have given to the Trustee written notice of an Event
of Default and of the continuance thereof with respect to the Debentures
specifying such Event of Default, as hereinbefore provided; (ii) the holders
of not less than 25% in aggregate principal amount of the Debentures then
Outstanding shall have made written request upon the Trustee to institute
such action, suit or proceeding in its own name as trustee hereunder; (iii)
such holder or holders shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby; and (iv) the Trustee for 60 days after its
receipt of such notice, request and offer of indemnity shall have failed to
institute any such action, suit or proceeding and during such 60 day period,
the holders of a majority in principal amount of the Debentures do not give
the Trustee a direction inconsistent with the request.
(b) Notwithstanding anything contained herein to the contrary or any
other provisions of this Indenture, the right of any holder of the Debentures
to receive payment of the principal of and interest on the Debentures, as
therein provided, on or after the respective due dates expressed in such
Debenture (or in the case of redemption, on the redemption date), or to
institute suit for the enforcement of any such payment on or after such
respective dates or redemption date, shall not be impaired or affected
without the consent of such holder and by accepting a Debenture hereunder it
is expressly understood, intended and covenanted by the taker and holder of
every Debenture with every other such taker and holder and the Trustee that
no one or more holders of the 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 the 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.
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Section 7.5. Rights and Remedies Cumulative; Delay or Omission not
Waiver.
(a) All powers and remedies given by this Article VII to the Trustee
or to the Debentureholders shall, to the extent permitted by law, be deemed
cumulative and not exclusive of any other powers and remedies available to
the Trustee or the holders of the Debentures, by judicial proceedings or
otherwise, to enforce the performance or observance of the covenants and
agreements contained in this Indenture or otherwise established with respect
to such Debentures.
(b) No delay or omission of the Trustee or of any holder of any of
the Debentures to exercise any right or power accruing upon any Event of
Default occurring and continuing as aforesaid shall impair any such right or
power, or shall be construed to be a waiver of any such default or an
acquiescence therein; and, subject to the provisions of Section 7.4, every
power and remedy given by this Article VII or by law to the Trustee or the
Debentureholders may be exercised from time to time, and as often as shall be
deemed expedient, by the Trustee or by the Debentureholders.
Section 7.6. Control by the 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 principal and interest 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
----------------
Debentures are held by the Trust or a trustee of the Trust, and if the
consent of the holder of each Outstanding Debenture is required, such waiver
shall not be effective until each holder of the Trust Securities of the Trust
shall have consented to such waiver. Upon any such waiver, the default
covered thereby shall be deemed to be cured for all purposes of this
Indenture and the Company, the Trustee and the holders of the Debentures
shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
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Section 7.7. Undertaking to Pay Costs. All parties to this
Indenture agree, and each holder of any Debentures by such holder's
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken
or omitted by it as the Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may
in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section 7.7 shall not apply to any suit instituted
by the Trustee, to any suit instituted by any Debentureholder, or group of
the 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 THE DEBENTURE AND ORIGINAL ISSUE
Section 8.1. Form of Debenture. The Debenture and the Trustee's
Certificate of Authentication to be endorsed thereon are to be substantially
in the forms contained as Exhibit A attached hereto and incorporated herein
by reference.
Section 8.2. Original Issue of the Debentures. Debentures in the
aggregate principal amount of $41,237,125 may, upon execution of this
Indenture, be executed by the Company and delivered to the Trustee for
authentication. If the Underwriters exercise their Option and there is an
Option Closing Date (as such terms are defined in the Underwriting Agreement
dated --------------, 1998, by and among the Company, the Trust and Stifel,
Nicolaus & Company, Inc. and Hoefer & Arnett, Inc., for themselves and as
representatives of the Underwriters named therein), then on such Option
Closing Date, Debentures in the additional aggregate principal amount of
$6,185,575 may be executed by the Company and delivered to the Trustee for
authentication. In either such event, the Trustee shall thereupon
authenticate and deliver said Debentures to or upon the written order of the
Company, signed by its Chairman, its Vice Chairman, its President, 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
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rights and powers vested in it by this Indenture, and use the same degree of
care and skill in its exercise, as a prudent Person would exercise or use under
the circumstances in the conduct of his or her own affairs.
(b) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after
the curing or waiving of all such Events of Default that may have
occurred:
(A) 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
(B) in the absence of bad faith on the part of the
Trustee, the Trustee may with respect to the Debentures
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and conforming
to the requirements of this Indenture; but in the case of any
such certificates or opinions that by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee
shall be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer or Responsible Officers of
the Trustee, unless it shall be proved that the Trustee was negligent
in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the holders of not less than a majority in principal
amount of the Debentures at the time Outstanding relating to the time,
method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred upon the
Trustee under this Indenture with respect to the Debentures; and
(iv) none of the provisions contained in this Indenture shall
require the Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or
in the exercise of any of its rights or powers, if there is reasonable
ground for believing that the repayment of such funds or liability is
not reasonably assured to it under the terms of this Indenture or
adequate indemnity against such risk is not reasonably assured to it.
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Section 9.2. Notice of Defaults. Within 90 days after actual
knowledge by a Responsible Officer of the Trustee of the occurrence of any
default hereunder with respect to the Debentures, the Trustee shall transmit
by mail to all holders of the Debentures, as their names and addresses appear
in the Debenture Register, notice of such default, unless such default shall
have been cured or waived; provided, however, that, except in the case of a
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default in the payment of the principal or interest (including any Additional
Payments) 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
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in the case of any default of the character specified in section 7.1(a)(iii),
no such notice to holders of Debentures need be sent until at least 30 days
after the occurrence thereof. For the purposes of this Section 9.2, the term
"default" means any event which is, or after notice or lapse of time or both,
would become, an Event of Default with respect to the Debentures.
Section 9.3. Certain Rights of the Trustee. Except as otherwise
provided in Section 9.1:
(a) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
security or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(b) Any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by a Board Resolution or an instrument
signed in the name of the Company by the President or any Vice President and
by the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer thereof (unless other evidence in respect thereof is specifically
prescribed herein);
(c) The Trustee shall not be deemed to have knowledge of a default or
an Event of Default, other than an Event of Default specified in Section
7.1(a)(i) or (ii), unless and until it receives written notification of such
Event of Default from the Company or by holders of at least 25% of the
aggregate principal amount of the Debentures at the time Outstanding;
(d) The Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted hereunder in
good faith and in reliance thereon;
(e) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Debentureholders, pursuant to the provisions of this
Indenture, unless such Debentureholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby; nothing contained herein shall,
however, relieve the Trustee of the obligation, upon the occurrence of an
Event of Default (that has not been cured or waived) to
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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 its
exercise, as a prudent person would exercise or use under the circumstances in
the conduct of his or her 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, and 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. The Trustee not Responsible for Recitals, Etc..
(a) The Recitals contained herein and in the Debentures shall be
taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness of the same.
(b) The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Debentures.
(c) The Trustee shall not be accountable for the use or application
by the Company of any of the Debentures or of the proceeds of such
Debentures, or for the use or application of any moneys paid over by the
Trustee in accordance with any provision of this Indenture, or for the use or
application of any moneys received by any Paying Agent other than the
Trustee.
Section 9.5. May Hold the Debentures. The Trustee or any Paying
Agent or Debenture Registrar for the Debentures, in its individual or any
other capacity, may become the owner or pledgee of the Debentures with the
same rights it would have if it were not Trustee, Paying Agent or Debenture
Registrar.
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Section 9.6. Moneys Held in Trust. 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 for
expenses, disbursements and advances shall constitute additional indebtedness
hereunder. Such additional indebtedness shall be secured by a lien prior to
that of the Debentures upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the benefit of the holders of
particular Debentures.
Section 9.8. Reliance on Officers' Certificate. Except as
otherwise provided in Section 9.1, whenever in the administration of the
provisions of this Indenture the Trustee shall deem it necessary or desirable
that a matter be proved or established prior to taking or suffering or
omitting to take any action hereunder, such matter (unless other evidence in
respect thereof be herein specifically prescribed) may, in the absence of
negligence or bad faith on the part of the Trustee, be deemed to be
conclusively proved and established by an Officers' Certificate delivered to
the Trustee and such certificate, in the absence of negligence or bad faith
on the part of the Trustee, shall be full warrant to the Trustee for any
action taken, suffered or omitted to be taken by it under the provisions of
this Indenture upon the faith thereof.
Section 9.9. Disqualification; Conflicting Interests. If the
Trustee has or shall acquire any "conflicting interest" within the meaning of
Section 310(b) of the Trust Indenture
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Act, the Trustee and the Company shall in all respects comply with the
provisions of Section 310(b) of the Trust Indenture Act.
Section 9.10. Corporate Trustee Required; Eligibility. There shall
at all times be a Trustee with respect to the Debentures issued hereunder
which shall at all times be a corporation organized and doing business under
the laws of the United States or any state or territory thereof or of the
District of Columbia, or a corporation or other Person permitted to act as
trustee by the Commission, authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus of at least $50,000,000,
and subject to supervision or examination by federal, state, territorial, or
District of Columbia authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section 9.10, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. The Company may not, nor may any Person
directly or indirectly controlling, controlled by, or under common control
with the Company, serve as Trustee. In case at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section 9.10,
the Trustee shall resign immediately in the manner and with the effect
specified in Section 9.11.
Section 9.11. Resignation and Removal; Appointment of Successor.
(a) The Trustee or any successor hereafter appointed, may at any time
resign by giving written notice thereof to the Company and by transmitting
notice of resignation by mail, first class postage prepaid, to the
Debentureholders, as their names and addresses appear upon the Debenture
Register. Upon receiving such notice of resignation, the Company shall
promptly appoint a successor trustee with respect to Debentures by written
instrument, in duplicate, executed by order of the Board of Directors, one
copy of which instrument shall be delivered to the resigning Trustee and one
copy to the successor trustee. If no successor trustee shall have been so
appointed and have accepted appointment within 30 days after the mailing of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee with
respect to Debentures, or any Debentureholder who has been a bona fide holder
of a Debenture or Debentures for at least six months may, subject to the
provisions of Section 9.10, on behalf of himself or herself and all others
similarly situated, petition any such court for the appointment of a
successor trustee. Such court may thereupon after such notice, if any, as it
may deem proper and prescribe, appoint a successor trustee.
(b) In case at any time any one of the following shall occur:
(i) the Trustee shall fail to comply with the provisions of
Section 9.9 after written request therefor by the Company or by any
Debentureholder who has been a bona fide holder of a Debenture or
Debentures for at least six months; or
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(ii) the Trustee shall cease to be eligible in accordance with
the provisions of Section 9.10 and shall fail to resign after written
request therefor by the Company or by any such Debentureholder; or
(iii) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or commence a voluntary bankruptcy
proceeding, or a receiver of the Trustee or of its property shall be
appointed or consented to, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation;
then, in any such case, the Company may remove the Trustee with respect to
all Debentures and appoint a successor trustee by written instrument, in
duplicate, executed by order of the Board of Directors, one copy of which
instrument shall be delivered to the Trustee so removed and one copy to the
successor trustee, or, subject to the provisions of Section 9.10, unless the
Trustee's duty to resign is stayed as provided herein, any Debentureholder
who has been a bona fide holder of a Debenture or Debentures for at least six
months may, on behalf of that holder and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor trustee. Such court may thereupon after
such notice, if any, as it may deem proper and prescribe, remove the Trustee
and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Debentures at the time Outstanding may at any time remove the Trustee by so
notifying the Trustee and the Company and may appoint a successor Trustee
with the consent of the Company.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee with respect to the Debentures pursuant to any of the
provisions of this Section 9.11 shall become effective upon acceptance of
appointment by the successor trustee as provided in Section 9.12.
Section 9.12. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor trustee with
respect to the Debentures, every successor trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee
an instrument accepting such appointment, and thereupon the resignation or
removal of the retiring Trustee shall become effective and such successor
trustee, without any further act, deed or conveyance, shall become vested
with all the rights, powers, trusts and duties of the retiring Trustee; but,
on the request of the Company or the successor trustee, such retiring Trustee
shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor trustee all the rights, powers, and trusts of
the retiring Trustee and shall duly assign, transfer and deliver to such
successor trustee all property and money held by such retiring Trustee
hereunder.
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(b) Upon request of any successor trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and
confirming to such successor trustee all such rights, powers and trusts
referred to in paragraph (a) of this Section 9.12.
(c) No successor trustee shall accept its appointment unless at the
time of such acceptance such successor trustee shall be qualified and
eligible under this Article IX.
(d) Upon acceptance of appointment by a successor trustee as provided
in this Section 9.12, the Company shall transmit notice of the succession of
such trustee hereunder by mail, first class postage prepaid, to the
Debentureholders, as their names and addresses appear upon the Debenture
Register. If the Company fails to transmit such notice within ten days after
acceptance of appointment by the successor trustee, the successor trustee
shall cause such notice to be transmitted at the expense of the Company.
Section 9.13. Merger, Conversion, Consolidation or Succession to
Business. Any corporation into which the Trustee may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to the corporate trust business of the Trustee,
shall be the successor of the Trustee hereunder, provided that such
corporation shall be qualified under the provisions of Section 9.9 and
eligible under the provisions of Section 9.10, without the execution or
filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding. In case any
Debentures shall have been authenticated, but not delivered, by the Trustee
then in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the
Debentures so authenticated with the same effect as if such successor Trustee
had itself authenticated such Debentures.
Section 9.14. Preferential Collection of Claims against the
Company. The Trustee shall comply with Section 311(a) of the Trust Indenture
Act, excluding any creditor relationship described in Section 311(b) of the
Trust Indenture Act. A Trustee who has resigned or been removed shall be
subject to Section 311(a) of the Trust Indenture Act to the extent included
therein.
ARTICLE X.
CONCERNING THE DEBENTUREHOLDERS
Section 10.1. Evidence of Action by the 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
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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
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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 (6) months
after the record date.
Section 10.2. Proof of Execution by the Debentureholders. Subject
to the provisions of Section 9.1, proof of the execution of any instrument by
a Debentureholder (such proof shall not require notarization) or such
Debentureholder's agent or proxy and proof of the holding by any Person of
any of the Debentures shall be sufficient if made in the following manner:
(a) The fact and date of the execution by any such Person of any
instrument may be proved in any reasonable manner acceptable to the Trustee.
(b) The ownership of Debentures shall be proved by the Debenture
Register of such Debentures or by a certificate of the Debenture Registrar
thereof.
(c) The Trustee may require such additional proof of any matter
referred to in this Section 10.2 as it shall deem necessary.
Section 10.3. Who May be Deemed Owners. Prior to the due
presentment for registration of transfer of any Debenture, the Company, the
Trustee, any Paying Agent, any Authenticating Agent and any Debenture
Registrar may deem and treat the Person in whose name such Debenture shall be
registered upon the books of the Company as the absolute owner of such
Debenture (whether or not such Debenture shall be overdue and notwithstanding
any notice of ownership or writing thereon made by anyone other than the
Debenture Registrar) for the purpose of receiving payment of or on account of
the principal of and interest on such Debenture (subject to Section 2.3) and
for all other purposes; and neither the Company nor the Trustee nor any
Paying Agent nor any Authenticating Agent nor any Debenture Registrar shall
be affected by any notice to the contrary.
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Section 10.4. Certain Debentures Owned by Company Disregarded. In
determining whether the holders of the requisite aggregate principal amount
of the 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 (a) 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; and (b) for purposes of
this Section 10.4, the Trust shall be deemed not to be controlled by the
Company. The Debentures so owned that have been pledged in good faith may be
regarded as Outstanding for the purposes of this Section 10.4, if the pledgee
shall establish to the satisfaction of the Trustee the pledgee's right so to
act with respect to such Debentures and that the pledgee is not a Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with the Company or any such other obligor. In case
of a dispute as to such right, any decision by the Trustee taken upon the
advice of counsel shall be full protection to the Trustee.
Section 10.5. Actions Binding on the Future Debentureholders. At
any time prior to (but not after) the evidencing to the Trustee, as provided
in Section 10.1, of the taking of any action by the holders of the majority
or percentage in aggregate principal amount of the Debentures specified in
this Indenture in connection with such action, any holder of a Debenture that
is shown by the evidence to be included in the Debentures the holders of
which have consented to such action may, by filing written notice with the
Trustee, and upon proof of holding as provided in Section 10.2, revoke such
action so far as concerns such Debenture. Except as aforesaid any such action
taken by the holder of any Debenture shall be conclusive and binding upon
such holder and upon all future holders and owners of such Debenture, and of
any Debenture issued in exchange therefor, on registration of transfer
thereof or in place thereof, irrespective of whether or not any notation in
regard thereto is made upon such Debenture. Any action taken by the holders
of the majority or percentage in aggregate principal amount of the Debentures
specified in this Indenture in connection with such action shall be
conclusively binding upon the Company, the Trustee and the holders of all the
Debentures.
ARTICLE XI.
SUPPLEMENTAL INDENTURES
Section 11.1. Supplemental Indentures without the Consent of the
Debentureholders. In addition to any supplemental indenture otherwise
authorized by this Indenture, the Company and the Trustee may from time to
time and at any time enter into an indenture or indentures supplemental
hereto (which shall conform to the provisions of the Trust Indenture Act as
then in effect), without the consent of the Debentureholders, for one or more
of the following purposes:
(a) to cure any ambiguity, defect, or inconsistency herein, or in the
Debentures;
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(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 make any change that does not adversely affect the rights of
any Debentureholder in any material respect;
(e) to qualify or maintain the qualification of this Indenture under
the Trust Indenture Act; or
(f) to evidence a consolidation or merger involving the Company as
permitted under Section 12.1.
The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, and to make any further
appropriate agreements and stipulations that may be therein contained, but
the Trustee shall not be obligated to enter into any such supplemental
indenture that affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise. Any supplemental indenture authorized by the
provisions of this Section 11.1 may be executed by the Company and the
Trustee without the consent of the holders of any of the Debentures at the
time Outstanding, notwithstanding any of the provisions of Section 11.2.
Section 11.2. Supplemental Indentures with Consent of the
Debentureholders. With the consent (evidenced as provided in Section 10.1)
of the holders of not less than a majority in aggregate principal amount of
the Debentures at the time Outstanding, the Company, when authorized by Board
Resolutions, and the Trustee may from time to time and at any time enter into
an indenture or indentures supplemental hereto (which shall conform to the
provisions of the Trust Indenture Act as then in effect) for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of any supplemental indenture or of modifying
in any manner not covered by Section 11.1 the rights of the holders of the
Debentures under this Indenture; provided, however, that no such supplemental
-------- -------
indenture shall without the consent of the holders of each Debenture then
Outstanding and affected thereby, (a) extend the fixed maturity of any
Debentures, reduce the principal amount thereof, or reduce the rate or extend
the time of payment of interest thereon; or (b) reduce the aforesaid
percentage of Debentures, the holders of which are required to consent to any
such supplemental indenture; provided further, that if the Debentures are
----------------
held by the Trust or a trustee of the Trust, such supplemental indenture
shall not be effective until the holders of a majority in liquidation
preference of Trust Securities of the Trust shall have consented to such
supplemental indenture; provided further, that if the Debentures are held by
----------------
the Trust or a trustee of the Trust and 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
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consent of the Debentureholders affected thereby under this Section 11.2 to
approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such consent shall approve the substance thereof.
Section 11.3. Effect of Supplemental Indentures. Upon the
execution of any supplemental indenture pursuant to the provisions of this
Article XI, this Indenture shall be and be deemed to be modified and amended
in accordance therewith and the respective rights, limitations of rights,
obligations, duties and immunities under this Indenture of the Trustee, the
Company and the holders of Debentures shall thereafter be determined,
exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
Section 11.4. The Debentures Affected by Supplemental Indentures.
The Debentures affected by a supplemental indenture, authenticated and
delivered after the execution of such supplemental indenture pursuant to the
provisions of this Article XI, may bear a notation in form approved by the
Company, provided such form meets the requirements of any exchange upon which
the Debentures may be listed, as to any matter provided for in such
supplemental indenture. If the Company shall so determine, new Debentures so
modified as to conform, in the opinion of the Board of Directors of the
Company, to any modification of this Indenture contained in any such
supplemental indenture may be prepared by the Company, authenticated by the
Trustee and delivered in exchange for the Debentures then Outstanding.
Section 11.5. Execution of Supplemental Indentures.
(a) Upon the request of the Company, accompanied by its Board
Resolutions authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of the
Debentureholders required to consent thereto as aforesaid, the Trustee shall
join with the Company in the execution of such supplemental indenture unless
such supplemental indenture affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee may
in its discretion but shall not be obligated to enter into such supplemental
indenture. The Trustee, subject to the provisions of Sections 9.1, may
receive an Opinion of Counsel as conclusive evidence that any supplemental
indenture executed pursuant to this Article XI is authorized or permitted by,
and conforms to, the terms of this Article XI and that it is proper for the
Trustee under the provisions of this Article XI to join in the execution
thereof.
(b) Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of this Section 11.5,
the Trustee shall transmit by mail, first class postage prepaid, a notice,
setting forth in general terms the substance of such supplemental indenture,
to the Debentureholders as their names and addresses appear upon the
Debenture Register. Any failure of the Trustee to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity
of any such supplemental indenture.
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ARTICLE XII.
SUCCESSOR CORPORATION
Section 12.1. The Company may Consolidate, Etc. Nothing contained
in this Indenture or in any of the Debentures shall prevent any consolidation
or merger of the Company with or into any other corporation or corporations
(whether or not affiliated with the Company, as the case may be), or
successive consolidations or mergers in which the Company, as the case may
be, or its successor or successors shall be a party or parties, or shall
prevent any sale, conveyance, transfer or other disposition of the property
of the Company, as the case may be, or its successor or successors as an
entirety, or substantially as an entirety, to any other corporation (whether
or not affiliated with the Company, as the case may be, or its successor or
successors) authorized to acquire and operate the same; provided, however,
-------- -------
that the Company hereby covenants and agrees that (a) upon any such
consolidation, merger, sale, conveyance, transfer or other disposition, the
due and punctual payment, in the case of the Company, of the principal of and
interest on all of the Debentures, according to their tenor and the due and
punctual performance and observance of all the covenants and conditions of
this Indenture to be kept or performed by the Company as the case may be,
shall be expressly assumed, by supplemental indenture (which shall conform to
the provisions of the Trust Indenture Act, as then in effect) satisfactory in
form to the Trustee executed and delivered to the Trustee by the entity
formed by such consolidation, or into which the Company, as the case may be,
shall have been merged, or by the entity which shall have acquired such
property; (b) in case the Company consolidates with or merges into another
Person or conveys or transfers its properties and assets substantially as an
entirety to any Person, the successor Person is organized under the laws of
the United States or any state or the District of Columbia; and (c)
immediately after giving effect thereto, an Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of
Default, shall have occurred and be continuing.
Section 12.2. Successor Corporation Substituted.
(a) In case of any such consolidation, merger, sale, conveyance,
transfer or other disposition and upon the assumption by the successor
corporation, by supplemental indenture, executed and delivered to the Trustee
and satisfactory in form to the Trustee, of the due and punctual payment of
the principal of and interest on all of the Debentures Outstanding and the
due and punctual performance of all of the covenants and conditions of this
Indenture to be performed by the Company, such successor corporation shall
succeed to and be substituted for the Company, with the same effect as if it
had been named as the Company herein and thereupon the predecessor
corporation shall be relieved of all obligations and covenants under this
Indenture and the Debentures.
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(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 all Debentures for whose payment
money or Governmental Obligations have theretofore been deposited in trust or
segregated and held in trust by the Company (and thereupon repaid to the
Company or discharged from such trust, as provided in Section 13.5); or (b)
all such Debentures not theretofore delivered to the Trustee for cancellation
shall have become due and payable, or are by their terms to become due and
payable within one year or are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of notice of
redemption, and the Company shall deposit or cause to be deposited with the
Trustee as trust funds the entire amount in moneys or Governmental
Obligations sufficient, or a combination thereof sufficient, in the opinion
of a nationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, to pay at
maturity or upon redemption all Debentures not theretofore delivered to the
Trustee for cancellation, including principal and interest due or to become
due to such date of maturity or date fixed for redemption, as the case may
be, and if the Company shall also pay or cause to be paid all other sums
payable hereunder by the Company; then this Indenture shall thereupon cease
to be of further effect except for the provisions of Sections 2.3, 2.7, 2.9,
5.1, 5.2, 5.3, 9.7 and 9.10, 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
Company and at the cost and expense of the Company, shall execute proper
instruments acknowledging satisfaction of and discharging this Indenture.
Section 13.2. Discharge of Obligations. If at any time all
Debentures not heretofore delivered to the Trustee for cancellation or that
have not become due and payable as described in Section 13.1 shall have been
paid by the Company by depositing irrevocably with the Trustee as trust funds
moneys or an amount of Governmental Obligations sufficient in the opinion of a
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nationally recognized certified public accounting firm to pay at maturity
or upon redemption all Debentures not theretofore delivered to the Trustee
for cancellation, including principal and interest due or to become due to
such date of maturity or date fixed for redemption, as the case may be, and
if the Company shall also pay or cause to be paid all other sums payable
hereunder by the Company, then after the date such moneys or Governmental
Obligations, as the case may be, are deposited with the Trustee, the
obligations of the Company under this Indenture shall cease to be of further
effect except for the provisions of Sections 2.3, 2.7, 2.9, 5.1, 5.2, 5.3,
9.6, 9.7, 9.10 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 the Company. Any monies or Governmental
Obligations deposited with any Paying Agent or the Trustee, or then held by
the Company in trust, for payment of principal of or interest on the
Debentures that are not applied but remain unclaimed by the holders of such
Debentures for at least two years after the date upon which the principal of
or interest on such Debentures shall have respectively become due and
payable, shall be repaid to the Company, as the case may be, on May 31 of
each year or (if then held by the Company) shall be discharged from such
trust; and thereupon the Paying Agent and the Trustee shall be released from
all further liability with respect to such moneys or Governmental
Obligations, and the holder of any of the Debentures entitled to receive such
payment shall thereafter, as an unsecured general creditor, look only to the
Company for the payment thereof.
ARTICLE XIV.
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
Section 14.1. No Recourse. No recourse under or upon any
obligation, covenant or agreement of this Indenture, or of the Debentures, or
for any claim based thereon or otherwise in respect thereof, shall be had
against any incorporator, stockholder, officer or director, past, present or
future, as such, of the Company or of any predecessor or successor
corporation, either directly or through the Company or any such predecessor
or successor corporation, whether by virtue of any constitution, statute or
rule of law, or by the enforcement of any assessment or
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<PAGE> 52
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, 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 its respective successors and assigns,
whether so expressed or not.
Section 15.2. Actions by Successor. Any act or proceeding by any
provision of this Indenture authorized or required to be done or performed by
any board, committee or officer of the Company shall and may be done and
performed with like force and effect by the corresponding board, committee or
officer of any corporation that shall at the time be the lawful sole
successor of the Company.
Section 15.3. Surrender of the 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: First Banks America, Inc., 135 North Meramec, Clayton, Missouri
63105 Attention: Chief Financial Officer. Any notice, election, request or
demand by the Company or any Debentureholder to or upon the Trustee shall be
deemed to have been sufficiently given or made, for all purposes, if given or
made in writing at the Corporate Trust Office of the Trustee.
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Section 15.5. Governing Law. This Indenture and each Debenture
shall be deemed to be a contract made under the internal laws of the State of
Delaware and for all purposes shall be construed in accordance with the laws
of said State.
Section 15.6. Treatment of the Debentures as Debt. It is intended
that the Debentures shall be treated as indebtedness and not as equity for
federal income tax purposes. The provisions of this Indenture shall be
interpreted to further this intention.
Section 15.7. Compliance Certificates and Opinions.
(a) Upon any application or demand by the Company to the Trustee to
take any action under any of the provisions of this Indenture, the Company
shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent have been complied
with, except that in the case of any such application or demand as to which
the furnishing of such documents is specifically required by any provision of
this Indenture relating to such particular application or demand, no
additional certificate or opinion need be furnished.
(b) Each certificate or opinion of the Company provided for in this
Indenture and delivered to the Trustee with respect to compliance with a
condition or covenant in this Indenture shall include (i) a statement that
the Person making such certificate or opinion has read such covenant or
condition; (ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained
in such certificate or opinion are based; (iii) a statement that, in the
opinion of such Person, he or she has made such examination or investigation
as, in the opinion of such Person, is necessary to enable him or her to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and (iv) a statement as to whether or not, in the
opinion of such Person, such condition or covenant has been complied with.
Section 15.8. Payments on Business Days. In any case where the
date of maturity of interest or principal of any Debenture or the date of
redemption of any Debenture shall not be a Business Day, then payment of
interest or principal may be made on the next succeeding Business Day with
the same force and effect as if made on the nominal date of maturity or
redemption, and no interest shall accrue for the period after such nominal
date.
Section 15.9. Conflict with Trust Indenture Act. If and to the
extent that any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by Sections 310 to 317, inclusive, of the Trust
Indenture Act, such imposed duties shall control.
Section 15.10. Counterparts. This Indenture may be executed in any
number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.
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Section 15.11. Separability. In case any one or more of the
provisions contained in this Indenture or in the Debentures shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provisions of this Indenture or of the Debentures, but this Indenture and the
Debentures shall be construed as if such invalid or illegal or unenforceable
provision had never been contained herein or therein.
Section 15.12. Assignment. The Company shall have the right at all
times to assign any of its respective rights or obligations under this
Indenture to a direct or indirect wholly owned Subsidiary of the Company,
provided that, in the event of any such assignment, the Company shall remain
liable for all such obligations. Subject to the foregoing, this Indenture is
binding upon and inures to the benefit of the parties thereto and their
respective successors and assigns. This Indenture may not otherwise be
assigned by the parties thereto.
Section 15.13. Acknowledgment of Rights .
(a) The Company acknowledges that, with respect to any Debentures
held by the Trust or a trustee of the Trust, if the Property Trustee fails to
enforce its rights under this Indenture as the holder of the Debentures held
as the assets of the Trust, any holder of Preferred Securities may institute
legal proceedings directly against the Company to enforce such Property
Trustee's rights under this Indenture without first instituting any legal
proceedings against such Property Trustee or any other person or entity.
Notwithstanding the foregoing, and notwithstanding the provisions of Section
7.4(a) hereof, if an Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay principal or
interest on the Debentures on the date such principal or interest is
otherwise payable (or in the case of redemption, on the redemption date), the
Company acknowledges that a holder of Preferred Securities may directly
institute a proceeding for enforcement of payment to such holder of the
principal of or interest on the Debentures having a principal amount equal to
the aggregate liquidation amount of the Preferred Securities of such holder
on or after the respective due date specified in the Debentures.
(b) Notwithstanding anything to the contrary contained in this
Indenture, the Company shall have the right to setoff any payment it is
otherwise required to make hereunder in respect of any Trust Securities to
the extent that the Company has previously made, or is concurrently making, a
payment to the holder of such Trust Securities under the Preferred Securities
Guarantee or in connection with a proceeding for enforcement of payment of
the principal of or interest on the Debentures directly brought by holders of
any Trust Securities.
(c) For so long as any of the Preferred Securities remain
Outstanding, if, upon an Event of Default, the Property Trustee fails or the
holders of not less than 25% in principal amount of the Outstanding
Debentures fail to declare the principal of all of the Debentures to be
immediately due and payable, the holders of at least 25% in liquidation
amount of the Preferred Securities then Outstanding shall have the right to
make such declaration by a notice in writing to the Depositor and the
Property Trustee; and upon any such declaration such principal amount of
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and the accrued interest on all of the Debentures shall become immediately due
and payable, provided that the payment of principal and interest on such
Debentures shall remain subordinated to the extent provided in this
Indenture.
ARTICLE XVI.
SUBORDINATION OF THE DEBENTURES
Section 16.1. Agreement to Subordinate. The Company covenants and
agrees, and each holder of the Debentures issued hereunder by such holder's
acceptance thereof likewise covenants and agrees, that all the 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 the 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
of the Company (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, or in the event that the
maturity of any Senior Indebtedness has been accelerated because of a
default, then, in either case, no payment shall be made by the Company with
respect to the principal (including redemption payments) of or interest on
the Debentures. In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee when such payment is prohibited by the
preceding sentence of this Section 16.2, such payment shall be held in trust
for the benefit of, and shall be paid over or delivered to, the holders of
Senior Indebtedness or their respective representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Senior
Indebtedness may have been issued, as their respective interests may appear,
but only to the extent that the holders of the Senior 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 the 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 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
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<PAGE> 56
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 (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 the 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 is paid in full, or provision
is made for such payment in money in accordance with its terms, such payment
or distribution shall be held in trust for the benefit of and shall be paid
over or delivered to the holders of such Senior Indebtedness or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior
Indebtedness may have been issued, as their respective interests may appear,
as calculated by the Company, for application to the payment of all Senior
Indebtedness, 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, 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.
50
<PAGE> 57
Section 16.4. Subrogation.
(a) Subject to the payment in full of all Senior Indebtedness, the
rights of the holders of the Debentures shall be subrogated to the rights of
the holders of such Senior Indebtedness to receive payments or distributions
of cash, property or securities of the Company, as the case may be,
applicable to such Senior Indebtedness until the principal of and interest on
the Debentures shall be paid in full; and, for the purposes of such
subrogation, no payments or distributions to the holders of such Senior
Indebtedness of any cash, property or securities to which the holders of the
Debentures or the Trustee would be entitled except for the provisions of this
Article XVI, and no payment over pursuant to the provisions of this Article
XVI to or for the benefit of the holders of such Senior Indebtedness by
holders of the Debentures or the Trustee, shall, as between the Company, its
creditors other than holders of Senior Indebtedness of the Company, and the
holders of the Debentures, be deemed to be a payment by the Company to or on
account of such Senior Indebtedness. It is understood that the provisions of
this Article XVI are and are intended solely for the purposes of defining the
relative rights of the holders of the Debentures, on the one hand, and the
holders of such Senior Indebtedness on the other hand.
(b) Nothing contained in this Article XVI or elsewhere in this
Indenture or in the Debentures is intended to or shall impair, as between the
Company, its creditors (other than the holders of Senior Indebtedness), 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, 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.
51
<PAGE> 58
Section 16.5. The Trustee to Effectuate Subordination. Each holder
of Debentures by such holder's acceptance thereof authorizes and directs the
Trustee on such holder's behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article XVI and
appoints the Trustee such holder's attorney-in-fact for any and all such
purposes.
Section 16.6. Notice by the Company.
(a) The Company shall give prompt written notice to a Responsible
Officer of the Trustee of any fact known to the Company that would prohibit
the making of any payment of monies to or by the Trustee in respect of the
Debentures pursuant to the provisions of this Article XVI. Notwithstanding
the provisions of this Article XVI or any other provision of this Indenture,
the Trustee shall not be charged with knowledge of the existence of any facts
that would prohibit the making of any payment of monies to or by the Trustee
in respect of the Debentures pursuant to the provisions of this Article XVI,
unless and until a Responsible Officer of the Trustee shall have received
written notice thereof from the Company or a holder or holders of Senior
Indebtedness or from any trustee therefor; and before the receipt of any such
written notice, the Trustee, subject to the provisions of Section 9.1, shall be
entitled in all respects to assume that no such facts exist; provided, however,
-------- -------
that if the Trustee shall not have received the notice provided for in this
Section 16.6 at least 2 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 2 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 or herself to be a holder of Senior Indebtedness
(or a trustee on behalf of such holder) to establish that such notice has
been given by a holder of such Senior Indebtedness or a trustee on behalf of
any such holder or holders. In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any
Person as a holder of such Senior Indebtedness to participate in any payment
or distribution pursuant to this Article XVI, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as
to the amount of such Senior Indebtedness held by such Person, the extent to
which such Person is entitled to participate in such payment or distribution
and any other facts pertinent to the rights of such Person under this Article
XVI, and, if such evidence is not furnished, the Trustee may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment.
52
<PAGE> 59
Section 16.7. Rights of the Trustee; Holders of the Senior
Indebtedness.
(a) The Trustee in its individual capacity shall be entitled to all
the rights set forth in this Article XVI in respect of any Senior
Indebtedness at any time held by it, to the same extent as any other holder
of Senior Indebtedness, and nothing in this Indenture shall deprive the
Trustee of any of its rights as such holder. The Trustee's right to
compensation and reimbursement of expenses as set forth in Section 9.7 shall
not be subject to the subordination provisions of the Article XVI.
(b) With respect to the holders of the Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article XVI, and no implied
covenants or obligations with respect to the holders of such Senior
Indebtedness shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of such
Senior Indebtedness and, subject to the provisions of Section 9.1, the
Trustee shall not be liable to any holder of such Senior Indebtedness if it
shall pay over or deliver to holders of Debentures, the Company or any other
Person money or assets to which any holder of such Senior Indebtedness shall
be entitled by virtue of this Article XVI or otherwise.
Section 16.8. Subordination may not be Impaired.
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by the Company with the terms, provisions and
covenants of this Indenture, regardless of any knowledge thereof that any
such holder may have or otherwise be charged with.
(b) Without in any way limiting the generality of Section 16.8(a),
the holders of Senior Indebtedness 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.
53
<PAGE> 60
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.
FIRST BANKS AMERICA, INC.
By:
----------------------------------------
Name:
Title:
Attest:
- ------------------------------
STATE STREET BANK AND TRUST
COMPANY, as trustee
By:
----------------------------------------
Name:
Title:
Attest:
- ------------------------------
54
<PAGE> 61
STATE OF MISSOURI )
) ss
COUNTY OF ---------- )
On this -- day of -------------, 1998, before me appeared -------------,
to me personally known, who, being by me duly sworn, did say that he is the
- ----------------- of FIRST BANKS AMERICA, INC., and that the seal affixed to
said instrument is the corporate seal of said corporation, and that said
instrument was signed and sealed in 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.
In testimony whereof I have hereunto set my hand and affixed my
official seal at my office in said county and state the day and year last
above written.
----------------------------------------
Notary Public
My term expires:
------------------------
[seal]
COMMONWEALTH OF MASSACHUSETTS )
) ss
COUNTY OF SUFFOLK )
On this --- day of June, 1998, before me appeared -------------------,
to me personally known, who, being by me duly sworn, 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 in 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.
In testimony whereof I have hereunto set my hand and affixed my
official seal at my office in said county and commonwealth the day and year
last above written.
----------------------------------------
Notary Public
My term expires:
------------------------
[seal]
55
<PAGE> 62
EXHIBIT A
(Form of Face of Debenture)
No. 1 $------------------------
CUSIP No. -----------
FIRST BANKS AMERICA, INC.
----% SUBORDINATED DEBENTURE
DUE June 30, 2028
FIRST BANKS AMERICA, INC., a Delaware corporation (the "Company," which
term includes any successor corporation under the Indenture hereinafter referred
to), for value received, hereby promises to pay to State Street Bank and Trust
Company as Property Trustee for First America Capital Trust, or registered
assigns, the principal sum of --------------------------------------------------
on June 30, 2028 (the "Stated Maturity"), and to pay interest on said
principal sum from June --, 1998, or from the most recent interest payment
date (each such date, an "Interest Payment Date") to which interest has been
paid or duly provided for, quarterly (subject to deferral as set forth
herein) in arrears on March 31, June 30, September 30 and December 31 of each
year commencing September 30, 1998, at the rate of -----% per annum until the
principal hereof shall have become due and payable, and on any overdue
principal and (without duplication) on any overdue installment of interest at
the same rate per annum compounded quarterly. The amount of interest payable
on any Interest Payment Date shall be computed on the basis of a 360-day year
of twelve 30-day months. The amount of interest for any partial period shall
be computed on the basis of the number of days elapsed in a 360-day year of
twelve 30-day months. In the event that any date on which interest is
payable on this Debenture is not a business day, then payment of interest
payable on such date shall be made on the next succeeding day that is a
Business Day (as defined in the Indenture) (and without any interest or other
payment in respect of any such delay) with the same force and effect as if
made on such date. The interest installment so payable, and punctually paid
or duly provided for, on any Interest Payment Date shall, as provided in the
Indenture, be paid to the person in whose name this Debenture (or one or more
Predecessor Debentures, as defined in said Indenture) is registered at the
close of business on the regular record date for such interest installment,
which shall be the close of business on the fifteenth day of the last month
of the calendar quarter in which the Interest Payment Date occurs unless
otherwise provided in the Indenture. The principal of and the interest on
this Debenture shall be payable at the office or agency of the Trustee
maintained for that purpose in any coin or currency of the United States of
America that at the time of payment is legal tender for payment of public and
private debts; provided, however, that
-------- -------
<PAGE> 63
payment of interest may be made at the option of the Company by check mailed to
the registered holder at such address as shall appear in the Debenture Register.
Notwithstanding the foregoing, so long as the holder of this Debenture is the
Property Trustee, the payment of the principal of and interest on this Debenture
shall be made at such place and to such account as may be designated by the
Trustee.
This Debenture may be redeemed at any time by the Company on any date
not earlier than June 30, 2003, subject to the Company having received prior
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. Such date may also be extended
at any time at the election of the Company for one or more periods, but in no
event to a date later than June 30, 2037, subject to certain limitations
described in the Indenture.
The indebtedness evidenced by this Debenture is, to the extent provided
in the Indenture, subordinate and junior in right of payment to the prior
payment in full of all Senior Indebtedness (as defined in the Indenture).
This Debenture is issued subject to the provisions of the Indenture with
respect thereto. Each holder of this Debenture, by accepting the same, (a)
agrees to and shall be bound by such provisions; (b) authorizes and directs
the Trustee on his or her behalf to take such action as may be necessary or
appropriate to acknowledge or effectuate the subordination so provided; and
(c) appoints the Trustee his or her attorney-in-fact for any and all such
purposes. Each holder hereof, by his or her acceptance hereof, hereby waives
all notice of the acceptance of the subordination provisions contained herein
and in the Indenture by each holder of Senior Indebtedness, whether now
outstanding or hereafter incurred, and waives reliance by each such holder
upon said provisions.
This Debenture shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until
the Certificate of Authentication hereon shall have been signed by or on
behalf of the Trustee.
The provisions of this Debenture are continued on the reverse side
hereof and such continued provisions shall for all purposes have the same
effect as though fully set forth at this place.
<PAGE> 64
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed.
Dated: June --, 1998
FIRST BANKS AMERICA, INC.
By:
----------------------------------------
Name:
Title:
Attest:
By:
-----------------------------
Name:
Title:
<PAGE> 65
[Form of Certificate of Authentication]
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures described in the within-mentioned Indenture.
Dated:
STATE STREET BANK AND TRUST COMPANY, -----------------------------
as Trustee or Authenticating Agent
By: ------------------------------- By: --------------------------
Authorized Signatory
<PAGE> 66
[Form of Reverse of Debenture]
----------% SUBORDINATED DEBENTURE
(CONTINUED)
This Debenture is one of the subordinated debentures of the Company
(herein sometimes referred to as the "Debentures"), all issued or to be
issued under and pursuant to an Indenture dated as of June --, 1998 (the
"Indenture") duly executed and delivered between the Company and State Street
Bank and Trust Company, as Trustee (the "Trustee"), to which Indenture
reference is hereby made for a description of the rights, limitations of
rights, obligations, duties and immunities thereunder of the Trustee, the
Company and the holders of the Debentures. The Debentures are limited in
aggregate principal amount as specified in the Indenture.
The Company shall have the right as set forth in the Indenture to
redeem this Debenture at the option of the Company, without premium or
penalty, in whole or in part at any time on or after June 30, 2003 (an
"Optional Redemption"), or at any time in certain circumstances upon the
occurrence of a Special Event (as defined in the Indenture), at a redemption
price (the "Redemption Price") equal to 100% of the principal amount hereof
plus any accrued but unpaid interest hereon, to the date of such redemption,
plus Additional Payments, if any. Any redemption pursuant to this paragraph
shall be made upon not less than 30 days nor more than 60 days notice, at the
Redemption Price. The Redemption Price shall be paid at the time and in the
manner provided therefor in the Indenture. If the Debentures are only
partially redeemed by the Company pursuant to an Optional Redemption, the
Debentures shall be redeemed pro rata or by lot or by any other method
utilized by the Trustee as described in the Indenture. In the event of an
Optional Redemption of this Debenture in part only, a new Debenture or
Debentures for the unredeemed portion hereof shall be issued in the name of
the holder hereof upon the cancellation hereof.
In case an Event of Default (as defined in the Indenture) shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the
Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Debentures at the time Outstanding (as
defined in the Indenture), to execute supplemental indentures for the purpose
of adding any provisions to or changing in any manner or eliminating any of
the provisions of the Indenture or of any supplemental indenture or of
modifying in any manner the rights of the holders of the Debentures;
provided, however, that no such supplemental indenture shall without the
- -------- -------
consent of the holders of each Debenture then Outstanding and affected
thereby, (i) extend the fixed maturity of the Debentures, reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon; or
<PAGE> 67
(ii) reduce the aforesaid percentage of the Debentures, the holders of which are
required to consent to any such supplemental indenture. The Indenture also
contains provisions permitting the holders of a majority in aggregate principal
amount of the Debentures at the time Outstanding, on behalf of all of the
holders of the Debentures, to waive any past default in the performance of any
of the covenants contained in the Indenture, or established pursuant to the
Indenture, and its consequences, except a default in the payment of the
principal of or interest on any of the Debentures. Any such consent or waiver by
the registered holder of this Debenture (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such holder and upon all future
holders and owners of this Debenture and of any Debenture issued in exchange
herefor or in place hereof (whether by registration of transfer or otherwise),
irrespective of whether or not any notation of such consent or waiver is made
upon this Debenture.
No reference herein to the Indenture and no provision of this Debenture
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal and interest on this
Debenture at the time and place and at the rate and in the money herein
prescribed.
The Company, as further described in the Indenture, shall have the
right at any time during the term of the Debentures and from time to time to
defer payments of interest by extending the interest payment period of such
Debentures for up to 20 consecutive quarters (each, an "Extension Period"),
at the end of which period the Company shall calculate (and deliver such
calculation to the Trustee) and pay all interest then accrued and unpaid on
the Debentures, including any Additional Payments and Compounded Interest (as
defined in the Indenture and together, the "Deferred Payments") that shall be
payable to the holders of the Debentures in whose names the Debentures are
registered in the Debenture Register on the first record date after the end
of the Extension Period. Before the termination of any such Extension Period,
the Company may further extend such Extension Period, provided that such
Extension Period together with all such further extensions thereof shall not
exceed 20 consecutive quarters. At the termination of any such Extension
Period and upon the payment of all Deferred Payments then due, the Company
may commence a new Extension Period.
As provided in the Indenture and subject to certain limitations therein
set forth, this Debenture is transferable by the registered holder hereof on
the Debenture Register (as defined in the Indenture) of the Company, upon
surrender of this Debenture for registration of transfer at the office or
agency of the Trustee accompanied by a written instrument or instruments of
transfer in form satisfactory to the Company or the Trustee duly executed by
the registered holder hereof or his or her attorney duly authorized in
writing, and thereupon one or more new Debentures of authorized denominations
and for the same aggregate principal amount shall be issued to the designated
transferee or transferees. No service charge shall be made for any such
transfer, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this
Debenture, the Company, the Trustee, any Paying Agent (as defined in the
Indenture) and the Debenture
<PAGE> 68
Registrar may deem and treat the registered holder hereof as the absolute owner
hereof (whether or not this Debenture shall be overdue and notwithstanding any
notice of ownership or writing hereon made by anyone other than the Debenture
Registrar) for the purpose of receiving payment of or on account of the
principal hereof and interest due hereon and for all other purposes, and neither
the Company nor the Trustee nor any Paying Agent nor any Debenture Registrar
shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether
by virtue of any constitution, statute or rule of law, or by the enforcement
of any assessment or penalty or otherwise, all such liability being, by the
acceptance hereof and as part of the consideration for the issuance hereof,
expressly waived and released.
The Debentures are issuable only in registered form without coupons in
denominations of $25 and any integral multiple thereof (or such other
denominations and any integral multiple thereof as may be deemed necessary by
the Company for the purpose of maintaining the eligibility of the Debentures
for listing on the American Stock Exchange, Inc. or any successor thereto).
All terms used in this Debenture that are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
<PAGE> 1
CERTIFICATE OF TRUST
OF
FIRST AMERICA CAPITAL TRUST
THIS CERTIFICATE OF TRUST of FIRST AMERICA CAPITAL TRUST (the
"Trust"), dated as of June 18, 1998, is being duly executed and filed by
WILMINGTON TRUST COMPANY, a Delaware banking corporation, JAMES F.
DIERBERG, ALLEN H. BLAKE and LAURENCE J. BROST, each an individual, as
trustees, to form a business trust under the Delaware Business Trust Act (12
Delaware Code Section 3801 et seq.).
1. NAME. The name of the business trust formed hereby is FIRST AMERICA
CAPITAL TRUST.
2. DELAWARE TRUSTEE. The name and business address of the trustee of
the Trust in the State of Delaware is Wilmington Trust Company, Rodney
Square North, 1100 North Market Street, Wilmington, Delaware
19890-0001, Attention: Corporate Trust Administration.
3. EFFECTIVE DATE. This Certificate of Trust shall be effective on
June 18, 1998.
IN WITNESS WHEREOF, the undersigned have executed this Certificate
of Trust as of the date first above written, in accordance with Section
3811(a) of the Delaware Business Trust Act.
WILMINGTON TRUST COMPANY,
as trustee
By: /s/ James P. Lawler
-----------------------------------------
Its: Vice President
----------------------------------------
/s/ James F. Dierberg
--------------------------------------------
JAMES F. DIERBERG
as Trustee
/s/ Allen H. Blake
--------------------------------------------
ALLEN H. BLAKE
as Trustee
/s/ Laurence J. Brost
--------------------------------------------
LAURENCE J. BROST
as Trustee
<PAGE> 1
TRUST AGREEMENT
This TRUST AGREEMENT, dated as of June 18, 1998 (this "Trust
Agreement"), among (i) First Banks America, Inc., a Delaware corporation (the
"Depositor"), (ii) Wilmington Trust Company, a Delaware banking corporation,
as trustee, and (iii) James F. Dierberg, Allen H. Blake and Laurence J.
Brost, each an individual, 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 "First
America Capital 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 $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 business trust under
Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. Section 3801, et seq.
(the "Business Trust Act"), and that this document constitutes the governing
instrument of the Trust. The Trustees are hereby authorized and directed to
execute and file a certificate of trust with the Delaware Secretary of State
in accordance with the provisions of the Business Trust Act.
3. The Depositor and the Trustees will enter into an amended and
restated Trust Agreement, satisfactory to each such party and substantially
in the form included as an exhibit to the 1933 Act Registration Statement (as
defined below), 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. The Depositor and the Trustees hereby authorize and direct the
Depositor, as the sponsor of the Trust, (i) to file with the Securities and
Exchange Commission (the "Commission") and execute, in each case on behalf of
the Trust, (a) the Registration Statement on Form S-2 (the "1933 Act
Registration Statement"), including any pre-effective or post-effective
amendments to the 1933 Act Registration Statement, relating to the
registration under the Securities Act of 1933, as amended, of the Preferred
Securities of the Trust and possibly certain other securities and (b) a
Registration Statement on Form 8-A (the "1934 Act Registration Statement")
(including all pre-effective and post-effective amendments thereto) relating
to the registration of the Preferred Securities of the Trust under the
Securities Exchange Act of 1934, as amended; (ii) to file with the Nasdaq
Stock Market National Market or a national stock exchange (each, an
"Exchange") and execute on behalf of the Trust one or more listing
applications and all other applications, statements, certificates, agreements
and other instruments as shall be necessary or desirable to cause the
Preferred Securities to be listed on any of the Exchanges; (iii) to file and
execute on behalf of the Trust such applications, reports, surety bonds,
irrevocable consents, appointments of attorney for service of process and
other papers and documents as shall be necessary or desirable to register the
Preferred Securities under the securities or blue sky laws of such
jurisdictions as the Depositor, on behalf of the Trust, may deem necessary or
desirable; and (iv) to execute on behalf of the Trust that certain
Underwriting Agreement relating to the Preferred Securities, among the Trust,
the Depositor and the several Underwriters named therein, substantially in
the form included as an exhibit to the 1933 Act Registration Statement. In
the event that any filing referred to in clauses (i), (ii) and (iii) above is
required by the rules and regulations of the Commission, an Exchange or state
securities or blue sky laws to be executed on behalf of the Trust by one or
more of the Trustees, each of the Trustees, in its or his capacity as a
Trustee of the Trust, is hereby authorized and, to the extent so required,
directed to join in any such filing and to execute on behalf of the Trust any
and all of the foregoing, it being understood that Wilmington Trust Company
in its capacity as a Trustee of the Trust shall not be required to join in
any such filing or execute on behalf of the Trust any such document unless
required by the rules and regulations of the Commission, an Exchange or state
securities or blue sky
<PAGE> 2
laws. In connection with the filings referred to above, the Depositor and
James F. Dierberg, Allen H. Blake and Laurence J. Brost, each as Trustees and
not in their individual capacities, hereby constitutes and appoints James F.
Dierberg, Allen H. Blake and Laurence J. Brost, and each of them, as its true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the Depositor or such Trustee or in the Depositor's or
such Trustees' name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to the 1933 Act
Registration Statement and the 1934 Act Registration Statement and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Commission, the Exchange and administrators of the state
securities or blue sky laws, granting unto said attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as the Depositor or such Trustee might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their respective substitute or substitutes, shall
do or cause to be done by virtue hereof.
5. This Trust Agreement may be executed in one or more counterparts.
6. The number of Trustees initially shall be four, 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; provided, however, that to the extent
required by the Business Trust Act, one Trustee shall either be a natural
person who is a resident of the State of Delaware or, if not a natural
person, an entity which has its principal place of business in the State of
Delaware and otherwise meets the requirements of applicable Delaware law.
Subject to the foregoing, the Depositor is entitled to appoint or remove
without cause any Trustee at any time. The Trustees may resign upon 30 days'
prior notice to the Depositor.
7. This Trust Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (without regard to
conflict of laws of principles).
[Signatures on Next Page]
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed as of the day and year first above written.
FIRST BANKS AMERICA, INC.
as Depositor
By: /s/ Allen H. Blake
-----------------------------------
Its: /s/ Vice President
----------------------------------
WILMINGTON TRUST COMPANY
as Trustee
By: /s/ Patricia Evans
-----------------------------------
Its: Financial Services Officer
----------------------------------
/s/ James F. Dierberg
--------------------------------------
JAMES F. DIERBERG, as Trustee
/s/ Allen H. Blake
--------------------------------------
ALLEN H. BLAKE, as Trustee
/s/ Laurence J. Brost
--------------------------------------
LAURENCE J. BROST, as Trustee
3
<PAGE> 1
FIRST AMERICA CAPITAL TRUST
AMENDED AND RESTATED
TRUST AGREEMENT
AMONG
FIRST BANKS AMERICA, INC., AS DEPOSITOR
STATE STREET BANK AND TRUST COMPANY, AS PROPERTY TRUSTEE
WILMINGTON TRUST COMPANY, AS DELAWARE TRUSTEE,
AND
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
DATED AS OF , 1998
--------, ---
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
<S> <C>
ARTICLE I - DEFINED TERMS 2
Section 101. Definitions 2
ARTICLE II - ESTABLISHMENT OF THE TRUST 9
Section 201. Name 9
Section 202. Office of the Delaware Trustee; Principal Place of Business 9
Section 203. Initial Contribution of Trust Property; Organizational Expenses 9
Section 204. Issuance of the Preferred Securities 10
Section 205. Issuance of the Common Securities; Subscription and Purchase of Debentures 10
Section 206. Declaration of Trust 11
Section 207. Authorization to Enter into Certain Transactions 11
Section 208. Assets of Trust 14
Section 209. Title to Trust Property 14
ARTICLE III - PAYMENT ACCOUNT 14
Section 301. Payment Account 14
ARTICLE IV - DISTRIBUTIONS; REDEMPTION 15
Section 401. Distributions 15
Section 402. Redemption 15
Section 403. Subordination of Common Securities 17
Section 404. Payment Procedures 17
Section 405. Tax Returns and Reports 18
Section 406. Payment of Taxes, Duties, etc. of the Trust 18
Section 407. Payments Under Indenture 18
ARTICLE V - TRUST SECURITIES CERTIFICATES 18
Section 501. Initial Ownership 18
Section 502. The Trust Securities Certificates 18
Section 503. Execution, Authentication and Delivery of Trust Securities Certificates 19
Section 504. Registration of Transfer and Exchange of Preferred Securities Certificates 19
Section 505. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates 20
Section 506. Persons Deemed Securityholders 20
Section 507. Access to List of Securityholders' Names and Addresses 21
Section 508. Maintenance of Office or Agency 21
Section 509. Appointment of Paying Agent 21
Section 510. Ownership of Common Securities by Depositor 22
Section 511. Preferred Securities Certificates 22
Section 512. Rights of Securityholders 22
ii
<PAGE> 3
ARTICLE VI - ACTS OF SECURITYHOLDERS; MEETINGS; VOTING 23
Section 601. Limitations on Voting Rights 23
Section 602. Notice of Meetings 24
Section 603. Meetings of Preferred Securityholders 24
Section 604. Voting Rights 24
Section 605. Proxies, etc. 25
Section 606. Securityholder Action by Written Consent 25
Section 607. Record Date for Voting and Other Purposes 25
Section 608. Acts of Securityholders 25
Section 609. Inspection of Records 26
ARTICLE VII - REPRESENTATIONS AND WARRANTIES 26
Section 701. Representations and Warranties of the Bank and the Property Trustee 26
Section 702. Representations and Warranties of the Delaware Bank and the Delaware Trustee 27
Section 703. Representations and Warranties of the Depositor 28
ARTICLE VIII - TRUSTEES 29
Section 801. Certain Duties and Responsibilities 29
Section 802. Certain Notices 30
Section 803. Certain Rights of Property Trustee 30
Section 804. Not Responsible for Recitals or Issuance of Securities 32
Section 805. May Hold Securities 32
Section 806. Compensation; Indemnity; Fees 33
Section 807. Corporate Property Trustee Required; Eligibility of Trustees 33
Section 808. Conflicting Interests 34
Section 809. Co-Trustees and Separate Trustee 34
Section 810. Resignation and Removal; Appointment of Successor 35
Section 811. Acceptance of Appointment by Successor 36
Section 812. Merger, Conversion, Consolidation or Succession to Business 37
Section 813. Preferential Collection of Claims Against Depositor or Trust 37
Section 814. Reports by Property Trustee 37
Section 815. Reports to the Property Trustee 38
Section 816. Evidence of Compliance with Conditions Precedent 38
Section 817. Number of Trustees 38
Section 818. Delegation of Power 38
Section 819. Voting 39
ARTICLE IX - TERMINATION, LIQUIDATION AND MERGER 39
Section 901. Termination Upon Expiration Date 39
Section 902. Early Termination 39
Section 903. Termination 39
Section 904. Liquidation 40
Section 905. Mergers, Consolidations, Amalgamations or Replacements of the Trust 41
iii
<PAGE> 4
ARTICLE X - MISCELLANEOUS PROVISIONS 42
Section 1001. Limitation of Rights of Securityholders 42
Section 1002. Amendment 42
Section 1003. Separability 43
Section 1004. Governing Law 43
Section 1005. Payments Due on Non-Business Day 43
Section 1006. Successors 43
Section 1007. Headings 44
Section 1008. Reports, Notices and Demands 44
Section 1009. Agreement Not to Petition 44
Section 1010. Trust Indenture Act; Conflict with Trust Indenture Act 45
Section 1011. Acceptance of Terms of Trust Agreement, Guarantee and Indenture 45
Signatures 46
Exhibit A Certificate of Trust
Exhibit B Form of Common Securities Certificate
Exhibit C Form of Expense Agreement
Exhibit D Form of Preferred Securities Certificate
</TABLE>
iv
<PAGE> 5
<TABLE>
CROSS-REFERENCE TABLE
<CAPTION>
Section of Section of
Trust Indenture Act Amended and Restated
of 1939, as amended Trust Agreement
- ------------------- ---------------
<S> <C>
310(a)(1) 807
310(a)(2) 807
310(a)(3) 807
310(a)(4) 207(a)(ii)
310(b) 808
311(a) 813
311(b) 813
312(a) 507
312(b) 507
312(c) 507
313(a) 814(a)
313(a)(4) 814(b)
313(b) 814(b)
313(c) 1008
313(d) 814(c)
314(a) 815
314(b) Not Applicable
314(c)(1) 816
314(c)(2) 816
314(c)(3) Not Applicable
314(d) Not Applicable
314(e) 101, 816
315(a) 801(a), 803(a)
315(b) 802, 1008
315(c) 801(a)
315(d) 801, 803
316(a)(2) Not Applicable
316(b) Not Applicable
316(c) 607
317(a)(1) Not Applicable
317(a)(2) Not Applicable
317(b) 509
318(a) 1010
Note: This Cross-Reference Table does not constitute part of
this Agreement and should not affect the interpretation
of any of its terms or provisions.
</TABLE>
v
<PAGE> 6
AMENDED AND RESTATED TRUST AGREEMENT
AMENDED AND RESTATED TRUST AGREEMENT, dated as of ,
--------------
1998, among (i) FIRST BANKS AMERICA, INC., a Delaware corporation
(including any successors or assigns, the "Depositor"), (ii) STATE STREET
BANK AND TRUST COMPANY, a 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) WILMINGTON TRUST
COMPANY, a Delaware banking corporation duly organized and existing under
the laws of the State of Delaware, as Delaware trustee (the "Delaware
Trustee," and, in its separate corporate capacity and not in its capacity as
Delaware Trustee, the "Delaware Bank"), (iv) JAMES F. DIERBERG, an
individual, ALLEN H. BLAKE, an individual, and LAURENCE J. BROST, an
individual, each of whose address is c/o First Banks America, Inc., 11901
Olive Boulevard, St. Louis, Missouri 63141 (each an "Administrative Trustee"
and collectively the "Administrative Trustees") (the Property Trustee, the
Delaware Trustee and the Administrative Trustees referred to collectively as
the "Trustees"), and (v) the several Holders (as hereinafter defined).
RECITALS
WHEREAS, the Depositor, the Delaware Trustee, and James F. Dierberg,
Allen H. Blake and Laurence J. Brost, each as an Administrative Trustee, have
heretofore duly declared and established a business trust pursuant to the
Delaware Business Trust Act by entering into that certain Trust Agreement,
dated as of June ____, 1998 (the "Original Trust Agreement"), and by the
execution and filing by the Delaware Trustee, the Depositor and the
Administrative Trustees with the Secretary of State of the State of Delaware
of the Certificate of Trust, filed on June _____, 1998, the form of which is
attached as Exhibit A; and
WHEREAS, the Depositor, the Delaware Trustee, the Property Trustee and
the Administrative Trustees desire to amend and restate the Original Trust
Agreement in its entirety as set forth herein to provide for, among other
things, (i) the issuance of the Common Securities (as defined herein) by the
Trust (as defined herein) to the Depositor; (ii) the issuance and sale of the
Preferred Securities (as defined herein) by the Trust pursuant to the
Underwriting Agreement (as defined herein); (iii) the acquisition by the
Trust from the Depositor of all of the right, title and interest in the
Debentures (as defined herein); and (iv) the appointment of the Trustees;
NOW THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each party, for the benefit of
the other parties and for the benefit of the Securityholders (as defined
herein), hereby amends and restates the Original Trust Agreement in its
entirety and agrees as follows:
<PAGE> 7
ARTICLE I
DEFINED TERMS
SECTION 101. DEFINITIONS.
For all purposes of this Trust Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article I have the meanings assigned to
them in this Article I and include the plural as well as the singular;
(b) all other terms used herein that are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may
be, of this Trust Agreement; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision.
"Act" has the meaning specified in Section 608.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or a given period, the amount of additional interest
accrued on interest in arrears and paid by the Depositor on a Like Amount of
Debentures for such period.
"Additional Interest" has the meaning specified in Section 1.1 of the
Indenture.
"Administrative Trustee" means each of James F. Dierberg, Allen H.
Blake and Laurence J. Brost, solely 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, 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 Preferred Securities appointed by the Property Trustee pursuant to
Section 503.
"Bank" has the meaning specified in the Preamble to this Trust
Agreement.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction in
the premises adjudging such Person a bankrupt or insolvent, or approving as
properly filed a petition seeking liquidation or reorganization of or in
respect of such Person under the United States Bankruptcy Code of 1978, as
amended, or any other similar applicable federal or state law, and the
continuance of any such decree or order unvacated and unstayed for a period
of 90 days; or the commencement of an involuntary case under the United
States Bankruptcy Code of 1978, as amended, in respect of such Person, which
shall continue undismissed for a period of 90 days or entry of an order for
relief
2
<PAGE> 8
in such case; or the entry of a decree or order of a court having
jurisdiction in the premises for the appointment on the ground of insolvency
or bankruptcy of a receiver, custodian, liquidator, trustee or assignee in
bankruptcy or insolvency of such Person or of its property, or for the
winding up or liquidation of its affairs, and such decree or order shall have
remained in force unvacated and unstayed for a period of 90 days; or
(b) the institution by such Person of proceedings to be adjudicated a
voluntary bankrupt, or the consent by such Person to the filing of a
bankruptcy proceeding against it, or the filing by such Person of a petition
or answer or consent seeking liquidation or reorganization under the United
States Bankruptcy Code of 1978, as amended, or other similar applicable
Federal or State law, or the consent by such Person to the filing of any such
petition or to the appointment on the ground of insolvency or bankruptcy of a
receiver or custodian or liquidator or trustee or assignee in bankruptcy or
insolvency of such Person or of its property, or shall make a general
assignment for the benefit of creditors.
"Bankruptcy Laws" has the meaning specified in Section 1009.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Depositor to have been duly
adopted by the Depositor's Board of Directors, or such committee of the Board
of Directors or officers of the Depositor to which authority to act on behalf
of the Board of Directors has been delegated, and to be in full force and
effect on the date of such certification, and delivered to the appropriate
Trustee.
"Business Day" means a day other than a Saturday or Sunday, a day on
which banking institutions in The City of New York are authorized or required
by law, executive order or regulation to remain closed, or a day on which the
Property Trustee's Corporate Trust Office or the Corporate Trust Office of
the Debenture Trustee is closed for business.
"Certificate of Trust" means the certificate of trust filed with the
Secretary of State of the State of Delaware with respect to the Trust, as
amended or restated from time to time.
"Change in 1940 Act Law" shall have the meaning set forth in the
definition of "Investment Company Event."
"Closing Date" means the date of execution and delivery of this Trust
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
"Common Security" means an undivided beneficial interest in the assets
of the Trust, having a Liquidation Amount of $25 and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution as provided herein.
"Common Securities Certificate" means a certificate evidencing
ownership of Common Securities, substantially in the form attached as
Exhibit B.
"Common Securityholder" means the Holder of the Common Security.
"Corporate Trust Office" means the office at which, at any particular
time, the corporate trust business of the Property Trustee or the Debenture
Trustee, as the case may be, shall be principally administered, which office
at the date hereof, in each such case, is located at Two International Place,
4th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust
Department.
3
<PAGE> 9
"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
banking corporation organized under the laws of the Commonwealth of
Massachusetts and any successor thereto, as trustee under the Indenture.
"Debentures" means the $41,237,125 (or $47,442,700 if the Underwriters
exercise their Option) aggregate principal amount of the Depositor's %
------
Subordinated Debentures due 2028, issued pursuant to the Indenture.
"Definitive Preferred Securities Certificates" means the Preferred
Securities Certificates issued in certificated, fully registered form as
provided in Section 511.
"Delaware Bank" has the meaning specified in the Preamble to this Trust
Agreement.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Delaware Code Sections 3801 et seq., as it may be amended
from time to time.
"Delaware Trustee" means the commercial bank or trust company
identified as the "Delaware Trustee" in the Preamble to this Trust Agreement,
solely in its capacity as Delaware Trustee of the Trust formed and continued
hereunder and not in its individual capacity, or its successor in interest in
such capacity, or any successor trustee appointed as herein provided.
"Depositor" has the meaning specified in the Preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 401(a).
"Distributions" means amounts payable in respect of the Trust
Securities as provided in Section 401.
"Early Termination Event" has the meaning specified in Section 902.
"Event of Default" means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) the occurrence of a Debenture Event of Default; or
(b) default by the Trust or the Property Trustee in the payment of
any Distribution when it becomes due and payable, and continuation of such
default for a period of 30 days; or
(c) default by the Trust or the Property Trustee in the payment of
any Redemption Price of any Trust Security when it becomes due and payable;
or
(d) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Trustees in this Trust Agreement (other
than a covenant or warranty a default in the performance of which or the
breach of which is dealt with in clause (b) or (c), above) and continuation
of such default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the defaulting Trustee or Trustees by the
Holders of at least 25% in aggregate liquidation preference of the
Outstanding Preferred Securities a written notice specifying
4
<PAGE> 10
such default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(e) the occurrence of a Bankruptcy Event with respect to the Property
Trustee and the failure by the Depositor to appoint a successor Property
Trustee within 60 days thereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expense Agreement" means the Agreement as to Expenses and Liabilities
between the Depositor and the Trust, substantially in the form attached as
Exhibit C, as amended from time to time.
"Expiration Date" has the meaning specified in Section 901.
"Extended Interest Payment Period" has the meaning specified in
Section 4.1 of the Indenture.
"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 Preferred Securityholders, as amended from
time to time.
"Indenture" means the Indenture, dated as of
-----------------------,
1998, between the Depositor and the Debenture Trustee, as trustee, as amended
or supplemented from time to time pertaining to the Debentures of the
Depositor.
"Investment Company Act," means the Investment Company Act of 1940, 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 having a recognized national tax and
securities law practice, to the effect that, as a result of the occurrence of
a change in law or regulation or a change in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority (a "Change in 1940 Act Law"), the Trust is or shall be
considered an "investment company" that is required to be registered under
the Investment Company Act, which Change in 1940 Act Law becomes effective on
or after the date of original issuance of the 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.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Liquidation Date" means the date on which Debentures are to be
distributed to Holders of Trust Securities in connection with a termination
and liquidation of the Trust pursuant to Section 904(a).
5
<PAGE> 11
"Liquidation Distribution" has the meaning specified in Section 904(d).
"Officers' Certificate" means a certificate signed by the President or
a Vice President and by the Treasurer or an Assistant Treasurer or the
Controller or an Assistant Controller or the Secretary or an Assistant
Secretary, of the Depositor, and delivered to the appropriate Trustee. One
of the officers signing an Officers' Certificate given pursuant to
Section 816 shall be the principal executive, financial or accounting officer
of the Depositor. Any Officers' Certificate delivered with respect to
compliance with a condition or covenant provided for in this Trust Agreement
shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Opinion of Counsel" means an opinion in writing of legal counsel, who
may be counsel for the Trust, the Property Trustee, the Delaware Trustee or
the Depositor, but not an employee of any thereof, and who shall be
reasonably acceptable to the Property Trustee.
"Original Trust Agreement" has the meaning specified in the Recitals to
this Trust Agreement.
"Outstanding", when used with respect to Preferred Securities, means,
as of the date of determination, all Preferred Securities theretofore
executed and delivered under this Trust Agreement, except:
(a) Preferred Securities theretofore canceled by the Property Trustee
or delivered to the Property Trustee for cancellation;
(b) Preferred Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Property Trustee or
any Paying Agent for the Holders of such Preferred Securities; provided that,
if such Preferred Securities are to be redeemed, notice of such redemption
has been duly given pursuant to this Trust Agreement; and
(c) Preferred Securities which have been paid or in exchange for or
in lieu of which other Preferred Securities have been executed and delivered
pursuant to Sections 504, 505, and 511; provided, however, that in
determining whether the Holders of the requisite Liquidation Amount of the
Outstanding Preferred Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Preferred
Securities owned by the Depositor, any Trustee or any Affiliate of the
Depositor or any Trustee shall be disregarded and deemed not to be
Outstanding, except that (a) in determining whether any Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Preferred Securities that such Trustee knows
to be so owned shall be so disregarded; and (b) the foregoing shall not apply
at any time when all of the outstanding Preferred Securities are owned by the
Depositor, one or more of the Trustees and/or any such Affiliate. Preferred
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the
Administrative Trustees the pledgee's right so to act with respect to such
Preferred Securities and the pledgee is not the Depositor or any other
Obligor upon the Preferred Securities or a Person directly
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<PAGE> 12
or indirectly controlling or controlled by or under direct or indirect common
control with the Depositor or any Affiliate of the Depositor.
"Paying Agent" means any paying agent or co-paying agent appointed
pursuant to Section 509 and shall initially be the Bank.
"Payment Account" means a segregated non-interest-bearing corporate
trust account maintained by the Property Trustee with the Bank in its trust
department for the benefit of the Securityholders in which all amounts paid
in respect of the Debentures shall be held and from which the Property
Trustee shall make payments to the Securityholders in accordance with
Sections 401 and 402.
"Person" means any individual, corporation, partnership, joint venture,
trust, limited liability company or corporation, unincorporated organization
or government or any agency or political subdivision thereof.
"Preferred Securities Certificate", means a certificate evidencing
ownership of Preferred Securities, substantially in the form attached as
Exhibit D.
"Preferred Security" means an undivided beneficial interest in the
assets of the Trust, having a Liquidation Amount of $25 and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution as provided herein.
"Preferred Securityholder" means a Holder of a Preferred Security.
"Property Trustee" means the commercial bank or trust company
identified as the "Property Trustee," in the Preamble to this Trust Agreement
solely in its capacity as Property Trustee of the Trust heretofore formed and
continued hereunder and not in its individual capacity, or its successor in
interest in such capacity, or any successor property trustee appointed as
herein provided.
"Redemption Date" means, with respect to any Trust Security to be
redeemed, the date fixed for such redemption by or pursuant to this Trust
Agreement; provided that each Debenture Redemption Date and the stated
maturity of the Debentures shall be a Redemption Date for a Like Amount of
Trust Securities.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, paid by the Depositor upon the
concurrent redemption of a Like Amount of Debentures, allocated on a pro rata
basis (based on Liquidation Amounts) among the Trust Securities.
"Relevant Trustee" shall have the meaning specified in Section 810.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 504.
"Securityholder" or "Holder" means a Person in whose name a Trust
Security or Securities is registered in the Securities Register; any such
Person is a beneficial owner within the meaning of the Delaware Business
Trust Act.
"Trust" means the Delaware business trust created and continued hereby
and identified on the cover page to this Trust Agreement.
"Trust Agreement" means this Amended and Restated Trust Agreement, as
the same may be modified, amended or supplemented in accordance with the
applicable provisions hereof, including all exhibits hereto, including, for
all purposes of this Trust Agreement and any such modification,
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<PAGE> 13
amendment or supplement, the provisions of the Trust Indenture Act that are
deemed to be a part of and govern this Trust Agreement and any such
modification, amendment or supplement, respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, as in force at the date as of which this instrument was executed;
provided, however, that in the event the Trust Indenture Act of 1939, as
amended, is amended after such date, "Trust Indenture Act" means, to the
extent required by any such amendment, the Trust Indenture Act of 1939 as so
amended.
"Trust Property" means (a) the Debentures; (b) 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 this Trust Agreement.
"Trust Security" means any one of the Common Securities or the
Preferred Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Preferred Securities Certificates.
"Trustees" means, collectively, the Property Trustee, the Delaware
Trustee and the Administrative Trustees.
"Underwriting Agreement" means the Underwriting Agreement, dated as of
, 1998 among the Trust, the Depositor and the
- ----------------- ------
Underwriters named therein.
ARTICLE II
ESTABLISHMENT OF THE TRUST
SECTION 201. NAME.
The Trust created and continued hereby shall be known as "First America
Capital Trust," as such name may be modified from time to time by the
Administrative Trustees following written notice to the Holders of Trust
Securities and the other Trustees, in which name the Trustees may engage in
the transactions contemplated hereby, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
SECTION 202. OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF
BUSINESS.
The address of the Delaware Trustee in the State of Delaware is c/o
Wilmington Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration,
or such other address in the State of Delaware as the Delaware Trustee may
designate by written notice to the Securityholders and the Depositor. The
principal executive office of the Trust is c/o First Banks America, Inc., 135
North Meramec Avenue, St. Louis, Missouri 63105.
SECTION 203. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL
EXPENSES.
The Trustees acknowledge receipt in trust from the Depositor in
connection with the Original Trust Agreement of the sum of $10, which
constituted the initial Trust Property. The Depositor shall pay
organizational expenses of the Trust as they arise or shall, upon request of
any Trustee, promptly reimburse such Trustee for any such expenses paid by
such Trustee. The Depositor shall make no claim upon the Trust Property for
the payment of such expenses.
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SECTION 204. ISSUANCE OF THE PREFERRED SECURITIES.
On , 1998, the Depositor and an
-------------------- -----
Administrative Trustee, on behalf of the Trust and pursuant to the Original
Trust Agreement, executed and delivered the Underwriting Agreement.
Contemporaneously with the execution and delivery of this Trust Agreement, an
Administrative Trustee, on behalf of the Trust, shall execute in accordance
with Section 502 and deliver in accordance with the Underwriting Agreement,
Preferred Securities Certificates, registered in the name of the Persons
entitled thereto, in an aggregate amount of 1,600,000 Preferred Securities
having an aggregate Liquidation Amount of $40,000,000 against receipt of the
aggregate purchase price of such Preferred Securities of $40,000,000, which
amount such Administrative Trustee shall promptly deliver to the Property
Trustee. If the Underwriters exercise their Option and there is an Option
Closing Date (as such terms are defined in the Underwriting Agreement), then
an Administrative Trustee, on behalf of the Trust, shall execute in
accordance with Section 502, and deliver in accordance with the Underwriting
Agreement, additional Preferred Securities Certificates, registered in the
name of the Persons entitled thereto in an aggregate amount of up to 240,000
Preferred Securities having an aggregate Liquidation Amount of up to
$6,000,000 against receipt of the aggregate purchase price of such Preferred
Securities equal to the product of $25 multiplied by the number of Preferred
Securities purchased pursuant to the Option, which amount such Administrative
Trustee shall promptly deliver to the Property Trustee.
SECTION 205. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION
AND PURCHASE OF DEBENTURES.
(a) Contemporaneously with the execution and delivery of this Trust
Agreement, an Administrative Trustee, on behalf of the Trust, shall execute
in accordance with Section 502 and deliver to the Depositor Common Securities
Certificates registered in the name of the Depositor, in an aggregate amount
of 49,485 Common Securities having an aggregate Liquidation Amount of
$1,237,125 against payment by the Depositor of such amount. Contemporaneously
therewith, an Administrative Trustee, on behalf of the Trust, shall subscribe
to and purchase from the Depositor Debentures, registered in the name of the
Property Trustee on behalf of the Trust and having an aggregate principal
amount equal to $1,237,125 and, in satisfaction of the purchase price for such
Debentures, the Property Trustee, on behalf of the Trust, shall deliver to the
Depositor the sum of $1,237,125.
(b) If the Underwriters exercise the Option and there is an Option
Closing Date, then an Administrative Trustee, on behalf of the Trust, shall
execute in accordance with Section 502, and deliver to the Depositor, Common
Securities Certificates, registered in the name of the Depositor, in an
aggregate amount of up to 8,223 Common Securities having an aggregate
Liquidation Amount of up to $205,575 against payment by the Depositor of an
amount equal to the product of $25 multiplied by the number of additional
Common Securities purchased by the Depositor. 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 of up to $205,575, and, in satisfaction of the purchase price of such
Debentures, the Property Trustee, on behalf of the Trust, shall deliver to
the Depositor an amount equal to the sum of the amounts received from one of
the Administrative Trustees pursuant to the first sentence of this Section
205(b) and the last sentence of Section 204.
SECTION 206. DECLARATION OF TRUST.
The exclusive purposes and functions of the Trust are (a) to issue and
sell Trust Securities and use the proceeds from such sale to acquire the
Debentures; and (b) to engage in those activities necessary, convenient or
incidental thereto. The Depositor hereby appoints the Trustees as trustees
of the Trust, to have all the rights, powers and duties to the extent set
forth herein, and the Trustees hereby accept such appointment. The Property
Trustee hereby declares that it shall hold the Trust Property in trust upon
and subject to the conditions set forth herein for the benefit of the
Securityholders. The Administrative Trustees shall have all rights, powers
and duties set forth herein
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and in accordance with applicable law with respect to accomplishing the
purposes of the Trust. The Delaware Trustee shall not be entitled to
exercise any powers, nor shall the Delaware Trustee have any of the duties
and responsibilities, of the Property Trustee or the Administrative Trustees
set forth herein. The Delaware Trustee shall be one of the Trustees of the
Trust for the sole and limited purpose of fulfilling the requirements of
Section 3807 of the Delaware Business Trust Act.
SECTION 207. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS.
(a) The Trustees shall conduct the affairs of the Trust in accordance
with the terms of this Trust Agreement. Subject to the limitations set forth
in paragraph (b) of this Section 207 and Article VIII, and in accordance with
the following provisions (i) and (ii), the Administrative Trustees shall have
the authority to enter into all transactions and agreements determined by the
Administrative Trustees to be appropriate in exercising the authority,
express or implied, otherwise granted to the Administrative Trustees under
this Trust Agreement, and to perform all acts in furtherance thereof,
including without limitation, the following:
(i) As among the Trustees, each Administrative Trustee, acting
singly or jointly, shall have the power and authority to act on behalf of the
Trust with respect to the following matters:
(A) the issuance and sale of the Trust Securities;
(B) to cause the Trust to enter into, and to execute,
deliver and perform on behalf of the Trust, the Expense Agreement and such
other agreements or documents as may be necessary or desirable in connection
with the purposes and function of the Trust;
(C) assisting in the registration of the Preferred
Securities under the Securities Act of 1933, as amended, and under state
securities or blue sky laws, and the qualification of this Trust Agreement as
a trust indenture under the Trust Indenture Act;
(D) assisting in the listing of the Preferred Securities
upon the New York Stock Exchange or such securities exchange or exchanges as
shall be determined by the Depositor and the registration of the Preferred
Securities under the Exchange Act, and the preparation and filing of all
periodic and other reports and other documents pursuant to the foregoing;
(E) the sending of notices (other than notices of
default) and other information regarding the Trust Securities and the
Debentures to the Securityholders in accordance with this Trust Agreement;
(F) the appointment of a Paying Agent, authenticating
agent and Securities Registrar in accordance with this Trust Agreement;
(G) to the extent provided in this Trust Agreement, the
winding up of the affairs of and liquidation of the Trust and the
preparation, execution and filing of the certificate of cancellation with the
Secretary of State of the State of Delaware;
(H) to take all action that may be necessary or
appropriate for the preservation and the continuation of the Trust's valid
existence, rights, franchises and privileges as a statutory business trust
under the laws of the State of Delaware and of each other jurisdiction in
which such existence is necessary to protect the limited liability of the
Preferred Securityholders or to enable the Trust to effect the purposes for
which the Trust was created; and
(I) the taking of any action incidental to the foregoing
as the Administrative Trustees may from time to time determine is necessary
or advisable to give effect to the terms of this Trust Agreement for the
benefit of the Securityholders (without consideration of the effect of any
such action on any particular Securityholder).
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<PAGE> 16
(ii) As among the Trustees, the Property Trustee shall have the
power, duty and authority to act on behalf of the Trust with respect to the
following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Debentures;
(C) the collection of interest, principal and any other
payments made in respect of the Debentures in the Payment Account;
(D) the distribution of amounts owed to the
Securityholders in respect of the Trust Securities in accordance with the
terms of this Trust Agreement;
(E) the exercise of all of the rights, powers and
privileges of a holder of the Debentures;
(F) the sending of notices of default and other
information regarding the Trust Securities and the Debentures to the
Securityholders in accordance with this Trust Agreement;
(G) the distribution of the Trust Property in accordance
with the terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the
winding up of the affairs of and liquidation of the Trust;
(I) after an Event of Default, the taking of any action
incidental to the foregoing as the Property Trustee may from time to time
determine is necessary or advisable to give effect to the terms of this Trust
Agreement and protect and conserve the Trust Property for the benefit of the
Securityholders (without consideration of the effect of any such action on
any particular Securityholder);
(J) registering transfers of the Trust Securities in
accordance with this Trust Agreement; and
(K) except as otherwise provided in this Section
207(a)(ii), the Property Trustee shall have none of the duties, liabilities,
powers or the authority of the Administrative Trustees set forth in Section
207(a)(i).
(b) So long as this Trust Agreement remains in effect, the Trust (or
the Trustees acting on behalf of the Trust) shall not undertake any business,
activities or transaction except as expressly provided herein or contemplated
hereby. In particular, the Trustees shall not (i) acquire any investments or
engage in any activities not authorized by this Trust Agreement; (ii) sell,
assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of
any of the Trust Property or interests therein, including to Securityholders,
except as expressly provided herein; (iii) take any action that would cause
the Trust to fail or cease to qualify as a "grantor trust" for United States
federal income tax purposes; (iv) incur any indebtedness for borrowed money
or issue any other debt; or (v) take or consent to any action that would
result in the placement of a Lien on any of the Trust Property. The
Administrative Trustees shall defend all claims and demands of all Persons at
any time claiming any Lien on any of the Trust Property adverse to the
interest of the Trust or the Securityholders in their capacity as
Securityholders.
(c) In connection with the issue and sale of the Preferred
Securities, the Depositor shall have the right and responsibility to assist
the Trust with respect to, or effect on behalf of the Trust, the following
(and any actions taken by the Depositor in furtherance of the following prior
to the date of this Trust Agreement are hereby ratified and confirmed in all
respects):
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<PAGE> 17
(i) the preparation and filing by the Trust with the Commission
and the execution on behalf of the Trust of a registration statement on the
appropriate form in relation to the Preferred Securities and the Debentures,
including any amendments thereto;
(ii) the determination of the states in which to take
appropriate action to qualify or, register for sale all or part of the
Preferred Securities and to do any and all such acts, other than actions
which must be taken by or on behalf of the Trust, and advise the Trustees of
actions they must take on behalf of the Trust, and prepare for execution and
filing any documents to be executed and filed by the Trust or on behalf of
the Trust, as the Depositor deems necessary or advisable in order to comply
with the applicable laws of any such states;
(iii) the preparation for filing by the Trust and execution on
behalf of the Trust of an application to the New York Stock Exchange or
another national stock exchange or other organization for listing upon notice
of issuance of any Preferred Securities and to file or cause an Administrative
Trustee to file thereafter with such exchange or organization such
notifications and documents as may be necessary from time to time;
(iv) the preparation for filing by the Trust with the Commission
and the execution on behalf of the Trust of a registration statement on
Form 8-A relating to the registration of the Preferred Securities under
Section 12(b) or 12(g) of the Exchange Act, including any amendments thereto;
(v) the negotiation of the terms of, and the execution and
delivery of, the Underwriting Agreement providing for the sale of the
Preferred Securities; and
(vi) the taking of any other actions necessary or desirable to
carry out any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the
Administrative Trustees are authorized and directed to conduct the affairs of
the Trust and to operate the Trust so that the Trust shall not be deemed to
be an "investment company" required to be registered under the Investment
Company Act, shall be classified as a "grantor trust" and not as an
association taxable as a corporation for United States federal income tax
purposes and so that the Debentures shall be treated as indebtedness of the
Depositor for United States federal income tax purposes. In this connection,
subject to Section 1002, the Depositor and the Administrative Trustees are
authorized to take any action, not inconsistent with applicable law or this
Trust Agreement, that each of the Depositor and the Administrative Trustees
determines in their discretion to be necessary or desirable for such
purposes.
SECTION 208. ASSETS OF TRUST.
The assets of the Trust shall consist of the Trust Property.
SECTION 209. TITLE TO TRUST PROPERTY.
Legal title to all Trust Property shall be vested at all times in the
Property Trustee (in its capacity as such) and shall be held and administered
by the Property Trustee for the benefit of the Securityholders in accordance
with this Trust Agreement.
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ARTICLE III
PAYMENT ACCOUNT
SECTION 301. PAYMENT ACCOUNT.
(a) On or prior to the Closing Date, the Property Trustee shall
establish the Payment Account. The Property Trustee and any agent of the
Property Trustee shall have exclusive control and sole right of withdrawal
with respect to the Payment Account for the purpose of making deposits and
withdrawals from the Payment Account in accordance with this Trust Agreement.
All monies and other property deposited or held from time to time in the
Payment Account shall be held by the Property Trustee in the Payment Account
for the exclusive benefit of the Securityholders and for distribution as
herein provided, including (and subject to) any priority of payments provided
for herein.
(b) The Property Trustee shall deposit in the Payment Account,
promptly upon receipt, 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.
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ARTICLE IV
DISTRIBUTIONS; REDEMPTION
SECTION 401. DISTRIBUTIONS.
(a) Distributions on the Trust Securities shall be cumulative, and
shall accumulate whether or not there are funds of the Trust available for
the payment of Distributions. Distributions shall accumulate from
, 1998, and, except during any Extended Interest
- ------------------ ------
Payment Period with respect to the Debentures, shall be payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year,
commencing on , 1998. If any date on which a
-------------------- -----
Distribution is otherwise payable on the Trust Securities is not a Business
Day, then the payment of such Distribution shall be made on the next
succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay) with the same force and effect as if
made on such date (each date on which distributions are payable in accordance
with this Section 401(a), a "Distribution Date").
(b) The Trust Securities represent undivided beneficial interests in
the Trust Property, and, as a practical matter, the Distributions on the
Trust Securities shall be payable at a rate of % per annum of the
------
Liquidation Amount of the Trust Securities. The amount of Distributions
payable for any full period shall be computed on the basis of a 360-day year
of twelve 30-day months. The amount of Distributions for any partial period
shall be computed on the basis of the number of days elapsed in a 360-day
year of twelve 30 day months. During any Extended Interest Payment Period
with respect to the Debentures, Distributions on the Preferred Securities
shall be deferred for a period equal to the Extended Interest Payment Period.
The amount of Distributions payable for any period shall include the
Additional Amounts, if any.
(c) Distributions on the Trust Securities shall be made by the
Property Trustee solely from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Trust has funds then on hand
and immediately available by 12:30 p.m. on each Distribution Date in the
Payment Account for the payment of such Distributions.
(d) Distributions on the Trust Securities with respect to a
Distribution Date shall be payable to the Holders thereof as they appear on
the Securities Register for the Trust Securities on the relevant record date,
which shall be the 15th day of the month in which the Distribution is
payable.
SECTION 402. REDEMPTION.
(a) On each Debenture Redemption Date and on the stated maturity of
the Debentures, the Trust shall be required to redeem a Like Amount of Trust
Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee by
first-class mail, postage prepaid, mailed not less than 30 nor more than
60 days prior to the Redemption Date to each Holder of Trust Securities to be
redeemed, at such Holder's address appearing in the Securities Register. The
Property Trustee shall have no responsibility for the accuracy of any CUSIP
number contained in such notice. All notices of redemption shall state:
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(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the CUSIP number;
(iv) if less than all the Outstanding Trust Securities are to be
redeemed, the identification and the aggregate Liquidation Amount of the
particular Trust Securities to be redeemed; and
(v) that, on the Redemption Date, the Redemption Price shall
become due and payable upon each such Trust Security to be redeemed and that
Distributions thereon shall cease to accumulate on and after said date.
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption of Debentures. Redemptions of the Trust Securities shall be made
and the Redemption Price shall be payable on each Redemption Date only to the
extent that the Trust has immediately available funds then on hand and
available in the Payment Account for the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect
of any Preferred Securities, then, by 12:00 noon, New York City time, on the
Redemption Date, subject to Section 402(c), the Property Trustee shall
deposit with the Paying Agent funds sufficient to pay the applicable
Redemption Price and shall give the Paying Agent irrevocable instructions and
authority to pay the Redemption Price to the Holders thereof upon surrender
of their Preferred Securities Certificates. Notwithstanding the foregoing,
Distributions payable on or prior to the Redemption Date for any Trust
Securities called for redemption shall be payable to the Holders of such
Trust Securities as they appear on the Register for the Trust Securities on
the relevant record dates for the related Distribution Dates. If notice of
redemption shall have been given and funds deposited as required, then upon
the date of such deposit, all rights of Securityholders holding Trust
Securities so called for redemption shall cease, except the right of such
Securityholders to receive the Redemption Price and any Distribution payable
on or prior to the Redemption Date, but without interest, and such Securities
shall cease to be Outstanding. In the event that any date on which any
Redemption Price is payable is not a Business Day, then payment of the
Redemption Price payable on such date shall be made on the next succeeding
day that is a Business Day (and without any interest or other payment in
respect of any such delay) with the same force and effect as if made on such
date. In the event that payment of the Redemption Price in respect of any
Trust Securities called for redemption is improperly withheld or refused and
not paid either by the Trust or by the Depositor pursuant to the Guarantee,
Distributions on such Trust Securities shall continue to accumulate, at the
then applicable rate, from the Redemption Date originally established by the
Trust for such Trust Securities to the date such Redemption Price is actually
paid, in which case the actual payment date shall be the date fixed for
redemption for purposes of calculating the Redemption Price.
(e) Payment of the Redemption Price on the Trust Securities shall be
made to the record holders thereof as they appear on the Securities Register
for the Trust Securities on the relevant record date, which shall be the date
15 days prior to the relevant Redemption Date.
(f) Subject to Section 403(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated on a
pro rata basis (based on Liquidation Amounts) among the Common Securities and
the Preferred Securities. The particular Preferred Securities to be redeemed
shall be selected not more than 60 days prior to the Redemption Date by the
Property Trustee from the outstanding Preferred Securities 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 or an integral
multiple of $25 in excess thereof) of the Liquidation Amount of Preferred
Securities of a denomination larger than $25.
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The Property Trustee shall promptly notify the Securities Registrar in
writing of the Preferred Securities selected for redemption and, in the case
of any Preferred Securities selected for partial redemption, the Liquidation
Amount thereof to be redeemed. For all purposes of this Trust Agreement,
unless the context otherwise requires, all provisions relating to the
redemption of Preferred Securities shall relate, in the case of any Preferred
Securities redeemed or to be redeemed only in part, to the portion of the
Liquidation Amount of Preferred Securities which has been or is to be
redeemed.
SECTION 403. SUBORDINATION OF COMMON SECURITIES.
(a) Payment of Distributions (including Additional Amounts, if
applicable) on, and the Redemption Price of, the Trust Securities, as
applicable, shall be made, subject to Section 402(f), pro rata among the
Common Securities and the Preferred Securities based on the Liquidation
Amount of the Trust Securities; provided, however, that if on any
Distribution Date or Redemption Date any Event of Default resulting from a
Debenture Event of Default shall have occurred and be continuing, no payment
of any Distribution (including Additional Amounts, if applicable) on, or
Redemption Price of, any Common Security, and no other payment on account of
the redemption, liquidation or other acquisition of Common Securities, shall
be made unless payment in full in cash of all accumulated and unpaid
Distributions (including Additional Amounts, if applicable) on all
Outstanding Preferred Securities for all Distribution periods terminating on
or prior thereto, or in the case of payment of the Redemption Price the full
amount of such Redemption Price on all Outstanding Preferred Securities then
called for redemption, shall have been made or provided for, and all funds
immediately available to the Property Trustee shall first be applied to the
payment in full in cash of all Distributions (including Additional Amounts,
if applicable) on, or the Redemption Price of, Preferred Securities then due
and payable.
(b) In the case of the occurrence of any Event of Default resulting
from a Debenture Event of Default, the Holder of Common Securities shall be
deemed to have waived any right to act with respect to any such Event of
Default under this Trust Agreement until the effect of all such Events of
Default with respect to the Preferred Securities shall have been cured,
waived or otherwise eliminated. Until any such Event of Default under this
Trust Agreement with respect to the Preferred Securities shall have been so
cured, waived or otherwise eliminated, the Property Trustee shall act solely
on behalf of the Preferred Securityholders and not the Common Securityholder,
and only the Preferred Securityholders shall have the right to direct the
Property Trustee to act on their behalf.
SECTION 404. PAYMENT PROCEDURES.
Payments of Distributions (including Additional Amounts, if applicable)
in respect of the Preferred Securities shall be made by check mailed to the
address of the Person entitled thereto as such address shall appear on the
Securities Register. Payments in respect of the Common Securities shall be
made in such manner as shall be mutually agreed between the Property Trustee
and the Common Securityholder.
SECTION 405. TAX RETURNS AND REPORTS.
The Administrative Trustees shall prepare (or cause to be prepared), at
the Depositor's expense, and file all United States federal, state and local
tax and information returns and reports required to be filed by or in respect
of the Trust. In this regard, the Administrative Trustees shall (a) prepare
and file (or cause to be prepared and filed) the appropriate Internal Revenue
Service Form required to be filed in respect of the Trust in each taxable
year of the Trust; and (b) prepare and furnish (or cause to be prepared and
furnished) to each Securityholder the appropriate Internal Revenue Service
form required to be furnished to such Securityholder or the information
required to be provided on such form. The Administrative Trustees shall
provide the Depositor with a copy of all such returns and reports promptly
after such filing or furnishing. The Property Trustee shall comply with
United States federal withholding and backup withholding tax laws and
information reporting requirements with respect to any payments to
Securityholders under the Trust Securities.
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SECTION 406. PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST.
Upon receipt under the Debentures of Additional Payments (as defined in
Section 1.1 of the Indenture), the Property Trustee, at the direction of an
Administrative Trustee or the Depositor, shall promptly pay any taxes, duties
or governmental charges of whatsoever nature (other than withholding taxes)
imposed on the Trust by the United States or any other taxing authority.
SECTION 407. PAYMENTS UNDER INDENTURE.
Any amount payable hereunder to any Preferred Securityholder shall be
reduced by the amount of any corresponding payment such Holder has directly
received under the Indenture pursuant to Section 512(b) or (c) hereof.
ARTICLE V
TRUST SECURITIES CERTIFICATES
SECTION 501. INITIAL OWNERSHIP.
Upon the creation of the Trust and the contribution by the Depositor
pursuant to Section 203 and until the issuance of the Trust Securities, and
at any time during which no Trust Securities are outstanding, the Depositor
shall be the sole beneficial owner of the Trust.
SECTION 502. THE TRUST SECURITIES CERTIFICATES.
The Preferred Securities Certificates shall be issued in minimum
denominations of $25 Liquidation Amount and integral multiples of $25 in
excess thereof, and the Common Securities Certificates shall be issued in
denominations of $25 Liquidation Amount and integral multiples thereof. The
Trust Securities Certificates shall be executed on behalf of the Trust by
manual or facsimile signature of at least one Administrative Trustee. Trust
Securities Certificates bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures shall have been
affixed, authorized to sign on behalf of the Trust, shall be validly issued
and entitled to the benefits of this Trust Agreement, notwithstanding that
such individuals or any of them shall have ceased to be so authorized prior
to the delivery of such Trust Securities Certificates or did not hold such
offices at the date of delivery of such Trust Securities Certificates. A
transferee of a Trust Securities Certificate shall become a Securityholder,
and shall be entitled to the rights and subject to the obligations of a
Securityholder hereunder, upon due registration of such Trust Securities
Certificate in such transferee's name pursuant to Sections 504, 511 and 513.
SECTION 503. EXECUTION, AUTHENTICATION AND DELIVERY OF TRUST
SECURITIES CERTIFICATES.
(a) On the Closing Date and, if applicable, the Option Closing Date,
the Administrative Trustees shall cause Trust Securities Certificates, in an
aggregate Liquidation Amount as provided in Sections 204 and 205, to be
executed on behalf of the Trust by at least one of the Administrative
Trustees and delivered to or upon the written order of the Depositor, signed
by its Chief Executive Officer, President, any Vice President, the Treasurer
or any Assistant Treasurer without further corporate action by the Depositor,
in authorized denominations.
(b) A Preferred Securities Certificate shall not be valid until
authenticated by the manual signature of an authorized signatory of the
Property Trustee. The signature shall be conclusive evidence that the
Preferred Securities Certificate has been authenticated under this Trust
Agreement. Each Preferred Security Certificate shall be dated the date of
its authentication.
Upon the written order of the Trust signed by the Administrative
Trustee, the Property Trustee shall authenticate and make available for
delivery the Preferred Securities Certificates.
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The Property Trustee may appoint an Authenticating Agent acceptable to
the Trust to authenticate the Preferred Securities. An Authenticating Agent
may authenticate the Preferred Securities whenever the Property Trustee may
do so. Each reference in this Trust Agreement to authentication by the
Property Trustee includes authentication by such agent. An Authenticating
Agent has the same rights as the Property Trustee to deal with the Company or
the Trust.
SECTION 504. REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED
SECURITIES CERTIFICATES.
(a) The Depositor shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 508, a register or registers for the
purpose of registering Trust Securities Certificates and transfers and
exchanges of Preferred Securities Certificates (herein referred to as the
"Securities Register") in which the registrar designated by the Depositor
(the "Securities Registrar"), subject to such reasonable regulations as it
may prescribe, shall provide for the registration of Preferred Securities
Certificates and Common Securities Certificates (subject to Section 510 in
the case of the Common Securities Certificates) and registration of transfers
and exchanges of Preferred Securities Certificates as herein provided. The
Property Trustee shall be the initial Securities Registrar.
(b) Upon surrender for registration of transfer of any Preferred
Securities Certificate at the office or agency maintained pursuant to
Section 508, the Administrative Trustees or any one of them shall execute and
deliver, in the name of the designated transferee or transferees, one or more
new Preferred Securities Certificates in authorized denominations of a like
aggregate Liquidation Amount dated the date of execution by such
Administrative Trustee or Trustees. The Securities Registrar shall not be
required to register the transfer of any Preferred Securities that have been
called for redemption. At the option of a Holder, Preferred Securities
Certificates may be exchanged for other Preferred Securities Certificates in
authorized denominations of the same class and of a like aggregate
Liquidation Amount upon surrender of the Preferred Securities Certificates to
be exchanged at the office or agency maintained pursuant to Section 508.
(c) Every Preferred Securities Certificate presented or surrendered
for registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Property Trustee and the
Securities Registrar duly executed by the Holder or his attorney duly
authorized in writing. Each Preferred Securities Certificate surrendered for
registration of transfer or exchange shall be canceled and subsequently
disposed of by the Property Trustee in accordance with its customary
practice. The Trust shall not be required to (i) issue, register the transfer
of, or exchange any Preferred Securities during a period beginning at the
opening of business 15 calendar days before the date of mailing of a notice
of redemption of any Preferred Securities called for redemption and ending at
the close of business on the day of such mailing; or (ii) register the
transfer of or exchange any Preferred Securities so selected for redemption,
in whole or in part, except the unredeemed portion of any such Preferred
Securities being redeemed in part.
(d) No service charge shall be made for any registration of transfer
or exchange of Preferred Securities Certificates, but the Securities
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of Preferred Securities Certificates.
SECTION 505. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES
CERTIFICATES.
If (a) any mutilated Trust Securities Certificate shall be surrendered
to the Securities Registrar, or if the Securities Registrar shall receive
evidence to its satisfaction of the destruction, loss or theft of any Trust
Securities Certificate, and (b) there shall be delivered to the Securities
Registrar and the Administrative Trustees such security or indemnity as may
be required by them to save each of them harmless, then in the absence of
notice that such Trust Securities Certificate shall have been acquired by a
bona fide purchaser, the Administrative Trustees, or any one of them, on
behalf of the Trust shall execute and make available for delivery, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Trust Securities Certificate, a new Trust Securities Certificate of like
class,
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tenor and denomination. In connection with the issuance of any new Trust
Securities Certificate under this Section 505, the Administrative Trustees or
the Securities Registrar may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection
therewith. Any duplicate Trust Securities Certificate issued pursuant to
this Section 505 shall constitute conclusive evidence of an undivided
beneficial interest in the assets of the Trust, as if originally issued,
whether or not the lost, stolen or destroyed Trust Securities Certificate
shall be found at any time.
SECTION 506. PERSONS DEEMED SECURITYHOLDERS.
The Trustees, the Paying Agent and the Securities Registrar shall treat
the Person in whose name any Trust Securities Certificate shall be registered
in the Securities Register as the owner of such Trust Securities Certificate
for the purpose of receiving Distributions and for all other purposes
whatsoever, and neither the Trustees nor the Securities Registrar shall be
bound by any notice to the contrary.
SECTION 507. ACCESS TO LIST OF SECURITYHOLDERS' NAMES AND ADDRESSES.
At any time when the Property Trustee is not also acting as the
Securities Registrar, the Administrative Trustees or the Depositor shall
furnish or cause to be furnished to the Property Trustee (a) semi-annually on
or before January 15 and July 15 in each year, a list, in such form as the
Property Trustee may reasonably require, of the names and addresses of the
Securityholders as of the most recent record date; and (b) promptly after
receipt by any Administrative Trustee or the Depositor of a request therefor
from the Property Trustee in order to enable the Property Trustee to
discharge its obligations under this Trust Agreement, in each case to the
extent such information is in the possession or control of the Administrative
Trustees or the Depositor and is not identical to a previously supplied list
or has not otherwise been received by the Property Trustee in its capacity as
Securities Registrar. The rights of Securityholders to communicate with
other Securityholders with respect to their rights under this Trust Agreement
or under the Trust Securities and the corresponding rights of the Trustee
shall be as provided in the Trust Indenture Act. Each Holder, by receiving
and holding a Trust Securities Certificate, and each owner shall be deemed to
have agreed not to hold the Depositor, the Property Trustee or the
Administrative Trustees accountable by reason of the disclosure of its name
and address, regardless of the source from which such information was
derived.
SECTION 508. MAINTENANCE OF OFFICE OR AGENCY.
The Administrative Trustees shall maintain in The City of New York or
other location designated by the Administrative Trustees, an office or
offices or agency or agencies where Preferred Securities Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Trustees in respect of the Trust Securities
Certificates may be served. The Administrative Trustees initially designate
the Corporate Trust Office of the Property Trustee, Two International Place,
4th Floor, Boston, Massachusetts 02110, as the principal corporate trust
office for such purposes. The Administrative Trustees shall give prompt
written notice to the Depositor and to the Securityholders of any change in
the location of the Securities Register or any such office or agency.
SECTION 509. APPOINTMENT OF PAYING AGENT.
The Property Trustee shall act as the Paying Agent. The Paying Agent
shall make Distributions to Securityholders from the Payment Account and
shall report the amounts of such Distributions to the Property Trustee and
the Administrative Trustees. Any Paying Agent shall have the revocable power
to withdraw funds from the Payment Account for the purpose of making the
Distributions referred to above. The Administrative Trustees may revoke such
power and remove the Paying Agent if such Trustees determine in their sole
discretion that the Paying Agent shall have failed to perform its obligations
under this Trust Agreement in any material respect. The Paying Agent shall
initially be the Property Trustee, and any co-paying agent chosen by the
Property
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Trustee, and acceptable to the Administrative Trustees and the Depositor.
Any Person acting as Paying Agent shall be permitted to resign as Paying
Agent upon 30 days' written notice to the Administrative Trustees, the
Property Trustee and the Depositor. In the event that the Property Trustee
shall no longer be the Paying Agent or a successor Paying Agent shall resign
or its authority to act be revoked, the Administrative Trustees shall appoint
a successor (which shall be a bank or trust company) that is acceptable to
the Property Trustee and the Depositor to act as Paying Agent. The
Administrative Trustees shall cause such successor Paying Agent or any
additional Paying Agent appointed by the Administrative Trustees to execute
and deliver to the Trustees an instrument in which such successor Paying
Agent or additional Paying Agent shall agree with the Trustees that as Paying
Agent, such successor Paying Agent or additional Paying Agent shall hold all
sums, if any, held by it for payment to the Securityholders in trust for the
benefit of the Securityholders entitled thereto until such sums shall be paid
to such Securityholders. The Paying Agent shall return all unclaimed funds
to the Property Trustee and, upon removal of a Paying Agent, such Paying
Agent shall also return all funds in its possession to the Property Trustee.
The provisions of Sections 801, 803 and 806 shall apply to the Property
Trustee also in its role as Paying Agent, for so long as the Property Trustee
shall act as Paying Agent and, to the extent applicable, to any other paying
agent appointed hereunder. Any reference in this Agreement to the Paying
Agent shall include any co-paying agent unless the context requires
otherwise.
SECTION 510. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR.
On the Closing Date, the Depositor shall acquire and retain beneficial
and record ownership of the Common Securities. To the fullest extent
permitted by law, any attempted transfer of the Common Securities (other than
a transfer in connection with a merger or consolidation of the Depositor into
another corporation pursuant to Section 12.1 of the Indenture) shall be void.
The Administrative Trustees shall cause each Common Securities Certificate
issued to the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT
TRANSFERABLE."
SECTION 511. PREFERRED SECURITIES CERTIFICATES.
(a) Each owner shall receive a Preferred Securities Certificate
representing such owner's interest in such Preferred Securities. Upon the
issuance of Definitive Preferred Securities Certificates, the Trustees shall
recognize the record holders of the Definitive Preferred Securities
Certificates as Securityholders. The Definitive Preferred Securities
Certificates shall be printed, lithographed or engraved or may be produced in
any other manner as is reasonably acceptable to the Administrative Trustees,
as evidenced by the execution thereof by the Administrative Trustees or any
one of them.
(b) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive
Common Securities Certificate.
SECTION 512. RIGHTS OF SECURITYHOLDERS.
(a) The legal title to the Trust Property is vested exclusively in
the Property Trustee (in its capacity as such) in accordance with
Section 209, and the Securityholders shall not have any right or title
therein other than the undivided beneficial interest in the assets of the
Trust conferred by their Trust Securities, and they shall have no right to
call for any partition or division of property, profits or rights of the
Trust except as described below. The Trust Securities shall be personal
property giving only the rights specifically set forth therein and in this
Trust Agreement. The Trust Securities shall have no preemptive or similar
rights. When issued and delivered to Preferred Securityholders against
payment of the purchase price therefor, the Preferred Securities shall be
fully paid and nonassessable interests in the Trust. The Preferred
Securityholders, in their capacities as such, shall be entitled to the same
limitation of personal liability extended to stockholders of private
corporations for profit organized under the General Corporation Law of the
State of Delaware.
(b) For so long as any Preferred Securities remain Outstanding, if,
upon a Debenture Event of Default, the Debenture Trustee fails or the holders
of not less than 25% in principal amount
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of the outstanding Debentures fail to declare the principal of all of the
Debentures to be immediately due and payable, the Holders of at least 25% in
Liquidation Amount of the Preferred Securities then Outstanding shall have
such right by a notice in writing to the Depositor and the Debenture Trustee;
and upon any such declaration such principal amount of and the accrued
interest on all of the Debentures shall become immediately due and payable,
provided that the payment of principal and interest on such Debentures shall
remain subordinated to the extent provided in the Indenture.
(c) For so long as any Preferred Securities remain outstanding, upon
a Debenture Event of Default arising from the failure to pay interest or
principal on the Debentures, the Holders of any Preferred Securities then
Outstanding shall, to the fullest extent permitted by law, have the right to
directly institute proceedings for enforcement of payment to such Holders of
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 601. LIMITATIONS ON VOTING RIGHTS.
(a) Except as provided in this Section 601, in Sections 512, 810 and
1002 and in the Indenture and as otherwise required by law, no Preferred
Securityholder shall have any right to vote or in any manner otherwise
control the administration, operation and management of the Trust or the
obligations of the parties hereto, nor shall anything herein set forth, or
contained in the terms of the Trust Securities Certificates, be construed so
as to constitute the Securityholders from time to time as partners or members
of an association.
(b) So long as any Debentures are held by the Property Trustee, the
Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or executing
any trust or power conferred on the Debenture Trustee with respect to such
Debentures; (ii) waive any past default which is waivable under Article VII
of the Indenture; (iii) exercise any right to rescind or annul a declaration
that the principal of all the Debentures shall be due and payable; or
(iv) consent to any amendment, modification or termination of the Indenture
or the Debentures, where such consent shall be required, without, in each
case, obtaining the prior approval of the Holders of at least a majority in
Liquidation Amount of all Outstanding Preferred Securities; provided,
however, that where a consent under the Indenture would require the consent
of each Holder of Outstanding Debentures affected thereby, no such consent
shall be given by the Property Trustee without the prior written consent of
each Preferred Securityholder. The Trustees shall not revoke any action
previously authorized or approved by a vote of the Preferred Securityholders,
except by a subsequent vote of the Preferred Securityholders. The Property
Trustee shall notify each Preferred Securityholder of any notice of default
received from the Debenture Trustee with respect to the Debentures. In
addition to obtaining the foregoing approvals of the Preferred
Securityholders, prior to taking any of the foregoing actions, the Trustees
shall, at the expense of the Depositor, obtain an Opinion of Counsel
experienced in such matters to the effect that the Trust shall continue to be
classified as a grantor trust and not as an association taxable as a
corporation for United States federal income tax purposes on account of such
action.
(c) If any proposed amendment to the Trust Agreement provides for, or
the Trustees otherwise propose to effect, (i) any action that would adversely
affect in any material respect the powers, preferences or special rights of
the Preferred Securities, whether by way of amendment to the Trust Agreement
or otherwise; or (ii) the dissolution, winding-up or termination of the
Trust, other than pursuant to the terms of this Trust Agreement, then the
Holders of Outstanding Preferred Securities as a class shall be entitled to
vote on such amendment or proposal and such amendment or proposal shall not
be effective except with the approval of the Holders of at least a majority
in Liquidation Amount of the Outstanding Preferred Securities. No amendment
to this Trust Agreement may be made if, as a result of such amendment, the
Trust would cease to be classified as a
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grantor trust or would be classified as an association taxable as a
corporation for United States federal income tax purposes.
SECTION 602. NOTICE OF MEETINGS.
Notice of all meetings of the Preferred Securityholders, stating the
time, place and purpose of the meeting, shall be given by the Property
Trustee pursuant to Section 1008 to each Preferred Securityholder of record,
at his registered address, at least 15 days and not more than 90 days before
the meeting. At any such meeting, any business properly before the meeting
may be so considered whether or not stated in the notice of the meeting. Any
adjourned meeting may be held as adjourned without further notice.
SECTION 603. MEETINGS OF PREFERRED SECURITYHOLDERS.
(a) No annual meeting of Securityholders is required to be held. The
Administrative Trustees, however, shall call a meeting of Securityholders to
vote on any matter in respect of which Preferred Securityholders are entitled
to vote upon the written request of the Preferred Securityholders of 25% of
the Outstanding Preferred Securities (based upon their aggregate Liquidation
Amount) and the Administrative Trustees or the Property Trustee may, at any
time in their discretion, call a meeting of Preferred Securityholders to vote
on any matters as to which the Preferred Securityholders are entitled to
vote.
(b) Preferred Securityholders of record of 50% of the Outstanding
Preferred Securities (based upon their aggregate Liquidation Amount), present
in person or by proxy, shall constitute a quorum at any meeting of
Securityholders.
(c) If a quorum is present at a meeting, an affirmative vote by the
Preferred Securityholders of record present, in person or by proxy, holding
more than a majority of the Preferred Securities (based upon their aggregate
Liquidation Amount) held by the Preferred Securityholders of record present,
either in person or by proxy, at such meeting shall constitute the action of
the Securityholders, unless this Trust Agreement requires a greater number of
affirmative votes.
SECTION 604. VOTING RIGHTS.
Securityholders shall be entitled to one vote for each $25 of
Liquidation Amount represented by their Trust Securities in respect of any
matter as to which such Securityholders are entitled to vote.
SECTION 605. PROXIES, ETC.
At any meeting of Securityholders, any Securityholder entitled to vote
thereat may vote by proxy, provided that no proxy shall be voted at any
meeting unless it shall have been placed on file with the Administrative
Trustees, or with such other officer or agent of the Trust as the
Administrative Trustees may direct, for verification prior to the time at
which such vote shall be taken. When Trust Securities are held jointly by
several persons, any one of them may vote at any meeting in person or by
proxy in respect of such Trust Securities, but if more than one of them shall
be present at such meeting in person or by proxy, and such joint owners or
their proxies so present disagree as to any vote to be cast, such vote shall
not be received in respect of such Trust Securities. A proxy purporting to
be executed by or on behalf of a Securityholder shall be deemed valid unless
challenged at or prior to its exercise, and, the burden of proving invalidity
shall rest on the challenger. No proxy shall be valid more than three years
after its date of execution.
SECTION 606. SECURITYHOLDER ACTION BY WRITTEN CONSENT.
Any action which may be taken by Securityholders at a meeting may be
taken without a meeting if Securityholders holding 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
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proportion thereof as shall be required by any express provision of this
Trust Agreement) shall consent to the action in writing (based upon their
aggregate Liquidation Amount).
SECTION 607. RECORD DATE FOR VOTING AND OTHER PURPOSES.
For the purposes of determining the Securityholders who are entitled to
notice of and to vote at any meeting or by written consent, or to participate
in any Distribution on the Trust Securities in respect of which a record date
is not otherwise provided for in this Trust Agreement, or for the purpose of
any other action, the Administrative Trustees may from time to time fix a
date, not more than 90 days prior to the date of any meeting of Securityholders
or the payment of Distribution or other action, as the case may be, as a record
date for the determination of the identity of the Securityholders of record for
such purposes.
SECTION 608. ACTS OF SECURITYHOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided or permitted by this Trust Agreement to be
given, made or taken by Securityholders may be embodied in and evidenced by
one or more instruments of substantially similar tenor signed by such
Securityholders in person or by an agent duly appointed in writing; and,
except as otherwise expressly provided herein, such action shall become
effective when such instrument or instruments are delivered to an
Administrative Trustee. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as
the "Act" of the Securityholders signing such instrument or instruments.
Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Trust Agreement and
(subject to Section 801) conclusive in favor of the Trustees, if made in the
manner provided in this Section 608.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual
signing such instrument or writing acknowledged to him the execution thereof.
Where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority. The fact and date of the execution of any
such instrument or writing, or the authority of the Person executing the
same, may also be proved in any other manner which any Trustee receiving the
same deems sufficient.
(c) The ownership of Preferred Securities shall be proved by the
Securities Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Securityholder of any Trust Security shall bind
every future Securityholder of the same Trust Security and the Securityholder
of every Trust Security issued upon the registration of transfer thereof or
in exchange therefor or in lieu thereof in respect of anything done, omitted
or suffered to be done by the Trustees or the Trust in reliance thereon,
whether or not notation of such action is made upon such Trust Security.
(e) Without limiting the foregoing, a Securityholder entitled
hereunder to take any action hereunder with regard to any particular Trust
Security may do so with regard to all or any part of the Liquidation Amount
of such Trust Security or by one or more duly appointed agents, each of which
may do so pursuant to such appointment with regard to all or any part of such
liquidation amount.
(f) A Securityholder may institute a legal proceeding directly against
the Depositor under the Guarantee to enforce its rights under the Guarantee
without first instituting a legal proceeding against the Guarantee Trustee
(as defined in the Guarantee), the Trust or any Person.
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SECTION 609. INSPECTION OF RECORDS.
Upon reasonable notice to the Administrative Trustees and the Property
Trustee, the records of the Trust shall be open to inspection and copying by
Securityholders and their authorized representatives during normal business
hours for any purpose reasonably related to such Securityholder's interest as
a Securityholder.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
SECTION 701. REPRESENTATIONS AND WARRANTIES OF THE BANK AND THE PROPERTY
TRUSTEE.
The Bank and the Property Trustee, each severally on behalf of and as
to itself, as of the date hereof, and each Successor Property Trustee at the
time of the Successor Property Trustee's acceptance of its appointment as
Property Trustee hereunder (the term "Bank" being used to refer to such
Successor Property Trustee in its separate corporate capacity) hereby
represents and warrants (as applicable) for the benefit of the Depositor and
the Securityholders that:
(a) the Bank is a trust company duly organized, validly existing and
in good standing under the laws of the Commonwealth 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 Commonwealth 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 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 Commonwealth 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
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authority of the Property Trustee to enter into or perform its obligations as
one of the Trustees under this Trust Agreement.
SECTION 702. REPRESENTATIONS AND WARRANTIES OF THE DELAWARE BANK AND THE
DELAWARE TRUSTEE.
The Delaware Bank and the Delaware Trustee, each severally on behalf of
and as to itself, as of the date hereof, and each Successor Delaware Trustee
at the time of the Successor Delaware Trustee's acceptance of appointment as
Delaware Trustee hereunder (the term "Delaware Bank" being used to refer to
such Successor Delaware Trustee in its separate corporate capacity), hereby
represents and warrants (as applicable) for the benefit of the Depositor and
the Securityholders that:
(a) the Delaware Bank is a Delaware banking corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware;
(b) the Delaware Bank has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust
Agreement and has taken all necessary action to authorize the execution,
delivery and performance by it of this Trust Agreement;
(c) this Trust Agreement has been duly authorized, executed and
delivered by the Delaware Trustee and constitutes the valid and legally
binding agreement of the Delaware Trustee enforceable against it in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors, rights and to general
equity principles;
(d) the execution, delivery and performance by the Delaware Trustee
of this Trust Agreement has been duly authorized by all necessary corporate
or other action on the part of the Delaware Trustee and does not require any
approval of stockholders of the Delaware Bank, and such execution, delivery
and performance shall not (i) violate the Delaware Bank's charter or by-laws;
(ii) violate any provision of, or constitute, with or without notice or lapse
of time, a default under, or result in the creation or imposition of, any
Lien on any properties included in the Trust Property pursuant to the
provisions of, any indenture, mortgage, credit agreement, license or other
agreement or instrument to which the Delaware Bank or the Delaware Trustee is
a party or by which it is bound; or (iii) violate any law, governmental rule
or regulation of the United States or the State of Delaware, as the case may
be, governing the banking or trust powers of the Delaware Bank or the
Delaware Trustee (as appropriate in context) or any order, judgment or decree
applicable to the Delaware Bank or the Delaware Trustee;
(e) neither the authorization, execution or delivery by the Delaware
Trustee of this Trust Agreement nor the consummation of any of the
transactions by the Delaware Trustee contemplated herein or therein requires
the consent or approval of, the giving of notice to, the registration with or
the taking of any other action with respect to any governmental authority or
agency under any existing federal law governing the banking or trust powers
of the Delaware Bank or the Delaware Trustee, as the case may be, under the
laws of the United States or the State of Delaware; and
(f) there are no proceedings pending or, to the best of the Delaware
Trustee's knowledge, threatened against or affecting the Delaware Bank or the
Delaware Trustee in any court or before any governmental authority, agency or
arbitration board or tribunal which, individually or in the aggregate, would
materially and adversely affect the Trust or would question the right, power
and authority of the Delaware Trustee to enter into or perform its
obligations as one of the Trustees under this Trust Agreement.
SECTION 703. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR.
The Depositor hereby represents and warrants for the benefit of the
Securityholders that:
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(a) the Trust Securities Certificates issued on the Closing Date or
the Option Closing Date, if applicable, on behalf of the Trust have been duly
authorized and shall have been duly and validly executed, issued and
delivered by the Administrative Trustees pursuant to the terms and provisions
of, and in accordance with the requirements of, this Trust Agreement, and the
Securityholders shall be, as of such date, entitled to the benefits of this
Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by
the Trust (or the Trustees on behalf of the Trust) under the laws of the
State of Delaware or any political subdivision thereof in connection with the
execution, delivery and performance by the Bank, the Property Trustee or the
Delaware Trustee, as the case may be, of this Trust Agreement.
ARTICLE VIII
TRUSTEES
SECTION 801. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The duties and responsibilities of the Trustees shall be as
provided by this Trust Agreement and, in the case of the Property Trustee, by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Trust Agreement shall require the Trustees to expend or risk their own funds
or otherwise incur any financial liability in the performance of any of their
duties hereunder, or in the exercise of any of their rights or powers, if
they shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably
assured to it. No Administrative Trustee nor the Delaware Trustee shall be
liable for its act or omissions hereunder except as a result of its own gross
negligence or willful misconduct. The Property Trustee's liability shall be
determined under the Trust Indenture Act. Whether or not therein expressly
so provided, every provision of this Trust Agreement relating to the conduct
or affecting the liability of or affording protection to the Trustees shall
be subject to the provisions of this Section 801. To the extent that, at law
or in equity, the Delaware Trustee or an Administrative Trustee has duties
(including fiduciary duties) and liabilities relating thereto to the Trust or
to the Securityholders, the Delaware Trustee or such Administrative Trustee
shall not be liable to the Trust or to any Securityholder for such Trustee's
good faith reliance on the provisions of this Trust Agreement. The
provisions of this Trust Agreement, to the extent that they restrict the
duties and liabilities of the Delaware Trustee or the Administrative Trustees
otherwise existing at law or in equity, are agreed by the Depositor and the
Securityholders to replace such other duties and liabilities of the Delaware
Trustee and the Administrative Trustees, as the case may be.
(b) All payments made by the Property Trustee or a Paying Agent in
respect of the Trust Securities shall be made only from the revenue and
proceeds from the Trust Property and only to the extent that there shall be
sufficient revenue or proceeds from the Trust Property to enable the Property
Trustee or a Paying Agent to make payments in accordance with the terms
hereof. With respect to the relationship of each Securityholder and the
Trustee, each Securityholder, by its acceptance of a Trust Security, agrees
that it shall look solely to the revenue and proceeds from the Trust Property
to the extent legally available for distribution to it as herein provided and
that the Trustees are not personally liable to it for any amount
distributable in respect of any Trust Security or for any other liability in
respect of any Trust Security. This Section 801(b) does not limit the
liability of the Trustees expressly set forth elsewhere in this Trust
Agreement or, in the case of the Property Trustee, in the Trust Indenture
Act.
(c) No provision of this Trust Agreement shall be construed to
relieve the Property Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(i) the Property Trustee shall not be liable for any error of
judgment made in good faith by an authorized officer of the Property Trustee,
unless it shall be proved that the Property Trustee was negligent in
ascertaining the pertinent facts;
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(ii) the Property Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in accordance
with the direction of the Holders of not less than a majority in Liquidation
Amount of the Trust Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee,
or exercising any trust or power conferred upon the Property Trustee under
this Trust Agreement;
(iii) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Debentures and the
Payment Account shall be to deal with such Property in a similar manner as
the Property Trustee deals with similar property for its own account, subject
to the protections and limitations on liability afforded to the Property
Trustee under this Trust Agreement and the Trust Indenture Act;
(iv) the Property Trustee shall not be liable for any interest
on any money received by it except as it may otherwise agree with the
Depositor and money held by the Property Trustee need not be segregated from
other funds held by it except in relation to the Payment Account maintained
by the Property Trustee pursuant to Section 301 and except to the extent
otherwise required by law; and
(v) the Property Trustee shall not be responsible for
monitoring the compliance by the Administrative Trustees or the Depositor
with their respective duties under this Trust Agreement, nor shall the
Property Trustee be liable for the negligence, default or misconduct of the
Administrative Trustees or the Depositor.
SECTION 802. CERTAIN NOTICES.
(a) Within 5 Business Days after the occurrence of any Event of
Default actually known to the Property Trustee, the Property Trustee shall
transmit, in the manner and to the extent provided in Section 1008, notice of
such Event of Default to the Securityholders, the Administrative Trustees and
the Depositor, unless such Event of Default shall have been cured or waived.
For purposes of this Section 802 the term "Event of Default" means any event
that is, or after notice or lapse of time or both would become, an Event of
Default.
(b) The Administrative Trustees shall transmit to the
Securityholders, in the manner and to the extent provided in Section 1008,
notice of the Depositor's election to begin or further extend an Extended
Interest Payment Period on the Debentures (unless such election shall have
been revoked) within the time specified for transmitting such notice to the
holders of the Debentures pursuant to the Indenture as originally executed.
SECTION 803. CERTAIN RIGHTS OF PROPERTY TRUSTEE.
Subject to the provisions of Section 801:
(a) the Property Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution, Opinion of Counsel,
certificate, written representation of a Holder or transferee, certificate of
auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or parties;
(b) if (i) in performing its duties under this Trust Agreement the
Property Trustee is required to decide between alternative courses of action;
or (ii) in construing any of the provisions of this Trust Agreement the
Property Trustee finds the same ambiguous or inconsistent with other
provisions contained herein; or (iii) the Property Trustee is unsure of the
application of any provision of this Trust Agreement, then, except as to any
matter as to which the Preferred Securityholders are entitled to vote under
the terms of this Trust Agreement, the Property Trustee shall deliver a
notice to
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the Depositor requesting written instructions of the Depositor as to the
course of action to be taken, and the Property Trustee shall take such
action, or refrain from taking such action, as the Property Trustee shall be
instructed in writing to take, or to refrain from taking, by the Depositor;
provided, however, that if the Property Trustee does not receive such
instructions of the Depositor within 10 Business Days after it has delivered
such notice, or such reasonably shorter period of time set forth in such
notice (which to the extent practicable shall not be less than 2 Business
Days), it may, but shall be under no duty to, take or refrain from taking
such action not inconsistent with this Trust Agreement as it shall deem
advisable and in the best interests of the Securityholders, in which event
the Property Trustee shall have no liability except for its own bad faith,
negligence or willful misconduct;
(c) any direction or act of the Depositor or the Administrative
Trustees contemplated by this Trust Agreement shall be sufficiently evidenced
by an Officers' Certificate;
(d) whenever in the administration of this Trust Agreement, the
Property Trustee shall deem it desirable that a matter be established before
undertaking, suffering or omitting any action hereunder, the Property Trustee
(unless other evidence is herein specifically prescribed) may, in the absence
of bad faith on its part, request and conclusively rely upon an Officer's
Certificate which, upon receipt of such request, shall be promptly delivered
by the Depositor or the Administrative Trustees;
(e) the Property Trustee shall have no duty to see to any recording,
filing or registration of any instrument (including any financing or
continuation statement or, except as provided in Section 405, any filing
under tax or securities laws) or any rerecording, refiling or reregistration
thereof;
(f) the Property Trustee may consult with counsel of its choice
(which counsel may be counsel to the Depositor or any of its Affiliates), and
the advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon and, in accordance with such
advice, such counsel may be counsel to the Depositor or any of its
Affiliates, and may include any of its employees; the Property Trustee shall
have the right at any time to seek instructions concerning the administration
of this Trust Agreement from any court of competent jurisdiction;
(g) the Property Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Trust Agreement at the request
or direction of any of the Securityholders pursuant to this Trust Agreement,
unless such Securityholders shall have offered to the Property Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or direction;
(h) the Property Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Securityholders, but the
Property Trustee may make such further inquiry or investigation into such
facts or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
its agents or attorneys, provided that the Property Trustee shall be
responsible for its own negligence or recklessness with respect to selection
of any agent or attorney appointed by it hereunder;
(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
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the terms of the Trust Securities in respect of such remedy, right or action;
(ii) may refrain from enforcing such remedy or right or taking such other
action until such instructions are received; and (iii) shall be protected in
acting in accordance with such instructions; and
(k) except as otherwise expressly provided by this Trust Agreement,
the Property Trustee shall not be under any obligation to take any action
that is discretionary under the provisions of this Trust Agreement. No
provision of this Trust Agreement shall be deemed to impose any duty or
obligation on the Property Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Property
Trustee shall be construed to be a duty.
SECTION 804. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The Recitals contained herein and in the Trust Securities Certificates
shall be taken as the statements of the Trust, and the Trustees do not assume
any responsibility for their correctness. The Trustees shall not be
accountable for the use or application by the Depositor of the proceeds of
the Debentures.
SECTION 805. MAY HOLD SECURITIES.
Any Trustee or any other agent of any Trustee or the Trust, in its
individual or any other capacity, may become the owner or pledgee of Trust
Securities and, subject to Sections 808 and 813 and except as provided in the
definition of the term "Outstanding" in Article I, may otherwise deal with
the Trust with the same rights it would have if it were not a Trustee or such
other agent.
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SECTION 806. COMPENSATION; INDEMNITY; FEES.
The Depositor agrees:
(a) to pay to the Trustees from time to time reasonable compensation
for all services rendered by them hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of
an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustees upon request for all reasonable expenses, disbursements and advances
incurred or made by the Trustees in accordance with any provision of this
Trust Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to such Trustee's negligence,
bad faith or willful misconduct (or, in the case of the Administrative
Trustees or the Delaware Trustee, any such expense, disbursement or advance
as may be attributable to its, his or her gross negligence, bad faith or
willful misconduct); and
(c) to indemnify each of the Trustees or any predecessor Trustee for,
and to hold the Trustees harmless against, any loss, damage, claims,
liability, penalty or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration
of this Trust Agreement, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or performance
of any of its powers or duties hereunder, except any such expense,
disbursement or advance as may be attributable to such Trustee's negligence,
bad faith or willful misconduct (or, in the case of the Administrative
Trustees or the Delaware Trustee, any such expense, disbursement or advance
as may be attributable to its, his or her gross negligence, bad faith or
willful misconduct).
No Trustee may claim any Lien or charge on Trust Property as a result
of any amount due pursuant to this Section 806.
SECTION 807. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF
TRUSTEES.
(a) There shall at all times be a Property Trustee hereunder with
respect to the Trust Securities. The Property Trustee shall be a Person that
is eligible pursuant to the Trust Indenture Act to act as such and has a
combined capital and surplus of at least $50,000,000. If any such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of its supervising or examining authority, then for the purposes
of this Section 807, the combined capital and surplus of such Person shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Property Trustee with
respect to the Trust Securities shall cease to be eligible in accordance with
the provisions of this Section 807, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article VIII.
(b) There shall at all times be one or more Administrative Trustees
hereunder with respect to the Trust Securities. Each Administrative Trustee
shall be either a natural person who is at least 21 years of age or a legal
entity that shall act through one or more persons authorized to bind that
entity.
(c) There shall at all times be a Delaware Trustee with respect to
the Trust Securities. The Delaware Trustee shall either be (i) a natural
person who is at least 21 years of age and a resident of the State of
Delaware; or (ii) a legal entity with its principal place of business in the
State of Delaware and that otherwise meets the requirements of applicable
Delaware law that shall act through one or more persons authorized to bind
such entity.
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SECTION 808. CONFLICTING INTERESTS.
If the Property Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Property Trustee shall
either eliminate such interest or resign, to the extent and in the manner
provided by, and subject to the provisions of, the Trust Indenture Act and
this Trust Agreement.
SECTION 809. CO-TRUSTEES AND SEPARATE TRUSTEE.
(a) Unless an Event of Default shall have occurred and be continuing,
at any time or times, for the purpose of meeting the legal requirements of
the Trust Indenture Act or of any jurisdiction in which any part of the Trust
Property may at the time be located, the Depositor shall have power to
appoint, and upon the written request of the Property Trustee, the Depositor
shall for such purpose join with the Property Trustee in the execution,
delivery and performance of all instruments and agreements necessary or
proper to appoint, one or more Persons approved by the Property Trustee
either to act as co-trustee, jointly with the Property Trustee, of all or any
part of such Trust Property, or to the extent required by law to act as
separate trustee of any such property, in either case with such powers as may
be provided in the instrument of appointment, and to vest in such Person or
Persons in the capacity aforesaid, any property, title, right or power deemed
necessary or desirable, subject to the other provisions of this Section 809.
If the Depositor does not join in such appointment within 15 days after the
receipt by it of a request so to do, or in case a Debenture Event of Default
has occurred and is continuing, the Property Trustee alone shall have power
to make such appointment. Any co-trustee or separate trustee appointed
pursuant to this Section 809 shall either be (i) a natural person who is at
least 21 years of age and a resident of the United States; or (ii) a legal
entity with its principal place of business in the United States that shall
act through one or more persons authorized to bind such entity.
(b) Should any written instrument from the Depositor be required by
any co-trustee or separate trustee so appointed for more fully confirming to
such co-trustee or separate trustee such property, title, right, or power,
any and all such instruments shall, on request, be executed, acknowledged,
and delivered by the Depositor.
(c) Every co-trustee or separate trustee shall, to the extent
permitted by law, but to such extent only, be appointed subject to the
following terms, namely:
(i) The Trust Securities shall be executed and delivered and
all rights, powers, duties and obligations hereunder in respect of the
custody of securities, cash and other personal property held by, or required
to be deposited or pledged with, the Trustees specified hereunder, shall be
exercised, solely by such Trustees and not by such co-trustee or separate
trustee.
(ii) The rights, powers, duties and obligations hereby conferred
or imposed upon the Property Trustee in respect of any property covered by
such appointment shall be conferred or imposed upon and exercised or
performed by the Property Trustee or by the Property Trustee and such
co-trustee or separate trustee jointly, as shall be provided in the
instrument appointing such co-trustee or separate trustee, except to the
extent that under any law of any jurisdiction in which any particular act is
to be performed, the Property Trustee shall be incompetent or unqualified to
perform such act, in which event such rights, powers, duties and obligations
shall be exercised and performed by such co-trustee or separate trustee.
(iii) The Property Trustee at any time, by an instrument in
writing executed by it, with the written concurrence of the Depositor, may
accept the resignation of or remove any co-trustee or separate trustee
appointed under this Section 809, and, in case a Debenture Event of Default
has occurred and is continuing, the Property Trustee shall have the power to
accept the resignation of, or remove, any such co-trustee or separate trustee
without the concurrence of the Depositor. Upon the written request of the
Property Trustee, the Depositor shall join with the Property Trustee in the
execution, delivery and performance of all instruments and agreements
necessary or proper to
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effectuate such resignation or removal. A successor to any co-trustee or
separate trustee so resigned or removed may be appointed in the manner
provided in this Section 809.
(iv) No co-trustee or separate trustee hereunder shall be
personally liable by reason of any act or omission of the Property Trustee or
any other trustee hereunder.
(v) The Property Trustee shall not be liable by reason of any
act of a co-trustee or separate trustee.
(vi) Any Act of Holders delivered to the Property Trustee shall
be deemed to have been delivered to each such co-trustee and separate
trustee.
SECTION 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of any Trustee (the "Relevant Trustee")
and no appointment of a successor Trustee pursuant to this Article VIII shall
become effective until the acceptance of appointment by the successor Trustee
in accordance with the applicable requirements of Section 811.
(b) Subject to the immediately preceding paragraph, the Relevant
Trustee may resign at any time with respect to the Trust Securities by giving
written notice thereof to the Securityholders. If the instrument of
acceptance by the successor Trustee required by Section 811 shall not have
been delivered to the Relevant Trustee within 30 days after the giving of
such notice of resignation, the Relevant Trustee may petition, at the expense
of the Depositor, any court of competent jurisdiction for the appointment of
a successor Relevant Trustee with respect to the Trust Securities.
(c) Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by Act of the Common
Securityholder. If a Debenture Event of Default shall have occurred and be
continuing, the Property Trustee or the Delaware Trustee, or both of them,
may be removed at such time by Act of the Holders of a majority in
Liquidation Amount of the Preferred Securities, delivered to the Relevant
Trustee (in its individual capacity and on behalf of the Trust). An
Administrative Trustee may be removed by the Common Securityholder at any
time.
(d) If any Trustee shall resign, be removed or become incapable of
acting as Trustee, or if a vacancy shall occur in the office of any Trustee
for any cause, at a time when no Debenture Event of Default shall have
occurred and be continuing, the Common Securityholder, by Act of the Common
Securityholder delivered to the retiring Trustee, shall promptly appoint a
successor Trustee or Trustees with respect to the Trust Securities and the
Trust, and the successor Trustee shall comply with the applicable
requirements of Section 811. If the Property Trustee or the Delaware Trustee
shall resign, be removed or become incapable of continuing to act as the
Property Trustee or the Delaware Trustee, as the case may be, at a time when
a Debenture Event of Default shall have occurred and is continuing, the
Preferred Securityholders, by Act of the Securityholders of a majority in
Liquidation Amount of the Preferred Securities then Outstanding delivered to
the retiring Relevant Trustee, shall promptly appoint a successor Relevant
Trustee or Trustees with respect to the Trust Securities and the Trust, and
such successor Trustee shall comply with the applicable requirements of
Section 811. If an Administrative Trustee shall resign, be removed or become
incapable of acting as Administrative Trustee, at a time when a Debenture
Event of Default shall have occurred and be continuing, the Common
Securityholder, by Act of the Common Securityholder delivered to an
Administrative Trustee, shall promptly appoint a successor Administrative
Trustee or Administrative Trustees with respect to the Trust Securities and
the Trust, and such successor Administrative Trustee or Administrative
Trustees shall comply with the applicable requirements of Section 811. If no
successor Relevant Trustee with respect to the Trust Securities shall have
been so appointed by the Common Securityholder or the Preferred
Securityholders and accepted appointment in the manner required by
Section 811, any Securityholder who has been a Securityholder of Trust
Securities on behalf of himself and all others similarly situated may
petition a court of competent jurisdiction for the appointment Trustee with
respect to the Trust Securities.
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(e) The Property Trustee shall give notice of each resignation and
each removal of a Trustee and each appointment of a successor Trustee to all
Securityholders in the manner provided in Section 1008 and shall give notice
to the Depositor. Each notice shall include the name of the successor
Relevant Trustee and the address of its Corporate Trust Office if it is the
Property Trustee.
(f) Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrative Trustee or a Delaware Trustee who
is a natural person dies or becomes, in the opinion of the Depositor,
incompetent or incapacitated, the vacancy created by such death, incompetence
or incapacity may be filled by (a) the unanimous act of remaining
Administrative Trustees if there are at least two of them; or (b) otherwise
by the Depositor (with the successor in each case being a Person who
satisfies the eligibility requirement for Administrative Trustees set forth
in Section 807).
SECTION 811. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor Relevant
Trustee with respect to the Trust Securities and the Trust, the retiring
Relevant Trustee and each successor Relevant Trustee with respect to the
Trust Securities shall execute and deliver an instrument hereto wherein each
successor Relevant Trustee shall accept such appointment and which shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Relevant Trustee all the rights,
powers, trusts and duties of the retiring Relevant Trustee with respect to
the Trust Securities and the Trust and upon the execution and delivery of
such instrument the resignation or removal of the retiring Relevant Trustee
shall become effective to the extent provided therein and each such successor
Relevant Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring
Relevant Trustee with respect to the Trust Securities and the Trust; but, on
request of the Trust or any successor Relevant Trustee such retiring Relevant
Trustee shall duly assign, transfer and deliver to such successor Relevant
Trustee all Trust Property, all proceeds thereof and money held by such
retiring Relevant Trustee hereunder with respect to the Trust Securities and
the Trust.
(b) Upon request of any such successor Relevant Trustee, the Trust
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Relevant Trustee all such rights, powers and
trusts referred to in the immediately preceding paragraph, as the case may
be.
(c) No successor Relevant Trustee shall accept its appointment unless
at the time of such acceptance such successor Relevant Trustee shall be
qualified and eligible under this Article VIII.
SECTION 812. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any Person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which such Relevant Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust
business of such Relevant Trustee, shall be the successor of such Relevant
Trustee hereunder, provided such Person shall be otherwise qualified and
eligible under this Article VIII, without the execution or filing of any
paper or any further act on the part of any of the parties hereto.
SECTION 813. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR
TRUST.
If and when the Property Trustee or the Delaware Trustee shall be or
become a creditor of the Depositor or the Trust (or any other obligor upon
the Debentures or the Trust Securities), the Property Trustee or the Delaware
Trustee, as the case may be, shall be subject to and shall take all actions
necessary in order to comply with the provisions of the Trust Indenture Act
regarding the collection of claims against the Depositor or Trust (or any
such other obligor).
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SECTION 814. REPORTS BY PROPERTY TRUSTEE.
(a) Not later than July 15 of each year commencing with July 15,
1999, the Property Trustee shall transmit to all Securityholders in
accordance with Section 1008, and to the Depositor, a brief report dated as
of such May 15 with respect to:
(i) its eligibility under Section 807 or, in lieu thereof, if
to the best of its knowledge it has continued to be eligible under said
Section, a written statement to such effect; and
(ii) any change in the property and funds in its possession as
Property Trustee since the date of its last report and any action taken by
the Property Trustee in the performance of its duties hereunder which it has
not previously reported and which in its opinion materially affects the Trust
Securities.
(b) In addition the Property Trustee shall transmit to
Securityholders such reports concerning the Property Trustee and its actions
under this Trust Agreement as may be required pursuant to the Trust Indenture
Act at the times and in the manner provided pursuant thereto.
(c) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Property Trustee with each national
securities exchange or other organization upon which the Trust Securities are
listed, and also with the Commission and the Depositor.
SECTION 815. REPORTS TO THE PROPERTY TRUSTEE.
The Depositor and the Administrative Trustees on behalf of the Trust
shall provide to the Property Trustee such documents, reports and information
as required by Section 314 of the Trust Indenture Act (if any) and the
compliance certificate required by Section 314(a) of the Trust Indenture Act
in the form, in the manner and at the times required by Section 314 of the
Trust Indenture Act.
SECTION 816. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
Each of the Depositor and the Administrative Trustees on behalf of the
Trust shall provide to the Property Trustee such evidence of compliance with
any conditions precedent, if any, provided for in this Trust Agreement that
relate to any of the matters set forth in Section 314(c) of the Trust
Indenture Act. Any certificate or opinion required to be given by an officer
pursuant to Section 314(c)(1) of the Trust Indenture Act shall be given in
the form of an Officers' Certificate.
SECTION 817. NUMBER OF TRUSTEES.
(a) The number of Trustees shall be five, provided that the Common
Securityholder by written instrument may increase or decrease the number of
Administrative Trustees. The Property Trustee and the Delaware Trustee may
be the same Person.
(b) If a Trustee ceases to hold office for any reason and the number
of Administrative Trustees is not reduced pursuant to Section 817(a), or if
the number of Trustees is increased pursuant to Section 817(a), a vacancy
shall occur. The vacancy shall be filled with a Trustee appointed in
accordance with Section 810.
(c) The death, resignation, retirement, removal, bankruptcy,
incompetence or incapacity to perform the duties of a Trustee shall not
operate to annul the Trust. Whenever a vacancy in the number of
Administrative Trustees shall occur, until such vacancy is filled by the
appointment of an Administrative Trustee in accordance with Section 810, the
Administrative Trustees in office, regardless of their number (and
notwithstanding any other provision of this Agreement), shall have all the
powers granted to the Administrative Trustees and shall discharge all the
duties imposed upon the Administrative Trustees by this Trust Agreement.
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<PAGE> 40
SECTION 818. DELEGATION OF POWER.
(a) Any Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the age of 21
his or her power for the purpose of executing any documents contemplated in
Section 207(a); and
(b) The Administrative Trustees shall have power to delegate from
time to time to such of their number or to the Depositor the doing of such
things and the execution of such instruments either in the name of the Trust
or the names of the Administrative Trustees or otherwise as the
Administrative Trustees may deem expedient, to the extent such delegation is
not prohibited by applicable law or contrary to the provisions of the Trust,
as set forth herein.
SECTION 819. VOTING.
Except as otherwise provided in this Trust Agreement, the consent or
approval of the Administrative Trustees shall require consent or approval by
not less than a majority of the Administrative Trustees, unless there are
only two, in which case both must consent.
ARTICLE IX
TERMINATION, LIQUIDATION AND MERGER
SECTION 901. TERMINATION UPON EXPIRATION DATE.
Unless earlier dissolved, the Trust shall automatically dissolve on
, 2053 (the "Expiration Date"), subject to
- ------------------- -----
distribution of the Trust Property in accordance with Section 904.
SECTION 902. EARLY TERMINATION.
The first to occur of any of the following events is an "Early
Termination Event:"
(a) the occurrence of a Bankruptcy Event in respect of, or the
dissolution or liquidation of, the Depositor;
(b) delivery of written direction to the Property Trustee by the
Depositor at any time (which direction is wholly optional and within the
discretion of the Depositor) to dissolve the Trust and distribute the
Debentures to Securityholders in exchange for the Preferred Securities in
accordance with Section 904;
(c) the redemption of all of the Preferred Securities in connection
with the redemption of all of the Debentures; and
(d) an order for dissolution of the Trust shall have been entered by
a court of competent jurisdiction.
SECTION 903. TERMINATION.
The respective obligations and responsibilities of the Trustees and the
Trust created and continued hereby shall terminate upon the latest to occur
of the following: (a) the distribution by the Property Trustee to
Securityholders upon the liquidation of the Trust pursuant to Section 904, or
upon the redemption of all of the Trust Securities pursuant to Section 402,
of all amounts required to be distributed hereunder upon the final payment of
the Trust Securities; (b) the payment of any expenses owed by the Trust;
(c) the discharge of all administrative duties of the Administrative
Trustees, including the performance of any tax reporting obligations with
respect to the Trust or the
35
<PAGE> 41
Securityholders; and (d) the filing of a Certificate of Cancellation by the
Administrative Trustee under the Delaware Business Trust Act.
SECTION 904. LIQUIDATION.
(a) If an Early Termination Event specified in clause (a), (b), or
(d) of Section 902 occurs or upon the Expiration Date, the Trust shall be
liquidated by the Trustees as expeditiously as the Trustees determine to be
practicable by distributing, after satisfaction of liabilities to creditors
of the Trust as provided by applicable law, to each Securityholder a Like
Amount of Debentures, subject to Section 904(d). Notice of liquidation shall
be given by the Property Trustee by first-class mail, postage prepaid, mailed
not later than 30 nor more than 60 days prior to the Liquidation Date to each
Holder of Trust Securities at such Holder's address appearing in the
Securities Register. All notices of liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities shall no longer be deemed to be Outstanding and any Trust
Securities Certificates not surrendered for exchange shall be deemed to
represent a Like Amount of Debentures; and
(iii) provide such information with respect to the mechanics by
which Holders may exchange Trust Securities Certificates for Debentures, or,
if Section 904(d) applies, receive a Liquidation Distribution, as the
Administrative Trustees or the Property Trustee shall deem appropriate.
(b) Except where Section 902(c) or 904(d) applies, in order to effect
the liquidation of the Trust and distribution of the Debentures to
Securityholders, the Property Trustee shall establish a record date for such
distribution (which shall be not more than 45 days prior to the Liquidation
Date) and, either itself acting as exchange agent or through the appointment
of a separate exchange agent, shall establish such procedures as it shall
deem appropriate to effect the distribution of Debentures in exchange for the
Outstanding Trust Securities Certificates.
(c) Except where Section 902(c) or 904(d) applies, after the
Liquidation Date, (i) the Trust Securities shall no longer be deemed to be
outstanding; (ii) certificates representing a Like Amount of Debentures shall
be issued to holders of Trust Securities Certificates upon surrender of such
certificates to the Administrative Trustees or their agent for exchange;
(iii) the Depositor shall use its reasonable efforts to have the Debentures
listed on the New York Stock Exchange or such securities exchange or other
organization as the Preferred Securities are then listed or traded; (iv) any
Trust Securities Certificates not so surrendered for exchange shall be deemed
to represent a Like Amount of Debentures, accruing interest at the rate
provided for in the Debentures from the last Distribution Date on which a
Distribution was made on such Trust Securities Certificates until such
certificates are so surrendered (and until such certificates are so
surrendered, no payments of interest or principal shall be made to holders of
Trust Securities Certificates with respect to such Debentures); and (v) all
rights of Securityholders holding Trust Securities shall cease, except the
right of such Securityholders to receive Debentures upon surrender of Trust
Securities Certificates.
(d) In the event that, notwithstanding the other provisions of this
Section 904, whether because of an order for dissolution entered by a court
of competent jurisdiction or otherwise, distribution of the Debentures in the
manner provided herein is determined by the Property Trustee not to be
practical, the Trust Property shall be liquidated, and the Trust shall be
dissolved, wound-up or terminated, by the Property Trustee in such manner as
the Property Trustee determines. In such event, on the date of the
dissolution, winding-up or other termination of the Trust, Securityholders
shall be entitled to receive out of the assets of the Trust available for
distribution to Securityholders, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, an amount equal to the
Liquidation Amount per Trust Security plus accumulated and unpaid
Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If, upon any such dissolution, winding-up or
termination, the Liquidation Distribution can be paid only in part because
the Trust has insufficient assets available to pay in full the aggregate
Liquidation Distribution, then,
36
<PAGE> 42
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 Common Securityholder 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 905. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF
THE TRUST.
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except
pursuant to this Section 905. At the request of the Depositor, with the
consent of the Administrative Trustees and without the consent of the
Preferred Securityholders, the Property Trustee or the Delaware Trustee, the
Trust may merge with or into, consolidate, amalgamate, be replaced by or
convey, transfer or lease its properties and assets substantially as an
entirety to a trust organized as such under the laws of any state; provided,
that (i) such successor entity either (a) expressly assumes all of the
obligations of the Trust with respect to the Preferred Securities, or
(b) substitutes for the Preferred Securities other securities having
substantially the same terms as the Preferred Securities (the "Successor
Securities") so long as the Successor Securities rank the same as the
Preferred Securities rank in priority with respect to distributions and
payments upon liquidation, redemption and otherwise; (ii) the Depositor
expressly appoints a trustee of such successor entity possessing
substantially the same powers and duties as the Property Trustee as the
holder of the Debentures; (iii) the Successor Securities are listed or
traded, or any Successor Securities shall be listed or traded upon
notification of issuance, on any national securities exchange or other
organization on which the Preferred Securities are then listed, if any;
(iv) such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the Preferred Securityholders (including any Successor
Securities) in any material respect; (v) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Depositor has
received an Opinion of Counsel to the effect that (a) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
not adversely affect the rights, preferences and privileges of the Preferred
Securityholders (including any Successor Securities) in any material respect,
and (b) following such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Trust nor such successor entity
shall be required to register as an "investment company" under the Investment
Company Act; and (vi) the Depositor owns all of the Common Securities of such
successor entity and guarantees the obligations of such successor entity
under the Successor Securities at least to the extent provided by the
Guarantee, the Debentures, the Indenture, this Trust Agreement and the
Expense Agreement. Notwithstanding the foregoing, the Trust shall not,
except with the consent of holders of 100% in Liquidation Amount of the
Preferred Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to any other Person or permit any other Person
to consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger or replacement would cause the Trust or
the successor entity to be classified as other than a grantor trust for
United States federal income tax purposes.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 1001. LIMITATION OF RIGHTS OF SECURITYHOLDERS.
The death or incapacity of any Person having an interest, beneficial or
otherwise, in Trust Securities shall not operate to terminate this Trust
Agreement, nor entitle the legal representatives or heirs of such Person or
any Securityholder for such Person, to claim an accounting, take any action
or bring any proceeding in any court for a partition or winding-up of the
arrangements contemplated hereby, nor otherwise affect the rights,
obligations and liabilities of the parties hereto or any of them.
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<PAGE> 43
SECTION 1002. AMENDMENT.
(a) This Trust Agreement may be amended from time to time by the
Trustees and the Depositor, without the consent of any Securityholders,
(i) as provided in Section 811 with respect to acceptance of appointment by a
successor Trustee; (ii) to cure any ambiguity, correct or supplement any
provision herein or therein which may be inconsistent with any other
provision herein or therein, or to make any other provisions with respect to
matters or questions arising under this Trust Agreement, that shall not be
inconsistent with the other provisions of this Trust Agreement; (iii) to
modify, eliminate or add to any provisions of this Trust Agreement to such
extent as shall be necessary to ensure that the Trust shall be classified for
United States federal income tax purposes as a grantor trust at all times
that any Trust Securities are outstanding or to ensure that the Trust shall
not be required to register as an "investment company" under the Investment
Company Act; or (iv) to reduce or increase the Liquidation Amount per Trust
Security and simultaneously to increase or decrease correspondingly the
number of Trust Securities issued and outstanding solely for the purpose of
maintaining the eligibility of the Preferred Securities for quotation or
listing on any national securities exchange or other organization on which
the Preferred Securities are then quoted or listed (including, if applicable,
the New York Stock Exchange); 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 provided further, that in the case of
clause (iv), the aggregate Liquidation Amount of the Trust Securities
outstanding upon completion of any such reduction must be the same as the
aggregate Liquidation Amount of the Trust Securities outstanding immediately
prior to such reduction or increase. Any amendments of this Trust Agreement
shall become effective when notice thereof is given to the Securityholders
or, in the case of any amendment pursuant to clause (iv), as of the date
specified in the notice.
(b) Except as provided in Section 601(c) or Section 1002(c) hereof,
any provision of this Trust Agreement may be amended by the Trustees and the
Depositor (i) with the consent of the Securityholders representing not less
than a majority (based upon Liquidation Amounts) of the Trust Securities then
Outstanding; and (ii) upon receipt by the Trustees of an Opinion of Counsel
to the effect that such amendment or the exercise of any power granted to the
Trustees in accordance with such amendment shall not affect the Trust's
status as a grantor trust for United States federal income tax purposes or
the Trust's exemption from status of an "investment company" under the
Investment Company Act.
(c) In addition to and notwithstanding any other provision in this
Trust Agreement, without the consent of each affected Securityholder (such
consent being obtained in accordance with Section 603 or 606 hereof), this
Trust Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount
of any Distribution required to be made in respect of the Trust Securities as
of a specified date; or (ii) restrict the right of a Securityholder to
institute suit for the enforcement of any such payment on or after such date;
notwithstanding any other provision herein, without the unanimous consent of
the Securityholders (such consent being obtained in accordance with
Section 603 or 606 hereof), this paragraph (c) of this Section 1002 may not
be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no
Trustee shall enter into or consent to any amendment to this Trust Agreement
which would cause the Trust to fail or cease to qualify for the exemption
from status of an "investment company" under the Investment Company Act or to
fail or cease to be classified as a grantor trust for United States federal
income tax purposes.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor, this Trust Agreement may not be amended
in a manner which imposes any additional obligation on the Depositor.
(f) In the event that any amendment to this Trust Agreement is made,
the Administrative Trustees shall promptly provide to the Depositor a copy of
such amendment.
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<PAGE> 44
(g) Neither the Property Trustee nor the Delaware Trustee shall be
required to enter into any amendment to this Trust Agreement which affects
its own rights, duties or immunities under this Trust Agreement. The
Property Trustee shall be entitled to receive an Opinion of Counsel and an
Officers' Certificate stating that any amendment to this Trust Agreement is
in compliance with this Trust Agreement.
SECTION 1003. SEPARABILITY.
In case any provision in this Trust Agreement or in the Trust
Securities Certificates shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
SECTION 1004. GOVERNING LAW.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST
AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES).
SECTION 1005. PAYMENTS DUE ON NON-BUSINESS DAY.
If the date fixed for any payment on any Trust Security shall be a day
that is not a Business Day, then such payment need not be made on such date
but may be made on the next succeeding day which is a Business Day, with the
same force and effect as though made on the date fixed for such payment, and
no distribution shall accumulate thereon for the period after such date.
SECTION 1006. SUCCESSORS.
This Trust Agreement shall be binding upon and shall inure to the
benefit of any successor to the Depositor, the Trust or the Relevant
Trustee(s), including any successor by operation of law. Except in
connection with a consolidation, merger or sale involving the Depositor that
is permitted under Article XII of the Indenture and pursuant to which the
assignee agrees in writing to perform the Depositor's obligations hereunder,
the Depositor shall not assign its obligations hereunder.
SECTION 1007. HEADINGS.
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement.
SECTION 1008. REPORTS, NOTICES AND DEMANDS.
Any report, notice, demand or other communication which by any
provision of this Trust Agreement is required or permitted to be given or
served to or upon any Securityholder or the Depositor may be given or served
in writing by deposit thereof, first-class postage prepaid, in the United
States mail, hand delivery or facsimile transmission, in each case,
addressed, (a) in the case of a Preferred Securityholder, to such Preferred
Securityholder as such Securityholder's name and address may appear on the
Securities Register; and (b) in the case of the Common Securityholder or the
Depositor, to First Banks America, Inc., 11901 Olive Boulevard, St. Louis,
Missouri 63141, Attention: Chief Financial Officer, facsimile no.: (314)
567-3490. Any notice to Preferred Securityholders shall also be given to
such owners as have, within two years preceding the giving of such notice,
filed their names and addresses with the Property Trustee for that purpose.
Such notice, demand or other communication to or upon a Securityholder shall
be deemed to have been sufficiently given or made, for all purposes, upon
hand delivery, mailing or transmission.
Any notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or
upon the Trust, the Property Trustee or the Administrative Trustees shall be
given in writing addressed (until another address is published by the
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<PAGE> 45
Trust) as follows: (a) with respect to the Property Trustee to State Street
Bank and Trust Company, Two International Place, 4th Floor, Boston,
Massachusetts 02110, Attention: Corporate Trust Department; (b) with respect
to the Delaware Trustee, to Wilmington Trust Company, Rodney Square North,
1100 North Market Street, Wilmington, Delaware 19890-0001, Attention:
Corporate Trust Administration; and (c) with respect to the Administrative
Trustees, to them at the address above for notices to the Depositor, marked
"Attention: Administrative Trustees of First America Capital Trust." Such
notice, demand or other communication to or upon the Trust or the Property
Trustee shall be deemed to have been sufficiently given or made only upon
actual receipt of the writing by the Trust or the Property Trustee.
SECTION 1009. AGREEMENT NOT TO PETITION.
Each of the Trustees and the Depositor agree for the benefit of the
Securityholders that, until at least one year and 1 day after the Trust has
been terminated in accordance with Article IX, they shall not file, or join
in the filing of, a petition against the Trust under any bankruptcy,
insolvency, reorganization or other similar law (including, without
limitation, the United States Bankruptcy Code of 1978, as amended)
(collectively, "Bankruptcy Laws") or otherwise join in the commencement of
any proceeding against the Trust under any Bankruptcy Law. In the event the
Depositor takes action in violation of this Section 1009, the Property
Trustee agrees, for the benefit of Securityholders, that at the expense of
the Depositor (which expense shall be paid prior to the filing), it shall
file an answer with the bankruptcy court or otherwise properly contest the
filing of such petition by the Depositor against the Trust or the
commencement of such action and raise the defense that the Depositor has
agreed in writing not to take such action and should be stopped and precluded
therefrom. The provisions of this Section 1009 shall survive the termination
of this Trust Agreement.
SECTION 1010. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT.
(a) This Trust Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Trust Agreement and shall,
to the extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a trustee
for the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or conflicts with
another provision hereof which is required to be included in this Trust
Agreement by any of the provisions of the Trust Indenture Act, such required
provision shall control. If any provision of this Trust Agreement modifies
or excludes any provision of the Trust Indenture Act which may be so modified
or excluded, the latter provision shall be deemed to apply to this Trust
Agreement as so modified or to be excluded, as the case may be.
(d) The application of the Trust Indenture Act to this Trust
Agreement shall not affect the nature of the Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
SECTION 1011. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND
INDENTURE.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN
BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY
SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE
UNCONDITIONAL ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A
BENEFICIAL INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF
THIS TRUST AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER
TERMS OF THE GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT
OF THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND
PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE
AS BETWEEN THE TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS.
[Signatures on Next Page]
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<PAGE> 46
FIRST BANKS AMERICA, INC.
By:
------------------------------------
Its:
-----------------------------------
STATE STREET BANK AND TRUST COMPANY,
as Property Trustee
By:
------------------------------------
Its:
-----------------------------------
WILMINGTON TRUST COMPANY,
as Delaware Trustee
By:
------------------------------------
Its:
-----------------------------------
-------------------------------------------
James F. Dierberg, as Administrative
Trustee
-------------------------------------------
Allen H. Blake, as Administrative Trustee
-------------------------------------------
Laurence J. Brost, as Administrative
Trustee
41
<PAGE> 47
EXHIBIT A
CERTIFICATE OF TRUST
OF
FIRST AMERICA CAPITAL TRUST
THIS CERTIFICATE OF TRUST of FIRST AMERICA CAPITAL TRUST (the
"Trust"), dated as of June , 1998, is being duly executed and filed by
----
WILMINGTON TRUST COMPANY, a Delaware banking corporation, JAMES F.
DIERBERG, ALLEN H. BLAKE and LAURENCE J. BROST, each an individual, as
trustees, to form a business trust under the Delaware Business Trust Act (12
Delaware Code Section 3801 et seq.).
1. NAME. The name of the business trust formed hereby is FIRST AMERICA
CAPITAL TRUST.
2. DELAWARE TRUSTEE. The name and business address of the trustee of
the Trust in the State of Delaware is Wilmington Trust Company, Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890-
0001, Attention: Corporate Trust Administration.
3. EFFECTIVE DATE. This Certificate of Trust shall be effective on
June , 1998.
----
IN WITNESS WHEREOF, the undersigned have executed this Certificate
of Trust as of the date first above written, in accordance with Section
3811(a) of the Delaware Business Trust Act.
WILMINGTON TRUST COMPANY,
as trustee
By:
---------------------------------------
Its:
--------------------------------------
-------------------------------------------
JAMES F. DIERBERG
as Trustee
-------------------------------------------
ALLEN H. BLAKE
as Trustee
-------------------------------------------
LAURENCE J. BROST
as Trustee
1
<PAGE> 48
EXHIBIT B
THIS CERTIFICATE IS NOT TRANSFERABLE
CERTIFICATE NUMBER 1 NUMBER OF COMMON SECURITIES: ---------
CERTIFICATE EVIDENCING COMMON SECURITIES
OF
FIRST AMERICA CAPITAL TRUST
COMMON SECURITIES
(LIQUIDATION AMOUNT $25 PER COMMON SECURITY)
FIRST AMERICA CAPITAL TRUST, a statutory business trust created
under the laws of the State of Delaware (the "Trust"), hereby certifies that
FIRST BANKS AMERICA, INC. (the "Holder") is the registered owner of
- ---------------------- (-----------) common securities of the Trust
representing undivided beneficial interests in the assets of the Trust and
designated the % Common Securities (liquidation amount $25 per Common
-----
Security) (the "Common Securities"). In accordance with Section 510 of the
Trust Agreement (as defined below), the Common Securities are not
transferable, and any attempted transfer hereof shall be void. The
designations, rights, privileges, restrictions, preferences, and other terms
and provisions of the Common Securities are set forth in, and this
certificate and the Common Securities represented hereby are issued and shall
in all respects be subject to the terms and provisions of, the Amended and
Restated Trust Agreement of the Trust dated as of ,
----------------- ----
1998, as the same may be amended from time to time (the "Trust Agreement"),
including the designation of the terms of the Common Securities as set forth
therein. The Trust shall furnish a copy of the Trust Agreement to the Holder
without charge upon written request to the Trust at its principal place of
business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust
has executed this certificate this day of , 1998.
----- ----------------
FIRST AMERICA CAPITAL TRUST
By:
---------------------------------------
Its:
---------------------------------------
1
<PAGE> 49
EXHIBIT C
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT AS TO EXPENSES AND LIABILITIES (this "Agreement")
dated as of , 1998, between FIRST BANKS AMERICA, INC., a
------------
Delaware corporation ("FBA"), and FIRST AMERICA CAPITAL TRUST, a
Delaware business trust (the "Trust").
RECITALS
WHEREAS, the Trust intends to issue its common securities (the "Common
Securities") to, and receive Debentures from, FBA and to issue and sell First
America Capital 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 , 1998, as the same may be amended
--------------------
from time to time (the "Trust Agreement"); and
WHEREAS, FBA 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 FBA hereby agrees shall benefit FBA
and which purchase FBA acknowledges shall be made in reliance upon the
execution and delivery of this Agreement, FBA, including in its capacity as
holder of the Common Securities, and the Trust hereby agree as follows:
ARTICLE I
SECTION 1.1. GUARANTEE BY FBA.
Subject to the terms and conditions hereof, FBA, 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
restore payment of any sums paid under the Preferred Securities, under any
obligation, under the Preferred Securities Guarantee Agreement dated the date
hereof by FBA 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.
FBA hereby waives notice of acceptance of this Agreement and of any
obligation to which it applies or may apply, and FBA hereby waives
presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
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<PAGE> 50
SECTION 1.4. NO IMPAIRMENT.
The obligations, covenants, agreements and duties of FBA 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, FBA with respect to the happening of any of the
foregoing.
SECTION 1.5. ENFORCEMENT.
A Beneficiary may enforce this Agreement directly against FBA, and FBA
waives any right or remedy to require that any action be brought against the
Trust or any other person or entity before proceeding against FBA.
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 FBA 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):
First America Capital Trust
c/o First Banks America, Inc.
11901 Olive Boulevard
St. Louis, MO 63141
Facsimile No.: (314) 567-3490
Attention: Chief Financial Officer
2
<PAGE> 51
First Banks America, Inc.
11901 Olive Boulevard
St. Louis, MO 63141
Facsimile No.: (314) 567-3490
Attention: Chief Financial Officer
SECTION 2.4. This agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of
-------------------
(without regard to conflict of laws principles).
THIS AGREEMENT is executed as of the day and year first above
written.
FIRST BANKS AMERICA, INC.
By:
---------------------------------------
Its:
---------------------------------------
FIRST AMERICA CAPITAL TRUST
By:
---------------------------------------
Its:
---------------------------------------
3
<PAGE> 52
EXHIBIT D
CERTIFICATE NUMBER NUMBER OF PREFERRED SECURITIES --------
P-
CERTIFICATE EVIDENCING PREFERRED SECURITIES
OF
FIRST AMERICA CAPITAL TRUST
----% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
CUSIP NO. ---------------
FIRST AMERICA CAPITAL TRUST, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that
- ---------------- (the "Holder") is the registered owner of ----- preferred
securities of the Trust representing undivided beneficial interests in the
assets of the Trust and designated the ------% Cumulative Trust Preferred
Securities (liquidation amount $25 per Preferred Security) (the "Preferred
Securities"). The Preferred Securities are transferable on the books and
records of the Trust, in person or by a duly authorized attorney, upon
surrender of this certificate duly endorsed and in proper form for transfer
as provided in Section 504 of the Trust Agreement (as defined herein). 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 -----------------------
- -----, 1998, as the same may be amended from time to time (the "Trust
Agreement"), including the designation of the terms of Preferred Securities
as set forth therein. The Holder is entitled to the benefits of the
Preferred Securities Guarantee Agreement entered into by First Banks America,
Inc., a Delaware corporation, and State Street Bank and Trust Company, as
guarantee trustee, dated as of ----------------------------, 1998 (the
"Guarantee"), to the extent provided therein. The Trust shall furnish a copy
of the Trust Agreement and the Guarantee to the Holder without charge upon
written request to the Trust at its principal place of business or registered
office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
Unless the Certificate of Authentication has been manually executed by
the Authentication Agent, this certificate is not valid or effective.
IN WITNESS WHEREOF, the Administrative Trustees of the Trust have
executed this certificate as of the date hereof.
1
<PAGE> 53
Dated: FIRST AMERICA CAPITAL TRUST
CERTIFICATE OF AUTHENTICATION
This is one of the -----% By
Cumulative Trust Preferred Securities -----------------------------------
referred to in the within-mentioned Trustee
Amended and Restated Trust Agreement. By
-----------------------------------
STATE STREET BANK & TRUST COMPANY, Trustee
as Authentication Agent and Registrars
By
-----------------------------------
Trustee
By
----------------------------------
Authorized Signature
2
<PAGE> 54
[FORM ON REVERSE OF CERTIFICATE]
The Trust will furnish without charge to any registered owner of Preferred
Securities who so requests, a copy of the Trust Agreement and the Guarantee.
Any such request should be in writing and addressed to First America Capital
Trust, c/o Secretary, First Banks America, Inc., 135 North Meramec Avenue,
St. Louis, Missouri 63105 or to the Registrar named on the face of this
Certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ...Custodian....
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act......................
tenants in common (State)
TOD - transfer on death direction UNIF TRF MIN ACT - ..Custodian......
in event of owner's death, (until age).......
to person named on face and (Cust)
subject to TOD rules referenced ......under Uniform Transfers
(Minor)
to Minors Act...............
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ------------- hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ---------------------------------------------------------- Preferred Securities
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
- ---------------------------------------------------------------------- Attorney
to transfer the said Preferred Securities on the books of the within named
Trust with full power of substitution in the premises.
Dated,--------------------------
-------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERNATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
- ------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED MEDALLION SIGNATURE GUARANTEE PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
3
<PAGE> 1
================================================================================
PREFERRED SECURITIES GUARANTEE AGREEMENT
BY AND BETWEEN
FIRST BANKS AMERICA, INC.
AND
STATE STREET BANK AND TRUST COMPANY
JUNE --, 1998
================================================================================
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
ARTICLE I. 1
DEFINITIONS AND INTERPRETATION 1
Section 1.1. Definitions and Interpretation. 1
ARTICLE II. 4
TRUST INDENTURE ACT 4
Section 2.1. Trust Indenture Act; Application. 4
Section 2.2. The List of Holders of the Securities. 5
Section 2.3. Reports by the Preferred Guarantee Trustee. 5
Section 2.4. Periodic Reports to the Preferred Guarantee Trustee. 5
Section 2.5. Evidence of Compliance with Conditions Precedent. 5
Section 2.6. Events of Default; Waiver. 5
Section 2.7. Event of Default; Notice. 6
Section 2.8. Conflicting Interests. 6
ARTICLE III. 6
POWERS, DUTIES AND RIGHTS 6
OF THE PREFERRED GUARANTEE TRUSTEE 6
Section 3.1. Powers and Duties of the Preferred Guarantee Trustee. 6
Section 3.2. Certain Rights of the Preferred Guarantee Trustee. 8
Section 3.3. Not Responsible for Recitals or Issuance of Guarantee. 9
ARTICLE IV. 10
THE PREFERRED GUARANTEE TRUSTEE 10
Section 4.1. The Preferred Guarantee Trustee; Eligibility. 10
Section 4.2. Appointment, Removal and Resignation of the Preferred
Guarantee Trustee. 10
ARTICLE V. 12
GUARANTEE 12
Section 5.1. Guarantee. 12
Section 5.2. Waiver of Notice and Demand. 12
Section 5.3. Obligations not Affected. 12
Section 5.4. Rights of the Holders. 13
Section 5.5. Guarantee of Payment. 13
Section 5.6. Subrogation. 13
Section 5.7. Independent Obligations. 13
i
<PAGE> 3
ARTICLE VI. 14
LIMITATION OF TRANSACTIONS; SUBORDINATION 14
Section 6.1. Limitation on Transactions. 14
Section 6.2 Ranking. 14
ARTICLE VII. 14
TERMINATION 14
Section 7.1. Termination. 14
ARTICLE VIII. 15
INDEMNIFICATION 15
Section 8.1. Exculpation. 15
Section 8.2. Indemnification. 15
ARTICLE IX. 15
MISCELLANEOUS 15
Section 9.1. Successors and Assigns. 15
Section 9.2. Amendments. 15
Section 9.3. Notices. 16
Section 9.4. Benefit. 16
Section 9.5. Governing Law. 16
</TABLE>
ii
<PAGE> 4
<TABLE>
CROSS-REFERENCE TABLE
<CAPTION>
Section of Section of
Trust Indenture Act Guarantee
of 1939, as amended Agreement
- ------------------- ----------
<S> <C>
310(a) 4.1(a)
310(b) 4.1(c), 2.8
310(c) Not Applicable
311(a) 2.2(b)
311(b) 2.2(b)
311(c) Not Applicable
312(a) 2.2(a)
312(b) 2.2(b)
313 2.3
314(a) 2.4
314(b) Not Applicable
314(c) 2.5
314(d) Not Applicable
314(e) 1.1, 2.5,3.2
314(f) 2.1, 3.2
315(a) 3.1(d)
315(b) 2.7
315(c) 3.1
315(d) 3.1(d)
316(a) 1.1, 2.6, 5.4
316(b) 5.3
317(a) 3.1
317(b) Not Applicable
318(a) 2.1(a)
318(b) 2.1
318(c) 2.1(b)
<CAPTION>
Note: This Cross-Reference Table does not constitute part of this Agreement
and shall not affect the interpretation of any of its terms or provisions.
</TABLE>
iii
<PAGE> 5
PREFERRED SECURITIES GUARANTEE AGREEMENT
THIS PREFERRED SECURITIES GUARANTEE AGREEMENT (this "Preferred
Securities Guarantee"), dated as of June --, 1998, is executed and delivered
by FIRST BANKS AMERICA, INC., a Delaware corporation (the "Guarantor"), and
STATE STREET BANK AND TRUST COMPANY, a trust company organized and existing
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
FIRST AMERICA CAPITAL TRUST, a Delaware statutory business trust (the
"Trust").
RECITALS
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the
"Trust Agreement"), dated as of June --, 1998, among the trustees of the
Trust named therein, the Guarantor, as depositor, and the holders from time
to time of undivided beneficial interests in the assets of the Trust, the
Trust is issuing on the date hereof up to 1,840,000 preferred securities,
having an aggregate liquidation amount of $46,000,000, designated the ---%
Cumulative Trust Preferred Securities (the "Preferred Securities");
WHEREAS, as incentive for the Holders to purchase the Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Preferred Securities Guarantee, to pay to the
Holders of the Preferred Securities the Guarantee Payments (as defined herein)
and to make certain other payments on the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.
ARTICLE I.
DEFINITIONS AND INTERPRETATION
SECTION 1.1. DEFINITIONS AND INTERPRETATION. In this
Preferred Securities Guarantee, unless the context otherwise requires:
(a) capitalized terms used in this Preferred Securities Guarantee but
not defined in the preamble above have the respective meanings assigned to
them in this Section 1.1;
(b) terms defined in the Trust Agreement as at the date of execution
of this Preferred Securities Guarantee have the same meaning when used in
this Preferred Securities Guarantee;
(c) a term defined anywhere in this Preferred Securities Guarantee
has the same meaning throughout;
<PAGE> 6
(d) all references to "the Preferred Securities Guarantee" or "this
Preferred Securities Guarantee" are to this Preferred Securities Guarantee as
modified, supplemented or amended from time to time;
(e) all references in this Preferred Securities Guarantee to Articles
and Sections are to Articles and Sections of this Preferred Securities
Guarantee, unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same meaning
when used in this Preferred Securities Guarantee, unless otherwise defined in
this Preferred Securities Guarantee or unless the context otherwise requires;
and
(g) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than a Saturday or a Sunday or a day
on which federal or state banking institutions in the Borough of Manhattan,
the City of New York are authorized or required by law, executive order or
regulation to close or a day on which the Corporate Trust Office of the
Preferred Guarantee Trustee is closed for business.
"Corporate Trust Office" means the office of the Preferred Guarantee
Trustee at which the corporate trust business of the Preferred Guarantee
Trustee shall, at any particular time, be principally administered, which
office at the date of execution of this Preferred Securities Guarantee is
located at Two International Place, 4th Floor, Boston, Massachusetts 02110,
Attention: Corporate Trust Department.
"Covered Person" means any Holder or beneficial owner of Preferred
Securities.
"Debentures" means the ----% Subordinated Debentures due June 30, 2028,
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 First Banks America, Inc., a Delaware corporation.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent
not paid or made by the Trust: (i) any accrued and unpaid Distributions that
are required to be paid on such Preferred Securities, to the extent the Trust
shall have funds available therefor, (ii) the redemption price, including all
accrued and unpaid Distributions to the date of redemption (the "Redemption
Price"), to the extent the Trust has funds available therefor, with respect
to any Preferred Securities called for
2
<PAGE> 7
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 the Debentures to the Holders in exchange for the 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" means a Person in whose name a Preferred Security is or
Preferred Securities are registered in the Securities Register; provided,
however, that, in determining whether the holders of the requisite percentage
of the 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 June --, 1998, among the
Debenture Issuer and State Street Bank and Trust Company, as trustee, and any
indenture supplemental thereto pursuant to which the Debentures are to be
issued to the Property Trustee of the Trust.
"Liquidation Distribution" has the meaning provided therefor in the
definition of Guarantee Payments.
"List of Holders" has the meaning set forth in Section 2.2 of this
Preferred Securities Guarantee.
"Majority in Liquidation Amount of the Preferred Securities" means the
holders of more than 50% of the Liquidation Amount (including the stated
amount that would be paid on redemption, liquidation or otherwise, plus
accrued and unpaid Distributions to the date upon which the voting
percentages are determined) of all of the Preferred Securities.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two authorized officers of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definition relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate;
3
<PAGE> 8
(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.
"Successor Preferred Guarantee Trustee" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred Guarantee
Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, as in force at the date of which this instrument was executed;
provided, however, that in the event the Trust Indenture Act of 1939, as
amended, is amended after such date, "Trust Indenture Act" means, to the
extent required by any such amendment, the Trust Indenture Act of 1939, as so
amended.
ARTICLE II.
TRUST INDENTURE ACT
SECTION 2.1. TRUST INDENTURE ACT; APPLICATION.
(a) This Preferred Securities Guarantee is subject to the provisions
of the Trust Indenture Act that are required to be part of this Preferred
Securities Guarantee and shall, to the extent applicable, be governed by such
provisions.
4
<PAGE> 9
(b) If and to the extent that any provision of this Preferred
Securities Guarantee limits, qualifies or conflicts with the duties imposed
by Section 310 to 317, inclusive, of the Trust Indenture Act, such imposed
duties shall control.
SECTION 2.2. THE LIST OF HOLDERS OF THE SECURITIES.
(a) In the event the Preferred Guarantee Trustee is not also the
Securities Registrar, the Guarantor shall provide the Preferred Guarantee
Trustee with a list, in such form as the Preferred Guarantee Trustee may
reasonably require, of the names and addresses of the Holders of the
Preferred Securities (the "List of Holders") as of such date, (i) within 1
Business Day after January 1 and June 30 of each year, and (ii) at any other
time within 30 days of receipt by the Guarantor of a written request for a
List of Holders as of a date no more than 15 days before such List of Holders
is given to the Preferred Guarantee Trustee; provided, that the Guarantor
shall not be obligated to provide such List of Holders at any time the List
of Holders does not differ from the most recent List of Holders given to the
Preferred Guarantee Trustee by the Guarantor. The Preferred Guarantee Trustee
may destroy any List of Holders previously given to it on receipt of a new
List of Holders.
(b) The Preferred Guarantee Trustee shall comply with its obligations
under Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
SECTION 2.3. REPORTS BY THE PREFERRED GUARANTEE TRUSTEE.
On or before July 15 of each year, the Preferred Guarantee Trustee shall
provide to the Holders of the Preferred Securities such reports as are
required by Section 313 of the Trust Indenture Act, if any, in the form and
in the manner provided by Section 313 of the Trust Indenture Act. The
Preferred Guarantee Trustee shall also comply with the requirements of
Section 313(d) of the Trust Indenture Act.
SECTION 2.4. PERIODIC REPORTS TO THE PREFERRED GUARANTEE
TRUSTEE. The Guarantor shall provide to the Preferred Guarantee Trustee
such documents, reports and information as required by Section 314 (if any)
and the compliance certificate required by Section 314 of the Trust Indenture
Act in the form, in the manner and at the times required by Section 314 of
the Trust Indenture Act.
SECTION 2.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS
PRECEDENT. The Guarantor shall provide to the Preferred Guarantee Trustee
such evidence of compliance with any conditions precedent, if any, provided
for in this Preferred Securities Guarantee that relate to any of the matters
set forth in Section 314(c) of the Trust Indenture Act. Any certificate or
opinion required to be given by an officer pursuant to Section 314(c)(1) may
be given in the form of an Officers' Certificate.
SECTION 2.6. EVENTS OF DEFAULT; WAIVER. The Holders of a
Majority in Liquidation Amount of the 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
5
<PAGE> 10
Event of Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured, for every purpose of this
Preferred Securities Guarantee, but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
SECTION 2.7. EVENT OF DEFAULT; NOTICE.
(a) The Preferred Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Preferred Securities, notices of all Events of
Default actually known to a Responsible Officer of the Preferred Guarantee
Trustee, unless such defaults have been cured before the giving of such
notice; provided, that the Preferred Guarantee Trustee shall be protected in
withholding such notice if and so long as a Responsible Officer of the
Preferred Guarantee Trustee in good faith determines that the withholding of
such notice is in the interests of the Holders of the Preferred Securities.
(b) The Preferred Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default unless the Preferred Guarantee Trustee
shall have received written notice, or of which a Responsible Officer of the
Preferred Guarantee Trustee charged with the administration of the Trust
Agreement shall have obtained actual knowledge of such Event of Default.
SECTION 2.8. CONFLICTING INTERESTS.
The Trust Agreement shall be deemed to be specifically described in
this Preferred Securities Guarantee for the purposes of clause (i) of the
first proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III.
POWERS, DUTIES AND RIGHTS
OF THE PREFERRED GUARANTEE TRUSTEE
SECTION 3.1. POWERS AND DUTIES OF THE PREFERRED GUARANTEE
TRUSTEE.
(a) This Preferred Securities Guarantee shall be held by the
Preferred Guarantee Trustee for the benefit of the Holders of the Preferred
Securities, and the Preferred Guarantee Trustee shall not transfer this
Preferred Securities Guarantee to any Person except a Holder of Preferred
Securities exercising his or her rights pursuant to Section 5.4(b) or to a
Successor Preferred Guarantee Trustee on acceptance by such Successor
Preferred Guarantee Trustee of its appointment to act as Successor Preferred
Guarantee Trustee. The right, title and interest of the Preferred Guarantee
Trustee shall automatically vest in any Successor Preferred Guarantee
Trustee, and such vesting and cessation of title shall be effective whether
or not conveyancing documents have been executed and delivered pursuant to
the appointment of such Successor Preferred Guarantee Trustee.
6
<PAGE> 11
(b) If an Event of Default actually known to a Responsible Officer of
the Preferred Guarantee Trustee has occurred and is continuing, the Preferred
Guarantee Trustee shall enforce this Preferred Securities Guarantee for the
benefit of the Holders of the Preferred Securities.
(c) The Preferred Guarantee Trustee, before the occurrence of any
Event of Default and after the curing of all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Preferred Securities Guarantee, and no implied covenants shall
be read into this Preferred Securities Guarantee against the Preferred
Guarantee Trustee. In case an Event of Default has occurred (that has not
been cured or waived pursuant to Section 2.6) and is actually known to a
Responsible Officer of the Preferred Guarantee Trustee, the Preferred
Guarantee Trustee shall exercise such of the rights and powers vested in it
by this Preferred Securities Guarantee, and use the same degree of care and
skill in its exercise thereof, as a prudent person would exercise or use
under the circumstances in the conduct of his or her own affairs.
(d) No provision of this Preferred Securities Guarantee shall be
construed to relieve the Preferred Guarantee Trustee from liability for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) prior to the occurrence of any Event of Default and after
the curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Preferred Guarantee
Trustee shall be determined solely by the express provisions of
this Preferred Securities Guarantee, and the Preferred Guarantee
Trustee shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this
Preferred Securities Guarantee, and no implied covenants or
obligations shall be read into this Preferred Securities
Guarantee against the Preferred Guarantee Trustee; and
(B) in the absence of bad faith on the part of the
Preferred Guarantee Trustee, the Preferred Guarantee Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Preferred Guarantee
Trustee and conforming to the requirements of this Preferred
Securities Guarantee; but in the case of any such certificates or
opinions that by any provision hereof are specifically required
to be furnished to the Preferred Guarantee Trustee, the Preferred
Guarantee Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this
Preferred Securities Guarantee;
(ii) the Preferred Guarantee Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer of the
Preferred Guarantee Trustee,
7
<PAGE> 12
unless it shall be proved that the Preferred Guarantee Trustee was
negligent in ascertaining the pertinent facts upon which such judgment was
made;
(iii) the Preferred Guarantee Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good faith
in accordance with the direction of the Holders of not less than a
Majority in Liquidation Amount of the Preferred Securities relating to
the time, method and place of conducting any proceeding for any remedy
available to the Preferred Guarantee Trustee, or exercising any trust
or power conferred upon the Preferred Guarantee Trustee under this
Preferred Securities Guarantee; and
(iv) no provision of this Preferred Securities Guarantee shall
require the Preferred Guarantee Trustee to expend or risk its own funds
or otherwise incur personal financial liability in the performance of
any of its duties or in the exercise of any of its rights or powers, if
the Preferred Guarantee Trustee shall have reasonable grounds for
believing that the repayment of such funds or liability is not
reasonably assured to it under the terms of this Preferred Securities
Guarantee or indemnity, reasonably satisfactory to the Preferred
Guarantee Trustee, against such risk or liability is not reasonably
assured to it.
SECTION 3.2. CERTAIN RIGHTS OF THE PREFERRED GUARANTEE
TRUSTEE.
(a) Subject to the provisions of Section 3.1:
(i) the Preferred Guarantee Trustee may conclusively rely, and
shall be fully protected in acting or refraining from acting upon, any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document believed by
it to be genuine and to have been signed, sent or presented by the
proper party or parties;
(ii) any direction or act of the Guarantor contemplated by this
Preferred Securities Guarantee shall be sufficiently evidenced by an
Officers' Certificate;
(iii) whenever, in the administration of this Preferred
Securities Guarantee, the Preferred Guarantee Trustee shall deem it
desirable that a matter be proved or established before taking,
suffering or omitting any action hereunder, the Preferred Guarantee
Trustee (unless other evidence is herein specifically prescribed) may,
in the absence of bad faith on its part, request and conclusively rely
upon an Officers' Certificate which, upon receipt of such request,
shall be promptly delivered by the Guarantor;
(iv) the Preferred Guarantee Trustee shall have no duty to see
to any recording, filing or registration of any instrument (or any
rerecording, refiling or registration thereof);
(v) the Preferred Guarantee Trustee may consult with counsel,
and the written advice or opinion of such counsel with respect to legal
matters shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it
8
<PAGE> 13
hereunder in good faith and in accordance with such advice or opinion.
Such counsel may be counsel to the Guarantor or any of its Affiliates and
may include any of its employees. The Preferred Guarantee Trustee shall
have the right at any time to seek instructions concerning the
administration of this Preferred Securities Guarantee from any court of
competent jurisdiction;
(vi) the Preferred Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Preferred Securities Guarantee at the request or direction of any
Holder, unless such Holder shall have provided to the Preferred
Guarantee Trustee such security and indemnity, reasonably satisfactory
to the Preferred Guarantee Trustee, against the costs, expenses
(including attorneys' fees and expenses and the expenses of the
Preferred Guarantee Trustee's agents, nominees or custodians) and
liabilities that might be incurred by it in complying with such request
or direction, including such reasonable advances as may be requested by
the Preferred Guarantee Trustee; provided that, nothing contained in
this Section 3.2(a)(vi) shall be taken to relieve the Preferred
Guarantee Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this
Preferred Securities Guarantee;
(vii) the Preferred Guarantee Trustee shall not be bound to make
any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Preferred Guarantee
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit;
(viii) the Preferred Guarantee Trustee may execute any of the
trusts or powers hereunder or perform any duties hereunder either
directly or by or through agents, nominees, custodians or attorneys,
and the Preferred Guarantee Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed
with due care by it hereunder;
(ix) 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 (A)
may request instructions from the Holders of a Majority in Liquidation
Amount of the Preferred Securities, (B) may refrain from enforcing such
remedy or right or taking such other action until such instructions are
received, and (C) shall be protected in conclusively relying on or
acting in accordance with such instructions.
9
<PAGE> 14
(b) No provision of this Preferred Securities Guarantee shall be
deemed to impose any duty or obligation on the Preferred Guarantee Trustee to
perform any act or acts or exercise any right, power, duty or obligation
conferred or imposed on it in any jurisdiction in which it shall be illegal,
or in which the Preferred Guarantee Trustee shall be unqualified or
incompetent in accordance with applicable law, to perform any such act or
acts or to exercise any such right, power, duty or obligation. No permissive
power or authority available to the Preferred Guarantee Trustee shall be
construed to be a duty.
SECTION 3.3. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
GUARANTEE. The Recitals contained in this Guarantee shall be taken as the
statements of the Guarantor, and the Preferred Guarantee Trustee does not
assume any responsibility for their correctness. The Preferred Guarantee
Trustee makes no representation as to the validity or sufficiency of this
Preferred Securities Guarantee.
ARTICLE IV.
THE PREFERRED GUARANTEE TRUSTEE
SECTION 4.1. THE 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 or any state or territory thereof or of the
District of Columbia, or a corporation or Person permitted by the
Securities and Exchange Commission to act as an institutional trustee
under the Trust Indenture Act, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at
least $50,000,000, and subject to supervision or examination by
federal, state, territorial or District of Columbia authority. If such
corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the supervising or examining authority
referred to above, then, for the purposes of this Section 4.1(a)(ii),
the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent
report of condition so published.
(b) If at any time the Preferred Guarantee Trustee shall cease to be
eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee
shall immediately resign in the manner and with the effect set out in Section
4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Preferred Guarantee Trustee and the Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
10
<PAGE> 15
SECTION 4.2. APPOINTMENT, REMOVAL AND RESIGNATION OF THE
PREFERRED GUARANTEE TRUSTEE.
(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.
(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
fees and expenses accrued to the date of such termination, removal or
resignation.
ARTICLE V.
GUARANTEE
SECTION 5.1. GUARANTEE. The Guarantor irrevocably and
unconditionally agrees to pay in full to the Holders the Guarantee Payments
(without duplication of amounts theretofore paid by the Trust), as and when
due, regardless of any defense, right of set-off or counterclaim that the
Trust may have or assert. The Guarantor's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Guarantor to the Holders or by causing the Trust to pay such amounts to the
Holders.
11
<PAGE> 16
SECTION 5.2. WAIVER OF NOTICE AND DEMAND. The Guarantor
hereby waives notice of acceptance of this Preferred Securities Guarantee and
of any liability to which it applies or may apply, presentment, demand for
payment, any right to require a proceeding first against the Trust or any
other Person before proceeding against the Guarantor, protest, notice of
nonpayment, notice of dishonor, notice of redemption and all other notices
and demands.
SECTION 5.3. OBLIGATIONS NOT AFFECTED. The obligations,
covenants, agreements and duties of the Guarantor under this Preferred
Securities Guarantee shall in no way be affected or impaired by reason of the
happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be
performed or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution or
any other sums payable under the terms of the Preferred Securities or the
extension of time for the performance of any other obligation under, arising
out of, or in connection with, the Preferred Securities (other than an
extension of time for payment of Distributions, Redemption Price, Liquidation
Distribution or other sum payable that results from the extension of any
interest payment period on the Debentures or any extension of the maturity
date of the Debentures permitted by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Holders pursuant to the terms of the Preferred
Securities, or any action on the part of the Trust granting indulgence or
extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or
readjustment of debt of, or other similar proceedings affecting, the Trust or
any of the assets of the Trust;
(e) any invalidity of, or defect or deficiency in, the Preferred
Securities;
(f) any failure or omission to receive any regulatory approval or
consent required in connection with the Preferred Securities (or the common
equity securities issued by the Trust), including the failure to receive any
approval of the Board of Governors of the Federal Reserve System required for
the redemption of the Preferred Securities;
(g) the settlement or compromise of any obligation guaranteed hereby
or hereby incurred; or
12
<PAGE> 17
(h) any other circumstance whatsoever that might otherwise constitute
a legal or equitable discharge or defense of a guarantor, it being the intent
of this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.4. RIGHTS OF THE HOLDERS.
(a) The Holders of a Majority in Liquidation Amount of the Preferred
Securities have the right to direct the time, method and place of conducting
of any proceeding for any remedy available to the Preferred Guarantee Trustee
in respect of this Preferred Securities Guarantee or exercising any trust or
power conferred upon the Preferred Guarantee Trustee under this Preferred
Securities Guarantee.
(b) Any Holder of Preferred Securities may institute a legal
proceeding directly against the Guarantor to enforce its rights under this
Preferred Securities Guarantee, without first instituting a legal proceeding
against the Trust, the Preferred Guarantee Trustee or any other Person.
13
<PAGE> 18
SECTION 5.5. GUARANTEE OF PAYMENT. This Preferred Securities
Guarantee creates a guarantee of payment and not of collection.
SECTION 5.6. SUBROGATION. The Guarantor shall be subrogated to
all (if any) rights of the Holders of the Preferred Securities against the
Trust in respect of any amounts paid to such Holders by the Guarantor under
this Preferred Securities Guarantee; provided, however, that the Guarantor
shall not (except to the extent required by mandatory provisions of law) be
entitled to enforce or exercise any right that it may acquire by way of
subrogation or any indemnity, reimbursement or other agreement, in all cases
as a result of payment under this Preferred Securities Guarantee, if, at the
time of any such payment, any amounts are due and unpaid under this Preferred
Securities Guarantee. If any amount shall be paid to the Guarantor in
violation of the preceding sentence, the Guarantor agrees to hold such amount
in trust for the Holders and to pay over such amount to the Holders.
SECTION 5.7. INDEPENDENT OBLIGATIONS. The Guarantor
acknowledges that its obligations hereunder are independent of the
obligations of the Trust with respect to the Preferred Securities, and that
the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Preferred Securities
Guarantee notwithstanding the occurrence of any event referred to in
subsections (a) through (h), inclusive, of Section 5.3 hereof.
ARTICLE VI.
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1. LIMITATION ON TRANSACTIONS. So long as any of
the Preferred Securities remain outstanding, if any of the circumstances
described in Section 5.6 of the Indenture shall have occurred, then (a) the
Guarantor shall not declare or pay any dividend on, make any distributions
with respect to, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of its capital stock (other than (i) dividends or
distributions in common stock of the Guarantor or any declaration of a
non-cash dividend in connection with the implementation of a shareholder rights
plan, or the issuance of stock under any such plan in the future, or the
redemption or repurchase of any such rights pursuant thereto, and (ii)
purchases of common stock of the Guarantor related to the rights under any of
the Guarantor's benefit plans for its directors, officers or employees of),
(b) the Guarantor shall not make any payment of principal or interest on or
repay, repurchase or redeem any debt securities issued by the Guarantor which
rank pari passu with or junior to the Debentures other than payments under
this Preferred Securities Guarantee and (c) the Guarantor shall not redeem,
purchase or acquire less than all of the Outstanding Debentures or any of the
Preferred Securities.
SECTION 6.2 RANKING. This Preferred Securities Guarantee will
constitute an unsecured obligation of the Guarantor and will rank (a)
subordinate and junior in right of payment to all Senior Debt, Subordinated
Debt and Additional Senior Obligations (as defined in the Indenture) of the
Guarantor, (b) 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 (c) senior to the Guarantor's common stock.
14
<PAGE> 19
ARTICLE VII.
TERMINATION
SECTION 7.1. TERMINATION.
This Preferred Securities Guarantee shall terminate upon (a) full
payment of the Redemption Price of all the Preferred Securities, (b) full
payment of the amounts payable in accordance with the Trust Agreement upon
liquidation of the Trust, or (c) distribution of the Debentures to the
Holders of the Preferred Securities. Notwithstanding the foregoing, this
Preferred Securities Guarantee shall continue to be effective or shall be
reinstated, as the case may be, if at any time any Holder of Preferred
Securities must restore payment of any sums paid under the Preferred
Securities or under this Preferred Securities Guarantee.
ARTICLE VIII.
INDEMNIFICATION
SECTION 8.1. EXCULPATION.
(a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Guarantor or any Covered Person for any loss,
damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith in accordance with this
Preferred Securities Guarantee and in a manner that such Indemnified Person
reasonably believed to be within the scope of the authority conferred on such
Indemnified Person by this Preferred Securities Guarantee or by law, except
that an Indemnified Person shall be liable for any such loss, damage or claim
incurred by reason of such Indemnified Person's negligence or willful
misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters
the Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable
care by or on behalf of the Guarantor, including information, opinions,
reports or statements as to the value and amount of the assets, liabilities,
profits, losses, or any other facts pertinent to the existence and amount of
assets from which Distributions to the Holders of the Preferred Securities
might properly be paid.
SECTION 8.2. INDEMNIFICATION. The Guarantor agrees to
indemnify each Indemnified Person for, and to hold each Indemnified Person
harmless against, any loss, liability or expense incurred without negligence
or bad faith on its part, arising out of or in connection with the acceptance
or administration of the trust or trusts hereunder, including the costs and
expenses (including reasonable legal fees and expenses) of defending itself
against, or investigating, any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. The
obligation to indemnify as set forth in this Section 8.2 shall survive the
termination of this Preferred Securities Guarantee.
15
<PAGE> 20
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 adversely affect the rights of the Holders (in which case no
consent of the 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 the Holders of
the Preferred Securities apply to the giving of such approval.
SECTION 9.3. NOTICES. All notices provided for in this
Preferred Securities Guarantee shall be in writing, duly signed by the party
giving such notice, and shall be delivered, telecopied or mailed by
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):
State Street Bank and Trust Company
Two International Place, 4th Floor
Boston, Massachusetts 02110
Attention: Corporate Trust Department
(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):
First Banks America, Inc.
135 North Meramec
St. Louis, Missouri 63105
Attention: Chief Financial Officer
(c) If given to any Holder of Preferred Securities, at the address
set forth on the books and records of the Trust.
16
<PAGE> 21
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered
on the date of such refusal or inability to deliver.
SECTION 9.4. BENEFIT. This Preferred Securities Guarantee is
solely for the benefit of the Holders of the Preferred Securities and,
subject to Section 3.1(a), is not separately transferable from the Preferred
Securities.
SECTION 9.5. GOVERNING LAW. THIS PREFERRED SECURITIES GUARANTEE
SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF DELAWARE.
17
<PAGE> 22
This Preferred Securities Guarantee is executed as of the day and year
first above written.
FIRST BANKS AMERICA, INC.,
as Guarantor
By:
-----------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY,
as Preferred Guarantee Trustee
By:
-----------------------------------------
Name:
Title:
18
<PAGE> 1
EXHIBIT 5.1
[Letterhead of Jackson Walker L.L.P.]
July 1, 1998
First Banks America, Inc.
135 North Meramec Ave.
St. Louis, Missouri 63105
Attention: Board of Directors
First America Capital Trust
c/o First Banks America, Inc.
135 North Meramec Ave.
St. Louis, Missouri 63105
Attention: Administrative Trustees
Gentlemen:
We have acted as counsel to First Banks America, Inc., a Delaware corporation
(the "Company"), and First America Capital Trust, a Delaware statutory
business trust ("First Capital"), in connection with the preparation of a
Registration Statement on Form S-2 (the "Registration Statement") to be filed
by the Company and First Capital with the Securities and Exchange Commission
(the "SEC") for the purpose of registering under the Securities Act of 1933,
as amended, preferred securities (the "Preferred Securities") of First
Capital, subordinated debentures (the "Subordinated Debentures") of the
Company and the guarantee of the Company with respect to the Preferred
Securities (the "Guarantee").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the certificate
of trust (the "Certificate of Trust") filed by First Capital with the
Secretary of State of the State of Delaware on June 18, 1998; (ii) the Trust
Agreement, dated as of June 18, 1998, with respect to First Capital; (iii)
the form of the Amended and Restated Trust Agreement with respect to First
Capital; (iv) the form of the Preferred Securities of First Capital; (v) the
form of the Guarantee between the Company and State Street Bank and Trust
Company, as trustee; (vi) the form of the Subordinated Debentures; and (vii)
the form of the indenture (the "Indenture"), between the Company and State
Street Bank and Trust Company, as trustee, in each case in the form
incorporated by reference in the Registration Statement. We have also
examined originals or copies, certified, or otherwise identified to our
satisfaction, of such other documents, certificates, and records as we have
deemed necessary or appropriate as a basis for the opinions set forth herein.
<PAGE> 2
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as copies and the authenticity of the originals of
such copies. In examining documents executed by parties other than the
Company or First Capital, we have assumed that such parties had the power,
corporate or otherwise, to enter into and perform all obligations thereunder
and have also assumed the due authorization by all requisite action,
corporate or otherwise, and execution and delivery by such parties of such
documents and that, except as set forth in paragraphs (1) and (2) below, such
documents constitute valid and binding obligations of such parties. In
addition, we have assumed that the Amended and Restated Trust Agreement of
First Capital, the Preferred Securities of First Capital, the Guarantee, the
Subordinated Debentures and the Indenture, when executed, will be executed in
substantially the form reviewed by us. As to any facts material to the
opinions expressed herein which were not independently established or
verified, we have relied upon oral or written statements and representations
of officers, trustees, and other representatives of the Company, First
Capital, and others.
We are members of the bar of the state of Texas, and we express no opinion as
to the laws of any other jurisdiction other than the Delaware General
Corporation Law.
Based upon and subject to the foregoing and to other qualifications and
limitations set forth herein, we are of the opinion that:
1. After the Indenture has been duly executed and delivered, the
Subordinated Debentures, when duly executed, delivered, authenticated and
issued in accordance with the Indenture and delivered and paid for as
contemplated by the Registration Statement, will be valid and binding
obligations of the Company, entitled to the benefits of the Indenture and
enforceable against the Company in accordance with their terms, except to the
extent that enforcement thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium, or other similar laws now or hereafter in effect
relating to creditors' rights generally, and (ii) general principles of
equity regardless of whether enforceability is considered in a proceeding at
law or in equity.
2. The Guarantee, when duly executed and delivered by the parties
hereto, will be a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except to the extent that
enforcement thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium, or other similar laws now or hereafter in effect
relating to creditors' rights generally, and (ii) general principles of
equity regardless of whether enforceability is considered in a proceeding at
law or in equity.
We hereby consent to the reference to us under the caption "Validity of
Securities" in the Prospectus forming a part of the Registration Statement
and to the inclusion of this legal opinion as an Exhibit to the Registration
Statement.
Very truly yours,
JACKSON WALKER, L.L.P.
/s/ Jackson Walker L.L.P.
<PAGE> 1
[letterhead of Richards, Layton & Finger]
July 1, 1998
First America Capital Trust
c/o First Banks America, Inc.
135 North Meramec
Clayton, Missouri 63105
Re: First America Capital Trust
---------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel for First America
Capital Trust, a Delaware business trust (the "Trust"), in connection with
the matters set forth herein. At your request, this opinion is being
furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
A. The Certificate of Trust of the Trust (the "Certificate"),
as filed in the office of the Secretary of State of the State of Delaware
(the "Secretary of State") on June 18, 1998;
B. The Trust Agreement of the Trust, dated as of June 18,
1998, between First Banks America, Inc., a Delaware corporation (the
"Company"), and the trustees of the Trust named therein;
C. The Registration Statement (the "Registration Statement")
on Form S-2, including a prospectus (the "Prospectus") relating to the ---%
Cumulative Trust Preferred Securities of the Trust representing preferred
undivided beneficial interests in the Trust (each, a "Preferred Security" and
collectively, the "Preferred Securities"), as filed by the Company and the
Trust as set forth therein with the Securities and Exchange Commission on
July 1, 1998;
D. A form of Amended and Restated Trust Agreement of the
Trust, to be entered into among the Company, the trustees of the Trust named
therein, and the holders, from time to time, of undivided beneficial
interests in the Trust (the "Trust Agreement"), attached as an exhibit to the
Registration Statement; and
E. A Certificate of Good Standing for the Trust, dated June
29, 1998, obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined
are used as defined in the Trust Agreement.
<PAGE> 2
First America Capital Trust
June ---, 1998
Page 2
For purposes of this opinion, we have not reviewed any documents
other than the documents listed above, and we have assumed that there exists
no provision in any document that we have not reviewed that bears upon or is
inconsistent with the opinions stated herein. We have conducted no
independent factual investigation of our own but rather have relied solely
upon the foregoing documents, the statements and information set forth
therein and the additional matters recited or assumed herein, all of which we
have assumed to be true, complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed (i)
the authenticity of all documents submitted to us as authentic originals,
(ii) the conformity with the originals of all documents submitted to us as
copies or forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust
Agreement constitutes the entire agreement among the parties thereto with
respect to the subject matter thereof, including with respect to the
creation, operation and termination of the Trust, and that the Trust
Agreement and the Certificate are in full force and effect and have not been
amended, (ii) except to the extent provided in paragraph 1 below, the due
creation or due organization or due formation, as the case may be, and valid
existence in good standing of each party to the documents examined by us
under the laws of the jurisdiction governing its creation, organization or
formation, (iii) the legal capacity of natural persons who are parties to the
documents examined by us, (iv) that each of the parties to the documents
examined by us has the power and authority to execute and deliver, and to
perform its obligations under, such documents, (v) the due authorization,
execution and delivery by all parties thereto of all documents examined by
us, (vi) the receipt by each Person to whom a Preferred Security is to be
issued by the Trust (collectively, the "Preferred Security Holders") of a
Preferred Security Certificate for such Preferred Security and the payment
for the Preferred Security acquired by it, in accordance with the Trust
Agreement and the Prospectus, and (vii) that the Preferred Securities are
issued and sold to the Preferred Security Holders in accordance with the
Trust Agreement and the Prospectus. We have not participated in the
preparation of the Registration Statement and assume no responsibility for
its contents.
This opinion is limited to the laws of the State of Delaware
(excluding the securities laws of the State of Delaware), and we have not
considered and express no opinion on the laws of any other jurisdiction,
including federal laws and rules and regulations relating thereto. Our
opinions are rendered only with respect to Delaware laws and rules,
regulations and orders thereunder which are currently in effect.
Based upon the foregoing, and upon our examination of such
questions of law and statutes of the State of Delaware as we have considered
necessary or appropriate, and subject to the assumptions, qualifications,
limitations and exceptions set forth herein, we are of the opinion that:
F. The Trust has been duly created and is validly existing in
good standing as a business trust under the Delaware Business Trust Act, 12
Del. C. Sec. 3801, et seq.
- ------ ------
G. The Preferred Securities will represent valid and, subject
to the qualifications set forth in paragraph 3 below, fully paid and
nonassessable undivided beneficial interests in the assets of the Trust.
H. The Preferred Security Holders, as beneficial owners of the
Trust, will be entitled to the same limitation of personal liability extended
to stockholders of private corporations
<PAGE> 3
First America Capital Trust
June ---, 1998
Page 3
for profit organized under the General Corporation Law of the State of
Delaware. We note that the Preferred Security Holders may be obligated to
make payments as set forth in the Trust Agreement.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. In
addition, we hereby consent to the use of our name under the heading
"Validity of Securities" in the Prospectus. In giving the foregoing
consents, we do not thereby admit that we come within the category of Persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange
Commission thereunder. Except as stated above, without our prior written
consent, this opinion may not be furnished or quoted to, or relied upon by,
any other Person for any purpose.
Very truly yours,
EAM
<PAGE> 1
Exhibit 8.1
-----------
July 1, 1998
First Banks America, Inc.
135 North Meramec
St. Louis, Missouri 63105
First America Capital Trust
135 North Meramec
St. Louis, Missouri 63105
Re: First America Capital Trust ___% Cumulative Trust Preferred
Securities
Ladies and Gentlemen:
We have acted as federal income tax counsel for First Banks America,
Inc., a Delaware corporation (the "Company"), and First America Capital
Trust, a statutory business trust created under the laws of Delaware (the
"Trust"), in connection with the proposed issuance of: (i) __% Cumulative
Trust Preferred Securities (the "Preferred Securities") of the Trust pursuant
to the terms of the Amended and Restated Trust Agreement between the Company
and State Street Bank and Trust Company, as Property Trustee (the "Trust
Agreement"), to be offered in an underwritten public offering; (ii)
Subordinated Debentures (the "Subordinated Debentures") of the Company
pursuant to the terms of an indenture from the Company to State Street Bank
and Trust Company, as Trustee (the "Indenture"), to be sold by the Company to
the Trust; and (iii) the Preferred Securities Guarantee Agreement of the
Company with respect to the Preferred Securities (the "Guarantee") between
the Company and State Street Bank and Trust Company, as Guarantee Trustee.
The Preferred Securities and the Subordinated Debentures are to be issued as
contemplated by the registration statement on Form S-2 dated July 1, 1998
(the "Registration Statement") to be filed by the Company and the Trust to
register the issuances of the Preferred Securities, the Subordinated
Debentures and the Guarantee under the Securities Act of 1933, as amended
(the "Act"). In connection therewith, we have participated in the
preparation of the discussion set forth under the caption "Certain Federal
Income Tax Consequences" (the "Tax Discussion") in the Registration
Statement. Except as otherwise indicated, the terms utilized herein have the
meaning ascribed to them in the Registration Statement.
In rendering this opinion we have examined originals or copies,
certified or otherwise identified to our satisfaction, of documents,
corporate records and other instruments as we have deemed necessary or
appropriate for purposes of this opinion including: (i) the Registration
Statement; (ii) the Form of Indenture attached as an exhibit to the
Registration Statement; (iii) the Form of the Subordinated Debentures
attached as an exhibit to the Registration Statement; (iv) the Form of
original Trust Agreement, attached as an exhibit to the Registration
Statement; (v) the form of Amended and Restated Trust Agreement, attached as
an exhibit to the Registration Statement; (vi) the Form of Guarantee attached
as an exhibit to the Registration Statement; and (vii) the Form of Preferred
Security Certificate attached as an exhibit to the Registration Statement
(collectively the "Documents"). Our opinion is premised and conditioned on
the accuracy of the facts contained in the Documents submitted to us as
originals, the conformity to original documents of all documents submitted to
us as certified or photostatic copies, the authenticity of the originals of
such latter documents, the genuineness of all signatures and the correctness
of all representations made therein and on the assumption that
<PAGE> 2
the transactions contemplated therein will be consummated in the manner
described therein. In particular, and without limiting the scope of the
preceding sentence, we have assumed for purposes of our opinion that the
trustees will conduct the affairs of the Trust in accordance with the Trust
Agreement. We have further assumed that there are no agreements or
understandings contemplated therein other than those contained in the
Documents.
In rendering this opinion, we have also relied, without independent
investigation or verification, upon the initial and continuing accuracy of
the following certifications on behalf of the Company or the Trust, the
initial and continuing accuracy of which constitute an integral basis for the
opinions expressed herein:
A. The Company and the Trust intend to create a debtor-creditor
relationship between the Company, as debtor, and the Trust as
creditor, upon the issuance of the Subordinated Debentures to
the Trust by the Company, and the Company will: (i) record
and at all times continue to reflect the Subordinated
Debentures as indebtedness on its separate books and records
for financial accounting purposes; and (ii) treat the
Subordinated Debentures as indebtedness for all United States
tax purposes.
B. The sole assets of the Trust will be the Subordinated Debentures.
C. The Company has no present intent to exercise its right to defer
payments of interest by extending the interest payment period
on the Subordinated Debentures.
D. The Company believes that the likelihood that it would exercise
its right to defer payments of interest by extending the
interest payment period on the Subordinated Debentures at any
time during which the Subordinated Debentures are outstanding
is remote because of the restrictions that would be imposed on
the Company's ability to pay dividends on its outstanding
equity and its ability to make payments on its outstanding
debt securities that rank pari passu or junior to the
Subordinated Debentures in the event it elected to defer
payments of interest on the Subordinated Debentures.
E. The Company expects that it will be able to cause its wholly-
owned subsidiaries to pay dividends to the Company in amounts
and at times sufficient to enable the Company to make timely
payments of interest and principal on the Subordinated
Debentures.
Subject to the assumptions, qualifications, and conditions set forth
herein and assuming: (i) the final Documents will be substantially identical
to the forms attached as exhibits to the Registration Statement; and (ii)
full compliance with all the terms of the final Documents, we are of the
opinion that under current law:
The statements contained in the Tax Discussion, to the
extent that they constitute matters of law or legal
conclusions, as qualified therein, constitute, in all
material respects, a fair and accurate summary, in general
terms, of the United States federal income tax matters
specifically addressed therein.
This opinion is based on the Internal Revenue Code of 1986, as amended,
U.S. Treasury regulations promulgated thereunder, and administrative and
judicial interpretations thereof, all as in existence and in effect on the
date hereof and all of which are subject to change, possibly on a retroactive
basis. Any such changes could have a material impact upon the conclusions
reached herein. The opinion expressed herein is not binding on the Internal
<PAGE> 3
Revenue Service ("IRS") or the courts. The authorities on which this opinion
is based are subject to various interpretations and there is no clear legal
precedent dealing with the federal income tax characterization of securities
similar to the Subordinated Debentures and the Preferred Securities.
Additionally, the IRS has issued a Notice (Notice 94-47, 1994-1 C.B. 357)
indicating that it intends to closely scrutinize securities similar to those
contemplated to be issued in the transactions here in question. Accordingly,
there can be no assurance that the IRS will not challenge the opinions
expressed herein or that a court would not sustain such a challenge.
We specifically note that we are rendering no opinion as to the state,
local or foreign tax consequences associated with the Trust, the Subordinated
Debentures or the Preferred Securities nor do we render any opinion as to any
United States federal income tax consequences related thereto except as
expressly addressed herein. Additionally, we undertake no obligation to
update this opinion in the event there is either a change in the legal
authorities, in the facts (including the taking of any action by any party to
any of the transactions described in the Documents relating to such
transactions) or in the Documents on which this opinion is based, or any
inaccuracy in any of the representations or warranties upon which we have
relied in rendering this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the use of our name under the headings
"Certain Federal Income Tax Consequences" and "Legal Matters" in the
Registration Statement.
Sincerely,
JACKSON WALKER, L.L.P.
<PAGE> 1
[LOGO]
BankTEXAS
FUNDS MANAGEMENT POLICY
In connection with its normal requirements to manage liquidity,
BankTEXAS, N.A., ("THE BANK"), will enter into a variety of
transactions with FIRST BANK (MISSOURI) (the "CENTRAL BANK") in which
both parties will act as principal. All of the transactions referenced
herein represent unsecured extensions of credit between the parties,
and may include loans of portfolio securities, sales of Federal Funds,
placements of deposits and purchases of certificates of deposit.
1. Loans of securities will be subject to the terms and conditions in a
"Securities Borrowing Agreement", executed by THE BANK and the CENTRAL
BANK. The parties will lend their own portfolio securities only and
will not lend any securities pledged to or held for the accounts of any
of its customers. The parties will maintain separate records to
indicate which of their portfolio securities are loaned at any time and
may request a report from the contraparty verifying the individual
securities held in the collateral pool.
2. The Board of Directors of each party shall establish limits of no
greater than 10% of the respective party's capital accounts for the
transactions referenced by this policy. The limit shall be reviewed and
approved by the Board of Directors on an annual basis, in conjunction
with a review of the regularly available financial information on the
contraparty. The Directors shall also consider the party's liquidity,
asset-liability mix and profitability prior to establishing or renewing
the limit. Board approval of this limit shall be noted in the official
minutes of the board. Each party will notify the contraparty annually
of any changes in limit.
3. The Board may change this policy at any of its regularly scheduled
meeting, provided that written notification is forwarded to the Chief
Executive Officer of the contraparty.
$2,750,000 12-01-97 /s/ Monica Rinehart
---------- -------- ----------------------------------
LIMIT DATE Asst.- SECRETARY OF THE BOARD-BANK
$20,000,000 /s/ Josephine Gahn
----------- -------- -----------------------------------------
LIMIT DATE ASST. SECRETARY OF THE BOARD-CENTRAL BANK
<PAGE> 1
BROKERAGE SERVICE/LEASE AGREEMENT
---------------------------------
This Brokerage Service/Lease Agreement is made and entered into this 1st day
of June, 1998, by and between BankTEXAS N.A. a financial institution (FI) and
First Brokerage America L.L.C (FBAL) a Registered broker/dealer member of the
NASD and SIPC. Reference to The Providers may include reference to an
insurance agency that operates separately yet simultaneously with FBAL.
WITNESSETH:
WHEREAS, FBAL has developed a program to provide customers of affiliate banks
access to nondeposit investment products, the terms and conditions are set
forth herein: and
WHEREAS, FBAL is a registered broker/dealer in the business of providing
investment products and services at various banking locations of banks of
First Bank's Inc.; and
WHEREAS, the parties desire to establish a nondeposit investment product and
services program that complies with all applicable laws and regulations, all
in accordance with the terms of this agreement.
NOW THEREFORE, in consideration of the mutual convenants and agreements made
herein, and other good and valuable consideration, FBAL and FI hereby agree
as follows:
SECTION 1. LEASE AND SERVICE PROGRAM DESCRIPTION AND PRODUCTS
-------------------------------------------------------------
(a) The FI will lease space (the exact nature, size, and location to be
agreed upon by parties) to FBAL at the offices listed on schedule A
attached hereto and made part of this agreement. The lease and service
shall include use of office space, desks and other office equipment and
furniture, copiers and fax machines, compliance training and support,
computer maintenance, software and hardware support, tracking services,
customer lists as provided by applicable law, sales training, E & O
insurance and all other services necessary to offer nondeposit
investment products and insurance at the financial institution
locations. The products offered will be through the respective entity
(broker/dealer or insurance agency) as required by law. FBAL will have
the right to sublease space to other providers subject to the approval
of FI.
(b) Customers of FI will be offered certain nondeposit investment products
through Providers at the branch office. FBAL will make available and
execute securities transactions on an agency or riskless principal basis
upon the order and for the account of customers as defined in and
required by the NASD Rules of Fair Practice, through Registered
Representatives (as defined in Section 2(e)) for the following
<PAGE> 2
products: equity securities, debt securities, open-end/closed end mutual
funds, variable insurance products and variable annuities. Insurance
Agency will provide insurance products such as fixed annuities, term
insurance, long term care and other products defined as insurance
products by the Insurance code of the specific state where offered. As
required, Insurance Agency will oversee insurance requirement and
supervision of variable insurance products that are defined as
securities. These include variable life and variable annuities.
(c) All products offered through the program are subject to the prior
approval of FI and The Providers.
(d) Any change in the agreement deemed necessary by changes in rules,
regulations and statutes shall be implemented promptly.
(e) From time to time Providers will have the right to bill the other for
special services as agreed to and for actual costs of travel and
training as it relates to personnel costs.
SECTION 2: BRANCH OFFICE DESIGNATION
------------------------------------
a) The program will operate at all mutually agreeable offices of FI.
Branches offices for purposes of securities regulations will be
established if the branch holds itself out as a place where securities
business is transacted and it meets the most conservative definition of
a branch office as defined by NASD Regulation. Branch office operations
must be operated in areas clearly identified and segregated from the areas
where depository functions are located when possible.
b) FI and Providers will mutual agree to a marketing plan and budget. It
will be mutually determined who will bear the cost of such marketing
plans.
c) Securities related activities shall be conducted only through properly
registered and/or licensed representatives. These individuals may also
be dual employees of financial institution and FBAL and may be
independent contractors of the insurance agency. Designated principals
of FBAL or management and compliance staff of Providers will exclusively
supervise the sales activities under NASD rules and will train,
supervise, control and assume responsibility for all the activities
contemplated herein. Registered Representatives shall provide all
securities services as directed by the FBAL Supervisory Procedures
Manual. No one who has been barred from membership in any self
Regulatory Organization shall be allowed to associate with the program.
d) FBAL and FI agree that all payments due under this agreement will be
paid directly to the FI, who will then distribute their proportional
share to sales force provided that all business was transacted properly
and the individual was properly licensed to conduct the line of
business. FI will be responsible for payment of all non-securities and
insurance related wages as well, including any withholding or other
taxes required by law.
<PAGE> 3
e) FI and Providers agree and acknowledge that no unregistered or non-
licensed employees will engage in any securities or insurance
activities, nor will they receive any compensation based on
transactions or sales. Unregistered employees shall be prohibited from
recommending any security or insurance product, and handling any
question that might require any familiarity with the securities or
insurance industry. The same employees may not handle or maintain
customer securities or funds other than providing clerical or
ministerial assistance. FI and Providers will monitor the activities of
its employees to ensure their compliance with the limitations as set
forth in this agreement. FI understands that joint employees must
exercise extreme caution when acting in a dual capacity as bank
employee and nondeposit product provider.
f) All marketing relating to the offering of nondeposit investment products
shall comply with all applicable rules and regulations. FI agrees and
understands that it may not advertise or communicate with the public in
any media or through any medium without prior written approval of the
Providers.
SECTION 3: CUSTOMER ACCOUNTS
----------------------------
a) Each account opened by a Registered Representative will be approved in
writing by a designated principal of FBAL. The branch will promptly
forward all appropriate information regarding each new account to
Provider's Service Center, presently at 11901 Olive Blvd.,
Creve Coeur, MO. 63141.
b) At the time the customer account is opened, the Registered
Representative shall disclose orally and in writing to each customer
that the nondeposit investment products are: (a) NOT FDIC insured; (b)
are neither obligations of FI or Providers nor deposits of FI or
Providers; (c) are not guaranteed by agency or FI or their parent
companies; (d) involves investment risk including the possible loss of
principal. Written acknowledgement will be obtained of such.
c) All general securities transactions shall be effected on a fully
disclosed basis through clearing brokers designated by FBAL. No customer
funds or securities shall be held by the branch office or Registered
Representative.
d) FI agrees to provide FBAL reasonable access to the names and addresses
of its customers, and those of its parent or affiliates to the extent
permissible under applicable law or regulation. Any information obtained
will be used only in conjunction with the marketing of FBAL services and
shall remain confidential and shall not be disclosed to third parties
without prior written permission of the other party or as may be
required by the Regulations. Any books and records relating to the sale
of securities and insurance securities shall remain the property of FBAL
which shall ensure that those books and records comply with all the
statutory and regulatory requirements of the SEC and SROs.
<PAGE> 4
SECTION 4. MUTUAL CONVENANT OF FBALLC AND FI
--------------------------------------------
FBAL and FI convenant to each other that it is the joint responsibility of
FBAL and FI to assure that the Registered Representatives shall make the
Required Disclosures (i) orally to each customer during any sales
presentation (including telemarketing contacts), (ii) orally whenever
investment advice regarding any non-deposit investment product is provided,
(iii) orally and in writing prior to or at the time an investment account is
opened; and (iv) at other such times as may be required by the Regulations.
SECTION 5. COMPLIANCE
---------------------
(a) FBAL and FI agree that they will actively promote, and all FBAL
employees and Registered Representatives shall abide by all applicable
Regulations, and the FBAL Supervisory Procedures and policies, as each
may change from time to time.
(b) All branch office operations shall be conducted under the joint
supervision of FBAL and FI in accordance with all applicable
Regulations.
(c) FBAL shall be responsible for compliance with SEC, NASD, state
securities rules and regulations, and other rules or regulations of
other governmental or self-regulating body as may be applicable to
securities brokerages, operations, or transactions.
SECTION 6. CONFIDENTIALITY AND ACCESS TO RECORDS
------------------------------------------------
(a) FBAL agrees that all customer account information obtained by FBAL from
FI is confidential and proprietary in nature and that said information
shall not be divulged by FBAL to any third party except for the normal
transaction of business.
(b) All information, materials, and any other documents or data associated
with the Program are confidential and proprietary in nature and shall
not be used by or disclosed to any person or entity by any of the
parties hereto or their employees except as necessary in operation of
the program or as required by applicable Regulations.
(c) Each party to this agreement shall permit officers or authorized
designees of the other parties, any governmental agency, exchange, or
association having regulatory jurisdiction over the affairs of that
party, or independent accountants retained for the purpose of conducting
an audit of the financial affairs of the requesting party, full and
complete access to inspect records and books, and monitor activities at
any Branch Office or other location of information during normal
business hours.
<PAGE> 5
SECTION 7 - ENTIRE AGREEMENT AND ATTACHMENTS
--------------------------------------------
This document including all its attachments, constitute the entire agreement
between said parties with respect to the offering of such products and
services contemplated herein. Any changes to this agreement shall be in
writing and agreed to by each party. The terms of this agreement are
continuous unless one party gives notice of its intention to terminate the
contract giving sixty days advance notice.
We agree to the terms and conditions discussed herein this 1st day of June,
1998.
For Financial Institution:
Joseph Milcoun
/s/ Joseph Milcoun, Jr. 6-1-98
- ----------------------------------
Vice President Date
For First Brokerage America L.L.C.:
/s/ C. Bryan Stilwell 6-1-98
- ----------------------------------
Principal Date
<PAGE> 6
EXHIBIT "A"
FEE SCHEDULE
All service fees and rental connected with this Agreement are due and payable
on or about the 15th of each month following an initial 30 day set up period.
Such service fees are conditioned upon the volume of invested dollars
collected in the offices of the institution and, therefore, will vary from
month to month. Payments are based upon a percentage of commissions generated
and are outlined in Table "1" below.
TABLE "1"
PERCENT OF GROSS COMMISSIONS PAYABLE FOR LEASE AND SERVICES
FI will receive a percentage of gross revenues generated on products sold
through this agreement. Any chargeback or errors will reduce this amount
accordingly.
ADDENDUM
Travel costs and other fees generated solely for the benefit of FI will be
reimbursed by FI to FBAL. This shall include airfare, hotels and meals, but
shall not include printing of materials and other costs that are the
obligation of FBAL to provide so that business can be conducted.
<PAGE> 1
EXHIBIT 12.1
<TABLE>
FIRST BANKS AMERICA, INC.
RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
--------------- ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net income before tax and minority interest... $ 1,890 931 6,972 1,292 (7,013) (10,366) 219
Add back:
Interest:
With deposits............................. 5,899 4,508 19,155 15,533 13,134 11,072 9,750
Without deposits.......................... 537 545 2,439 1,597 2,299 3,952 2,073
Rent expense.................................. 266 254 1,043 826 997 589 397
Earnings base:
With deposits............................. 8,055 5,693 27,170 17,651 7,118 1,295 10,366
Without deposits.......................... 2,693 1,730 10,454 3,715 (3,717) (5,825) 2,689
Fixed charges:
Including interest on deposits............ 6,165 4,762 20,198 16,359 14,131 11,661 10,147
Excluding interest on deposits............ 803 799 3,482 2,423 3,296 4,541 2,470
Ratio:
Including interest on deposits............ 1.31x 1.20x 1.35x 1.08x 0.50x 0.11x 1.02x
Excluding interest on deposits............ 3.35 2.17 3.00 1.53 (1.13) (1.28) 1.09
</TABLE>
<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-8937
First Banks America, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-1604965
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
135 North Meramec
Clayton, Missouri 63105
(Address of principal executive offices) (Zip Code)
(314) 854-4600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of class which registered
-------------- ----------------
Common Stock, $.15 Par Value Per Share New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, based on the closing price of the Common Stock on the New York Stock
Exchange on March 18, 1998 was $34,535,397. For purposes of this computation,
officers, directors and 5% beneficial owners of the registrant are deemed to be
affiliates. Such determination should not be deemed an admission that such
directors, officers or 5% beneficial owners are, in fact, affiliates of the
registrant.
As of March 18, 1998, 2,758,661 shares of the registrant's Common Stock, $0.15
par value and 2,500,000 shares of the registrant's Class B Common Stock, $0.15
par value, were outstanding.
Documents incorporated by reference: Portions of the Annual Report to
Stockholders for the year ended December 31, 1997 are incorporated by reference
into Parts I, II and IV of this report.
<PAGE> 2
PART I
The following portions of the 1997 Annual Report to Stockholders (the
"1997 Annual Report") of First Banks America, Inc. ("FBA" or the "Company") are
incorporated by reference in this report:
Page(s) in 1997
Section Annual Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations 3-22
Selected Consolidated and Other Financial Data 2
Consolidated Financial Statements 24-46
Supplementary Financial Data 23
Range of Price of Common Stock 48
Except for the parts of the 1997 Annual Report to Stockholders
expressly incorporated by reference, such report is not deemed filed with the
Securities and Exchange Commission.
Information appearing in this report, in documents incorporated by
reference herein and in documents subsequently filed with the Securities and
Exchange Commission which are not statements of historical fact may include
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties, not all of which can be predicted or
anticipated. Factors that may cause actual results to differ materially from
those contemplated by such forward-looking statements include general market
conditions as well as conditions affecting the banking industry generally and
factors having a specific impact on the Company, including but not limited to
fluctuations in interest rates and in the economy; the impact of laws and
regulations applicable to the Company and changes therein; competitive
conditions in the markets in which the Company conducts its operations; and the
ability of the Company to respond to changes in technology. With regard to the
Company's efforts to grow through acquisitions, factors that could affect the
accuracy or completeness of such forward-looking statements include the
potential for higher than acceptable operating costs arising from the geographic
dispersion of the offices of FBA's subsidiaries, as compared with competitors
operating solely in contiguous markets; the competition of larger acquirers with
greater resources than FBA; fluctuations in the prices at which acquisition
targets may be available for sale and in the market for FBA's securities; and
the potential for difficulty or unanticipated costs in realizing the benefits of
particular acquisition transactions.
Readers should therefore not place undue reliance on forward-looking statements.
Item 1. Business
General
FBA is a bank holding company which was organized as a Delaware
corporation in 1978 and was previously known as BancTEXAS Group Inc. The
Company's executive office is located at 135 North Meramec, Clayton, Missouri.
The principal function of the Company is to assist management of its two banking
subsidiaries, BankTEXAS N.A. ("BankTEXAS") and First Bank of California ("FB
California"). BankTEXAS and FB California are collectively referred to herein as
the "Subsidiary Banks." At December 31, 1997, FBA had approximately $451.3
million in total assets, $313.4 million in total loans, net of unearned
discount, $383.9 million in total deposits and $39.9 million in total
stockholders' equity.
<PAGE> 3
In 1994 FBA sold 2,500,000 shares of Class B common stock (the "Class B
Stock") for $30 million cash in a private placement to First Banks, Inc., a
multi-bank holding company headquartered in Clayton, Missouri ("First Banks").
As a result, First Banks became the owner of approximately 65% of the
then-outstanding voting stock of FBA, which includes the Class B Stock and the
class of common stock owned by all other stockholders (referred to herein as the
"Common Stock"). The Class B Stock has the same voting rights per share as the
Common Stock, and the two classes of stock are generally equivalent except the
Class B Stock is not registered with the Securities and Exchange Commission, not
listed on any exchange and, with limited exceptions, it is not transferable,
other than to an affiliate of First Banks. In the event FBA were to commence the
payment of dividends to its stockholders, the Class B Stock would receive
dividends only to the extent that dividends on the Common Stock exceed $.45 per
share annually. The terms of the Class B Stock allow First Banks to purchase
additional shares of Class B Stock if a sufficient number of additional shares
of Common Stock are issued to cause First Banks' voting power to fall below 55%,
at prices to be determined based on a formula related to the book value per
share of common stock. The Class B Stock is convertible into shares of Common
Stock at any time after August 31, 1999 at the option of First Banks.
On February 2, 1998, FBA completed its acquisition of First Commercial
Bancorp, Inc. ("FCB"), Sacramento, California, as described further in the
Management's Discussion and Analysis section of the 1997 Annual Report and in
Note 2 to the Consolidated Financial Statements, both of which are incorporated
herein by reference. In connection with the acquisition of FCB, FBA issued
approximately 1,555,700 shares of Common Stock, of which 1,266,176 shares were
issued to First Banks. FBA also issued to First Banks a convertible debenture in
the principal amount of $6.5 million (the "Debenture") in exchange for
outstanding debentures of FCB; principal and interest on the Debenture are
convertible at the option of First Banks into shares of Common Stock. As of
March 18, 1998, the total Common Stock and Class B Stock owned by First Banks,
including the shares of Common Stock that would be issued to First Banks upon
conversion of the Debenture, constituted approximately 74.8% of the outstanding
voting stock of FBA. First Banks exercises control over the management and
policies of FBA and the election of its officers and directors.
The Company implemented a one-for-fifteen stock split in 1995, whereby
each fifteen shares of Common Stock and Class B Stock were converted into one
share of Common Stock and Class B Stock, respectively, and the par value of each
share of stock of each class was changed from $.01 to $.15. References in this
report to either class of such stock refer to the same after giving effect to
the reverse stock split, and the numbers of shares referred to in periods prior
to the effective date of the reverse stock split are restated in this Report to
give effect to the reverse stock split.
Descriptions of the business operations of FBA and the Subsidiary Banks
and the Company's policies with respect to potential acquisitions are set forth
in the Management's Discussion and Analysis section of the 1997 Annual Report
which is incorporated herein by reference.
FBA, BankTEXAS and FB California purchase certain services and
supplies, including data processing services, internal auditing, loan review,
income tax preparation and assistance, accounting, asset/liability and
investment services, loan servicing and other management and administrative
services, through its majority stockholder, First Banks. Additional information
regarding the nature of the arrangements with First Banks appears in Note 13 to
the Consolidated Financial Statements incorporated herein by reference.
Competition and Branch Banking
The activities in which the Subsidiary Banks are engaged are highly
competitive. Those activities and the geographic markets served primarily
involve competition with other banks and thrift institutions, some of which are
affiliated with large regional or national holding companies. Competition among
financial institutions is based upon interest rates offered on deposit accounts,
interest rates charged on loans and other credit and service charges, the
quality of services rendered, the convenience of banking facilities and, in the
case of loans to large commercial borrowers, relative lending limits.
<PAGE> 4
In addition to competing with other banks and thrift institutions
within their primary service areas, the Subsidiary Banks also compete with other
financial intermediaries, such as credit unions, industrial loan associations,
securities firms, insurance companies, small loan companies, finance companies,
mortgage companies, real estate investment trusts, certain governmental
agencies, credit organizations and other enterprises. Additional competition for
depositors' funds comes from United States Government securities, private
issuers of debt obligations and suppliers of other investment alternatives for
depositors. Many of the Company's non-bank competitors are not subject to the
same extensive federal regulations that govern bank holding companies and
federally-insured banks and state regulations governing state-chartered banks.
As a result, such non-bank competitors may have certain advantages over the
Company in providing some services.
The trend in the Subsidiary Banks' markets has been for holding
companies to acquire independent banks and thrifts. The Company believes it will
continue to face competition in the acquisition of banks and thrifts from larger
holding companies. Many of the financial institutions with which the Company
competes are larger than the Company and have substantially greater resources
available for making acquisitions.
Subject to regulatory approval, both commercial banks and thrift
institutions situated in Texas and California are permitted to establish
branches throughout each of those states, thereby creating the potential for
additional competition in the Subsidiary Banks' service areas.
Supervision and Regulation
General
The Company and the Subsidiary Banks are extensively regulated under
federal and state law. These laws and regulations are intended to protect
depositors, not stockholders. To the extent the following information describes
statutory or regulatory provisions, it is qualified in its entirety by reference
to the particular statutory and regulatory provisions. Changes in applicable
laws or regulations may have a material effect on the business and prospects of
the Company. The operations of the Company may be affected by legislative
changes and by the policies of various regulatory authorities. The Company is
unable to predict the nature or the extent of the effects on its business and
earnings that fiscal or monetary policies, economic controls or new federal or
state legislation may have in the future.
FBA is a registered bank holding company under the Bank Holding Company
Act of 1956, as amended (the "BHC Act") and, as such, is subject to regulation,
supervision and examination by the Board of Governors of the Federal Reserve
System (the "FRB"). FBA is required to file annual reports with the FRB and to
provide the FRB such additional information as it may require.
BankTEXAS and FB California are subject to supervision and regulation
by the Office of the Comptroller of the Currency (the "OCC") and the State
Banking Department of the State of California, respectively. The Subsidiary
Banks are also regulated by the Federal Deposit Insurance Corporation ("FDIC"),
which provides deposit insurance to the Subsidiary Banks.
<PAGE> 5
Recent and Pending Legislation
The enactment of the legislation described below has significantly
affected the banking industry generally and will have an ongoing effect on the
Company and the Subsidiary Banks in the future.
Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") reorganized and reformed the regulatory structure applicable to
financial institutions generally. Among other things, FIRREA enhanced the
supervisory and enforcement powers for the federal bank regulatory agencies;
required insured financial institutions to guaranty repayment of losses incurred
by the FDIC in connection with the failure of an affiliated financial
institution; required financial institutions to provide their primary federal
regulator with notice, under certain circumstances, of changes in senior
management and broadened authority for bank holding companies to acquire savings
institutions.
Under FIRREA, federal bank regulators were granted expanded enforcement
authority over "institution-affiliated parties" (i.e., officers, directors,
controlling stockholders, attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution). Federal banking regulators have power to bring enforcement
actions against insured institutions and institution-affiliated parties,
including cease and desist orders, prohibition orders, civil money penalties,
termination of insurance and the imposition of operating restrictions and
capital plan requirements. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Since the enactment of FIRREA, the federal bank regulators have
significantly increased the use of written agreements to correct compliance
deficiencies with respect to applicable laws and regulations and to ensure safe
and sound practices. Violations of such written agreements are grounds for
initiation of cease-and-desist proceedings. FIRREA granted the FDIC back-up
enforcement authority to recommend enforcement action to an appropriate federal
banking agency and to bring such enforcement action against a financial
institution or an institution-affiliated party if such federal banking agency
fails to follow the FDIC's recommendation. In addition, FIRREA generally
requires public disclosure of final enforcement actions by the federal banking
agencies.
FIRREA also established a cross-guarantee provision ("Cross-Guarantee")
pursuant to which the FDIC may recover from a depository institution losses the
FDIC incurs in providing assistance to, or paying off the depositors of, any of
such depository institution's affiliated insured banks or thrifts. The
Cross-Guarantee thus enables the FDIC to assess a holding company's healthy Bank
Insurance Fund (the "BIF") members and Savings Association Insurance Fund (the
"SAIF") members for the losses of any of such holding company's failed BIF and
SAIF members. Cross-Guarantee liabilities are generally superior in priority to
obligations of the depository institution to its stockholders due solely to
their status as stockholders and obligations to other affiliates.
Cross-Guarantee liabilities are generally subordinated to deposit liabilities,
secured obligations or any other general or senior liabilities, and any
obligations subordinated to depositors or other general creditors.
The Federal Deposit Insurance Corporation Improvement Act of 1991. The
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was
adopted to recapitalize the BIF and impose certain supervisory and regulatory
reforms on insured depository institutions. FDICIA includes provisions, among
others, to: (i) increase the FDIC's line of credit with the U. S. Treasury in
order to provide the FDIC with additional funds to cover the losses of federally
insured banks; (ii) reform the deposit insurance system, including the
implementation of risk-based deposit insurance premiums; (iii) establish a
format for closer monitoring of financial institutions to enable prompt
corrective action by banking regulators when a financial institution begins to
experience financial difficulty; (iv) establish five capital levels for
financial institutions ("well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized") that would impose more scrutiny and restrictions on less
capitalized institutions; (v) require the banking regulators to set operational
and managerial standards for all insured depository institutions and holding
<PAGE> 6
companies, including limits on excessive compensation to executive officers,
directors, employees and principal stockholders, and establish standards for
loans secured by real estate; (vi) adopt certain accounting reforms and require
annual on-site examinations of federally insured institutions, including the
ability to require independent audits of banks and thrifts; (vii) revise
risk-based capital standards to ensure they (a) take adequate account of
interest-rate changes, concentration of credit risk and the risks of
nontraditional activities, and (b) reflect the actual performance and expected
risk of loss of multi-family mortgages; and (viii) restrict state-chartered
banks from engaging in activities not permitted for national banks unless they
are adequately capitalized and have FDIC approval. Further, FDICIA permits the
FDIC to make special assessments on insured depository institutions, in amounts
determined by the FDIC to be necessary to give it adequate assessment income to
repay amounts borrowed from the U.S. Treasury and other sources or for any other
purpose the FDIC deems necessary. FDICIA also grants authority to the FDIC to
establish semiannual assessment rates on BIF and SAIF member banks so as to
maintain these funds at the designated reserve ratios.
As noted above, FDICIA authorizes and, under certain circumstances,
requires the federal banking agencies to take certain actions against
institutions that fail to meet certain capital-based requirements. Under FDICIA,
the federal banking agencies are required to establish five levels of insured
depository institutions based on leverage limit and risk-based capital
requirements established for institutions subject to their jurisdiction, plus,
in their discretion, individual additional capital requirements for such
institutions. Under the final rules that have been adopted by each of the
federal banking agencies, an institution will be designated: (i) well
capitalized if the institution has a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6% or greater and a leverage ratio
of 5% or greater, and the institution is not subject to an order, written
agreement, capital directive or prompt corrective action directive to meet and
maintain a specific capital level for any capital measure; (ii) adequately
capitalized if the institution has a total risk-based capital ratio of 8% or
greater, a Tier 1 risk-based capital ratio of 4% or greater and a leverage ratio
of 4% or greater; (iii) undercapitalized if the institution has a total
risk-based capital ratio that is less than 8%, a Tier 1 risk-based capital ratio
that is less than 4% or a leverage ratio that is less than 4%; (iv)
significantly undercapitalized if the institution has a total risk-based capital
ratio that is less than 6%, a Tier 1 risk-based capital ratio that is less than
3% or a leverage ratio that is less than 3%; and (v) critically undercapitalized
if the institution has a ratio of tangible equity to total assets that is equal
to or less than 2%.
Undercapitalized, significantly undercapitalized and critically
undercapitalized institutions are required to submit capital restoration plans
to the appropriate federal banking agency and are subject to certain operational
restrictions. Moreover, companies controlling an undercapitalized institution
are required to guarantee the subsidiary institution's compliance with the
capital restoration plan subject to an aggregate limitation of the lesser of 5%
of the institution's assets at the time it received notice that it was
undercapitalized or the amount of the capital deficiency when the institution
first failed to meet the plan.
<PAGE> 7
Significantly or critically undercapitalized institutions and
undercapitalized institutions that fail to submit or comply with acceptable
capital restoration plans will be subject to regulatory sanctions. A forced sale
of shares or merger, restriction on affiliate transactions and restrictions on
rates paid on deposits are required to be imposed by the banking agency unless
it is determined they would not further capital improvement. FDICIA generally
requires the appointment of a conservator or receiver within 90 days after an
institution becomes critically undercapitalized. The federal banking agencies
have adopted uniform procedures for the issuance of directives by the
appropriate federal banking agency. Under these procedures, an institution will
generally be provided advance notice when the appropriate federal banking agency
proposes to impose one or more of the sanctions set forth above. These
procedures provide an opportunity for the institution to respond to the proposed
agency action or where circumstances warrant immediate agency action, an
opportunity for administrative review of the agency's action.
As described in Note 16 to the Consolidated Financial Statements,
incorporated herein by reference, each of the Subsidiary Banks was "well
capitalized" as of December 31, 1997.
Pursuant to FDICIA, the federal banking agencies adopted real estate
lending guidelines pursuant to which each insured depository institution is
required to adopt and maintain written real estate lending policies in
conformity with the prescribed guidelines. Under these guidelines, each
institution is expected to set loan-to-value ratios not exceeding the
supervisory limits set forth in the guidelines. A loan-to-value ratio is
generally defined as the total loan amount divided by the appraised value of the
property at the time the loan is originated. The guidelines require the
institution's real estate policy also require proper loan documentation, and
that it establish prudent underwriting standards.
FDICIA also contained the Truth in Savings Act, which requires clear
and uniform disclosure of the rates and interest payable on deposit accounts by
depository institutions and the fees assessable against deposit accounts, so
that consumers can make a meaningful comparison between the competing claims of
financial institutions with regard to deposit accounts and products.
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. In
1994 Congress enacted the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act"). Beginning in 1995, bank holding
companies have had the right to expand, by acquiring existing banks, into all
states, even those which had theretofore restricted entry. The legislation also
provides that, subject to future action by individual states, a holding company
would have the right commencing in 1997, to convert the banks which it owns in
different states to branches of a single bank. A state is permitted to "opt-out"
of the law which will permit conversion of separate banks to branches, but is
not permitted to "opt-out" of the law allowing bank holding companies from other
states to enter the state. The State of Texas adopted ""opt-out"" legislation in
1995 which has the effect of delaying, or possibly preventing permanently, the
conversion of banks in Texas to branches of banks headquartered in other states.
The Interstate Act also establishes limits on acquisitions by large banking
organizations, providing that no acquisition may be undertaken if it would
result in the organization having deposits exceeding either 10% of all bank
deposits in the United States or 30% of the bank deposits in the state in which
the acquisition would occur.
<PAGE> 8
Economic Growth and Regulatory Paperwork Reduction Act of 1996. The
Economic Growth and Regulatory Paperwork Reduction Act of 1996 ("EGRPRA")
streamlined the non-banking activities application process for well-capitalized
and well-managed bank holding companies. Under EGRPRA, qualified bank holding
companies may commence a regulatory approved non-banking acquisition or share
purchase, assuming the size of the acquisition does not exceed 10% of
risk-weighted assets of the acquiring bank holding company and the consideration
does not exceed 15% of Tier 1 capital. The foregoing prior notice requirement
also applies to commencing non-banking activity de novo which has been
previously approved by order of the FRB, but has not yet been implemented by
regulations. EGRPRA also provides for the recapitalization of the SAIF in order
to bring it into parity with the BIF of the FDIC.
Pending Legislation. Because of concerns relating to competitiveness
and the safety and soundness of the banking industry, Congress is considering a
number of wide-ranging proposals for altering the structure, regulation and
competitive relationships of the nation's financial institutions. Among such
bills are proposals to merge the BIF and the SAIF insurance funds, to eliminate
the federal thrift charter, to alter the statutory separation of commercial and
investment banking and to further expand the powers of banks, bank holding
companies and competitors of banks. It cannot be predicted whether or in what
form any of these proposals will be adopted or the extent to which the business
of the Company may be affected thereby.
Bank and Bank Holding Company Regulation
BHC Act. Under the BHC Act, the activities of a bank holding company
are limited to businesses so closely related to banking, managing or controlling
banks as to be a proper incident thereto. The Company is also subject to capital
requirements applied on a consolidated basis in a form substantially similar to
those required of the Subsidiary Banks. The BHC Act also requires a bank holding
company to obtain approval from the FRB before: (i) acquiring, directly or
indirectly, ownership or control of any voting shares of another bank or bank
holding company if, after such acquisition, it would own or control more than 5%
of such shares (unless it already owns or controls the majority of such shares);
(ii) acquiring all or substantially all of the assets of another bank or bank
holding company; or (iii) merging or consolidating with another bank holding
company. The FRB will not approve any acquisition, merger or consolidation that
would have a substantially anticompetitive result, unless the anticompetitive
effects of the proposed transaction are clearly outweighed by a greater public
interest in meeting the convenience and needs of the community to be served. The
FRB also considers capital adequacy and other financial and managerial factors
in reviewing acquisitions or mergers.
The BHC Act also prohibits a bank holding company, with certain limited
exceptions: (i) from acquiring or retaining direct or indirect ownership or
control of more than 5% of the voting shares of any company which is not a bank
or bank holding company; or (ii) from engaging directly or indirectly in
activities other than those of banking, managing or controlling banks, or
providing services for its subsidiaries. The principal exceptions to these
prohibitions involve certain non-bank activities which, by statute or by FRB
regulation or order, have been identified as activities closely related to the
business of banking or of managing or controlling banks. In making this
determination, the FRB considers whether the performance of such activities by a
bank holding company can be expected to produce benefits to the public such as
greater convenience, increased competition or gains in efficiency in resources,
which can be expected to outweigh the risks of possible adverse effects such as
decreased or unfair competition, conflicts of interest or unsound banking
practices. FIRREA, which is described in more detail above, made a significant
addition to this list of permitted non-bank activities for bank holding
companies by providing that bank holding companies may acquire thrift
institutions upon approval by the FRB and the applicable regulatory authority
for the thrift institutions.
<PAGE> 9
Insurance of Accounts. The FDIC provides insurance to deposit accounts
at the Subsidiary Banks to a maximum of $100,000 for each insured depositor.
Through December 31, 1992, all FDIC-insured institutions, whether members of the
BIF or the SAIF, paid the same premium (23 cents per $100 of domestic deposits)
under a flat-rate system mandated by law. FDICIA required the FDIC to raise the
reserves of the BIF and the SAIF, implement a risk-related premium system and
adopt a long-term schedule for recapitalizing the BIF. Effective in 1993, the
FDIC amended its regulations regarding insurance premiums to provide that a bank
or thrift would pay an insurance assessment within a range of 23 cents to 31
cents per $100 of domestic deposits, depending on its risk classification.
The FDIC adopted an amendment to the BIF risk-based assessment
schedule, effective January 1, 1996, which effectively eliminated deposit
insurance assessments for most commercial banks and other depository
institutions with deposits insured by the BIF, while maintaining the assessment
rate for SAIF-insured institutions in even the lowest risk-based premium
category at 23 cents for each $100 of assessable deposits. Following the
enactment of EGRPRA and as part of the recapitalization of the SAIF, the overall
assessment rate for 1997 was revised to equal 1.29 cents and 6.44 cents per $100
of assessable deposits of BIF and SAIF members, respectively. The deposits of
BankTEXAS consist solely of BIF deposits, and the deposits of FB California
include both BIF and SAIF deposits.
Regulations Governing Capital Adequacy. The federal bank regulatory
agencies use capital adequacy guidelines in their examination and regulation of
bank holding companies and banks. If the capital falls below the minimum levels
established by these guidelines, the bank holding company or bank may be denied
approval to acquire or establish additional banks or nonbank businesses or to
open facilities.
The FRB, the FDIC and the OCC adopted risk-based capital guidelines for
banks and bank holding companies, and the OTS has adopted similar guidelines for
thrifts. The risk-based capital guidelines are designed to make regulatory
capital requirements more sensitive to differences in risk profiles among
financial institutions and holding companies, to account for off-balance-sheet
exposure and to minimize disincentives for holding liquid assets. Assets and
off-balance-sheet items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance-sheet items. The FRB
has noted that bank holding companies contemplating significant expansion
programs should not allow expansion to diminish their capital ratios and should
maintain ratios well in excess of the minimums. Under theses guidelines, all
bank holding companies and federally regulated banks must maintain a minimum
risk-based total capital ratio equal to 8%, of which at least 4% must be Tier 1
capital.
The FRB also has implemented a leverage ratio, which is Tier 1 capital
to total assets, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base. The FRB requires a minimum leverage ratio of 3%. For all but the most
highly-rated bank holding companies and for bank holding companies seeking to
expand, however, the FRB expects that additional capital sufficient to increase
the ratio by at least 100 to 200 basis points will be maintained.
Management of the Company believes the risk-weighting of assets and the
risk-based capital guidelines do not have a material adverse impact on the
Company's operations or on the operations of the Subsidiary Banks. The
requirement of deducting certain intangibles in computing capital ratios
contained in the guidelines, however, could adversely affect the ability of the
Company to make acquisitions in the future in transactions that would be
accounted for using the purchase method of accounting.
Community Reinvestment Act . The Community Reinvestment Act of 1977
(the "CRA") requires that, in connection with examinations of financial
institutions within their jurisdiction, the federal banking regulators must
evaluate the record of the financial institutions in meeting the credit needs of
their local communities, including low and moderate income neighborhoods,
consistent with the safe and sound operation of those banks. These factors are
also considered in evaluating mergers, acquisitions and applications to open a
branch or facility.
<PAGE> 10
Regulations Governing Extensions of Credit. The Subsidiary Banks are
subject to certain restrictions imposed by the Federal Reserve Act on extensions
of credit to FBA or its subsidiaries and affiliates, or investments in their
securities and on the use of their securities as collateral for loans to any
borrowers. These regulations and restrictions may limit the Company's ability to
obtain funds from the Subsidiary Banks for its cash needs, including funds for
acquisitions and for payment of dividends, interest and operating expenses.
Further, under the BHC Act and certain regulations of the FRB, a bank holding
company and its subsidiaries are prohibited from engaging in certain tying
arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services. For example, the Subsidiary Banks may
generally not require a customer to obtain other services from the Subsidiary
Banks or any other affiliated bank or the Company and may not require the
customer to promise not to obtain other services from a competitor, as a
condition to an extension of credit to the customer.
The Subsidiary Banks are also subject to certain restrictions imposed
by the Federal Reserve Act on extensions of credit to executive officers,
directors, principal stockholders or any related interest of such persons.
Extensions of credit (i) must be made on substantially the same terms, including
interest rates and collateral as, and following credit underwriting procedures
that are not less stringent than, those prevailing at the time for comparable
transactions with persons not covered and who are not employees; and (ii) must
not involve more than the normal risk of repayment or present other unfavorable
features. The Subsidiary Banks are also subject to certain lending limits and
restrictions on overdrafts to such persons.
Reserve Requirements. The FRB requires all depository institutions to
maintain reserves against their transaction accounts and non-personal time
deposits. Reserves of 3% must be maintained against total transaction accounts
of $49.3 million or less (subject to adjustment by the FRB) and an initial
reserve of $1,479,000 plus 10% (subject to adjustment by the FRB to a level
between 8% and 14%) must be maintained against that portion of total transaction
accounts in excess of such amount. The balances maintained to meet the reserve
requirements imposed by the FRB may be used to satisfy liquidity requirements.
Institutions are authorized to borrow from the Federal Reserve Bank
"discount window," but FRB regulations require institutions to exhaust other
reasonable alternative sources of funds, including advances from Federal Home
Loan Banks ("FHLBs"), before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System. The Subsidiary Banks are members of the
Federal Home Loan Bank System ("FHLB System"), which consists of twelve regional
FHLBs, each subject to supervision and regulation by the Federal Housing Finance
Board, an independent agency created by FIRREA. The FHLBs provide a central
credit facility primarily for member institutions. The Subsidiary Banks are
required to acquire and hold shares of capital stock in an FHLB in an amount at
least equal to 1% of the aggregate principal amount of their respective unpaid
residential mortgage loans and similar obligations at the beginning of each
year, or 1/20th of advances (borrowings) from the FHLB, whichever is greater.
The Subsidiary Banks were in compliance with these regulations at December 31,
1997, with investments of $4.7 million in stock of the FHLB of Dallas held by
BankTEXAS and $473,000 in stock of the FHLB of San Francisco held by FB
California.
<PAGE> 11
Restrictions on Thrift Acquisitions. FBA is prohibited from acquiring,
without prior approval of the Director of the OTS, (i) control of any savings
institution or savings and loan holding company or substantially all the assets
thereof; or (ii) more than 5% of the voting shares of a savings institution or
holding company which is not a subsidiary. Furthermore, such an acquisition
would require FBA itself to become registered as a savings and loan holding
company subject to all applicable regulations of the OTS.
Dividends. The Company's primary source of funds in the future is the
dividends, if any, paid by the Subsidiary Banks. The ability of the Subsidiary
Banks to pay dividends is limited by federal laws, by the regulations
promulgated by the bank regulatory agencies and by principles of prudent bank
management. In addition, the amount of dividends the Subsidiary Banks may pay to
the Company is limited by the provisions of First Banks' credit agreement with a
group of unaffiliated lenders, which imposes certain minimum capital
requirements. Additional information concerning limitations on the ability of
the Subsidiary Banks to pay dividends appears in Note 12 to the Consolidated
Financial Statements and is incorporated herein by reference.
Monetary Policy and Economic Control
The commercial banking business is affected not only by general
economic conditions, but also by the monetary policies of the FRB. Changes in
the discount rate on member bank borrowing, availability of borrowing at the
"discount window," open market operations, the imposition of changes in reserve
requirements against member bank deposits and assets of foreign branches, and
the imposition of and changes in reserve requirements against certain borrowings
by banks and their affiliates are some of the instruments of monetary policy
available to the FRB. These monetary policies are used in varying combinations
to influence overall growth and distributions of bank loans, investments and
deposits, and this use may affect interest rates charged on loans or paid on
deposits. The monetary policies of the FRB have had a significant effect on the
operating results of commercial banks and are expected to do so in the future.
The monetary policies of the FRB are influenced by various factors, including
inflation, unemployment, short-term and long-term changes in the international
trade balance and in the fiscal policies of the U.S. Government. Future monetary
policies and the effect of such policies on the future business and earnings of
the Company or the Subsidiary Banks cannot be predicted.
Employment
As of March 18, 1998, the Company employed 225 persons, none of whom
were covered by a collective bargaining agreement. The Company considers its
employee relations to be good.
<PAGE> 12
Item 2. Properties
FBA's executive office is located at the executive office owned by
First Banks at 135 N. Meramec, Clayton, Missouri. The headquarters of the
Subsidiary Banks are (i) in the case of BankTEXAS, in a building owned by
BankTEXAS located at 8828 Westheimer, Houston, Texas; and (ii) in the case of FB
California, in a leased building located at 865 Howe Avenue, Sacramento,
California. In addition to those offices, as of March 18, 1998, the Subsidiary
Banks do business at 15 branch offices in Texas and California, of which five
are owned and 10 are leased.
FBA considers the properties at which it does business to be in good
condition, suitable for the business conducted at each location. To the extent
that its properties or those acquired in connection with the acquisition of
other entities provide space in excess of that effectively utilized in the
operations of the Subsidiary Banks, FBA seeks to lease or sub-lease any excess
space to third parties. Additional information regarding the premises and
equipment utilized by the Subsidiary Banks appears in Note 5 to the Consolidated
Financial Statements incorporated herein by reference.
Item 3. Legal Proceedings
There are various claims and pending actions against FBA and the
Subsidiary Banks in the ordinary course of business. It is the opinion of
management of FBA, in consultation with legal counsel, the ultimate liability,
if any, resulting from such claims and pending actions will have no material
adverse effect on the financial position or results of operations of FBA.
Item 4. Submission of Matters to a Vote of Security Holders
An Annual Meeting of Stockholders was held on January 23, 1998. The six
directors of the Company were reelected, with the vote totals indicated in the
following table:
Name of Director For Withheld
---------------- --- --------
Allen H. Blake 3,407,001 26,619
Charles A. Crocco, Jr. 3,407,072 26,548
James F. Dierberg 3,407,067 26,553
Edward T. Story, Jr. 3,407,067 26,553
Mark T. Turkcan 3,407,067 26,613
Donald W. Williams 3,407,067 26,553
<TABLE>
<CAPTION>
The following matters, all of which were related to the acquisition of
FCB (which is described in detail in the 1997 Annual Report in Management's
Discussion and Analysis of Financial Condition and Results of Operations and in
Note 2 to the Consolidated Financial Statements, both of which are incorporated
herein by reference) were approved at the Annual Meeting with the votes
indicated:
For Against Abstain Broker Non-votes
--- ------- ------- ----------------
<S> <C> <C> <C> <C>
Agreement and Plan of Merger with FCB 2,922,963 14,431 4,615 491,711
Issuance of Common Stock to First Banks 2,903,910 31,557 6,442 491,711
Issuance of convertible debenture to First Banks 2,892,140 41,909 7,861 491,711
</TABLE>
<PAGE> 13
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
Market Information
FBA has two classes of common stock. The Common Stock is listed on the
New York Stock Exchange ("NYSE") under the symbol "FBA." All of the Class B
Stock was issued to First Banks in 1994 in a private placement, and is not
listed or traded. See "Item 1, Business -- General." Continued listing of the
Common Stock on the NYSE is subject to various requirements, including the
financial eligibility and distribution requirements of the NYSE.
Information regarding the number of stockholders and the market prices
for Common Stock since January 1, 1996 is set forth under the caption "Investor
Information" of the 1997 Annual Report and is incorporated herein by reference.
Dividends
The Company has not paid any dividends on its Common Stock in recent
years. The ability of a bank holding company such as FBA to pay dividends is
limited by regulatory requirements and by the receipt of dividend payments from
the Subsidiary Banks, which are also subject to regulatory requirements; see
Note 12 to the Consolidated Financial Statements, incorporated herein by
reference.
Item 6. Selected Financial Data
The information required by this item is incorporated herein by
reference from page 2 of the 1997 Annual Report under the caption "Selected
Consolidated and Other Financial Data."
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this item is incorporated herein by
reference from pages 3 through 23 of the 1997 Annual Report under the caption
"Management's Discussion and Analysis."
Item 7a. Quantitative and Qualitative Disclosure About Market Risk
The information required by this item is incorporated herein by
reference from the 1997 Annual Report under the caption "Management's Discussion
and Analysis - Interest Rate Risk Management."
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of FBA are incorporated herein by
reference from pages 25 through 47 of the 1997 Annual Report under the captions
"Consolidated Balance Sheets," "Consolidated Statements of Operations,"
"Consolidated Statements of Changes in Stockholders' Equity," "Consolidated
Statements of Cash Flows," "Notes to Consolidated Financial Statements" and
"Independent Auditors' Report."
Supplementary Financial Information regarding FBA is incorporated
herein by reference from page 24 of the 1997 Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE> 14
PART III
Item 10. Directors and Executive Officers of the Registrant
Board of Directors
As of March 18, 1998, the Board of Directors consisted of seven
members, who are identified in the following table. Each of the directors was
elected or appointed to serve a one-year term and until his successor has been
duly qualified for office.
<TABLE>
<CAPTION>
Director Principal Occupation During Last Five Years and
Name Age since Directorships of Public Companies
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Allen H. Blake 55 1994 Vice President, Chief Financial officer and Secretary of FBA
since 1994; Director and Executive Vice President of FCB from
1995 until its merger into FBA in February 1998; Executive
Vice President of First Banks since 1996; Senior Vice
President of First Banks from 1992 until 1996; Secretary and
Director of First Banks since 1988; joined First Banks as Vice
President and Chief Financial Officer in 1984.
Charles A. Crocco, Jr.(1) 59 1988 Partner in the law firm of Crocco & De Maio, P.C., New
YorkCity since 1970; Director of The Hallwood Group Incorporated
(merchant banking).
James F. Dierberg 60 1994 Chairman of the Board of Directors, Chief Executive Officer and
President of FBA since 1995; Chairman of the Board and Chief
Executive Officer of First Banks since 1988; Director of First
Banks since 1979; President of First Banks, 1979-1992 and 1994-
present.
Albert M. Lavezzo (2) 61 1998 President and Chief Operating Officer of Favaro, Lavezzo,
Gill, Caretti & Heppell, Vallejo, California, a professional
legal corporation.
Edward T. Story, Jr. (1) 54 1987 President, Chief Executive Officer and Director of SOCO
International, plc, a corporation listed on the London Stock
Exchange, engaged in international oil and gas operations,
since 1991; from 1990 until 1991, Chairman of Thaiatex
Petroleum Company; from 1981 to 1990, Vice Chairman And Chief
Financial Officer of Conquest Exploration Company; Director of
Cairn Energy plc, Hallwood Realty Corporation, Snyder Oil
Corporation And Seaunion Holdings, Ltd.
Mark T. Turkcan 42 1994 Executive Vice President (Retail and Mortgage Banking), First
Banks, since 1996; Senior Vice President (Retail and Mortgage
Banking), First Banks, since 1994 and Vice President from 1990
until 1994; joined First Banks when Clayton Savings and Loan
Association, St. Louis, Missouri (now First Bank), for whom
Mr. Turkcan was employed in various capacities since 1985, was
acquired by FirstBanks in 1990.
<PAGE> 15
Donald W. Williams 50 1995 Executive Vice President of First Banks since 1996; Senior Vice
President of First Banks from 1993 until 1996; Director of FCB
from 1995 until its merger into FBA in February 1998; Chief
Credit Officer of First Banks and executive officer of various
subsidiaries of First Banks since 1993; previously served as
Senior Vice President in charge of commercial credit approval,
commercial loan operations, international operations and the
credit department of Mercantile Bank of St. Louis, N.A. from
1989 ,until 1993. Mr. Williams currently serves as Executive
Vice President and Chief Credit Officer of First Banks and
Chairman and Chief Executive Officer of the California
subsidiaries thereof.
</TABLE>
- - -------------
(1) Member of the Audit Committee.
(2) Mr. Lavezzo was the Chairman of the Board of Directors of Surety Bank,
Vallejo, California ("Surety") prior to its acquisition by FBA in December
1997. The agreement by which Surety was acquired provided that FBA would
cause a person designated by Surety's Board of Directors to be appointed to
FBA's Board of Directors, and Mr. Lavezzo was so designated.
Executive Officers
The executive officers of the Company as of March 18, 1998 were is
follows:
Name Age FBA Office(s) held
- -------------------------------------------------------------------------------
James F. Dierberg 60 Chairman of the Board, President and Chief
Executive Officer.
Allen H. Blake 55 Vice President, Chief Financial Officer and
Secretary.
David F. Weaver 50 Executive Vice President of FBA since
1995; Chairman of the Board, Chief
Executive Officer and President of BankTEXAS
since 1994; President of BankTEXAS Houston
N.A. (predecessor of BankTEXAS) from 1988 to
1994.
The executive officers were each elected by the Board of Directors to
the office indicated. There is no family relationship between any of the
nominees for director, directors or executive officers of the Company or its
subsidiaries.
Item 11. Executive Compensation
The following table sets forth certain information regarding
compensation earned during the year ended December 31, 1997, and specified
information with respect to the two preceding years, by Mr. Weaver, who is the
only executive officer of FBA whose annual compensation in 1997 from FBA or the
Subsidiary Banks exceeded $100,000.
Neither Mr. Dierberg nor Mr. Blake receives any compensation directly
from either the Company or the Subsidiary Banks. The Company and the Subsidiary
Banks have entered into various contracts with First Banks, of which Messrs.
Dierberg and Blake are directors and executive officers, pursuant to which
services are provided to the Company and the Subsidiary Banks (see "Compensation
Committee Interlocks and Insider Participation" for additional information
regarding contracts with First Banks).
<PAGE> 16
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE FOR YEAR ENDED DECEMBER 31, 1997
Name and Principal Position Year Salary (1) Bonus All Other Compensation (2)
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David F. Weaver, Executive Vice 1997 $ 103,750 $22,000 $3,144
President; Chairman of the Board, 1996 86,875 20,625 2,172
President and Chief Executive Officer 1995 107,500 0 3,225
of BankTEXAS N.A.
</TABLE>
- - ---------------------
(1) The total of all other annual compensation for each of the named
officers is less than the amount required to be reported which is the
lesser of (a) $50,000 or (b) ten percent (10%) of the total of the
annual salary and bonus paid to that person.
(2) All items reported are FBA's matching contributions to the 401(k) Plan
for the year indicated.
FBA has omitted from this report tables which would disclose
information regarding stock options granted during 1997, stock options exercised
during 1997 and long term incentive plan awards. No options were granted to or
exercised by executive officers in 1997, and FBA does not have a long term
incentive plan.
Director Compensation
Directors who are not officers of FBA or affiliated with First Banks
("Unaffiliated Directors," consisting in 1997 of Messrs. Crocco and Story) were
paid fees for their service as directors in 1997, consisting of an annual
retainer of $7,500, a fee for each meeting of the Board of Directors attended of
$3,000 and a fee of $500 for each committee meeting attended. Effective January
1, 1998, Unaffiliated Directors of FBA are to be paid a fee of $2,000 for each
meeting of the Board of Directors attended and a fee of $500 for each committee
meeting attended.
Unaffiliated Directors also participate in the 1993 Directors' Stock
Bonus Plan (the "Stock Bonus Plan"), which provides for an annual grant of 500
shares of Common Stock to each such director. Future grants would apply equally
to current directors and to any individual who becomes a director of FBA in the
future. The maximum number of shares that may be issued will not exceed 16,667
shares, and the plan will expire on July 1, 2001. Directors' compensation
expense of $13,000 was incurred in 1997 in connection with the Stock Bonus Plan.
None of the four directors of FBA who are also executive officers of
First Banks (Messrs. Dierberg, Blake, Turkcan and Williams) receive any
compensation from FBA or the Subsidiary Banks for service as a director, nor do
they participate in the Stock Bonus Plan or any other compensation plan of FBA
or the Subsidiary Banks. First Banks, of which Messrs. Dierberg, Blake, Turkcan
and Williams are executive officers and Messrs. Dierberg and Blake are
directors, provides various services to FBA and the Subsidiary Banks for which
it is compensated (see "Compensation Committee Interlocks and Insider
Participation").
Compensation Committee Interlocks and Insider Participation
Messrs. Dierberg and Blake, who are executive officers of FBA but do
not receive any compensation for their services as such, are also members of the
Board of Directors and executive officers of First Banks. Mr. Blake was also a
director and executive officer of FCB prior to its merger into FBA in February
1998. First Banks does not have a compensation committee, but its Board of
Directors performs the functions of such a committee. Except for the foregoing,
no executive officer of FBA served during 1997 as a member of the Compensation
Committee, or any other committee performing comparable functions, or as a
director, of another entity any of whose executive officers or directors served
on FBA's Compensation Committee.
First Banks provides management services to FBA and the Subsidiary
Banks. Management services are provided under a management fee agreement whereby
FBA compensates First Banks on an hourly basis for its use of personnel for
various functions including internal audit, loan review, income tax preparation
and assistance, accounting, asset/liability and investment services, loan
servicing and other management and administrative services. Fees paid under this
agreement were $931,000 and $687,000 for the years ended December 31, 1997 and
1996, respectively. The fees paid for management services are at least as
favorable as could have been obtained from an unaffiliated third party.
<PAGE> 17
Because of the affiliation with First Banks and the geographic
proximity of certain of their offices, FBA shares the cost of certain personnel
and services used by FBA and First Banks. This includes the salaries and
benefits of certain loan and administrative personnel. The allocation of the
shared costs are charged and/or credited under the terms of cost sharing
agreements entered into during 1997. Because this involves distributing
essentially fixed costs over a larger asset base, it allows each bank to receive
the benefit of personnel and services at a reduced cost. Fees paid under these
agreements were $383,000 for the year ended December 31, 1997.
Effective April 1, 1997, First Services L.P., a limited partnership
indirectly owned by FBA's Chairman and his children through its general partners
and limited partners, began providing data processing and various related
services to FBA under the term of data processing agreements. Previously, these
services were provided by a subsidiary of First Banks. Fees paid under these
agreements were $643,000 and $311,000 for the years ended December 31, 1997 and
1996, respectively. The fees paid for data processing services are at least as
favorable as could have been obtained from an unaffiliated third party.
The Subsidiary Banks participate in loans with other bank affiliates of
First Banks; as of December 31, 1997, $41.9 million of purchased loan
participations and $42.7 million of sold loan participations were outstanding.
Loans are purchased and sold at prevailing interest rates and terms at the time
of such transactions and in accordance with the credit standards and policies of
the purchasing entity.
FBA borrows funds from First Banks pursuant to a promissory note
agreement. As of March 18, 1998, the balance advanced under the note was $13.1
million. See Note 13 to the Consolidated Financial Statements, incorporated
herein by reference.
Employee Benefit Plans
FBA maintains various employee benefit plans. Directors are not
eligible to participate in such plans except the 1990 Stock Option Plan and the
1993 Directors' Stock Bonus Plan unless they are also employees of FBA or one of
its subsidiaries. Although Messrs. Blake and Dierberg are executive officers,
they are not participants in any employee benefit plans of FBA.
The Employees Retirement Plan (the "Pension Plan") is a
noncontributory, defined benefit plan for all eligible officers and employees of
FBA and its subsidiaries. During 1994, the Company discontinued the accumulation
of benefits under the Pension Plan. While the Pension Plan continues in
existence and provides benefits which had then accumulated, no additional
benefits have accrued to participants since 1994, and no new participants will
become eligible for benefits thereafter.
Benefits under the Pension Plan are based upon annual base salaries and
years of service as of 1994 and are payable only upon retirement or disability
and, in some instances, at death. A participant who fulfilled the eligibility
and tenure requirements prior to the discontinuation of accumulation of benefits
will receive, upon reaching the normal retirement age of 65, monthly benefits
based upon average monthly compensation during the five consecutive calendar
years out of his or her last ten calendar years prior to 1994 that provided the
highest average compensation.
As of December 31, 1997, Mr. Weaver would be eligible to receive annual
benefits of approximately $11,000 upon retirement at age 65.
<PAGE> 18
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 18, 1998, certain
information with respect to the beneficial ownership of Common Stock and Class B
Stock by each person known to the Company to be the beneficial owner of more
than five percent of the outstanding shares of either class of stock, by each
director and executive officer and by all executive officers and directors as a
group:
<TABLE>
<CAPTION>
Title of Name of Beneficial Number of Shares and Nature of Percent of
- - -------------------------------------------------------------------------------------------------------------
Class Owner Beneficial Ownership Class
<S> <C> <C> <C> <C> <C>
Class B Stock First Banks, Inc. 2,500,000 (1)(2)(3) 100.0
135 N. Meramec
Clayton, Missouri 63105
Class B Stock James F. Dierberg 2,500,000 (1)(2)(3) 100.0
Common Stock First Banks, Inc. 1,939,685 (1)(2)(3)(4) 56.5
Common Stock James F. Dierberg 1,939,685 (1)(2)(3)(4) 56.5
Common Stock Allen H. Blake 1,902 (5) *
Common Stock Charles A. Crocco, Jr. 9,272 (6) *
Common Stock Albert M. Lavezzo 20,164 (5) *
Common Stock Edward T. Story, Jr. 9,182 (6) *
Common Stock Mark T. Turkcan 200 (5) *
Common Stock David F. Weaver 8,000 (5) *
Common Stock Donald W. Williams 1,033 (5) *
All executive officers 1,989,438 shares 58.0% of Common
and directors as a Common Stock (4) Stock
group (8 persons)
2,500,000 shares 100% of Class
Class B Stock B Stock
</TABLE>
* Less than one percent
(1) The shares shown as beneficially owned by First Banks and James F.
Dierberg comprise 100% of the outstanding s hares and percentages
reflected are Common Stock. Each share of Common Stock and Class B
Stock is entitled to one vote on matters subject to stockholder vote.
Under Rule 13d-3(d), shares not outstanding which are subject to
options, warrants, rights, or conversion privileges exercisable within
60 days are deemed outstanding for the purpose of calculating the
number and percentage owned by such person, but not deemed outstanding
for the purpose of calculating the percentage owned by each other
person listed. All of the shares of Class B Stock and Common Stock
owned by First Banks are pledged to secure a loan to First Banks from
a group of unaffiliated lenders. The related credit agreement contains
customary provisions which could ultimately result in transfer of such
shares if First Banks were to default in the repayment of the loan and
such default were not cured, or other arrangements satisfactory of the
lenders were not made, by First Banks.
(2) The controlling stockholders of First Banks are (i) the James F. Dierberg,
II, Family Trust, dated December 30, 1992; (ii) Mary W. Dierberg and
Michael James Dierberg, trustees under the living trust of Michael James
Dierberg, dated July 24, 1989; (iii) the Ellen C. Dierberg Family Trust,
dated December 30, 1992; (iv) James F. Dierberg, trustee of the James F.
Dierberg living trust, dated October 8, 1985; (v) the Michael J. Dierberg
Family Trust, dated December 30, 1992; and (vi) First Trust (Mary W.
Dierberg and First Bank, Trustees) established U/I James F. Dierberg, dated
December 12, 1992. Mr. James F. Dierberg and Mrs. Mary W. Dierberg are
husband and wife, and Messrs. James F. Dierberg, II, Michael James Dierberg
and Miss Ellen C. Dierberg are their adult children.
<PAGE> 19
(3) Due to the relationships among James F. Dierberg, Mary W. Dierberg, First
Bank and the three children of James F. and Mary W. Dierberg, Mr. Dierberg
is deemed to share voting and investment power over all of the outstanding
voting stock of First Banks which in turn exercises voting and investment
power over the shares of Common Stock and Class B Stock attributed to it in
the table.
(4) Includes 673,509 shares of Common Stock which First Banks has the right to
acquire upon conversion of $6.5 million principal amount plus $1.9 million
accrued interest on a convertible debenture issued to First Banks in
connection with the acquisition by FBA of FCB. Such shares are deemed
outstanding for the purpose of calculating the percentage ownership of
First Banks, Mr. Dierberg and executive officers and directors as a group,
but are not otherwise taken into account in calculating the percentages
shown in the table.
(5) All of the shares attributed in the table to Messrs. Blake, Turkcan, Weaver
and Williams are owned by them directly; Mr. Lavezzo owns 8,710 shares
directly and 11,454 shares indirectly through a profit-sharing/pension
plan.
(6) The shares attributed to Messrs. Crocco and Story include shares subject to
vested, currently exercisable stock options granted under the Company's
1990 Stock Option Plan. Mr. Crocco has an option covering 6,666 shares; he
owns directly 2,606 shares. Mr. Story has an option covering 6,666 shares;
he owns directly 2,516 shares.
Item 13. Certain Relationships and Related Transactions
The Subsidiary Banks have had in the past, and may have in the future,
loan transactions in the ordinary course of business with directors of FBA or
their affiliates. These loan transactions have been and will be on the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with unaffiliated persons and did not and will not
involve more than the normal risk of collectibility or present other unfavorable
features. The Subsidiary Banks do not extend credit to officers of FBA or of the
Subsidiary Banks, except extensions of credit secured by mortgages on personal
residences, loans to purchase automobiles and personal credit card accounts.
Certain of the directors and officers of FBA and their respective
affiliates have deposit accounts with the Subsidiary Banks. It is the policy of
the Subsidiary Banks not to permit any officers or directors of the Subsidiary
Banks or their affiliates to overdraw their respective deposit accounts unless
that person has been previously approved for overdraft protection under a plan
whereby a credit limit has been established in accordance with the standard
credit criteria of the Subsidiary Banks.
<PAGE> 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements and Supplementary Data: The financial
statements and supplemental data filed as part of this Report are
listed under Item 8.
2. Financial Statement Schedules: These schedules are omitted for the
reason they are not required or are not applicable.
3. Exhibits: The exhibits are listed in the index of exhibits
required by Item 601 of Regulation S-K at Item (c) below and are
incorporated herein by reference.
(b) Reports on Form 8-K
FBA filed a Current Report on Form 8-K on December 17, 1997. Items
2 and 7 reported the acquisition of Surety Bank through a merger with
FB California. Included in Item 7 of the Report are the following
financial information and pro forma financial information relating to
Surety Bank:
1. Consolidated Balance Sheet as of September 30, 1997 and December
31, 1996 (Unaudited).
2. Consolidated Statements of Operations for the three and nine
months ended September 30, 1997 and 1996 (Unaudited).
3. Consolidated Statements of Changes in Stockholders' Equity for the
year ended December 31, 1996 and the nine months ended September
30, 1997 (Unaudited).
4. Consolidated Condensed Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996 (Unaudited).
5. Audited Consolidated Financial Statements as of and for the years
ended December 31, 1996 and 1995.
6. Pro Forma Combined Condensed Balance Sheet as of December 31,1996
(Unaudited).
7. Pro Forma Consolidated Condensed Statements of Operations for the
nine months ended September 30, 1997 and 1996 and for the year
ended December 31, 1996 (Unaudited).
8. Notes to Pro Forma Combined Condensed Financial Statements
(Unaudited).
(c) The index of required exhibits is included beginning on page 20 of this
Report.
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
First Banks America, Inc.
By: /s/ James F. Dierberg
-------------------------
James F. Dierberg
Chairman of the Board,
President and Chief
Executive Officer
March 26, 1998
By: /s/ Allen H. Blake
----------------------
Allen H. Blake
Chief Financial Officer
and Principal Accounting
Officer
March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the date indicated.
Signatures Title Date
---------- ----- ----
/s/ James F. Dierberg Director March 26, 1998
---------------------
James F. Dierberg
/s/ Allen H. Blake Director March 26, 1998
------------------
Allen H. Blake
/s/ Charles A. Crocco. Jr. Director March 26, 1998
--------------------------
Charles A. Crocco, Jr.
/s/ Albert M. Lavezzo Director March 26, 1998
---------------------
Albert M. Lavezzo
/s/ Edward T. Story, Jr. Director March 26, 1998
------------------------
Edward T. Story, Jr.
/s/ Mark T. Turkcan Director March 26, 1998
-------------------
Mark T. Turkcan
/s/ Donald W. Williams Director March 26, 1998
----------------------
Donald W. Williams
<PAGE> 22
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
3(a) Restated Certificate of Incorporation of the Company
effective August 31, 1995 (filed as Exhibit 3(a) to
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 and incorporated herein by
reference).
3(b) Amended and Restated Bylaws of the Company (as amended
April 21, 1995) (filed as Exhibit 3(b) to Quarterly
Report on Form 10-Q for the quarter ended March 31,
1995 and incorporated herein by reference).
4(a) Specimen Stock Certificate for Common Stock (filed as
Exhibit 1.01 to the Company's Amendment No. 1 to Form
8-A on Form 8, dated September 4, 1987, and
incorporated herein by reference).
10(a)* BancTEXAS Group Inc. 1990 Stock Option Plan (as
amended July 22, 1993) (filed as Exhibit 10(c) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993, and incorporated herein by
reference).
10(b)* 1993 Directors' Stock Bonus Plan (filed as Exhibit
10(k) to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993 and
incorporated herein by reference).
10(c) Stock Purchase and Operating Agreement by and between
First Banks, Inc., a Missouri Corporation and the
Company, dated May 19, 1994 (filed as Exhibit 10(d) to
the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 and incorporated herein
by reference).
10(d)* Management Agreement by and between First Banks, Inc.
and BankTEXAS N.A., dated November 17, 1994 (filed as
Exhibit 10(h) to the Annual Report on Form 10-K for the
year ended December 31, 1994 and incorporated herein by
reference).
10(e)* Data Processing Agreement by and between First Serv,
Inc. (a subsidiary of First Banks, Inc.) and BankTEXAS
N.A., dated December 1, 1994 (filed as Exhibit 10(i)
to the Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by
reference).
10(f)* Financial Management Policy by and between First Banks,
Inc. and the Company, dated September 15, 1994
(filed as Exhibit 10(j)) to the Annual Report on Form
10-K for the year ended December 31, 1994 and
incorporated herein by reference).
10(g)* Federal Funds Agency Agreement by and between First
Banks, Inc. and the Company, dated September 15, 1994
(filed as Exhibit 10(k) to the Annual Report on Form
10-K for the year ended December 31, 1994 and
incorporated herein by reference).
<PAGE> 23
10(h)* Funds Management Policy by and between First Banks,
Inc. and BankTEXAS, N.A., dated September 15, 1994
(filed as Exhibit 10(l) to the Annual Report on Form
10-K for the year ended December 31, 1994 and
incorporated herein by reference).
10(i)* Management Services Agreement by and between First
Banks, Inc. and Sunrise Bank of California dated
December 16, 1996 (filed as Exhibit 10(j)) to the
Annual Report on Form 10-K for the year ended December
31, 1996 and incorporated herein by reference).
10(j)* Service Agreement by and between First Serv, Inc. and
Sunrise Bank of California (relating to data processing
services) dated November 21, 1996 (filed as Exhibit
10(k) to the Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by
reference).
10(K)* Federal Funds Agency Agreement by and between First
Banks, Inc. and Sunrise Bank of California dated
November 19, 1996 (filed as Exhibit 10(l) to the Annual
Report on Form 10-K for the year ended December 31,
1996 and incorporated herein by reference).
10(1)* Funds Management Policy by and between First Banks,
Inc. and Sunrise Bank of California dated November 19,
1996 (filed as Exhibit 10(m) to the Annual Report on
Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference).
10(m) Agreement and Plan of Reorganization dated July 28,
1997, by and between FBA and Sure Bank (filed as
Exhibit 2 to the Current Report on Form 8-K dated
August 7, 1997 and incorporated herein by reference).
10(n) Agreement and Plan of Merger by and between FBA and
Pacific Bay Bank dated September 22, 1997 (filed as
Exhibit 2(b) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997 and
incorporated herein by reference).
10(o) Agreement and Plan of Merger by and between FBA and
FCB dated October 3, 1997 (filed as Exhibit 2(c) to
the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 and incorporated herein by
reference).
10(p) Promissory note payable to First Banks, Inc. dated
November 4, 1997 (filed as Exhibit 10(o) to the
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 and incorporated herein by
reference).
1O(q)* Cost sharing agreement by and among First Bank & Trust,
Sunrise Bank of California, Sundowner Corporation and
First Banks America, Inc.
10(r)* Service Agreement by and between First Services, L.P.
and BankTEXAS N. A., dated April 1, 1997.
10(s)* Service Agreement by and between First Services, L.P.
and First Bank of California, dated April 1, 1997.
13 1997 Annual Report to Stockholders filed herewith.
Portions not specifically incorporated by reference
in this Report are not deemed "filed" for the purposes
of the Securities Exchange Act of 1934.
21 Subsidiaries of the Company - filed herewith.
23(a) Consent of Peat Marwick LLP-- filed herewith.
27 Financial Data Schedule.
-------------------
* Exhibits designated by an asterisk in this Index to Exhibits relate to
management contracts and/or compensatory plans or arrangements.
<PAGE> 24
EXHIBIT 10(Q)
COST SHARING AGREEMENT BY AND AMONG
FIRST BANK & TRUST
SUNRISE BANK
SUNDOWNER CORPORATION AND
FIRST BANKS AMERICA
This Cost Sharing Agreement (the "Agreement") is made this 21st day of
January 1997, by and between First Bank & Trust, Irvine, California, a
California banking corporation ("First Bank") and Sunrise Bank, Roseville,
California, a California banking corporation ("Sunrise"), (each "Bank" and
collectively the "Banks") and Sundowner Corp, Inc., a Nevada corporation
("Sundowner Corp.") and First Banks America, Inc. a Delaware corporation ("First
Banks America").
WHEREAS First Bank is currently operating as a commercial and retail bank
in the State of California, with offices in Walnut Creek and San Jose,
California, as well as Orange County and Los Angeles County, California, and
desires to share with Sunrise Bank and Sundowner Corp and First Banks America
the costs, benefits and services of certain personnel and
WHEREAS Sunrise Bank is currently operating as a commercial and retail
bank in the State of California, with offices in Roseville, Citrus Heights and
San Francisco, California, and desires to share with First Bank the costs,
benefits and services of certain personnel, and purchase certain other services
from First Bank,
WHEREAS Sundowner Corp. is a registered Bank Holding Company, and First
Banks America is a registered Bank Holding Company, and desire to share with
First Bank the costs, benefits and services of certain personnel and purchase
certain other services from First Bank,
WHEREAS First Bank is a wholly-owned subsidiary of First Banks, Inc., a
Missouri corporation and a multi-bank and thrift holding company ("FB, Inc.")
and
WHEREAS FB, Inc. has acquired majority control of Sunrise Bank,
THEREFORE, in consideration of the premises and the mutual terms and
provisions set forth in the Agreement, First Bank, Sunrise Bank, Sundowner Corp.
and First Banks America hereby agree as follows:
Services to be performed:
First Bank shall undertake to perform certain services for the benefit of
Sunrise Bank, Sundowner Corp. and First Banks America, including, but not
limited to those enumerated below, as and when requested by Sunrise Bank or
Sundowner Corp. or First Banks America, as the case may be, and approved by
First Bank, these services will generally be provided by employees of First
Bank, but may include services provided by external sources such as independent
contractors or consultants retained by First Bank on behalf of itself and
Sunrise Bank and Sundowner Corp. and First Banks America, as the case may be.
First Bank will prepare a monthly statement to Sunrise Bank and Sundowner Corp.
and First Banks America, respectively, indicating the nature of the services
performed, the entity performing such services and the fees charged for such
services.
Sunrise Bank, Sundowner Corp. and First Banks America shall undertake to
perform certain services for the benefit of First Bank, including, but not
limited to those enumerated below, as and when requested by First Bank and
approved by Sunrise Bank, Sundowner Corp. and First Banks America. These
services will generally be provided by employees of Sunrise Bank, Sundowner
Corp. and First Banks America, but may include services provided by external
sources such as independent contractors or consultants retained by Sunrise Bank,
Sundowner Corp. and First Banks America on behalf of itself and First Bank.
Sunrise Bank, Sundowner Corp. and First Banks America will prepare a monthly
statement to First Bank indicating the nature of the services performed, the
entity performing such services and the fees charged for such services.
<PAGE> 25
Notwithstanding anything else contained in this Agreement to the
contrary, any such services provided by First Bank to either Sunrise Bank,
Sundowner Corp or First Banks America, or by Sunrise Bank, Sundowner Corp or
First Banks America to First Bank pursuant to this Agreement shall be provided
on terms and conditions including audit standards, that are substantially the
same, or at least as favorable to First Bank, Sunrise Bank, Sundowner Corp. or
First Banks America as the case may be, as then prevailing at the time for
comparable transactions with or not involving other non-affiliated companies, or
in the absence of comparable transactions, on terms and under circumstances,
including audit standards, that in good faith would be offered to, or would
apply to, non-affiliated companies.
Services performed by employees of First Bank will be billed to Sunrise
Bank or Sundowner Corp. or First Banks America, as the case may be, and services
performed by employees of Sunrise Bank, Sundowner Corp. or First Banks America
will be billed to First Bank, on the most appropriate basis for the type of
service provided. For loan officers engaged in the development of new business
and marketing, charges will be based on the aggregate loan volume assigned to
each officer for each Bank. Generally, services provided by other employees will
be charged on the basis of hours required to perform the services using hourly
rates established for each employee. Hours billed for exempt employees will be
charged based on a maximum of eight hours per day, forty hours per week. Hours
billed for non-exempt employees will be charged based on actual hours worked,
including any overtime hours for which such employee may have been paid.
The base rates will be established by dividing each such employee's
annualized wages, excluding any overtime compensation by 1,864 hours per year.
This amount will be increased by 20% to compensate for the cost of fringe
benefits, payroll taxes and the cost of premises, equipment, supplies and other
expenses incurred by each Bank on behalf of the employee. Rates for overtime
hours of non-exempt employees will be calculated at 150% or 200% of the
employee's base rate as may be appropriate for the hours charged.
Services provided by external sources will be charged at cost. The
allocation of costs between the Banks will generally be on the basis of hours
expended for each Bank, unless another basis is determined mutually by the Banks
to be more appropriate for the particular service and charge.
Included in the services to be provided will be the following:
1. Lending:
a. Loan and business development
b. Loan administration and support
c. Loan collection and workout
d. Other lending activities
2. Human Resources:
a. Human resources administration
b. Records and compliance
c. Employee recruiting and training
d. Payroll administration and benefits
e. Other branch administration
<PAGE> 26
3. Branch administration:
a. Branch operations
b. Customer service and training
c. Data capture and item processing
d. Other branch administration activities
Travel expenses incurred in connection with the performance of services
will be charged to each Bank based on the expense reports received from the
employees. Travel time, or other non-productive time, will not be charged to the
Banks.
Billing of fees:
Each Bank shall prepare and submit to the other Bank a monthly bill for
services rendered in sufficient detail to provide that Bank a basis for
evaluating the cost/benefit of items charged. It shall be the responsibility of
the Bank preparing the statement to maintain time reports, worksheets and
summaries supporting the amounts billed. Such documentation will be furnished to
the other Bank, and/or its examiners or auditors upon request.
Amounts billed will be payable to the billing Bank by either a direct
payment or offsetting it against a reciprocal bill submitted to that Bank after
approval of payment thereof by the Bank being billed. If either Bank disputes
the amounts billed, such Bank will provide to the billing Bank a written
explanation of its disagreement and a solution for resolving the dispute. If the
Banks are unable to reach an agreement with respect to the disputed items, the
disagreement will be resolved by a decision between the Presidents of the Banks.
Payments will be due by the last day of the month following the month in which
the services were performed. Cost sharing statements will be provided to the
other Bank at least five working days prior to payment.
General:
Each Bank shall make available to the other Bank all records, facilities
and personnel reasonably necessary to enable it to perform the services
required, which records and other materials shall be returned to that Bank when
the services are completed. The Bank performing the services shall furnish the
necessary forms and instructions to the other Bank's personnel.
Each Bank shall give the same care to the other Bank's work as it gives
to its own work. However, neither Bank shall warrant the work free of error, and
each Bank shall be liable only for its own gross negligence or willful
misconduct.
The services performed under this Agreement by each Bank will be subject
to the regulations and examination of the federal or state agencies having
supervisory jurisdiction over the Bank to the same extent as if such services
were being performed solely by the Bank on its own premises. The provisions of
this Agreement are subject to the approval, modification, regulation or ruling
of any governmental agency having jurisdiction over each Bank, Sunrise Bank,
First Banks or its affiliates. This Agreement shall be binding upon the parties
and their successors or assigns, and may only be amended or modified by a
writing executed by the parties hereto.
Each Bank will hold in confidence, during the term and following the
termination of this Agreement, all information relating to the other Bank's
assets, liabilities, business or affairs, or those of any of its customers,
which such Bank may receive in the course of rendering the services hereunder
and shall return all confidential information obtained during the performance of
the Agreement to the other bank upon termination of the Agreement. Each Bank
will make the same effort to safeguard such information as it does to protect
its own proprietary data.
The term of the Agreement is for one year, but it shall be automatically
renewable for additional periods of one year each unless any party hereto shall
give thirty (30) days' written notice of termination prior to the end of any
term to the other parties hereto.
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have, by their duly authorized
officers executed this Agreement this 21st day of January, 1997.
FIRST BANK & TRUST
By /s/ Terrance M. McCarthy
- - ---------------------------
Its Senior Vice President
- - -------------------------
SUNRISE BANK
By /s/ Donald W. Williams
- - -------------------------
Its President
- - -------------
SUNDOWNER CORPORATION
By /s/ Allen H. Blake
- - ---------------------
Its Vice President
- - ------------------
FIRST BANKS AMERICA
By /s/ Allen H. Blake
- - ---------------------
Its Vice President
- - ------------------
<PAGE> 28
EXHIBIT 10(r)
SERVICE AGREEMENT
This Service Agreement is made and entered into as of the 1st day of
April, 1997, by and between First Services, L.P., a Missouri Limited Partnership
and BankTEXAS N.A., a banking institution duly organized and existing by virtue
of the laws of the United State.
WHEREAS, BankTEXAS and FIRSTSERV, INC. entered into a Service Agreement
dated December 8, 1995, as amended; and
WHEREAS, said Service Agreement was assigned to First Services, L.P. on or
about April 1, 1997; and
WHEREAS, FIRST SERVICES, L.P. and BankTEXAS desire to amend and restate
said Service Agreement in its entirety.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein, and the sum of Ten Dollars ($l0.00) in hand paid,
each to the other, the receipt and sufficiency of which is hereby acknowledged,
the parties agree as follows:
I. TERMINATION AND REVOCATION
The Parties hereto hereby revoke, cancel and hold for naught the
Service Agreement dated December 8, 1995, as amended, and hereby substitute in
its place the Service Agreement herein contained.
II. SERVICES
(A) First Services, L.P. shall furnish BankTEXAS data processing and
item processing services selected by BankTEXAS from the Product
and Price Schedule as per Attachment 1, attached hereto and
incorporated herein by reference thereto. Additional services may
be selected upon prior written notice to First Services, L.P. at First
Services, L.P.'s then current list price by executing an amended
Summary Page.
(B) First Services, L.P. will provide conversion and training services for
the fees specified from the Product and Price Schedule
(Attachment 1). Classroom training in the use and operation of the
system for the number of BankTEXAS personnel mutually agreed upon in
the conversion planning process will be provided at a training
facility mutually agreed upon. Conversion services are those
activities designed to transfer the processing of BankTEXAS's data
from its present processing company to First Services, L.P.
(C) First Services, L.P. will also provide Network Support Service
consisting of communication line monitoring and diagnostic
equipment and support personnel to discover, diagnose, repair or
report line problems to the appropriate telephone company. The fee
for this service is also listed from the Product and Price Schedule
<PAGE> 29
(Attachment 1).
(D) First Services, L.P. shall upon request act as BankTEXAS's
designated representative to arrange for the purchase, and
installation of data lines necessary to access the First Services,
L.P. system. Where requested, additional dial-up lines and
equipment to be utilized as a backup to the regular data lines may
also be ordered. First Services, L.P. shall bill BankTEXAS for the
actual charges incurred for the data lines and for the maintenance
of the modems and other interface devices.
(E) Processing priorities will be determined by mutual agreement of the
parties hereto.
III. TERM
The term of this Agreement shall be twelve (12) months commencing on
April 1, 1997. Upon expiration, the Agreement will automatically renew
for successive terms of twelve (12) months each unless either party
shall have provided written notice to the other at least one-hundred
eighty (180) days prior to the expiration of the then current term, of
its intent not to renew. In the event of termination, First Services,
L.P. shall provide reasonable time allowance to allow BankTEXAS to
convert to another system.
IV. SOFTWARE/FIRMWARE
Unmodified third party software or firmware ("Software") may be
supplied as part of the Agreement. All such Software shall be provided
subject to Software License Agreements.
V. PRICE AND PAYMENT
(A) Fees for First Services, L.P.'s services are set forth from the
Product and Price Schedule (Attachment 1), including where applicable
minimum monthly charges and payment schedules for onetime fees.
(B) Standard Fees shall be invoiced no later than the fifteenth
(15th) of each month for the then current month. Terms of payment
shall be net cash. (C) The Base Service Charge listed from the
Product and Price Schedule (Attachment 1) shall not change more than
once a year and then only upon six (6) months' prior written notice.
The fee schedule shall be reviewed annually to ensure fair market
value in pricing. Comparisons will be made with peers and other
providers of similar services.
(D) This above limitation shall not apply to pass-thru expenses. A
pass-thru expense is a charge for goods or services by First
Services, L.P. on BankTEXAS's behalf which are to be billed to
BankTEXAS without mark-up.
(E) The fees listed from the Product and Price Schedule (Attachment 1)
do not include and BankTEXAS is responsible for furnishing
transportation or transmission of information between First Services,
L.P.'s data center, BankTEXAS's site and any applicable clearing
house, regulatory agency or Federal Reserve Bank. Where BankTEXAS
has elected to have First Services, L.P. provide Telecommunication
Services, the price for the Services will be provided and billed
as a pass-thru expense.
(F) Network Support Service Fees and Local Network Fees are based upon
services rendered from First Services, L.P.'s premises. Off-premise
support will be provided upon BankTEXAS's request on an as
available basis at First Services, L.P. then current charges for
time and materials, plus reasonable travel and living expenses.
<PAGE> 30
VI. CLIENT OBLIGATIONS
(A) BankTEXAS shall be solely responsible for the input, transmission
or delivery of all information and data required by First Services,
L.P. to perform the services except where BankTEXAS has retained First
Services, L.P. to handle such responsibilities on its behalf. The
data shall be provided in a format and manner approved by First
Services, L.P. BankTEXAS will provide at its own expense or procure
from First Services, L.P. all equipment, computer software,
communication lines and interface devices required to access the First
Services, L.P. System. If BankTEXAS has elected to provide such items
itself, First Services, L.P. shall provide BankTEXAS with a list of
compatible equipment and software.
(B) BankTEXAS shall designate appropriate BankTEXAS personnel for training
in the use of the First Services, L.P. System, shall allow First
Services, L.P. access to BankTEXAS's site during normal business
hours for conversion and shall cooperate with First Services, L.P.
personnel in the conversion and implementation of the services.
(C) BankTEXAS shall comply with any operating instructions on the use of
the First Services, L.P. system provided by First Services, L.P.,
shall review all reports furnished by First Services, L.P. for
accuracy and shall work with First Services, L.P. to reconcile
any out of balance conditions. BankTEXAS shall determine and be
responsible for the authenticity and accuracy of all information
and data submitted to First Services, L.P.
(D) BankTEXAS shall furnish, or if First Services, L.P. agrees to so
furnish, reimburse First Services, L.P. for courier services
applicable to the services requested.
<PAGE> 31
VII. GENERAL ADMINISTRATION
First Services, L.P. is continually reviewing and modifying the First
Services, L.P. system to improve service and to comply with federal
government regulations applicable to the data utilized in providing
services to BankTEXAS. First Services, L.P. reserves the right to make
changes in the service, including, but not limited to operating procedures,
security procedures, the type of equipment resident at and the location of
First Services, L.P.'s data center. First Services, L.P. will provide
BankTEXAS at least sixty (60) days prior written notice of changes in
procedures or reporting and at least six (6) months prior written notice of
changes in service costs.
VIII. CLIENT CONFIDENTIAL INFORMATION
(A) First Services, L.P. shall treat all information and data relating
to BankTEXAS business provided to First Services, L.P. by
BankTEXAS, or information relating to BankTEXAS's customers, as
confidential and shall safeguard BankTEXAS's information with the same
degree of care used to protect First Services, L.P.'s confidential
information. First Services, L.P. and BankTEXAS agree that master and
transaction data files are owned by and constitute property of
BankTEXAS. BankTEXAS's data and records shall be subject to
regulation and examination by State and Federal supervisory agencies
to the same extent as if such information were on BankTEXAS's premises.
First Services, L.P.'s obligations under this Section VIII shall survive
the termination or expiration of this Agreement.
(B) First Services, L.P. shall maintain adequate backup procedures
including storage of duplicate record files as necessary to reproduce
BankTEXAS's records and data. In the event of a service disruption due
to reasons beyond First Services, L.P.'s control, First Services,
L.P. shall use diligent efforts to mitigate the effects of such
an occurrence.
IX. FIRST SERVICES, L.P. CONFIDENTIAL INFORMATION
(A) BankTEXAS shall not use or disclose to any third persons any
confidential information concerning First Services, L.P. First
Services, L.P. confidential information is that which relates to First
Services, L.P.'s software, research, development, trade secrets or
business affairs including, but not limited to, the terms and
conditions of this Agreement but does not include information in the
public domain through no fault of BankTEXAS. BankTEXAS's obligations
under this Section IX shall survive the termination or expiration of
this Agreement.
(B) First Services, L.P.'s system contains information and computer
software which is proprietary and confidential information of First
Services, L.P., its suppliers and licensees. BankTEXAS agrees not to
attempt to circumvent the devices employed by First Services, L.P. to
prevent unauthorized access to the First Services, L.P.'s System.
<PAGE> 32
X. WARRANTIES
First Services, L.P. will accurately process BankTEXAS's work provided
that BankTEXAS supplies accurate data and follows the procedures
described in First Services, L.P.'s User Manuals, notices and advises.
First Services, L.P. personnel will exercise due care in the processing
of BankTEXAS's work. In the event of an error caused by First Services,
L.P.'s personnel, programs or equipment, First Services, L.P. shall
correct the data and/or reprocess the affected report at no additional
cost to BankTEXAS.
XI. LIMITATION OF LIABILITY
IN NO EVENT SHALL FIRST SERVICES, L.P. BE LIABLE FOR LOSS OF GOODWILL,
OR FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING
FROM BANKTEXAS'S USE OF FIRST SERVICES L.P.'S SERVICES, OR FIRST
SERVICES, L.P.'S SUPPLY OF EQUIPMENT OR SOFTWARE, UNDER THIS AGREEMENT
REGARDLESS OF WHETHER SUCH CLAIM ARISES IN TORT OR IN CONTRACT. FIRST
SERVICES, L.P.'S AGGREGATE LIABILITY FOR ANY AND ALL CAUSES OF ACTION
RELATING TO SERVICES PERFORMED HEREUNDER OR ANY DAMAGE OR LOSS INCURRED
OR SUSTAINED BY BANKTEXAS RELATING TO THIS AGREEMENT AND THE SERVICES
PERFORMED HEREUNDER SHALL BE LIMITED TO THE AMOUNT OF TOTAL FEES PAID
BY BANKTEXAS TO FIRST SERVICES, L.P. IN THE THREE (3) MONTH PERIOD
PRECEDING THE DATE THE CLAIM ACCRUED. FIRST SERVICES, L.P.'S AGGREGATE
LIABILITY FOR A DEFAULT RELATING TO EQUIPMENT OR SOFTWARE SHALL BE
LIMITED TO THE AMOUNT PAID FOR THE EQUIPMENT OR SOFTWARE.
XII. PERFORMANCE STANDARDS
(A) On-Line Availability - First Services, L.P.'s standard of performance
shall be on-line availability of the system 98% of the time that it is
scheduled to be so available over a three month period (the
"Measurement Period"). Actual on-line performance will be calculated
monthly by comparing the number of hours which the system was
scheduled to be operational on an on-line basis with the number of
hours, or a portion thereof, it was actually operational on an on-line
basis. Downtime may be caused by operator error, hardware malfunction
or failure, or environmental failures such as loss of power or air
conditioning. Downtime caused by reasons beyond First Services, L.P.'s
control should not be considered in the statistics.
(B) Report Availability - First Services, L.P.'s standard of performance
for report availability shall be that, over a three (3) month period,
ninety-five percent (95%) of all Critical Daily Reports shall be
available for remote printing on time without significant errors. A
Critical Daily Report shall mean priority group reports which First
Services, L.P. and BankTEXAS have mutually agreed in writing are
necessary to properly account for the previous day's activity and
properly notify BankTEXAS of overdraft, NSF or return items. A
significant error is one which impairs BankTEXAS's ability to properly
account for the previous days activity and/or properly account for
overdraft, NSF or return items. Actual performance will be calculated
monthly by comparing the total number of BankTEXAS reports scheduled
to be available from First Services, L.P. to the number of reports
which were available on time and without error.
<PAGE> 33
(C) Exclusive Remedy - In the event that First Services, L.P.'s
performance fails to meet the standards listed above and such failure
is not the result of BankTEXAS's error or omission, BankTEXAS's sole
and exclusive remedy for such default shall be the right to terminate
this Agreement in accordance with the provisions of this paragraph. In
the event that First Services, L.P. fails to achieve any Performance
Standards, alone or in combination, for the prescribed measurement
period, BankTEXAS shall notify First Services, L.P. of its intent to
terminate this agreement if First Services, L.P. fails to restore
performance to the committed levels. First Services, L.P. shall advise
BankTEXAS promptly upon correction of the system deficiencies (in no
event shall corrective action exceed sixty (60) days from the notice
date) and shall begin an additional measurement period. Should First
Services, L.P. fail to achieve the required Performance Standards
during the remeasurement period, BankTEXAS may terminate this
Agreement and First Services, L.P. shall cooperate with BankTEXAS to
achieve an orderly transition to BankTEXAS's replacement processing
system. BankTEXAS may also terminate this Agreement if First Services,
L.P.'s performance for the same standard is below the relevant
performance standard for more than two (2) measurement periods in any
consecutive twelve (12) months or for more than five (5) measurement
periods during the term of this agreement. During the period of
transition, BankTEXAS shall pay only such charges as are incurred for
monthly fees until the date of deconversion. First Services, L.P.
shall not charge BankTEXAS for services relating to BankTEXAS's
deconversion.
(D) Audit - BankTEXAS shall have the right to perform reasonable audits,
at its cost, upon giving written notice to First Services, L.P. of its
intent to do so. First Services, L.P. shall provide, upon request,
financial information to BankTEXAS.
XIII. DISASTER RECOVERY
(A) A Disaster shall mean any unplanned interruption of the operations of
or inaccessibility to the First Services, L.P. data center which
appears in First Services, L.P.'s reasonable judgement to require
relocation of processing to an alternative site. First Services, L.P.
shall notify BankTEXAS as soon as possible after it deems a service
outage to be a Disaster. First Services, L.P. shall move the
processing of BankTEXAS's standard on-line services to an alternative
processing center as expeditiously as possible. BankTEXAS shall
maintain adequate records of all transactions during the period of
service interruption and shall have personnel available to assist
First Services L.P., Inc. in implementing the switch over to the
alternative processing site. During a disaster, optional or on-request
services shall be provided by First Services, L.P. only to the extent
that there is adequate capacity at the alternate center and only after
stabilizing the provision of base on-line services.
(B) First Services, L.P. shall work with BankTEXAS to establish a plan for
alternative data communications in the event of a disaster. BankTEXAS
shall be responsible for furnishing any additional communications
equipment and data lines required under the adopted plan.
(C) First Services, L.P. shall test its Disaster Recovery Services Plan by
conducting one annual test. BankTEXAS agrees to participate in and
assist First Services, L.P. with such testing. Test results will be
made available to BankTEXAS's regulators, internal and external
auditors, and (upon request) to BankTEXAS's insurance underwriters.
(D) BankTEXAS understands and agrees that the First Services, L.P.
Disaster Recovery Plan is designed to minimize but not eliminate risks
associated with a disaster affecting First Services, L.P.'s data
center. First Services, L.P. does not warrant that service will be
uninterrupted or error free in the event of a disaster. BankTEXAS
maintains responsibility for adopting a disaster recovery plan
relating to disasters affecting BankTEXAS's facilities and for
securing business interruption insurance or other insurance as
necessary to properly protect BankTEXAS's revenues in the event of a
disaster.
<PAGE> 34
XIV. DEFAULT
(A) In the event that BankTEXAS is thirty (30) days in arrears in making
any payment required, or in the event of any other material default by
either First Services, L.P. or BankTEXAS in the performance of their
obligations, the affected party shall have the right to give written
notice to the other of the default and its intent to terminate this
Agreement stating with reasonable particularity the nature of the
claimed default. This Agreement shall terminate if the default has not
been cured within a reasonable time with a minimum being thirty (30)
days from the effective date of the notice.
(B) Upon the expiration of this Agreement, or its termination, First
Services, L.P. shall furnish to BankTEXAS such copies of BankTEXAS's
data files as BankTEXAS may request in machine readable format form
along with such other information and assistance as or is reasonable
and customary to enable BankTEXAS to deconvert from the First
Services, L.P. system. BankTEXAS shall reimburse First Services, L.P.
for the production of data records and other services at First
Services, L.P.'s current fees for such services.
XV. INSURANCE
First Services, L.P. carries Comprehensive General Liability insurance
with primary limits of two million dollars, Commercial Crime insurance
covering Employee Dishonesty in the amount of fifteen million dollars,
all-risk replacement cost coverage on all equipment used at First
Services, L.P.'s data center and Workers Compensation coverage on First
Services, L.P. employees wherever located in the United States.
BankTEXAS shall carry adequate insurance to cover liability for source
documents while in transit and in case of data loss through errors and
omissions.
XVI. GENERAL
(A) This Agreement is binding upon the parties and their respective
successors and permitted assigns. Neither party may assign this
Agreement in whole or in part without the consent of BankTEXAS and/or
First Services, L.P., provided, however, that First Services, L.P. may
subcontract any or all of the services to be performed under this
Agreement without the written consent of BankTEXAS. Any such
subcontractors shall be required to comply with all of the applicable
terms and conditions of this Agreement.
(B) The parties agree that, in connection with the performance of their
obligations hereunder, they will comply with all applicable Federal,
State, and local laws including the laws and regulations regarding
Equal Employment Opportunities.
(C) First Services, L.P. agrees that the Office of Thrift Supervision,
FDIC, or other authority will have the authority and responsibility
provided to the other regulatory agencies pursuant to the Bank Service
Corporation Act, 12 U.S.C. 1867 (C) relating to service performed by
contract or otherwise. First Services, L.P., also agrees that its
services shall be subject to oversight by the O.C.C., FDIC or state
banking departments as may be applicable under laws and regulations
pertaining to BankTEXASs's charter and shall, if applicable, provide
the O.T.S. DistrictDirector of the district in which the data
processing center is located and other state and federal agencies with
a copy of First Services, L.P.'s current audit and financial
statements and a copy of any current third party review report when a
review has been performed.
<PAGE> 35
(D) Neither party shall be liable for any errors, delays or
non-performance due to events beyond its reasonable control including,
but not limited to, acts of God, failure or delay of power or
communications, changes in law or regulation or other acts of
governmental authority, strike, weather conditions or transpor-
tation.
(E) All written notices required to be given under this Agreement shall be
sent by Registered or Certified Mail, Return Receipt Requested,
postage prepaid, or by confirmed facsimile to the persons and at the
addresses listed below or to such other address or person as a party
shall have designated in writing.
First Services, L.P. BankTEXAS
#l First Missouri Center 8820 Westheimer
St. Louis, Missouri 63l4l Houston, Texas 77063
(F) The failure of either party to exercise in any respect any right
provided for herein shall not be deemed a waiver of any rights.
(G) Each party acknowledges that is has read this Agreement, understands
it, and agrees that it is the complete and exclusive statement of the
Agreement between the parties and supersedes and merges any prior or
simultaneous proposals, understandings and all other agreements with
respect to the subject matter. This Agreement may not be modified or
altered except by a written instrument duly executed by both parties.
(H) No waiver of any of the terms of this Agreement shall be effective
unless in writing and signed by the duly authorized representative of
the party charged therewith. No waiver of any provision hereof shall
extend to or affect any obligation not expressly waived, impair any
rights consequent on such obligation or imply a subsequent waiver of
that or any other provision.
(I) This Agreement shall be governed by, construed and interpreted in
accordance with the laws of the State of Missouri.
IN WITNESS WHEREOF, the parties have executed this Agreement the date
first above written.
BankTEXAS First Services, L.P.
8820 Westheimer One First Missouri Center
Houston, Texas 77063 St. Louis, Missouri 63141
BY:/s/ David W. Weaver BY:/s/ Thomas A. Bangert
---------------------- ------------------------
David Weaver Thomas A. Bangert
President President
<PAGE> 36
<TABLE>
<CAPTION>
Attachment 1
BankTEXAS - Product And Price Schedule
Effective 4/1/97
DATA PROCESSING
Accounts
<S> <C> <C> <C>
DDA per account $0.50
Savings per account $0.50
Time per account $0.50
Loans per account $0.50
Transactions each $0.01
Terminal Management each $5.00
Branch Data Connection each $500.00
ATM Management each $200.00
Telephone Switch Mgmt each $750.00
Other Services per application $100.00
ITEM PROCESSING
Proof each $0.020
POD And EFT each $0.009
Inclearing and Transmission each $0.009
DDA per account $0.250
Savings per account $0.050
Time per account $0.020
Loan $0.100
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
DEPOSIT SERVICES
Customer Accounts per account $0.30
Included in Above:
<S> <C> <C>
Charge Backs CIF Management
Returns Exception Item Processing
Stops Signature Verification
Wire Transfers Corporate Analysis
ACH Incoming Cash Management Support
ACH Origination FirstLink
Official Checks Control Disbursement
Money Orders Balance Reporting
Savings Bonds Research
Funds Transfer Adjustments
B Notices 1099s "Due From" Reconciliation
Kiting "Due To" Reconciliation
Holds FRB Reconciliation's
Dormant Accounts Application Balancing
ATM Settlement Records Management
Debit Card Settlement Savings Bonds
OTHER SERVICES
Collection System (Cyber Resources) Cash Management System (FirstLink)
Recovery System (Cyber Resources) Commercial Analysis
Asset/Liability (Bankware) Charge Back System
Optical System (RVI) Teller Platform (ISC)
MCIF (OKRA) ATM Support
Loan Documentation (FTI/CFI) General Ledger
Bank Audit Fixed Asset Interface
Accounts Payable Interface Interactive Voice
Remote Laser Printing Card Management System
ACH Origination Wire Transfer (Fundtec)
Organization Profitability (IPS) NOW Reclassification
Loan Tracking (Baker Hill) Retrofit/New Releases
Credit Scoring (Fair Issac)
</TABLE>
<PAGE> 38
EXHIBIT 10(s)
SERVICE AGREEMENT
This Service Agreement is made and entered into as of the 1st day of
April, 1997, by and between First Services, L.P., a Missouri Limited Partnership
and Sunrise Bank, a banking institution duly organized and existing by virtue of
the laws of the State of California.
WHEREAS, SUNRISE BANK and FIRSTSERV, Inc. entered into a Service
Agreement dated November 21, 1996;
WHEREAS, said Service Agreement was assigned to First Services, L.P.
on or about April 1, 1997; and
WHEREAS, FIRST SERVICES, L.P. and SUNRISE BANK desire to amend and
restate said Service Agreement in its entirety.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein, and the sum of Ten Dollars ($l0.00) in hand paid,
each to the other, the receipt and sufficiency of which is hereby acknowledged,
the parties agree as follows:
I. TERMINATION AND REVOCATION
The Parties hereto hereby revoke, cancel and hold for naught the
Service Agreement dated November 21, 1996, and hereby substitute in its place
the Service Agreement herein contained.
II. SERVICES
(A) First Services, L.P. shall furnish Sunrise Bank data processing and
item processing services selected by Sunrise Bank from the Product and
Price Schedule as per Attachment 1, attached hereto and incorporated
herein by reference thereto. Additional services may be selected upon
prior written notice to First Services, L.P. at First Services, L.P.'s
then current list price by executing an amended Summary Page.
(B) First Services, L.P. will provide conversion and training services for
the fees specified from the Product and Price Schedule (Attachment 1).
Classroom training in the use and operation of the system for the
number of Sunrise Bank personnel mutually agreed upon in the
conversion planning process will be provided at a training facility
mutually agreed upon. Conversion services are those activities
designed to transfer the processing of Sunrise Bank's data from its
present processing company to First Services, L.P.
(C) First Services, L.P. will also provide Network Support Service
consisting of communication line monitoring and diagnostic equipment
and support personnel to discover, diagnose, repair or report line
problems to the appropriate telephone company. The fee for this
service is also listed from the Product and Price Schedule (Attachment
1).
<PAGE> 39
(D) First Services, L.P. shall upon request act as Sunrise Bank's
designated representative to arrange for the purchase, and
installation of data lines necessary to access the First Services,
L.P. system. Where requested, additional dial-up lines and equipment
to be utilized as a backup to the regular data lines may also be
ordered. First Services, L.P. shall bill Sunrise Bank for the actual
charges incurred for the data lines and for the maintenance of the
modems and other interface devices.
(E) Processing priorities will be determined by mutual agreement of the
parties hereto.
III. TERM
The term of this Agreement shall be twelve (12) months commencing on
April 1, 1997. Upon expiration, the Agreement will automatically renew
for successive terms of twelve (12) months each unless either party
shall have provided written notice to the other at least one-hundred
eighty (180) days prior to the expiration of the then current term, of
its intent not to renew. In the event of termination, First Services,
L.P. shall provide reasonable time allowance to allow Sunrise Bank to
convert to another system.
IV. SOFTWARE/FIRMWARE
Unmodified third party software or firmware ("Software") may be
supplied as part of the Agreement. All such Software shall be provided
subject to Software License Agreements.
V. PRICE AND PAYMENT
(A) Fees for First Services, L.P.'s services are set forth from the
Product and Price Schedule (Attachment 1), including where applicable
minimum monthly charges and payment schedules for onetime fees.
(B) Standard Fees shall be invoiced no later than the fifteenth (15th) of
each month for the then current month. Terms of payment shall be net
cash.
<PAGE> 40
(C) The Base Service Charge listed from the Product and Price Schedule
(Attachment 1) shall not change more than once a year and then only
upon six (6) months' prior written notice. The fee schedule shall be
reviewed annually to ensure fair market value in pricing. Comparisons
will be made with peers and other providers of similar services.
(D) This above limitation shall not apply to pass-thru expenses. A
pass-thru expense is a charge for goods or services by First Services,
L.P. on Sunrise Bank's behalf which are to be billed to Sunrise Bank
without mark-up.
(E) The fees listed from the Product and Price Schedule (Attachment 1) do
not include and Sunrise Bank is responsible for furnishing
transportation or transmission of information between First Services,
L.P.'s data center, Sunrise Bank's site and any applicable clearing
house, regulatory agency or Federal Reserve Bank. Where Sunrise Bank
has elected to have First Services, L.P. provide Telecommunication
Services, the price for the Services will be provided and billed as a
pass-thru expense.
(F) Network Support Service Fees and Local Network Fees are based upon
services rendered from First Services, L.P.'s premises. Off-premise
support will be provided upon Sunrise Bank's request on an as
available basis at First Services, L.P. then current charges for time
and materials, plus reasonable travel and living expenses.
<PAGE> 41
VI. CLIENT OBLIGATIONS
(A) Sunrise Bank shall be solely responsible for the input, transmission
or delivery of all information and data required by First Services,
L.P. to perform the services except where Sunrise Bank has retained
First Services, L.P. to handle such responsibilities on its behalf.
The data shall be provided in a format and manner approved by First
Services, L.P. Sunrise Bank will provide at its own expense or procure
from First Services, L.P. all equipment, computer software,
communication lines and interface devices required to access the First
Services, L.P. System. If Sunrise Bank has elected to provide such
items itself, First Services, L.P. shall provide Sunrise Bank with a
list of compatible equipment and software.
(B) Sunrise Bank shall designate appropriate Sunrise Bank personnel for
training in the use of the First Services, L.P. System, shall allow
First Services, L.P. access to Sunrise Bank's site during normal
business hours for conversion and shall cooperate with First Services,
L.P. personnel in the conversion and implementation of the services.
(C) Sunrise Bank shall comply with any operating instructions on the use
of the First Services, L.P. system provided by First Services, L.P.,
shall review all reports furnished by First Services, L.P. for
accuracy and shall work with First Services, L.P. to reconcile any out
of balance conditions. Sunrise Bank shall determine and be responsible
for the authenticity and accuracy of all information and data
submitted to First Services, L.P.
(D) Sunrise Bank shall furnish, or if First Services, L.P. agrees to so
furnish, reimburse First Services, L.P. for courier services
applicable to the services requested.
VII. GENERAL ADMINISTRATION
First Services, L.P. is continually reviewing and modifying
the First Services, L.P. system to improve service and to comply with
federal government regulations applicable to the data utilized in
providing services to Sunrise Bank. First Services, L.P. reserves the
right to make changes in the service, including, but not limited to
operating procedures, security procedures, the type of equipment
resident at and the location of First Services, L.P.'s data center.
First Services, L.P. will provide Sunrise Bank at least sixty (60) days
prior written notice of changes in procedures or reporting and at least
six (6) months prior written notice of changes in service costs.
VIII. CLIENT CONFIDENTIAL INFORMATION
(A) First Services, L.P. shall treat all information and data relating to
Sunrise Bank business provided to First Services, L.P. by Sunrise
Bank, or information relating to Sunrise Bank's customers, as
confidential and shall safeguard Sunrise Bank's information with the
same degree of care used to protect First Services, L.P.'s
confidential information. First Services, L.P. and Sunrise Bank agree
that master and transaction data files are owned by and constitute
property of Sunrise Bank. Sunrise Bank data and records shall be
subject to regulation and examination by State and Federal supervisory
agencies to the same extent as if such information were on Sunrise
Bank's premises. First Services, L.P.'s obligations under this Section
VIII shall survive the termination or expiration of this Agreement.
(B) First Services, L.P. shall maintain adequate backup procedures
including storage of duplicate record files as necessary to reproduce
Sunrise Bank's records and data. In the event of a service disruption
due to reasons beyond First Services, L.P.'s control, First Services,
L.P. shall use diligent efforts to mitigate the effects of such an
occurrence.
IX. FIRST SERVICES, L.P. CONFIDENTIAL INFORMATION
(A) Sunrise Bank shall not use or disclose to any third persons any
confidential information concerning First Services, L.P. First
Services, L.P. confidential information is that which relates to First
Services, L.P.'s software, research, development, trade secrets or
business affairs including, but not limited to, the terms and
conditions of this Agreement but does not include information in the
public domain through no fault of Sunrise Bank. Sunrise Bank
obligations under this Section IX shall survive the termination or
expiration of this Agreement.
(B) First Services, L.P.'s system contains information and computer
software which is proprietary and confidential information of First
Services, L.P., its suppliers and licensees. Sunrise Bank agrees not
to attempt to circumvent the devices employed by First Services, L.P.
to prevent unauthorized access to the First Services, L.P.'s System.
X. WARRANTIES
First Services, L.P. will accurately process Sunrise Bank's work
provided that Sunrise Bank supplies accurate data and follows the
procedures described in First Services, L.P.'s User Manuals, notices
and L.P.'S AGGREGATE LIABILITY FOR A DEFAULT RELATING TO EQUIPMENT OR
SOFTWARE SHALL BE LIMITED TO THE AMOUNT PAID FOR THE EQUIPMENT OR
SOFTWARE. advises. First Services, L.P. personnel will exercise due
care in the processing of Sunrise Bank's work. In the event of an error
caused by First Services, L.P.'s personnel, programs or equipment,
First Services, L.P. shall correct the data and/or reprocess the
affected report at no additional cost to Sunrise Bank.
XI. LIMITATION OF LIABILITY
IN NO EVENT SHALL FIRST SERVICES, L.P. BE LIABLE FOR LOSS OF GOODWILL,
OR FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING
FROM SUNRISE BANK'S USE OF FIRST SERVICES L.P.'S SERVICES, OR FIRST
SERVICES, L.P.'S SUPPLY OF EQUIPMENT OR SOFTWARE, UNDER THIS AGREEMENT
REGARDLESS OF WHETHER SUCH CLAIM ARISES IN TORT OR IN CONTRACT. FIRST
SERVICES, L.P.'S AGGREGATE LIABILITY FOR ANY AND ALL CAUSES OF ACTION
RELATING TO SERVICES PERFORMED HEREUNDER OR ANY DAMAGE OR LOSS INCURRED
OR SUSTAINED BY SUNRISE BANK RELATING TO THIS AGREEMENT AND THE
SERVICES PERFORMED HEREUNDER SHALL BE LIMITED TO THE AMOUNT OF TOTAL
FEES PAID BY SUNRISE BANK TO FIRST SERVICES, L.P. IN THE THREE (3)
MONTH PERIOD PRECEDING THE DATE THE CLAIM ACCRUED. FIRST SERVICES,
<PAGE> 42
XII. PERFORMANCE STANDARDS
(A) On-Line Availability - First Services, L.P.'s standard of performance
shall be on-line availability of the system 98% of the time that it is
scheduled to be so available over a three month period (the
"Measurement Period"). Actual on-line performance will be calculated
monthly by comparing the number of hours which the system was
scheduled to be operational on an on-line basis with the number of
hours, or a portion thereof, it was actually operational on an on-line
basis. Downtime may be caused by operator error, hardware malfunction
or failure, or environmental failures such as loss of power or air
conditioning. Downtime caused by reasons beyond First Services, L.P.'s
control should not be considered in the statistics.
(B) Report Availability - First Services, L.P.'s standard of performance
for report availability shall be that, over a three (3) month period,
ninety-five percent (95%) of all Critical Daily Reports shall be
available for remote printing on time without significant errors. A
Critical Daily Report shall mean priority group reports which First
Services, L.P. and Sunrise Bank have mutually agreed in writing are
necessary to properly account for the previous day's activity and
properly notify Sunrise Bank of overdraft, NSF or return items. A
significant error is one which impairs Sunrise Bank's ability to
properly account for the previous days activity and/or properly
account for overdraft, NSF or return items. Actual performance will be
calculated monthly by comparing the total number of Sunrise Bank
reports scheduled to be available from First Services, L.P. to the
number of reports which were available on time and without error.
<PAGE> 43
(C) Exclusive Remedy - In the event that First Services, L.P.'s
performance fails to meet the standards listed above and such failure
is not the result of Sunrise Bank's error or omission, Sunrise Bank's
sole and exclusive remedy for such default shall be the right to
terminate this Agreement in accordance with the provisions of this
paragraph. In the event that First Services, L.P. fails to achieve any
Performance Standards, alone or in combination, for the prescribed
measurement period, Sunrise Bank shall notify First Services, L.P. of
its intent to terminate this agreement if First Services, L.P. fails
to restore performance to the committed levels. First Services, L.P.
shall advise Sunrise Bank promptly upon correction of the system
deficiencies (in no event shall corrective action exceed sixty (60)
days from the notice date) and shall begin an additional measurement
period. Should First Services, L.P. fail to achieve the required
Performance Standards during the remeasurement period, Sunrise Bank
may terminate this Agreement and First Services, L.P. shall cooperate
with Sunrise Bank to achieve an orderly transition to Sunrise Bank's
replacement processing system. Sunrise Bank may also terminate this
Agreement if First Services, L.P.'s performance for the same standard
is below the relevant performance standard for more than two (2)
measurement periods in any consecutive twelve (12) months or for more
than five (5) measurement periods during the term of this agreement.
During the period of transition, Sunrise Bank shall pay only such
charges as are incurred for monthly fees until the date of
deconversion. First Services, L.P. shall not charge Sunrise Bank for
services relating to Sunrise Bank's deconversion.
(D) Audit - Sunrise Bank shall have the right to perform reasonable
audits, at its cost, upon giving written notice to First Services,
L.P. of its intent to do so. First Services, L.P. shall provide, upon
request, financial information to Sunrise Bank.
XIII. DISASTER RECOVERY
(A) A Disaster shall mean any unplanned interruption of the operations of
or inaccessibility to the First Services, L.P. data center which
appears in First Services, L.P.'s reasonable judgement to require
relocation of processing to an alternative site. First Services, L.P.
shall notify Sunrise Bank as soon as possible after it deems a service
outage to be a Disaster. First Services, L.P. shall move the
processing of Sunrise Bank's standard on-line services to an
alternative processing center as expeditiously as possible. Sunrise
Bank shall maintain adequate records of all transactions during the
period of service interruption and shall have personnel available to
assist First Services L.P., Inc. in implementing the switch over to
the alternative processing site. During a disaster, optional or
on-request services shall be provided by First Services, L.P. only to
the extent that there is adequate capacity at the alternate center and
only after stabilizing the provision of base on-line services.
(B) First Services, L.P. shall work with Sunrise Bank to establish a plan
for alternative data communications in the event of a disaster.
Sunrise Bank shall be responsible for furnishing any additional
communications equipment and data lines required under the adopted
plan.
(C) First Services L.P., shall test its Disaster Recovery Services Plan by
conducting one annual test. Sunrise Bank agrees to participate in and
assist First Services, L.P. with such testing. Test results will be
made available to Sunrise Bank's regulators, internal and external
auditors, and (upon request) to Sunrise Bank's insurance underwriters.
<PAGE> 44
(D) Sunrise Bank understands and agrees that the First Services, L.P.
Disaster Recovery Plan is designed to minimize but not eliminate risks
associated with a disaster affecting First Services, L.P.'s data
center. First Services, L.P. does not warrant that service will be
uninterrupted or error free in the event of a disaster. Sunrise Bank
maintains responsibility for adopting a disaster recovery plan
relating to disasters affecting Sunrise Bank's facilities and for
securing business interruption insurance or other insurance as
necessary to properly protect Sunrise Bank's revenues in the event of
a disaster.
XIV. DEFAULT
(A) In the event that Sunrise Bank is thirty (30) days in arrears in
making any payment required, or in the event of any other material
default by either First Services, L.P. or Sunrise Bank in the
performance of their obligations, the affected party shall have the
right to give written notice to the other of the default and its
intent to terminate this Agreement stating with reasonable
particularity the nature of the claimed default. This Agreement shall
terminate if the default has not been cured within a reasonable time
with a minimum being thirty (30) days from the effective date of the
notice.
(B) Upon the expiration of this Agreement, or its termination, First
Services, L.P. shall furnish to Sunrise Bank such copies of Sunrise
Bank's data files as Sunrise Bank may request in machine readable
format form along with such other information and assistance as or is
reasonable and customary to enable Sunrise Bank to deconvert from the
First Services, L.P. system. Sunrise Bank shall reimburse First
Services, L.P. for the production of data records and other services
at First Services, L.P.'s current fees for such services.
XV. INSURANCE
First Services, L.P. carries Comprehensive General Liability insurance
with primary limits of two million dollars, Commercial Crime insurance
covering Employee Dishonesty in the amount of fifteen million dollars,
all-risk replacement cost coverage on all equipment used at First
Services, L.P.'s data center and Workers Compensation coverage on First
Services, L.P. employees wherever located in the United States. Sunrise
Bank shall carry adequate insurance to cover liability for source
documents while in transit and in case of data loss through errors and
omissions.
<PAGE> 45
XVI. GENERAL
(A) This Agreement is binding upon the parties and their respective
successors and permitted assigns. Neither party may assign this
Agreement in whole or in part without the consent of Sunrise Bank
and/or First Services, L.P., provided, however, that First Services,
L.P. may subcontract any or all of the services to be performed under
this Agreement without the written consent of Sunrise Bank. Any such
subcontractors shall be required to comply with all of the applicable
terms and conditions of this Agreement.
(B) The parties agree that, in connection with the performance of their
obligations hereunder, they will comply with all applicable Federal,
State, and local laws including the laws and regulations regarding
Equal Employment Opportunities.
(C) First Services, L.P. agrees that the Office of Thrift Supervision,
FDIC, or other authority will have the authority and responsibility
provided to the other regulatory agencies pursuant to the Bank Service
Corporation Act, 12 U.S.C. 1867 (C) relating to service performed by
contract or otherwise. First Services, L.P., also agrees that its
services shall be subject to oversight by the O.C.C., FDIC or state
banking departments as may be applicable under laws and regulations
pertaining to Sunrise Bank's charter and shall, if applicable, provide
the O.T.S. DistrictDirector of the district in which the data
processing center is located and other state and federal agencies with
a copy of First Services, L.P.'s current audit and financial
statements and a copy of any current third party review report when a
review has been performed.
<PAGE> 46
(D) Neither party shall be liable for any errors, delays or
non-performance due to events beyond its reasonable control including,
but not limited to, acts of God, failure or delay of power or
communications, changes in law or regulation or other acts of
governmental authority, strike, weather conditions or transpor-
tation.
(E) All written notices required to be given under this Agreement shall be
sent by Registered or Certified Mail, Return Receipt Requested,
postage prepaid, or by confirmed facsimile to the persons and at the
addresses listed below or to such other address or person as a party
shall have designated in writing.
First Services, L.P. Sunrise Bank
#l First Missouri Center Five Sierragate Plaza
St. Louis, Missouri 63l4l Roseveille, California 95678
(F) The failure of either party to exercise in any respect any right
provided for herein shall not be deemed a waiver of any rights.
(G) Each party acknowledges that is has read this Agreement, understands
it, and agrees that it is the complete and exclusive statement of the
Agreement between the parties and supersedes and merges any prior or
simultaneous proposals, understandings and all other agreements with
respect to the subject matter. This Agreement may not be modified or
altered except by a written instrument duly executed by both parties.
(H) No waiver of any of the terms of this Agreement shall be effective
unless in writing and signed by the duly authorized representative of
the party charged therewith. No waiver of any provision hereof shall
extend to or affect any obligation not expressly waived, impair any
rights consequent on such obligation or imply a subsequent waiver of
that or any other provision.
(I) This Agreement shall be governed by, construed and interpreted in
accordance with the laws of the State of Missouri.
<PAGE> 47
IN WITNESS WHEREOF, the parties have executed this Agreement the date
first above written.
Sunrise Bank First Services, L.P.
Five Sierragate Plaza One First Missouri Center
Roseville, California 95678 St. Louis, Missouri 63141
BY:/s/ Donald W. Williams BY:/s/ Thomas A. Bangert
- - ------------------------- ------------------------
Donald W. Williams Thomas A. Bangert
Chairman President
<PAGE> 48
Attachment 1
Sunrise Bank - Product And Price Schedule
Effective 4/1/97
<TABLE>
<CAPTION>
DATA PROCESSING
Accounts
<S> <C> <C> <C>
DDA 10,000 $0.50
Savings 10,000 $0.50
Time 10,000 $0.50
Loans 10,000 $0.50
Transactions 250,000 $0.01
Terminal Management 25 $5.00
Branch Data Connection Included
ATM Management Included
Telephone Switch Mgmt Included
Other Services Included
ITEM PROCESSING
Proof 200,000 $0.020
POD And EFT 200,000 $0.009
Inclearing and Transmission 50,000 $0.009
Statements:
DDA $0.250
Savings $0.050
Time $0.100
Loan $0.100
Lockbox $0.020
Branch Courier Route $17.00
Mail Services $200.00
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
DEPOSIT SERVICES
Customer Accounts 40,000 $0.30
Included in Above:
<S> <C> <C>
Charge Backs CIF Management
Returns Exception Item Processing
Stops Signature Verification
Wire Transfers Corporate Analysis
ACH Incoming Cash Management Support
ACH Origination FirstLink
Official Checks Control Disbursement
Money Orders Balance Reporting
Savings Bonds Research
Funds Transfer Adjustments
B Notices 1099s "Due From" Reconciliation
Kiting "Due To" Reconciliation
Holds FRB Reconciliation's
Dormant Accounts Application Balancing
ATM Settlement Records Management
Debit Card Settlement Savings Bonds
OTHER SERVICES
Collection System (Cyber Resources) Cash Management System (FirstLink)
Recovery System (Cyber Resources) Commercial Analysis
Asset/Liability (Bankware) Charge Back System
Optical System (RVI) Teller Platform (ISC)
MCIF (OKRA) ATM Support
Loan Documentation (FTI/CFI) General Ledger
Bank Audit Fixed Asset Interface
Accounts Payable Interface Interactive Voice
Remote Laser Printing Card Management System
ACH Origination Wire Transfer (Fundtec)
Organization Profitability (IPS) NOW Reclassification
Loan Tracking (Baker Hill) Retrofit/New Releases
Credit Scoring (Fair Issac)
</TABLE>
<PAGE> 50
EXHIBIT 13
FIRST BANKS AMERICA, INC.
1997 ANNUAL REPORT
<PAGE> 51
FIRST BANKS AMERICA, INC.
TABLE OF CONTENTS
Page
LETTER TO SHAREHOLDERS................................................... 1
SELECTED CONSOLIDATED AND OTHER FINANCIAL DATA........................... 2
MANAGEMENT'S DISCUSSION AND ANALYSIS..................................... 3
QUARTERLY CONDENSED FINANCIAL DATA - UNAUDITED........................... 24
FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS.............................................. 25
CONSOLIDATED STATEMENTS OF OPERATIONS.................................... 27
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY............... 28
CONSOLIDATED STATEMENTS OF CASH FLOWS.................................... 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................... 30
INDEPENDENT AUDITORS' REPORT............................................. 47
DIRECTORS AND SENIOR MANAGEMENT.......................................... 48
INVESTOR INFORMATION..................................................... 49
<PAGE> 52
To Our Shareholders, Customers and Friends:
We are pleased to report our accomplishments and continued progress toward
achieving First Banks America's long term objective of becoming a premier
provider of financial services. Most notable is our progress in improving
earnings, which increased by 103% to $3.18 million for 1997, from $1.57 million
for 1996. Earnings per share, on a diluted basis, increased by 118% to $0.87
from $0.40 for the years ended December 31, 1997 and 1996, respectively.
In my letter to you last year, I stated the development of our banking
franchise may place us in new or noncontigious market areas and serve as a basis
to augment our internal growth. Consistent with this strategy, First Banks
America completed its acquisition of Surety Bank, Vallejo, California on
December 1, 1997 providing total assets of $72.8 million. In addition, on
February 2, 1998, First Banks America completed its acquisitions of First
Commercial Bancorp, Inc., and its wholly owned subsidiary, First Commercial
Bank, Sacramento, California, and Pacific Bay Bank, San Pablo, California,
providing combined assets in excess of $225 million. Together with Sunrise Bank
of California, which was acquired in late 1996, First Banks America has
established a solid presence in the Sacramento - San Francisco corridor with
total assets of $415 million and 11 full service banking locations. Recognizing
the growth potential of this region, First Banks America will aggressively
support the expansion of its commercial and retail business development staff.
Underlying the improvement in earnings is the performance of BankTEXAS, a
wholly owned subsidiary. The earnings momentum reflects management's success in
repositioning the loan portfolio from predominantly indirect automobile loans to
a diversified loan portfolio, now including commercial and financial, real
estate construction and commercial and residential real estate loans. This
lending strategy, which focuses on serving and meeting the needs of local
businesses and consumers, has facilitated the development of our commercial and
retail deposit base, which remains the most stable and cost-effective source of
funds.
First Banks America's strategic objectives are few and clearly stated.
Simply said, we will strive for progressive and profitable growth through the
continued development of our existing franchise, augmented by the acquisition of
other financial institutions.
With First Banks America's consolidated assets approaching $700 million, an
increase in diluted earnings per share of 118% and a presence in several major
market areas, it is not surprising the market value of our stock has improved
dramatically, reaching $23.19 at year end, up 129%, over a year ago.
In closing, I would like to take this opportunity to welcome our new
shareholders, joining us through the acquisitions of Surety Bank and First
Commercial, and to extend our sincerest appreciation for the dedication of our
employees, the loyalty of our customers and the continued support of our
existing shareholders.
Sincerely,
James F. Dierberg
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 53
FIRST BANKS AMERICA, INC.
Selected Consolidated and Other Financial Data
The following table presents selected consolidated financial information
for First Banks America, Inc. and subsidiaries (FBA or the Company) for each of
the years in the five-year period ended December 31, 1997. The comparability of
the selected data presented is affected by the acquisitions of Surety Bank and
Sunrise Bank of California on December 1, 1997 and November 1, 1996,
respectively. These acquisitions were accounted for as purchases and,
accordingly, the selected data includes the financial position and results of
operations of each acquired entity only for the periods subsequent to its date
of acquisition.
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(dollars expressed in thousands, except per share data)
Income statement data:
<S> <C> <C> <C> <C> <C>
Interest income.................................. $ 28,883 21,446 22,427 22,649 21,966
Interest expense................................. 12,834 9,993 11,218 11,072 9,750
-------- -------- ------ ------ --------
Net interest income.............................. 16,049 11,453 11,209 11,577 12,216
Provision for possible loan losses............... 2,000 1,250 5,826 1,258 490
-------- -------- ------ ------ --------
Net interest income after provision for
possible loan losses........................... 14,049 10,203 5,383 10,319 11,726
Noninterest income............................... 2,564 1,848 (126) (4,511) 3,068
Noninterest expense.............................. 11,676 9,480 11,160 16,174 14,575
-------- -------- ------ ------ --------
Income (loss) before provision (benefit) for
income taxes................................... 4,937 2,571 (5,903) (10,366) 219
Provision (benefit) for income tax expense....... 1,758 1,002 (2,083) (9,461) --
-------- -------- ------ ------ --------
Net income (loss)................................ $ 3,179 1,569 (3,820) (905) 219
======== ======== ====== ====== ========
Dividends:
Common stock..................................... $ -- -- -- -- --
Ratio of total dividends declared to net income.. --% --% --% --% --%
Per share data:
Earnings (loss) per share:
Basic.......................................... $ 0.88 0.42 (0.99) (0.41) 0.17
Diluted........................................ 0.87 0.40 (0.99) (0.41) 0.14
Weighted average common stock outstanding
(in thousands).................................. 3,607 3,763 3,870 2,181 1,290
Balance sheet data (at year end):
Investment securities............................ $ 83,791 86,910 39,337 61,400 160,158
Loans, net of unearned discount.................. 313,437 241,874 192,573 203,314 167,732
Total assets..................................... 451,256 375,182 296,583 331,790 368,608
Total deposits................................... 383,942 319,806 249,263 241,570 242,897
Note payable .................................... 14,500 14,000 1,054 1,054 1,054
Stockholders' equity............................. 39,864 33,498 35,258 39,714 14,952
Earnings ratios:
Return on average total assets................... 0.84% 0.52% (1.20)% (0.25)% 0.07%
Return on average stockholders' equity........... 9.17 4.48 (10.10) (3.66) 1.49
Asset quality ratios:
Allowance for possible loan losses to loans...... 2.14 2.54 2.71 1.36 1.57
Nonperforming loans to loans (1)................. 0.77 0.87 0.29 0.14 0.37
Allowance for possible loan losses to
nonperforming loans (1)........................ 278.52 293.41 952.28 940.61 423.95
Nonperforming assets to loans and foreclosed
assets (2)..................................... 0.89 1.19 0.81 0.90 2.22
Net loan charge-offs to average loans............ 0.59 1.44 1.63 0.62 0.52
Capital ratios:
Average stockholders' equity to average
total assets.................................... 9.19 11.62 11.88 6.80 4.40
Total risk-based capital ratio................... 7.89 7.64 11.69 17.50 8.47
Leverage ratio................................... 6.11 5.31 8.38 11.97 4.27
- - ----------------------
(1) Nonperforming loans consist of nonaccrual loans and loans with restructured
terms.
(2) Nonperforming assets consist of nonperforming loans and foreclosed assets.
</TABLE>
<PAGE> 54
The discussion set forth in the Letter to Shareholders and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains certain forward looking statements with respect to the financial
condition, results of operations and business of the Company. These forward
looking statements are subject to certain risks and uncertainties, not all of
which can be predicted or anticipated. Factors that may cause actual results to
differ materially from those contemplated by the forward looking statements
herein include general market conditions as well as conditions specifically
affecting the banking industry generally and factors having a specific impact on
the Company, including but not limited to fluctuations in interest rates and in
the economy; the impact of laws and regulations applicable to the Company and
changes therein; competitive conditions in the markets in which the Company
conducts its operations; and the ability of the Company to respond to changes in
technology. With regard to the Company's efforts to grow through acquisitions,
factors that could affect the accuracy or completeness of forward-looking
statements contained herein include the potential for higher than acceptable
operating costs arising from the geographic dispersion of the offices of FBA, as
compared with competitors operating solely in contiguous markets; the
competition of larger acquirers with greater resources than FBA; fluctuations in
the prices at which acquisition targets may be available for sale and in the
market for the Company's securities; and the potential for difficulty or
unanticipated costs in realizing the benefits of particular acquisition
transactions. Readers of this Annual Report should therefore not place undue
reliance on forward-looking statements.
Company Profile
FBA is a registered bank holding company incorporated in Delaware and
headquartered in St. Louis County, Missouri. At December 31, 1997, FBA had
$451.3 million in total assets, $313.4 million in total loans, net of unearned
discount, $383.9 million in total deposits and $39.9 million in total
stockholders' equity. FBA operates through two wholly owned bank subsidiaries,
BankTEXAS N.A., headquartered in Houston, Texas (BankTEXAS), and First Bank of
California (FB California), headquartered in Roseville, California (Subsidiary
Banks). As discussed under "--Acquisitions," FB California represents a
newly-formed California state bank resulting from the merger of Sunrise Bank of
California, Roseville, California (Sunrise Bank), which was acquired by FBA in
1996, and Surety Bank, Vallejo, California, which was acquired by FBA on
December 1, 1997.
Through the Subsidiary Banks' six banking locations in Houston, Dallas,
Irving and McKinney, Texas, and four banking locations in Roseville, Rancho
Cordova, Vallejo and Fairfield, California, FBA offers a broad range of
commercial and personal banking services, including certificates of deposit,
individual retirement and other time deposit accounts, checking and other demand
deposit accounts, interest checking accounts, savings accounts and money market
accounts. Loans include commercial and industrial, commercial and residential
real estate, real estate construction and development and consumer loans. Other
financial services include automatic teller machines, telephone account access,
cash management services, credit related insurance and safe deposit boxes.
FBA centralizes overall corporate policies, procedural and administrative
functions, and operational support functions for the Subsidiary Banks. Primary
responsibility for managing the Subsidiary Banks remains with its officers and
directors.
The following table lists the Subsidiary Banks at December 31, 1997:
<TABLE>
<CAPTION>
Loans, net of
Number of Total unearned Total
Locations assets discount deposits
--------- ------ -------- --------
(dollars expressed in thousands)
<S> <C> <C> <C> <C>
BankTEXAS.................. 6 $ 267,152 176,341 231,175
FB California.............. 4 179,999 137,096 152,825
</TABLE>
As discussed under "--Acquisitions," at December 31, 1997, FBA had two
pending acquisitions which were consummated in February 1998: First Commercial
Bancorp, Inc. (FCB), and its wholly owned subsidiary, First Commercial Bank
(First Commercial), Sacramento, California, and Pacific Bay Bank, San Pablo,
California. Both First Commercial and Pacific Bay Bank were merged into FB
California in February 1998.
<PAGE> 55
FBA is majority owned by First Banks, Inc., St. Louis, Missouri (First
Banks). As discussed under "--Capital," First Banks owns 100% of the Class B
common stock, which represented 65.9% of the outstanding voting stock of FBA at
December 31, 1997, and accordingly, has effective control over the management
and policies of FBA and the election of its directors.
General
FBA believes for a financial institution to prosper in the current
environment of rapid restructuring and consolidation in the banking industry,
and intense competition both within the industry and from non-banking entities,
FBA must achieve a size sufficient to enable it to take advantage of many of the
efficiencies available to its much larger competitors. Failure to achieve this
growth would place FBA at a competitive disadvantage relative to those larger
competitors with respect to its costs of operation which, over time, will be an
increasingly difficult obstacle to overcome. FBA also believes that internal
growth alone will not be sufficient to advance FBA to the size which is
necessary within an acceptable time frame. Therefore, FBA views a combination of
internal growth and acquisitions as the means which will be necessary to achieve
its growth objectives.
Although FBA originally viewed Texas, particularly the Dallas and Houston
areas, as its primary acquisition area, during 1995 and 1996, prices for
acquisitions escalated sharply in those areas. Acquisitions at the prices
required to successfully consummate these transactions would have caused
substantial diminution in the economic benefits which FBA envisioned would be
available in its acquisition program. This resulted in FBA evaluating California
for acquisition candidates, where acquisition pricing was considerably more
favorable. This led to FBA's identification and acquisition of Sunrise Bank in
November 1996 and Surety Bank in December 1997, as well as the acquisitions of
FCB and Pacific Bay Bank completed in February 1998.
While this acquisition strategy was in process, FBA was also building the
infra-structure necessary to accomplish its objectives for internal growth. This
included significantly expanding the commercial and financial, commercial real
estate and real estate construction business development staff, enhancing the
retail service delivery organization and systems, improving overall asset
quality and changing the composition of the loan portfolio. Prior to 1995, FBA's
lending strategy had been focused on consumer lending, particularly indirect
automobile lending. As of December 31, 1994, consumer loans, net of unearned
discount, constituted 78.5% of FBA's loan portfolio, while commercial and
financial, commercial real estate and real estate construction loans constituted
17.2% of the portfolio. However, in 1995, FBA began experiencing substantial
asset quality problems within the indirect automobile loan portfolio, resulting
in provisions for loan losses of $5.83 million in 1995 and $1.25 million in
1996. Furthermore, indirect automobile lending is an extremely competitive
market in which the interest yields available to lenders are substantially less
than other types of lending and not sufficient to compensate lenders for losses
of that magnitude. Consequently, with the expansion of its business development
staff, FBA began building its portfolio of commercial and real estate
development loans, while allowing its portfolio of indirect automobile loans to
decrease. By December 31, 1997, consumer loans, net of unearned discount, had
decreased to 21.8% of the loan portfolio, while commercial and financial,
commercial real estate and real estate construction loans had increased to 65.6%
of the portfolio.
Although significant expenses were incurred by FBA in the amalgamation of
newly acquired entities into its corporate culture and systems, and in the
expansion of its organizational capabilities, the earnings of the acquired
entities and the improved net interest income resulting from the transition in
the composition of the loan portfolio have contributed to improving net income
during 1997. For the year ended December 31, 1997, net income was $3.18 million,
compared with $1.57 million in 1996 and a net loss of $3.82 million in 1995.
Acquisitions
In enhancing its banking franchise, FBA places emphasis upon acquiring
other financial institutions as a means of accelerating its growth to
significantly expand its presence in a given market, to increase the extent of
its market area or to enter new or noncontiguous market areas. After an
<PAGE> 56
acquisition is consummated, FBA will enhance the franchise of the acquired
entity by supplementing the marketing and business development efforts to
broaden the customer bases, strengthening particular segments of the business or
filling voids in the overall market coverage. In addition, the acquisition
program enables FBA to further leverage the operational support services
available to it through First Banks, and to provide the products and services
typically available only through such a larger organization. In meeting its
growth objectives under the acquisition program, FBA will utilize cash,
borrowings and the issuance of additional common stock.
On November 1, 1996, FBA completed its acquisition of Sunrise Bancorp, a
California corporation (Sunrise), and its wholly owned subsidiary, Sunrise Bank,
a California state chartered bank headquartered in Roseville, California, for
$17.5 million in cash. At the time of the transaction, Sunrise had $110.8
million in total assets, $17.7 million in investment securities, $61.1 million
in total loans, net of unearned discount, and $91.1 million in deposits. Sunrise
conducts its business through two banking locations in Roseville and Rancho
Cordova, California. Sunrise was merged into a subsidiary of FBA. On December 1,
1997, Sunrise Bank was merged into FB California.
On December 1, 1997, FBA completed its acquisition of Surety Bank, a
California state chartered bank headquartered in Vallejo, California, for $3.8
million in cash and 264,622 shares of FBA common stock. At the time of the
transaction, Surety Bank had $72.8 million in total assets, $11.8 million in
investment securities, $54.4 million in total loans, net of unearned discount,
and $67.5 million in deposits. Surety Bank conducts its banking business through
two banking locations in Vallejo and Fairfield, California. Surety Bank was
merged into FB California.
At December 31, 1997, FBA had two pending acquisitions which were
consummated in February 1998, FCB and its wholly owned subsidiary, First
Commercial, headquartered in Sacramento, California, and Pacific Bay Bank,
headquartered in San Pablo, California. FCB operates through First Commercial,
which has six banking locations located in Sacramento, Roseville (2), Concord,
Campbell and San Francisco, California. At December 31, 1997, FCB had $191.6
million in total assets, $64.4 million in investment securities, $118.0 million
in total loans, net of unearned discount, and $172.6 million in deposits.
Pacific Bay Bank has one banking location in San Pablo, California and one loan
production office in Lafayette, California. At December 31, 1997, Pacific Bay
Bank had $37.5 million in total assets, $1.9 million in total interest-bearing
deposits with other financial institutions, $29.3 million in total loans, net of
unearned discount, and $33.9 million in deposits. Both First Commercial and
Pacific Bay Bank were merged into FB California in February 1998.
FCB was majority owned by First Banks. First Banks' ownership interest in
FBA would have been 70.4% of the outstanding voting stock of FBA at December 31,
1997 had the acquisition of FCB been completed on that date.
Financial Condition and Average Balances
FBA's average total assets were $377.3 million, $301.5 million and $318.1
million for the years ended December 31, 1997, 1996 and 1995, respectively. For
1997, total average assets increased by $75.8 million primarily due to the
acquisitions of Surety Bank and Sunrise Bank on December 1, 1997 and November 1,
1996, respectively, and internal loan growth resulting from the expansion of the
business development staff. For 1996, total average assets decreased by $16.6
million reflecting the continuation of the reduction in average loans and
investment securities which began in 1995, partially offset by the assets
provided by the acquisition of Sunrise Bank.
Loans, net of unearned discount, averaged $247.0 million, $185.2 million
and $205.3 million for the years ended December 31, 1997, 1996 and 1995,
respectively. During 1995, average loans increased by $22.4 million, reflecting
FBA's prior emphasis on indirect automobile lending. As more fully discussed
under "--Net Interest Income," during the second quarter of 1995, FBA elected to
reduce the level of originations of indirect automobile loans. Accordingly,
indirect automobile loans, which initially increased from $147.7 million at
December 31, 1994 to $159.5 million at June 30, 1995, has subsequently decreased
to $61.4 million, $86.6 million and $130.3 million at December 31, 1997, 1996
<PAGE> 57
and 1995, respectively. At the same time, FBA expanded its corporate banking
activities resulting in the increase of the commercial and financial, commercial
real estate and real estate construction loan portfolios to $205.7 million and
$134.7 million at December 31, 1997 and 1996, respectively, including the loans
provided by the acquisition of Surety Bank and Sunrise Bank, from $49.2 million
at December 31, 1995.
Investment securities, which had increased to an average of $141.7 million
for the year ended December 31, 1994, averaged $82.5 million, $59.9 million and
$74.7 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The increase during 1994 resulted from an investment strategy
which FBA implemented during 1992 whereby funds were borrowed, principally
through repurchase agreements and advances from the Federal Home Loan Bank
(FHLB), which were in turn used to purchase investment securities. This strategy
resulted in a corresponding increase in average short-term borrowings for these
same periods. As more fully discussed under "--Net Interest Income," this
strategy resulted in a declining net interest income and net interest margin.
Recognizing the need to improve the net interest income and net interest
margin, during 1994 FBA commenced the process of restructuring its investment
portfolio. The restructuring process consisted initially of hedging the existing
investment security portfolio in an attempt to reduce the overall interest rate
risk to a more acceptable level. At the same time, FBA began disposing of
securities which had greater interest rate risk and reducing the level of
short-term borrowings. Remaining funds generated in this process were invested
in shorter-term securities which generally have less interest rate risk. The
restructuring of the investment security portfolio was completed during 1995 and
resulted in a reduction in the average balance of investment securities of $67.0
million for the year ended December 31, 1995. For 1996, the average balance of
investment securities decreased by $14.8 million, reflecting the remaining
impact of the restructuring which was completed during 1995.
The average balance of investment securities increased for the year ended
December 31, 1997 by $22.6 million. The increase is attributable to the
securities provided by the acquisitions of Surety Bank and Sunrise Bank.
Deposits are the primary funding source for FBA and are acquired from a
broad base of local markets, including both individual and corporate customers.
For 1997, average deposits were $316.5 million, an increase of $61.9 million,
from $254.6 million for 1996. Average deposits increased $9.3 million during
1996, to $254.6 million from $245.3 million for the years ended December 31,
1996 and 1995, respectively. These increases are primarily attributable to the
acquisitions of Surety Bank and Sunrise Bank.
The average balance of promissory notes payable and short-term borrowings
decreased to $19.4 million and $7.2 million for the years ended December 31,
1997 and 1996, respectively, from $31.5 million for 1995. The decrease in the
average balance during 1996 is attributable to a strategic decision to reduce
FBA's dependence on short-term borrowings as a funding source for its investment
security portfolio. The increase in the average balance for 1997 is attributable
to borrowings under FBA's promissory note payable to facilitate its funding of
acquisitions.
Stockholders' equity averaged $34.7 million, $35.0 million and $37.8
million for the years ended December 31, 1997, 1996 and 1995, respectively. The
decreases are primarily attributable to the repurchases of common stock for
treasury, repurchases of an outstanding warrant and an option to purchase common
stock and a net loss of $3.8 million for the year ended December 31, 1995,
partially offset by net income of $3.2 million and $1.6 million for the years
ended December 31, 1997 and 1996, respectively.
In addition, effective December 31, 1994, stockholders' equity includes the
impact of implementing an accounting adjustment referred to as a
"quasi-reorganization" as approved by the Board of Directors of FBA. In
accordance with the accounting provisions applicable to a quasi-reorganization,
the assets and liabilities of FBA were adjusted to their fair value and the
accumulated deficit was eliminated. Fair value adjustments included a reduction
in the carrying value of bank premises and equipment of $4.4 million and the
elimination of the net fair value adjustment for securities available for sale
of $1.1 million. As a result of implementing the quasi-reorganization,
stockholders' equity was reduced by $3.1 million. The implementation of the
quasi-reorganization did not have a significant impact on the results of
operations of FBA.
<PAGE> 58
The following table sets forth certain information relating to FBA's
average balance sheets, and reflects the average yield earned on
interest-bearing assets, the average cost of interest-bearing liabilities and
the resulting net interest income for the periods indicated.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------------------------------------
1997 1996 1995
------------------------- ------------------------- ---------------------------
Interest Interest Interest
Average income/ Average Average income/ Average Average income/ Average
balance expense rate balance expense rate balance expense rate
------- ------- ---- ------- ------- ---- ------- ------- ----
(dollars expressed in thousands)
Earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Time deposits with banks....... $ 1,019 58 5.69% $ 19,813 1,062 5.36% $ 4,693 319 6.80%
Investment securities (2)(3)... 82,546 5,073 6.15 59,917 3,519 5.87 74,687 4,47 5.99
Federal funds sold and securities
purchased under agreements to
resell........................ 10,922 593 5.43 7,023 371 5.28 2,961 173 5.84
Loans (1) (2) ................. 247,005 3,159 9.38 185,154 6,494 8.91 205,288 17,462 8.51
-------- ------ -------- ------ ------- ------
Total earning assets 341,492 28,883 8.46 271,907 21,446 7.89 287,629 22,427 7.80
------ ------ ------
Nonearning assets................. 35,792 29,579 30,508
-------- -------- --------
Total assets................. $377,284 $301,486 $318,137
======== ======== ========
Interest-bearing liabilities:
Interest-bearing demand and
savings deposits............. $121,125 3,524 2.91 $ 81,857 2,341 2.86% $ 79,633 2,481 3.12%
Time deposits of $100 or more.. 29,614 1,631 5.51 25,294 1,409 5.57 23,305 1,300 5.58
Other time deposits............ 112,892 6,159 5.46 100,803 5,551 5.51 98,067 5,148 5.25
-------- ------ -------- ------ -------- ------
Total interest-bearing
deposits............... 263,631 11,314 4.29 207,954 9,301 4.47 201,005 8,929 4.44
Notes payable and short-term
borrowings (3).............. 19,400 1,520 7.84 7,195 692 9.62 31,491 2,289 7.27
-------- ----- ------- ------ ------- -----
Total interest-bearing
liabilities............ 283,031 12,834 4.53 215,149 9,993 4.64 232,496 11,218 4.83
------ ---- ------
Non-interest-bearing liabilities:
Demand deposits............... 52,893 46,684 44,251
Other liabilities............. 6,674 4,611 3,584
-------- -------- --------
Total liabilities........... 342,598 266,444 280,331
Stockholders' equity.......... 34,686 35,042 37,806
-------- -------- --------
Total liabilities and
stockholders' equity... $377,284 $301,486 $318,137
======== ======== ========
Net interest income......... 16,049 11,453 11,209
======= ====== ======
Interest rate spread........ 3.93% 3.25% 2.97%
Net interest margin......... 4.70 4.21 3.90
==== ==== ====
- - ---------------
(1) Nonaccrual loans are included in the average loan amounts.
(2) FBA has no tax-exempt income.
(3) Includes the effect of an interest rate exchange agreement.
</TABLE>
<PAGE> 59
The following table indicates the changes in interest income and interest
expense which are attributable to changes in average volume and changes in
average rates, in comparison with the same period in the preceding year. The
change in interest due to the combined rate/volume variance has been allocated
to rate and volume changes in proportion to the dollar amounts of the change in
each.
<TABLE>
<CAPTION>
December 31, 1997 compared December 31, 1996 compared
to December 31, 1996 to December 31, 1995
------------------------------ -------------------------
Net Net
Volume Rate Change Volume Rate Change
------ ---- ------ ------ ---- ------
(dollars expressed in thousands)
Earning assets:
<S> <C> <C> <C> <C> <C> <C>
Time deposits with banks............... $(1,073) 69 (1,004) 795 (52) 743
Investment securities (1) (2).......... 1,380 174 1,554 (866) (88) (954)
Federal funds sold and
securities purchased under
agreements to resell................. 211 11 222 213 (15) 198
Loans (2).............................. 5,756 909 6,665 (1,859) 891 (968)
------- ------ ------ ----- ----- ----
Total interest income............ 6,274 1,163 7,437 (1,717) 736 (981)
------- ------ ------ ----- ----- ----
Interest-bearing liabilities:
Interest-bearing demand
and savings deposits................. 1,142 41 1,183 71 (211) (140)
Time deposits of $100 or more ......... 238 (16) 222 111 (2) 109
Other time deposits.................... 657 (49) 608 145 258 403
Notes payable and short-
term borrowings (1).................. 929 (101) 828 (3,462) 1,865 (1,597)
------- ------- ------ ------ ----- ------
Total interest expense........... 2,966 (125) 2,841 (3,135) 1,910 (1,225)
------- ------- ------ ------ ----- ------
Net interest income.............. $ 3,308 1,288 4,596 1,418 (1,174) 244
======= ====== ====== ====== ====== ======
- - ------------------------
(1) Includes the effect of an interest rate exchange agreement.
(2) FBA has no tax-exempt income.
</TABLE>
Net Interest Income
The primary source of FBA's income is net interest income, which is the
difference between the interest earned on assets and the interest paid on
liabilities. Net interest income was $16.0 million, or 4.70% of average earning
assets, for the year ended December 31, 1997, compared with $11.5 million, or
4.21% of average earning assets, and $11.2 million, or 3.90% of average earning
assets, for the years ended December 31, 1996 and 1995, respectively.
FBA's loan portfolio, which represents its primary interest-earning asset
and source of net interest income, previously consisted primarily of fixed rate
indirect automobile loans. As interest rates began to increase during 1994, the
yield on this fixed rate portfolio remained relatively constant. Furthermore,
intense competition for automobile loans, particularly from nonbank entities,
caused market rates to increase more slowly than interest rates in general.
Consequently, both the amounts and rates at which new loans were originated were
less than anticipated. The combination of these factors and the continued
repayments of the older loans, caused the yield on the loan portfolio to
increase by only 20 basis points to 8.51% for the year ended December 31, 1995,
compared with 8.31% for the year ended December 31, 1994. At the same time,
FBA's cost of interest-bearing deposits, the principal source of funding for the
loan portfolio, increased by 80 basis points to 4.44% for the year ended
December 31, 1995, from 3.64% for the year December 31, 1994.
During this same time frame, FBA was following an investment strategy
whereby funds were borrowed, principally short-term borrowings, which were
invested in mortgage-backed securities. While initially generating an
incremental spread, as rates increased in 1994, this contribution to net
interest margin was substantially reduced.
<PAGE> 60
The following is a comparison of the yield earned on the investment
portfolio and the cost of short-term borrowings for the years ended December 31,
1995 and 1994:
1995 1994
---- ----
Average yield on investment securities................ 5.99% 4.91%
Average cost of borrowings............................ 7.27 4.35
---- ----
Interest spread....................................... (1.28)% 0.56%
==== ====
Concerned with its interest rate risk profile and the overall impact of
further increases in interest rates, FBA began the process of restructuring its
investment securities portfolio and repositioning its loan portfolio in the
latter part of 1994. The restructuring process included sales of investment
securities of $48.9 million and $113.9 million, resulting in net losses of $3.0
million and $7.1 million for the years ended December 31, 1995 and 1994,
respectively. To reposition the loan portfolio, FBA significantly expanded its
ability to originate commercial and financial, commercial real estate and real
estate construction and development loans while maintaining a presence in the
indirect automobile lending business. The current composition of the loan
portfolio and the changes over the past five years are presented under, "--Loans
and Allowance for Possible Loan Losses."
The culmination of FBA's efforts in repositioning its loan portfolio and
the restructuring of the investment securities portfolio has resulted in an
improvement of the net interest margin to 4.70% of average interest-earning
assets for 1997, from 4.21% and 3.90% for 1996 and 1995, respectively.
Specifically, this improvement is attributable to the increase in the average
yield on the loan portfolio to 9.38% for 1997, from 8.91% for 1996. In addition,
the cost of interest-bearing liabilities decreased to 4.53% for 1997, from 4.64%
for 1996. This decrease in the cost of interest-bearing liabilities is primarily
attributable to the reduction in short-term borrowings, which has represented a
higher cost source of funds.
Comparison of Results of Operations for 1997 and 1996
Net Income. Net income for the year ended December 31, 1997 improved to
$3.18 million from $1.57 million for the same period in 1996, an increase of
103%. This improvement is primarily attributable to net interest income. As
previously discussed, net interest income increased by $4.60 million, or by
40.2%, to $16.05 million, or 4.70% of average earning assets, for 1997, from
$11.45 million, or 4.21% of average earning assets, for 1996.
Provision for Possible Loan Losses. The provision for possible loan losses
was $2.00 million and $1.25 million for the years ended December 31, 1997 and
1996, respectively. Net loan charge-offs were $1.46 million and $2.67 million
for the years ended December 31, 1997 and 1996, respectively. The allowance for
possible loan losses was $6.72 million, or 2.14% of total loans, net of unearned
discount, at December 31, 1997, compared to $6.15 million, or 2.54% of total
loans, at December 31, 1996. Loans which were either 90 days or more past due
and still accruing interest or on nonaccrual status totaled $3.57 million and
$2.68 million at December 31, 1997 and 1996, respectively, representing 1.14%
and 1.11% of total loans, net of unearned discount, at those dates. Loans which
were between 30 and 89 days past due were $6.67 million, or 2.13% of total
loans, net of unearned discount, at December 31, 1997, compared to $6.47
million, or 2.68% of total loans, net of unearned discount, at December 31,
1996.
Although asset quality has improved, FBA has continued to provide for
possible loan losses in recognition of the overall growth in the loan portfolio
as well as its changing composition. As the portfolio changes from one with
significant preponderance in indirect automobile loans, to one having
substantial portions of commercial and financial, real estate construction and
development and commercial real estate loans, the credit risk profile also
changes. Typically, a larger group of lower balance homogeneous loans, such as
the indirect automobile loan portfolio, exhibits certain past due and loan loss
experience trends which provides FBA a basis for establishing an adequate level
of allowance for possible loan losses. While these same trends are included in
FBA's evaluation of its commercial lending activities, the overall credit risk
of this type of portfolio is heightened as the possibility of a significant
<PAGE> 61
unforeseen loss occurring over time is greater. See "--Loans and Allowance for
Possible Loan Losses," for a further discussion of FBA's policies and practices
of monitoring and maintaining the allowance for possible loan losses.
Noninterest Income and Expense. The following table summarizes noninterest
income and noninterest expense for the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
Increase (decrease)
1997 1996 Amount Percent
---- ---- ------ -------
(dollars expressed in thousands)
Noninterest income:
Service charges on deposit accounts
<S> <C> <C> <C> <C>
and customer service fees........................ $ 1,632 1,507 125 8.29%
Loan sales and servicing income.................... 22 53 (31) (58.49)
Other income ...................................... 834 103 731 709.71
------- ------- -----
2,488 1,663 825 49.61
Gain on sales of securities, net................... 76 185 (109) (58.92)
------- ------- -----
Total noninterest income....................... $ 2,564 1,848 716 38.74
======= ======= ===== =======
Noninterest expense:
Salaries and employee benefits .................... $ 4,219 3,072 1,147 37.34%
Occupancy, net of rental income ................... 1,440 951 489 51.42
Furniture and equipment ........................... 805 613 192 31.32
Federal Deposit Insurance Corporation premiums..... 102 160 (58) (36.25)
Postage, printing and supplies..................... 346 267 79 29.59
Legal, examination and professional fees........... 2,005 1,276 729 57.13
Data processing ................................... 715 334 381 114.07
Communications..................................... 521 421 100 23.75
(Gain) loss on sale of foreclosed property,
net of expenses.................................. (303) 146 (449) (307.53)
Other.............................................. 1,826 2,240 (414) (18.48)
------- ------- -----
Total noninterest expense...................... $11,676 9,480 2,196 23.16
======= ======= ===== =======
</TABLE>
Noninterest Income. Noninterest income was $2.56 million for the year ended
December 31, 1997, in comparison to $1.85 million for 1996, representing an
increase of $716,000, or 38.7%.
Service charges on deposit accounts and customer service fees increased by
$125,000 to $1.63 million from $1.51 million for the years ended December 31,
1997 and 1996, respectively. The increase is primarily attributable to the
acquisition of Sunrise Bank.
Loan servicing fees decreased to $22,000 from $53,000 for the years ended
December 31, 1997 and 1996, respectively. The decrease is due to a reduction in
the amount of indirect automobile loans serviced for others as FBA is no longer
selling indirect automobile loans on a servicing retained basis.
Other income increased by $731,000 to $834,000 from $103,000 for the years
ended December 31, 1997 and 1996, respectively. The increase is primarily
attributable to legal settlements received applicable to pending litigation of
the former Sunrise Bank and a net gain of $47,000 realized upon disposition of
repossessed and other assets, compared to a net loss of $178,000 for the years
ended December 31, 1997 and 1996, respectively.
Offsetting the increase in noninterest income for the year ended December
31, 1997 was a gain of $76,000 recognized upon the sale of an investment
security for the year ended December 31, 1997, in comparison to a gain of
$185,000 for 1996.
<PAGE> 62
Noninterest Expense. Noninterest expense increased by $2.20 million to
$11.68 million from $9.48 million for the years ended December 31, 1997 and
1996, respectively. The increase is primarily attributable to the acquisition of
Sunrise Bank and Surety Bank and FBA's expansion of its corporate lending staff.
In particular, salaries and employee benefits increased by $1.15 million to
$4.22 million from $3.07 million for the years ended December 31, 1997 and 1996,
respectively. In addition, occupancy expense, net of rental income, and data
processing expenses increased by $489,000 and $381,000 for the year ended
December 31, 1997, respectively, in comparison to 1996.
Legal, examination and professional fees increased to $2.01 million from
$1.28 million for the years ended December 31, 1997 and 1996, respectively. The
increase is primarily attributable to the costs associated with expanding FBA's
organizational capabilities to achieve both internal and external growth as well
as its overall growth in 1997.
In the year ended December 31, 1997, FBA realized a gain on sale of
foreclosed property, net of expenses, of $303,000, compared to losses and
expenses on sale of foreclosed property of $146,000 for the same period in 1996.
The improvement for 1997 is attributable to a gain realized upon sale of a
foreclosed property and an overall decrease in the costs of maintaining a
reduced level of foreclosed properties.
Offsetting the increase in noninterest expense is a decrease in other
expense of $414,000 to $1.83 million from $2.24 million for the years ended
December 31, 1997 and 1996, respectively. The decrease is primarily attributable
to the noncredit provision for possible losses within the indirect automobile
dealer lending program of $842,000 recorded in 1996, partially offset by an
increase in fees paid to First Banks of $513,000 during 1997. See Note 13 to the
consolidated financial statements.
Income Taxes. The accompanying consolidated statement of operations
reflects a deferred income tax charge of $1.76 million for the year ended
December 31, 1997, compared to $1.00 million in 1996. At December 31, 1997 and
1996, the accompanying consolidated balance sheets include a deferred tax asset,
net of deferred tax liabilities, of $12.8 million and $14.6 million,
respectively. The deferred tax asset valuation allowance was $3.4 million at
December 31, 1997 and 1996.
Comparison of Results of Operations for 1996 and 1995
Net Income. Net income for the year ended December 31, 1996 was $1.57
million in comparison to a net loss of $3.82 for the same period in 1995. As
more fully discussed below, the operating results for 1995 reflect an after-tax
loss of $2.10 million incurred in connection with the restructuring of FBA's
investment portfolio and a sharply higher provision for possible loan losses in
comparison to 1996. As previously discussed, net interest income was $11.45
million, or 4.21% of average earning assets, for 1996, compared to $11.21
million, or 3.90% of average earning assets, for 1995.
Provision for Possible Loan Losses. The provision for possible loan losses
was $1.25 million and $5.83 million for the years ended December 31, 1996 and
1995, respectively. Net loan charge-offs were $2.67 million and $3.35 million
for the years ended December 31, 1996 and 1995, respectively. The allowance for
possible loan losses was $6.15 million, or 2.54% of total loans, net of unearned
discount, at December 31, 1996, compared to $5.23 million, or 2.71% of total
loans, at December 31, 1995. Loans which were either 90 days or more past due
and still accruing interest or on nonaccrual status totaled $2.68 million and
$1.07 million at December 31, 1996 and 1995, respectively, representing 1.11%
and .55% of total loans at those dates. Loans which were between 30 and 89 days
past due were $6.47 million, or 2.67% of total loans, net of unearned discount,
at December 31, 1996 compared to $6.65 million, or 3.45% of total loans, net of
unearned discount, at December 31, 1995.
The provision for possible loan losses for 1995 was higher than normal in
recognition of increasing loan charge-offs and delinquencies which were
experienced during 1995 within the portfolio of indirect automobile loans.
<PAGE> 63
Noninterest Income and Expense. The following table summarizes noninterest
income and noninterest expense for the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
Increase (decrease)
1996 1995 Amount Percent
---- ---- ------ -------
(dollars expressed in thousands)
Noninterest income (loss):
Service charges on deposit accounts
<S> <C> <C> <C> <C>
and customer service fees.............................. $ 1,507 1,458 49 3.4%
Loan sales and servicing income.......................... 53 159 (106) (66.7)
Other income............................................. 103 1,253 (1,150) (91.8)
------- ------- --------
1,663 2,870 (1,207) (42.1)
=====
Gain (loss) on sales of securities, net.................. 185 (2,996) 3,181
------- ------- -------
Total noninterest income (loss)...................... $ 1,848 (126) 1,974
======= ======= =======
Noninterest expense:
Salaries and employee benefits .......................... $ 3,072 4,029 (957) (23.8)%
Occupancy, net of rental income ......................... 951 1,274 (323) (25.4)
Furniture and equipment ................................. 613 663 (50) (7.5)
Federal Deposit Insurance Corporation premiums........... 160 313 (153) (48.9)
Postage, printing and supplies........................... 267 303 (36) (11.9)
Legal, examination and professional fees................. 1,276 1,354 (78) (5.8)
Data processing ......................................... 334 664 (330) (49.7)
Communications........................................... 421 553 (132) (23.9)
Losses and expenses on foreclosed property, net.......... 146 176 (30) (17.0)
Other ................................................... 2,240 1,831 409 22.3
------- ------- -------
Total noninterest expense............................ $ 9,480 11,160 (1,680) (15.1)
======= ======= ======= =====
</TABLE>
Noninterest Income. Noninterest income was $1.85 million for the year ended
December 31, 1996 in comparison to a loss of $126,000 for 1995. As more fully
discussed under "-- Net Interest Income and Interest Rate Risk Management," the
loss in noninterest income for 1995 is attributable to the $3.00 million loss
realized upon sales of investment securities.
Service charges on deposit accounts increased by $50,000 to $1.51 million
from $1.46 million for the years ended December 31, 1996 and 1995, respectively.
The increase is primarily attributable to the acquisition of Sunrise Bank which
generated $38,000 of service charges on deposit accounts for the period
subsequent to the acquisition.
Loan servicing fees decreased to $53,000 from $159,000 for the years ended
December 31, 1996 and 1995, respectively. The decrease is due to a reduction in
the amount of indirect automobile loans serviced for others.
Other income decreased by $1.15 million to $103,000 from $1.25 million for
the years ended December 31, 1996 and 1995, respectively. Other income for the
year ended December 31, 1995 includes a nonrecurring benefit of $179,000 from
the termination of the Directors' Retirement Plan and an $802,000 nonrecurring
benefit from the termination of a self-insurance trust. During 1990, FBA
established a trust in lieu of purchasing officer and director liability
insurance. Since coverage is now available and in place through First Banks, the
trust was terminated and the funds were returned to FBA.
Noninterest Expense. Noninterest expense decreased by $1.68 million to
$9.48 million from $11.16 million for the years ended December 31, 1996 and
1995, respectively. The decrease, as more fully discussed below, is primarily
attributable to cost reductions achieved through the reengineering of FBA's
operations and the centralization of various functions with First Banks' systems
during 1995.
The decrease in salaries and employee benefits of $960,000 to $3.07 million
from $4.03 million for the years ended December 31, 1996 and 1995, respectively,
relates primarily to reductions in staff during 1995. FBA's staff was reduced to
67 full-time employees at December 31, 1995, from 142 and 162 full-time
employees at December 31, 1994 and 1993, respectively.
<PAGE> 64
Occupancy expense, net of rental income, decreased by $323,000 to $951,000
from $1.27 million for the years ended December 31, 1996 and 1995, respectively.
The decrease is attributable to certain leased premises which were vacated
during 1995. This space previously housed various support functions, indirect
dealer lending and executive management. These departments were consolidated
into support functions of First Banks or relocated to other existing banking
facilities of FBA.
Data processing expenses decreased by $330,000 to $334,000 from $664,000
for the years ended December 31, 1996 and 1995, respectively. The decrease is
attributable to the conversion to First Banks' data processing system in 1995
which is less expensive than the former data processing service provider.
Offsetting the decrease in noninterest expense is an increase in other
expense of $409,000 to $2.24 million from $1.83 million for the years ended
December 31, 1996 and 1995, respectively. The increase is primarily attributable
to the noncredit provision for possible losses within the indirect automobile
dealer lending program of $842,000 in 1996. Also included in other expense are
fees paid to First Banks for the various services rendered. These fees totaled
$997,000 and $796,000 for the years ended December 31, 1996 and 1995,
respectively.
Income Taxes. The accompanying consolidated statement of operations
reflects a deferred income tax charge of $1.00 million for the year ended
December 31, 1996. This compares to a $2.08 million deferred income tax benefit
for the same period in 1995. At December 31, 1996 and 1995, the accompanying
consolidated balance sheets include a deferred tax asset, net of deferred tax
liabilities, of $14.6 million and $13.2 million, respectively. The deferred tax
asset valuation allowance was $3.4 million and $2.7 million at December 31, 1996
and 1995, respectively.
Investment Securities
FBA classifies the securities within its investment portfolio as held to
maturity or available for sale. FBA does not engage in the trading of investment
securities. As more fully described in Notes 1 and 3 of the consolidated
financial statements, the investment security portfolio consists solely of
securities designated as available-for-sale at December 31, 1997 and 1996.
During 1997, investment securities decreased to $83.8 million from $86.9 million
at December 31, 1997 and 1996, respectively. Funds generated from the decrease
were utilized to support internal loan growth. Offsetting the decrease was $11.8
million of investment securities provided by the acquisition of Surety Bank.
Loans and Allowance for Possible Loan Losses
Interest earned on the loan portfolio is the primary source of income for
FBA. Loans, net of unearned discount, represented 69.5% of total assets as of
December 31, 1997, compared to 64.5% as of December 31, 1996. At December 31,
1997, total loans, net of unearned discount, were $313.4 million, an increase of
$71.5 million from $241.9 million at December 31, 1996. For 1996, total loans,
net of unearned discount, increased by $49.3 million. As previously discussed
under "--Acquisitions and Financial Condition and Average Balances," the
increases are attributable to the loans provided by the acquisitions of Surety
Bank and Sunrise Bank and to expanding the commercial and financial, commercial
real estate and real estate construction and development loan portfolios,
partially offset by the decrease in indirect automobile loans.
<PAGE> 65
The following table summarizes the changes in the loan portfolio for the
two year period ended December 31, 1997:
<TABLE>
<CAPTION>
Increase (decrease)
for the years ended
December 31,
------------
1997 1996
---- ----
(dollars expressed in thousands)
Loans provided by acquisition:
<S> <C> <C>
Surety Bank.............................................. $54,400 --
Sunrise Bank............................................. -- 61,100
Internal loan volumes:
Commercial lending....................................... 47,100 34,900
Indirect automobile loans................................ (25,500) (43,400)
Other........................................................ (4,400) (3,300)
------- ------
Total increase (decrease) in loans................... $71,600 49,300
======= ======
Increase (decrease) in potential problem loans (1)........... $ (800) 2,100
======= ======
- - ---------------------
(1) Potential problem loans include indirect automobile loans 60 days or more
past due, loans on nonaccrual status and other loans identified by
management as having potential credit problems.
</TABLE>
FBA's lending strategy stresses quality, growth and diversification by
collateral, geography and industry. A common credit underwriting structure is in
place throughout FBA. The commercial lenders focus principally on small to
middle-market companies. Retail lenders focus principally on residential loans,
including home equity loans, automobile financing and other consumer financing
needs arising out of FBA's branch banking network.
Commercial and financial loans include loans that are made primarily based
on the borrowers' general credit strength and ability to generate repayment cash
flows from income sources even though such loans and bonds may also be secured
by real estate or other assets. Real estate construction and development loans,
primarily relating to residential properties and smaller commercial properties,
represent interim financing secured by real estate under construction. Real
estate mortgage loans consist primarily of loans secured by single-family
owner-occupied properties and various types of commercial properties on which
the income from the property is the intended source of repayment. Consumer and
installment loans are loans to individuals and consist primarily of loans
secured by automobiles. Loans held for sale are generally fixed and adjustable
rate residential loans pending sale in the secondary mortgage market in the form
of a mortgage-backed security, or to various private third-party investors.
<PAGE> 66
The following table shows the composition of the loan portfolio by major
category and the percent of each category to the total portfolio as of the dates
presented:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- --------------- ----------------- --------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and financial... $ 69,091 22.5% $48,025 19.9% $15,055 7.8% $ 14,556 7.4% $ 7,653 5.2%
Real estate construction
and development......... 66,601 21.6 44,238 18.3 26,048 13.5 13,793 7.0 9,072 6.2
Real estate mortgage....... 103,718 33.7 54,761 22.6 12,572 6.5 14,796 7.6 12,862 8.8
Consumer and installment,
net of unearned discount. 68,319 22.2 94,850 39.2 138,898 72.2 152,916 78.0 117,116 79.8
------ ---- ------ ---- ------- ---- ------- ---- ------- ----
Total loans,
excluding
loans held
for sale........ 307,729 100.0% 241,874 100.0% 192,573 100.0% 196,061 100.0% 146,703 100.0%
===== ===== ===== ===== =====
Loans held for sale........ 5,708 -- -- 7,253 21,029
-------- -------- -------- -------- --------
Total loans.......... $313,437 $241,874 $192,573 $203,314 $167,732
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Loans at December 31, 1997 mature as follows:
Over one year
through five years Over five years
------------------ ---------------
One year Fixed Floating Fixed Floating
or less rate rate rate rate Total
------- ---- ---- ---- ---- -----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and financial ................ $ 57,612 7,851 1,584 -- 2,044 69,091
Real estate construction
and development...................... 65,623 118 419 94 347 66,601
Real estate mortgage..................... 65,563 12,925 9,566 5,185 10,479 103,718
Consumer and installment, net of
unearned discount.................... 7,961 52,450 150 7,758 -- 68,319
Loans held for sale...................... 5,708 -- -- -- -- 5,708
--------- ------ ------ ------- ------- ---------
Total loans................... $ 202,467 73,344 11,719 13,037 12,870 313,437
========= ====== ====== ======= ======= =========
</TABLE>
<PAGE> 67
The following table is a summary of loan loss experience for the five years
ended December 31, 1997:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year............... $ 6,147 5,228 2,756 2,637 3,044
Acquired allowances for possible
loan losses.............................. 30 2,338 ------ ------ ------
------- -------
6,177 7,566 2,756 2,637 3,044
------- ------- ------- ------ ------
Loans charged off:
Commercial and financial............... (390) (243) -- (7) (268)
Real estate construction
and development...................... (15) -- (2) -- --
Real estate mortgage................... (76) (106) (57) (375) (8)
Consumer and installment............... (2,263) (3,712) (4,010) (1,876) (1,622)
------- ------- ------- ------- -------
Total loans charged-off........... (2,744) (4,061) (4,069) (2,258) (1,898))
------- ------- ------- ------- -------
Recoveries of loans previously
charged off:
Commercial and financial............... 123 345 129 184 164
Real estate construction and
development.......................... -- -- 1 -- --
Real estate mortgage................... 105 34 35 258 154
Consumer and installment............... 1,054 1,013 550 677 683
------- ------- ------- ------ ------
Total recoveries of loans previously
charged off................... 1,282 1,392 715 1,119 1,001
------- ------- ------- ------ ------
Net loans charged-off............. (1,462) (2,669) (3,354) (1,139) (897)
------- ------- ------- ------ ------
Provision for possible loan losses......... 2,000 1,250 5,826 1,258 490
------- ------- ------- ------ ------
Balance at end of year..................... $ 6,715 6,147 5,228 2,756 2,637
======= ======= ======= ====== ======
Loans outstanding:
Average................................ $247,005 185,154 205,288 182,922 171,889
End of period.......................... 313,437 241,874 192,573 203,314 167,732
Ratio of allowance for possible
loan losses to loans outstanding:
Average........................... 2.72% 3.32% 2.55% 1.51% 1.53%
End of period..................... 2.14 2.54 2.71 1.36 1.57
Ratio of net charge-offs to average
loans outstanding.................... 0.59 1.44 1.63 0.62 0.52
======== ====== ======== ====== ======
Allocation of allowance for possible
loan losses at end of period:..........
Commercial and financial............. $ 1,531 1,453 409 197 229
Real estate construction ............
and development.................... 1,018 920 707 187 237
Real estate mortgage................. 2,774 1,833 344 201 720
Consumer and installment............. 1,392 1,941 3,768 2,171 1,451
------- ------- ------ ------ ------
Total ............................ $ 6,715 6,147 5,228 2,756 2,637
======= ======= ====== ====== ======
Percent of categories to loans, net of
unearned discount:
Commercial and financial............. 22.0% 19.9% 7.8% 7.1% 4.6%
Real estate construction and
development........................ 21.3 18.3 13.5 6.8 5.4
Real estate mortgage................. 33.1 22.6 6.5 7.3 7.7
Consumer and installment............. 21.8 39.2 72.2 75.2 69.8
Loans held for sale.................. 1.8 -- -- 3.6 12.5
------- ------ ------- ------ ------
Total............................. 100.0% 100.0% 100.0% 100.0% 100.0%
======= ====== ======= ====== ======
</TABLE>
<PAGE> 68
Nonperforming assets include nonaccrual loans and foreclosed property. The
following table presents the categories of nonperforming assets and certain
ratios for the past five years:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C>
Nonperforming loans......................... $ 2,411 2,095 549 293 622
Foreclosed property, net.................... 381 785 1,013 1,553 3,171
---------- -------- -------- -------- --------
Total nonperforming assets............ $ 2,792 2,880 1,562 1,846 3,793
========== ======== ======== ======== ========
Loans, net of unearned discount............. $ 313,437 241,874 192,573 203,314 167,732
========== ======== ======= ======== ========
Loans past due:
Over 30 days to 90 days................. $ 6,664 6,471 6,649 1,368 1,571
Over 90 days and still accruing......... 1,158 583 517 183 803
---------- -------- -------- -------- --------
Total past-due loans................. $ 7,822 7,054 7,166 1,551 2,374
========== ======== ======== ======== ========
Allowance for possible loan losses
to loans................................ 2.14% 2.54% 2.71% 1.36% 1.57%
Nonperforming loans to loans................ 0.77 0.87 0.29 0.14 0.37
Allowance for possible loan losses
to nonperforming loans.................. 278.52 293.41 952.28 940.61 423.95
Nonperforming assets to loans
and foreclosed property................. 0.89 1.19 0.81 0.90 2.22
========== ======== ========= ====== ========
</TABLE>
As of December 31, 1997 and 1996, $4.5 million and $9.8 million,
respectively, of loans not included in the table above were identified by
management as having potential credit problems which raised doubts as to the
ability of the borrowers to comply with the present loan repayment terms.
FBA's credit management policy and procedures focus on identifying,
measuring and controlling credit exposure. These procedures employ a
lender-initiated system of rating credits, which is ratified in the loan
approval process and subsequently tested in internal loan reviews, external
audits and regulatory bank examinations. Basically, the system requires rating
all loans at the time they are made, except for homogeneous categories of loans,
such as residential real estate mortgage loans and indirect automobile loans.
These homogeneous loans are assigned an initial rating based on FBA's experience
with each type of loan. Adjustments to these ratings are based on payment
experience subsequent to their origination.
Adversely rated credits, including loans requiring close monitoring which
would not normally be considered criticized credits by regulators, are included
on a monthly loan watch list. Loans may be added to the watch list for reasons
which are temporary and correctable, such as the absence of current financial
statements of the borrower, or a deficiency in loan documentation. Other loans
are added whenever any adverse circumstance is detected which might affect the
borrower's ability to meet the terms of the loan. This could be initiated by the
delinquency of a scheduled loan payment, a deterioration in the borrower's
financial condition identified in a review of periodic financial statements, a
decrease in the value of the collateral securing the loan, or a change in the
economic environment within which the borrower operates. Loans on the watch list
require detailed loan status reports prepared by the responsible officer every
four months, which are then discussed in formal meetings with the loan review
and credit administration staffs. Downgrades of loan risk ratings may be
initiated by the responsible loan officer at any time. However, upgrades of risk
ratings may only be made with the concurrence of the loan review and credit
administration staffs generally at the time of the formal watch list review
meetings.
Each month, credit administration provides FBA's management with detailed
lists of loans on the watch list and summaries of the entire loan portfolio of
each Subsidiary Bank by risk rating. These are coupled with analyses of changes
in the risk profiles of the portfolios, changes in past due and nonperforming
loans and changes in watch list and classified loans over time. In this manner,
the overall increases or decreases in the levels of risk in the portfolios are
<PAGE> 69
monitored continually. Factors are applied to the loan portfolios for each
category of loan risk to determine acceptable levels of allowance for possible
loan losses. These factors are derived primarily from the actual loss experience
of the Subsidiary Banks and from published national surveys of norms in the
industry. The calculated allowances required for the portfolios are then
compared to the actual allowance balances to determine the provisions necessary
to maintain the allowances at appropriate levels. In addition, management
exercises judgment in its analysis of determining the overall level of the
allowance for possible losses. In its analysis, management considers the change
in the portfolio, including growth and composition, and the economic conditions
of the regions in which FBA operates.
Based on this quantitative and qualitative analysis, the allowance for
possible loan losses is adjusted. Such adjustments are reflected in the
consolidated statements of operations.
FBA does not engage in lending in foreign countries or based on activities
in foreign countries. Additionally, FBA does not have any concentrations of
loans exceeding 10% of total loans which are not otherwise disclosed in the loan
portfolio composition table and Note 5 to the accompanying consolidated
financial statements. FBA does not have any amount of interest-bearing assets
which would have been included in nonaccrual, past due or restructured loans if
such assets were loans.
Deposits
Deposits are the primary source of funds for FBA. FBA's deposits consist
principally of core deposits from its local market areas. FBA does not accept
brokered deposits. The following table sets forth the distribution of FBA's
average deposit accounts at the dates indicated and the weighted average
interest rates by category of deposit:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------------------------
1997 1996 1995
-------------- ----------------- -----------------
Balance Rate Balance Rate Balance Rate
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing demand........... $ 52,893 --% $46,684 --% $ 44,251 --%
Interest-bearing demand .............. 50,743 2.31 25,244 1.93 22,718 2.00
Savings............................... 70,382 3.34 56,613 3.27 56,915 3.56
Time deposits of $100 or more......... 29,614 5.46 25,294 5.57 23,305 5.58
Other time............................ 112,892 4.29 100,803 5.51 98,067 5.25
--------- ==== --------- ==== --------- ====
Total average deposits.......... $ 316,524 $ 254,638 $ 245,256
========= ========= =========
</TABLE>
Capital
On August 31, 1994, FBA issued and sold for $30 million in a private
placement 2,500,000 shares of Class B common stock to First Banks. The Class B
common stock is generally equivalent to FBA's common stock, except that it is
not registered or transferable by First Banks, other than to an affiliated
entity, and has dividend rights which are junior to those of FBA's common stock.
First Banks owned 65.9% of the total outstanding voting stock of FBA at December
31, 1997.
On October 1, 1996, FBA purchased an outstanding warrant to acquire 131,336
shares of FBA common stock at $0.75 per share from the FDIC for an aggregate
amount of $1.28 million. The purchase of the warrant was applied as a reduction
of capital surplus.
FBA issued 264,622 shares of common stock in connection with its
acquisition of Surety Bank, resulting in an increase to stockholders' equity of
$4.8 million. The increase represents the fair value of the net assets exchanged
for FBA common stock, as determined by the market value of FBA common stock at
the date of exchange.
On February 2, 1998, FBA completed its acquisition of FCB. As described
under "--Acquisitions" and in Note 2 of the accompanying consolidated financial
statements, in connection with the acquisition, FBA issued approximately
1,555,728 shares of common stock, of which 1,266,176 were issued to First Banks.
<PAGE> 70
The Board of Directors has authorized the purchase of up to 555,488 shares
of common stock for treasury. Aggregate shares purchased totaled 386,458 and
280,430, at an aggregate cost of $4.35 million and $2.84 million as of December
31, 1997 and 1996, respectively.
Interest Rate Risk Management
For financial institutions, the maintenance of a satisfactory level of net
interest income is a primary factor in achieving acceptable income levels.
However, the maturity and repricing characteristics of the institution's loan
and investment portfolios, relative to those within its deposit structure, may
differ significantly. This is influenced by the characteristics of the loan and
deposit markets within which FBA operates, as well as its objectives for
business development within those markets at any point in time. In addition, the
ability of borrowers to repay loans and depositors to withdraw funds prior to
stated maturity dates introduces divergent option characteristics which operate
primarily as interest rates change. These factors cause various elements of the
institution's balance sheet to react in different manners and at different times
relative to changes in interest rates, thereby leading to increases or decreases
in net interest income over time. Depending upon the nature and velocity of
interest rate movements and their effect on the specific components of the
institution's balance sheet, the effects on net interest income can be
substantial. Consequently, a fundamental requirement in managing a financial
institution is establishing effective control of the exposure of the institution
to changes in interest rates.
FBA manages its interest rate risk by: (1) maintaining an Asset Liability
Committee (ALCO) responsible to FBA's Board of Directors to review the overall
interest rate risk management activity and approve actions taken to reduce risk;
(2) maintaining an effective simulation model to determine FBA's exposure to
changes in interest rates; (3) coordinating the lending, investing and
deposit-generating functions to control the assumption of interest rate risk;
and (4) employing various off-balance-sheet financial instruments to offset
inherent interest rate risk when it becomes excessive. The objective of these
procedures is to limit the adverse impact which changes in interest rates may
have on net interest income.
The ALCO has overall responsibility for the effective management of
interest rate risk and the approval of policy guidelines. The ALCO includes the
Chairman and Chief Executive Officer, the senior executives of investments,
credit, retail banking, commercial banking and finance, and certain other
officers. The ALCO is supported by the Asset Liability Management Group which
monitors interest rate risk, prepares analyses for review by the ALCO and
implements actions which are either specifically directed by the ALCO or
established by policy guidelines.
The objective and primary focus of interest sensitivity management is to
optimize earnings results, while managing, within internal policy constraints,
interest rate risk. FBA's policy on rate sensitivity is to manage exposure to
potential risks associated with changing interest rates by maintaining a balance
sheet posture in which annual net interest income is not significantly impacted
by reasonably possible near-term changes in interest rates. To measure the
effect of interest rate changes, FBA recalculates its net income over two
one-year horizons on a pro forma basis. The analysis assumes various scenarios
for increases and decreases in interest rates including both instantaneous and
gradual, parallel and non-parallel shifts in the yield curve, in varying
amounts. For purposes of arriving at reasonably possible near-term changes in
interest rates, FBA includes a forecast based on actual changes in interest
rates which have occurred over a two year period, simulating both a declining
and rising interest rate scenario. Consistent with the table presented below,
which indicates FBA is "asset-sensitive," FBA's simulation model indicates a
loss of projected net income should interest rates decline. While a decline in
interest rates of less than 10% has a diminutive effect on the earnings of FBA,
a significant decline in interest rates, resembling the actual decline which
occurred over a two-year period commencing in March 1991, indicates a loss of
net income equivalent to approximately 7% of net interest income for the year
ended December 31, 1997.
FBA utilizes off-balance-sheet derivative financial instruments to assist
in the management of interest rate sensitivity and to modify the repricing,
maturity and option characteristics of on-balance-sheet assets and liabilities.
Derivative financial instruments held by FBA at December 31, 1997 and 1996
consist of an interest rate cap agreement with a notional amount of $10 million
and credit exposure of $222,000 and $335,000, respectively. The notional amount
<PAGE> 71
of the interest rate cap agreement does not represent amounts exchanged by the
parties and, therefore, is not a measure of FBA's credit exposure through its
use of derivative financial instruments. The amounts actually exchanged are
determined by reference to the notional amounts and the other terms of the
agreement.
FBA's interest rate cap agreement limits the interest expense associated
with certain of its interest-bearing liabilities. In exchange for an initial
fee, the interest rate cap agreement entitles FBA to receive interest payments
when a specified index rate exceeds a predetermined rate. The agreement
outstanding at December 31, 1997 and 1996 effectively limits the interest rate
to 5.0% on $10 million of interest-bearing liabilities from October 15, 1997 to
May 15, 2000.
Previously, FBA sold interest rate futures contracts and purchased options
on interest rate futures contracts to hedge the interest rate risk of its
available-for-sale securities portfolio. Interest rate futures contracts are
commitments to either purchase or sell designated financial instruments at a
future date for a specified price and may be settled in cash or through delivery
of such financial instruments. Options on interest rate futures contracts confer
the right to purchase or sell financial futures contracts at a specified price
and are settled in cash. There were no outstanding interest rate futures
contracts or options on interest rate futures contracts at December 31, 1995 and
no activity for the years ended December 31, 1997 and 1996.
During 1995, as interest rates declined, FBA incurred losses on the
interest rate futures contracts of $5.95 million, of which $806,000 was
amortized to income as a yield adjustment to the investment security portfolio
and $5.14 million was included in the cost basis in determining the gain or loss
upon the sale of the securities. The losses incurred on the interest rate
futures contracts were partially offset by gains in the available-for-sale
securities portfolio. The overall net loss in net market value of these
positions was attributable to an increase in the projected prepayments of
principal underlying the available-for-sale securities portfolio. These
increased prepayment projections disproportionately shortened the expected lives
of the available-for-sale securities portfolio in comparison to the effective
maturity created with the hedge position. As a result, beginning in the second
quarter of 1995, FBA began to reduce its hedge position to coincide with the
current expected life of the available-for-sale securities portfolio by
decreasing the number of outstanding interest rate futures contracts. FBA
continued to reduce its hedge position during the third and fourth quarters of
1995 as a result of the further declines in interest rates. In addition, on
November 3, 1995, upon sales of $48.9 million of securities, which marked the
completion of the restructuring of the available-for-sale securities portfolio,
the remaining outstanding interest rate futures contracts were closed.
<PAGE> 72
In addition to the simulation model employed by FBA, a more traditional
interest rate sensitivity position is prepared and reviewed in conjunction with
the results of the simulation model. The following table presents the projected
maturities and periods to repricing of FBA's rate sensitive assets and
liabilities as of December 31, 1997, adjusted to account for anticipated
prepayments:
<TABLE>
<CAPTION>
Over three Over six
Three through through Over one Over
months six twelve through five
or less months months five years years Total
------- ------ ------ ---------- ----- -----
(dollars expressed in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Loans (1)..................................... $ 211,151 16,939 28,830 54,453 2,064 313,437
Investment securities......................... 22,883 1,605 3,451 51,791 4,061 83,791
Federal funds sold............................ 2,215 -- -- -- -- 2,215
Interest-bearing deposits with
other financial institutions................ 690 -- -- -- -- 690
--------- ------- ------- ------- ------- --------
Total interest-earning assets............... 236,939 18,544 32,281 106,244 6,125 400,133
--------- ------- ------- ------- ------- --------
Interest-bearing liabilities:
Interest-bearing demand accounts.............. 21,095 13,112 8,552 6,271 7,981 57,011
Money market demand accounts.................. 51,345 -- -- -- -- 51,345
Savings accounts.............................. 6,703 5,520 4,731 6,703 15,771 39,428
Time deposits................................. 40,294 34,349 41,261 53,858 -- 169,762
Notes payable and other borrowed funds........ 16,723 584 -- -- -- 17,307
--------- ------- ------- ------- ------- --------
Total interest-bearing liabilities.......... 136,160 53,565 54,544 66,832 23,752 334,853
--------- ------- ------- ------- ------- --------
Interest-sensitivity gap:
Periodic...................................... $ 100,779 (35,021) (22,263) 39,412 (17,627) 65,280
========
Cumulative.................................... 100,779 65,758 43,495 82,907 65,280
========= ======== ======= ======= =======
Ratio of interest-sensitive assets to
interest-sensitive liabilities:
Periodic.................................... 1.74 .35 .59 1.59 .26 1.19
=======
Cumulative.................................. 1.74 1.35 1.18 1.27 1.19
======== ====== ====== ====== ======
- - ----------------------
(1) Loans presented net of unearned discount
</TABLE>
Management made certain assumptions in preparing the table above. These
assumptions included: Loans will repay at historic repayment speeds;
mortgage-backed securities, included in investment securities, will repay at
projected repayment speeds; interest-bearing demand accounts and savings
accounts are interest-sensitive at a rate of 37% and 17%, respectively, of the
remaining balance for each period presented; and fixed maturity deposits will
not be withdrawn prior to maturity.
At December 31, 1997 and 1996, FBA's asset-sensitive position on a
cumulative basis through the twelve-month time horizon increased by $29.8
million, or 6.60% of total assets, to $43.5 million, or 9.64% of total assets,
from $13.7 million, or 3.65% of total assets, respectively. The increase is
attributable to the composition and growth of the loan portfolio.
The interest-sensitivity position is one of several measurements of the
impact of interest rate changes on net interest income. Its usefulness in
assessing the effect of potential changes in net interest income varies with the
constant change in the composition of FBA's assets and liabilities. For this
reason, FBA places greater emphasis on a simulation model for monitoring its
interest rate risk exposure.
<PAGE> 73
Liquidity
The liquidity of FBA and the Subsidiary Banks is the ability to maintain a
cash flow which is adequate to fund operations and meet obligations and other
commitments on a timely basis. The Subsidiary Banks receive funds for liquidity
from customer deposits, loan payments, maturities of loans and investments,
sales of investments and earnings. In addition, the Subsidiary Banks may avail
themselves of more volatile sources of funds through the issuance of
certificates of deposit in denominations of $100,000 or more, federal funds
borrowed, securities sold under agreements to repurchase and borrowings from the
FHLB. The aggregate funds acquired from these more volatile sources were $41.2
million and $33.8 million at December 31, 1997 and 1996, respectively.
The following table presents the maturity structure of volatile funds,
which consists of certificates of deposit of $100,000 or more and other
short-term borrowings, at December 31, 1997:
December 31, 1997
-----------------
(dollars expressed in thousands)
3 months or less................. $ 15,404
Over 3 through 6 months.......... 8,338
Over 6 through 12 months ........ 8,447
Over 12 months................... 8,995
--------
Total................... $ 41,184
========
In addition to these more volatile sources of funds, FBA borrowed $14.5
million and $14.0 million at December 31, 1997 and 1996, respectively, from
First Banks under a $20.0 million promissory note payable (Note Payable) to
facilitate the funding of its acquisitions. The borrowings under the Note
Payable bear interest at an annual rate of one-quarter percent less than the
"Prime Rate" as reported in the Wall Street Journal. The principal and accrued
interest under the Note Payable are due and payable on October 31, 2001.
Management believes the available liquidity and operating results of the
Subsidiary Banks will be sufficient to provide funds for growth and to meet
FBA's operating and debt service requirements both on a short-term and long-term
basis, including the Note Payable with First Banks.
Year 2000 Compatibility
FBA has significant dependence on various computer equipment and software
for its daily operations. Most software systems were originally designed to
operate using date fields which contain two digits to correspond to the last two
digits of the Year. With the approaching change to the Year 2000, this
limitation in these systems could cause the computers to misinterpret years
beginning with "20" as instead being years beginning with "19". If not
corrected, this could cause miscalculation of data for financial purposes, and
operating failure of equipment which is date dependent. While the most obvious
location of this problem is the mainframe computer system, there are many other
potential ramifications. These can be categorized as: (1) the ancillary software
systems which are used for various other purposes throughout FBA on secondary
mainframe computers, personal computers or intelligent terminals; (2) other
types of equipment which are not related to or connected to computer equipment,
such as vault time locks, elevators, security equipment and heating/air
conditioning systems, which are used in bank branches for various purposes; and
(3) the effects which the transition to the Year 2000 may have on external
suppliers and servicers, as well as the loan and deposit customers of FBA.
Recognizing this, FBA has established an operating committee, which
includes representatives of First Banks, to identify all of the various Year
2000 problems which may arise and work with the various departments within FBA
to address these issues. Since most of the software used by FBA is purchased
from outside vendors, FBA has been working with these vendors to ensure the
issues are being corrected. In a few instances, there are particular systems or
equipment which the vendors do not intend to convert to Year 2000 compatibility.
However, generally these are items which are at the end of their economic lives
and scheduled for replacement. Consequently, FBA believes its cost of Year 2000
compliance will not be material to its financial position or results of
operation. These costs are expensed as incurred.
<PAGE> 74
FBA and its Subsidiary Banks are subject to risks associated with the Year
2000 software problem, a term which refers to uncertainties about the ability of
various software systems to interpret dates correctly after the beginning of the
Year 2000. FBA's process of evaluating potential effects of Year 2000 issues on
customers of the Subsidiary Banks is in its early stages, and it is therefore
impossible to quantify the potential adverse effects of incompatible software
systems on loan customers of FBA's Subsidiary Banks. The failure of a commercial
bank customer to prepare adequately for Year 2000 compatibility could have a
significant adverse effect on such customer operations and profitability, in
turn inhibiting its ability to repay loans in accordance with their terms. Until
sufficient information is accumulated from customers of the Subsidiary Banks to
enable FBA to assess the degree to which customers' operations are susceptible
to potential problems, FBA will be unable to quantify the potential for losses
from loans to commercial customers.
Effect of New Accounting Standards
During 1997, the Financial Accounting Standards Board (FASB) issued
Statement on Financial Accounting Standards (SFAS) No. 130 - Reporting
Comprehensive Income. The statement establishes standards for reporting and
displaying income and its components (revenues, gains, and losses) in a full set
of general purpose financial statements. The statement requires all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Although the statement is
effective for fiscal years beginning after December 15, 1997, FBA does not
believe the SFAS will have a material impact to the Company's financial
statements.
In addition, the FASB issued SFAS No. 131 - Disclosures about Segments of
an Enterprise and Related Information. The statement establishes standards for
the way public business enterprises report information about operating segments
in annual financial statements and requires those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. Additionally, the statement establishes standards for related
disclosures about products and services, geographic areas, and major customers
superseding SFAS No. 14 - Financial Reporting for Segments of a Business
Enterprise. FBA is currently evaluating information required in the statement
and believes expanded disclosure information will be required to be included in
FBA's financial statements beginning in 1998.
Effects of Inflation
Financial institutions are less affected by inflation than other types of
companies. Financial institutions make relatively few significant asset
acquisitions which are directly affected by changing prices. Instead, the assets
and liabilities are primarily monetary in nature. Consequently, interest rates
are more significant to the performance of financial institutions than the
effect of general inflation levels. While a relationship exists between the
inflation rate and interest rates, FBA believes this is generally manageable
through its asset/liability management program.
<PAGE> 75
<TABLE>
<CAPTION>
FIRST BANKS AMERICA, INC.
QUARTERLY CONDENSED FINANCIAL DATA
(Unaudited)
1997
----
4th 3rd 2nd 1st
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income......................................... $7,802 7,495 6,949 6,637
Interest expense......................................... 3,418 3,210 3,109 3,097
------ ------ ----- -----
Net interest income......................... 4,384 4,285 3,840 3,540
Provision for possible loan losses....................... 250 465 735 550
------ ------ ----- -----
Net interest income after provision
for possible loan losses.................. 4,134 3,820 3,105 2,990
------ ------ ----- -----
Noninterest income:
Gains on sales of securities.......................... 76 -- -- --
Other................................................. 510 500 823 655
------ ------ ----- ------
Total noninterest income.................... 586 500 823 655
------ ------ ----- -----
Noninterest expense...................................... 3,155 2,821 2,669 3,031
------ ------ ----- -----
Income before income tax expense............ 1,565 1,499 1,259 614
Income tax expense....................................... 492 566 463 237
------ ------ ----- -----
Net income.................................. $1,073 933 796 377
====== ====== ===== ======
Earnings per common share:
Basic................................................. $ 0.30 0.26 0.22 0.10
Diluted............................................... 0.29 0.26 0.22 0.10
====== ====== ====== ======
1996
----
4th 3rd 2nd 1st
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(dollars in thousands, except per share data)
Interest income......................................... $6,157 5,299 4,982 5,008
Interest expense......................................... 2,834 2,233 2,452 2,474
------ ----- ----- ------
Net interest income......................... 3,323 3,066 2,530 2,534
Provision for possible loan losses....................... 650 250 250 100
------ ----- ----- ------
Net interest income after provision
for possible loan losses.................. 2,673 2,816 2,280 2,434
------ ----- ----- ------
Noninterest income:
Gains on sales of securities.......................... 110 -- -- 75
Other................................................. 435 429 436 363
------ ----- ----- ------
Total noninterest income.................... 545 429 436 438
------ ----- ----- ------
Noninterest expense...................................... 2,858 2,535 1,994 2,093
------ ----- ----- ------
Income before income tax expense............ 360 710 722 779
Income tax expense....................................... 147 253 284 318
------ ----- ----- ------
Net income.................................. $ 213 457 438 461
====== ===== ===== ======
Earnings per common share:
Basic................................................. $ 0.06 0.12 0.12 0.12
Diluted............................................... 0.06 0.12 0.11 0.12
====== ===== ===== ======
</TABLE>
<PAGE> 76
FIRST BANKS AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
------------
1997 1997 1996
---- ---- ----
pro forma
(unaudited)
Assets
------
Cash and cash equivalents:
<S> <C> <C> <C>
Cash and due from banks................................................ $ 34,399 23,537 12,343
Interest-bearing deposits with other financial
institutions with maturities of three months or less................ 2,607 690 146
Federal funds sold..................................................... 4,915 2,215 9,475
--------- --------- ---------
Total cash and cash equivalents................................... 41,921 26,442 21,964
--------- --------- ---------
Investment securities available for sale, at fair value.................... 148,181 83,791 86,910
Loans:
Commercial and financial............................................... 113,807 69,091 48,025
Real estate construction and development............................... 94,587 66,601 44,238
Real estate mortgage................................................... 171,842 103,718 54,761
Consumer and installment............................................... 77,390 69,923 96,096
Loans held for sale.................................................... 5,708 5,708 --
--------- --------- --------
Total loans....................................................... 463,334 315,041 243,120
Unearned discount...................................................... (2,588) (1,604) (1,246)
Allowance for possible loan losses..................................... (12,313) (6,715) (6,147)
--------- --------- ---------
Net loans......................................................... 448,433 306,722 235,727
--------- --------- ---------
Bank premises and equipment, net of
accumulated depreciation............................................... 10,852 8,679 6,369
Intangibles associated with the purchase of subsidiaries................... 12,000 6,424 3,127
Accrued interest receivable................................................ 5,029 2,963 2,348
Foreclosed property, net................................................... 842 381 785
Deferred tax assets........................................................ 14,498 13,812 15,519
Other assets............................................................... 3,851 2,042 2,433
--------- --------- ---------
Total assets...................................................... $ 685,607 451,256 375,182
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE> 77
FIRST BANKS AMERICA, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
------------
1997 1997 1996
---- ---- ----
pro forma
(unaudited)
Liabilities
-----------
Deposits:
Demand:
<S> <C> <C> <C>
Non-interest-bearing ................................................ $ 101,039 66,396 56,161
Interest-bearing..................................................... 74,965 57,011 53,310
Savings................................................................ 158,080 90,773 66,523
Time deposits:
Time deposits of $100 or more........................................ 56,373 38,377 31,679
Other time deposits.................................................. 199,945 131,385 112,133
---------- --------- ---------
Total deposits.................................................... 590,402 383,942 319,806
Short-term borrowings...................................................... 3,687 2,807 2,092
Promissory note payable.................................................... 9,100 14,500 14,000
Accrued interest payable................................................... 4,242 2,246 904
Deferred tax liabilities................................................... 1,273 983 909
Payable to former shareholders of Surety Bank.............................. 3,829 3,829 --
Accrued expenses and other liabilities..................................... 5,167 3,085 3,973
12% convertible debentures................................................. 6,500 -- --
---------- ---------- ----------
Total liabilities................................................. 624,200 411,392 341,684
---------- --------- ---------
Stockholders' Equity
--------------------
Common stock:
Common stock, $0.15 par value; 6,666,666 shares
authorized at December 31, 1997 and 1996; 3,238,417
pro forma shares, 1,682,689 shares and 1,412,900 shares
issued at December 31, 1997 and 1996, respectively................... 486 252 212
Class B common stock, $.15 par value; 4,000,000
shares authorized; 2,500,000 shares issued and
outstanding at December 31, 1997 and 1996............................ 375 375 375
Capital surplus............................................................ 63,636 42,497 38,036
Retained earnings (deficit), since elimination of accumulated
deficit of $259,117 effective December 31, 1994........................ 928 928 (2,251)
Common treasury stock, at cost; 386,458 shares and 280,430
shares at December 31, 1997 and 1996, respectively..................... (4,350) (4,350) (2,838)
Net fair value adjustment for securities available for sale................ 332 162 (36)
---------- --------- ---------
Total stockholders' equity........................................ 61,407 39,864 33,498
---------- --------- ---------
Total liabilities and stockholders' equity........................ $ 685,607 451,256 375,182
========== ========= =========
</TABLE>
<PAGE> 78
<TABLE>
<CAPTION>
FIRST BANKS AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars expressed in thousands, except per share data)
Years ended December 31,
------------------------
1997 1997 1996 1995
---- ---- ---- ----
pro forma
(unaudited)
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans........................................ $ 29,451 23,159 16,494 17,462
Investment securities............................................. 6,793 5,073 3,519 4,473
Federal funds sold and other...................................... 1,021 651 1,433 492
-------- ------- ------- -------
Total interest income........................................ 37,265 28,883 21,446 22,427
-------- ------- ------- -------
Interest expense:
Deposits:
Interest-bearing demand......................................... 1,312 1,174 487 455
Savings......................................................... 3,209 2,350 1,854 2,026
Time deposits of $100 or more................................... 1,946 1,631 1,409 1,300
Other time deposits............................................. 8,168 6,159 5,551 5,148
Promissory note payable and other borrowings...................... 2,085 1,520 692 2,289
-------- ------- ------- -------
Total interest expense....................................... 16,720 12,834 9,993 11,218
-------- ------- ------- -------
Net interest income.......................................... 20,545 16,049 11,453 11,209
Provision for possible loan losses.................................... 2,000 2,000 1,250 5,826
-------- ------- ------- -------
Net interest income after provision
for possible loan losses................................... 18,545 14,049 10,203 5,383
-------- ------- ------- -------
Noninterest income (loss):
Service charges on deposit accounts............................... 2,005 1,632 1,507 1,458
Loan sales and servicing income................................... 33 22 53 159
Other income...................................................... 894 834 103 1,253
Gain (loss) on sales of securities, net........................... 76 76 185 (2,996)
-------- ------- ------- -------
Total noninterest income (loss).............................. 3,008 2,564 1,848 (126)
-------- ------- ------- -------
Noninterest expense:
Salaries and employee benefits.................................... 5,453 4,219 3,072 4,029
Occupancy, net of rental income................................... 1,886 1,440 951 1,274
Furniture and equipment........................................... 1,016 805 613 663
Federal Deposit Insurance Corporation premiums.................... 112 102 160 313
Postage, printing and supplies.................................... 438 346 267 303
Legal, examination and professional fees.......................... 2,765 2,005 1,276 1,354
Data processing................................................... 942 715 334 664
Communications.................................................... 614 521 421 553
(Gain) loss on sale of foreclosed property, net of expenses....... (332) (303) 146 176
Other............................................................. 2,399 1,826 2,240 1,831
-------- ------- ------- -------
Total noninterest expense.................................... 15,293 11,676 9,480 11,160
-------- ------- ------- -------
Income (loss) before provision for
income tax expense (benefit)............................ 6,260 4,937 2,571 (5,903)
Provision for income tax expense (benefit)............................ 2,611 1,758 1,002 (2,083)
-------- ------- ------- -------
Net income (loss)............................................ $ 3,649 3,179 1,569 (3,820)
======== ======= ======= =======
Earnings (loss) per common share:
Basic............................................................. $ 0.90 0.88 0.42 (0.99)
Diluted........................................................... 0.89 0.87 0.40 (0.99)
======== ======= ======= =======
Weighted average common stock outstanding (in thousands).............. 4,069 3,607 3,763 3,870
======== ======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE> 79
<TABLE>
<CAPTION>
FIRST BANKS AMERICA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three years ended December 31, 1997
(dollars expressed in thousands, except per share data)
Net fair
value
adjustment Total
Class B Retained Common for securities stock-
Common common Capital earnings treasury available holders'
stock stock surplus (deficit) stock for sale equity
----- ----- ------- --------- ----- -------- ------
Consolidated balances,
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1995.................$ 206 375 39,133 -- -- -- 39,714
Year ended December 31, 1995:
Consolidated net loss........... -- -- -- (3,820) -- -- (3,820)
Exercise of stock options....... 4 -- 111 -- -- -- 115
Compensation paid in stock...... -- -- 27 -- -- -- 27
Repurchases of common stock..... -- -- -- -- (828) -- (828)
Net fair value adjustment for
securities available for sale. -- -- -- -- -- 50 50
---- ---- ------ ----- ----- ---- ------
Consolidated balances,
December 31, 1995............... 210 375 39,271 (3,820) (828) 50 35,258
Year ended December 31, 1996:
Consolidated net income......... -- -- -- 1,569 -- -- 1,569
Exercise of stock options....... 2 -- 36 -- -- -- 38
Compensation paid in stock...... -- -- 10 -- -- -- 10
Repurchase of outstanding
warrants...................... -- -- (1,281) -- -- -- (1,281)
Repurchases of common stock..... -- -- -- -- (2,010) -- (2,010)
Net fair value adjustment for
securities available for sale. -- -- -- -- -- (86) (86)
---- ---- ----- ----- ----- ---- ------
Consolidated balances,
December 31, 1996............... 212 375 38,036 (2,251) (2,838) (36) 33,498
Year ended December 31, 1997:
Consolidated net income......... -- -- -- 3,179 -- -- 3,179
Issuance of common stock
for purchase accounting
acquisition................... 40 -- 4,723 -- -- -- 4,763
Exercise of stock options....... -- -- 15 -- -- -- 15
Redemption of stock options.... -- -- (290) -- -- -- (290)
Compensation paid in stock...... -- -- 13 -- -- -- 13
Repurchases of common stock..... -- -- -- -- (1,512) -- (1,512)
Net fair value adjustment for
securities available for sale. -- -- -- -- -- 198 198
---- ---- ----- ----- ------ ---- ------
Consolidated balances,
December 31, 1997............... $252 375 42,497 928 (4,350) 162 39,864
==== ==== ====== ===== ====== ==== ======
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE> 80
<TABLE>
<CAPTION>
FIRST BANKS AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars expressed in thousands)
Years ended December 31,
------------------------
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss)...................................................... 3,179 1,569 (3,820)
Adjustments to reconcile net income (loss) to cash provided
by operating activities:
Depreciation, amortization and accretion, net...................... 694 (172) 337
Provision for possible loan losses................................. 2,000 1,250 5,826
Provision (benefit) for income taxes............................... 1,758 1,002 (2,083)
Payments of income taxes........................................... (213) -- --
(Gain) loss on sales of securities, net............................ (76) (185) 2,996
(Increase) decrease in accrued interest receivable................. (615) (1,084) 481
Interest accrued on liabilities.................................... 12,834 9,993 11,218
Payments of interest on liabilities................................ (11,492) (9,984) (11,142)
Other operating activities, net.................................... (66) (1,836) (860)
-------- ------- --------
Net cash provided by operating activities.................... 8,003 553 2,953
-------- ------- --------
Cash flows from investing activities:
Cash paid for acquired entities, net of cash and cash
equivalents received................................................. 3,072 10,715 --
Sales of investment securities......................................... 11,073 20,564 70,995
Maturities of investment securities.................................... 54,805 161,223 54,380
Purchases of investment securities..................................... (50,126) (205,661) (104,753)
Net (increase) decrease in loans....................................... (20,031) 7,481 6,469
Recoveries of loans previously charged-off............................. 1,281 1,392 715
Purchases of bank premises and equipment............................... (487) (191) (489)
Proceeds from sales of other real estate............................... 1,020 508 743
Other investing activities............................................. (258) -- (6,414)
-------- -------- --------
Net cash provided by (used in) investing activities.......... 349 (3,969) 21,646
-------- ------- --------
Cash flows from financing activities: Other increases (decreases) in deposits:
Demand and savings deposits.......................................... 1,664 (7,444) (454)
Time deposits........................................................ (4,978) (13,159) 8,147
Decrease in federal funds purchased and other
short-term borrowings................................................ -- (352) (5,257)
Decrease in Federal Home Loan Bank advances............................ (1,122) (3,957) (13,749)
Increase (decrease) in securities sold under agreements to repurchase.. 1,836 (324) (18,722)
Increase in promissory note payable.................................... 500 12,946 --
Repurchase of common stock for treasury and warrant.................... (1,512) (3,290) (828)
Repurchase of stock option............................................. (290) -- --
Proceeds from exercise of stock options................................ 28 38 115
-------- ------- --------
Net cash used in financing activities........................ (3,874) (15,542) (30,748)
--------- ------- --------
Net increase (decrease) in cash and cash equivalents......... 4,478 (18,958) (6,149)
Cash and cash equivalents, beginning of year............................... 21,964 40,922 47,071
-------- ------- --------
Cash and cash equivalents, end of year..................................... $ 26,442 21,964 40,922
======== ======= ========
Noncash investing and financing activities:
Loans transferred to foreclosed real estate............................ $ 176 286 203
Issuance of common stock in purchase accounting acquisition............ 4,763 -- --
Loans transferred from loans held for sale............................. -- -- 7,253
Receivable from sale of investment securities.......................... $ -- -- 4,915
========= ======= ========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE> 81
(1) Summary of Significant Accounting Policies
The accompanying consolidated financial statements of First Banks America,
Inc. and subsidiaries (FBA or the Company), have been prepared in accordance
with generally accepted accounting principles and conform to practices prevalent
among financial institutions. The following is a summary of the more significant
policies followed by FBA:
Basis of Presentation. The consolidated financial statements of FBA have
been prepared in accordance with generally accepted accounting principles and
conform to predominant practices within the banking industry. Management of FBA
has made a number of estimates and assumptions relating to the reporting of
assets and liabilities and the disclosure of contingent assets and liabilities
to prepare the consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates. Certain 1996 and 1995 amounts have been reclassified to conform with
the 1997 presentation.
As more fully discussed in Note 2, the unaudited pro forma balance sheet as
of December 31, 1997 and unaudited pro forma statement of operations for the
year ended December 31, 1997 have been prepared to reflect the effects on the
historical results of FBA of the acquisitions of First Commercial Bancorp, Inc.
(FCB) and its wholly owned subsidiary, First Commercial Bank (First Commercial),
and Pacific Bay Bank. The unaudited pro forma balance sheet and unaudited pro
forma statement of operations have been prepared as if the acquisitions occurred
on December 31, 1997. In addition, the historical results of First Banks, Inc.'s
interest in FCB is presented as if FBA had acquired First Banks, Inc.'s interest
in FCB on August 25, 1995. The pro forma financial information is not
necessarily indicative of the results that will occur in the future.
The Board of Directors of FBA elected to implement an accounting adjustment
referred to as a "quasi-reorganization," effective December 31, 1994. In
accordance with accounting provisions applicable to a quasi-reorganization, the
assets and liabilities of FBA were adjusted to their fair value and the
accumulated deficit was eliminated as of December 31, 1994.
Principles of Consolidation. The consolidated financial statements include
the accounts of the parent company and its subsidiaries, all of which are wholly
owned. All significant intercompany accounts and transactions have been
eliminated.
FBA operates through two banking subsidiaries, BankTEXAS N.A.,
headquartered in Houston, Texas (BankTEXAS) and First Bank of California,
headquartered in Roseville, California (FB California), collectively referred to
as Subsidiary Banks.
Cash and Cash Equivalents. Cash, due from banks, federal funds sold, and
interest-bearing deposits with original maturities of three months or less are
considered to be cash and cash equivalents for purposes of the consolidated
statements of cash flows.
The Subsidiary Banks are required to maintain certain daily reserve
balances in accordance with regulatory requirements. These reserve balances were
$3.6 million and $2.6 million at December 31, 1997 and 1996, respectively.
Investment Securities. The classification of investment securities as
available for sale or held to maturity is determined at the date of purchase.
FBA does not engage in the trading of investment securities.
Investment securities classified as available for sale are those debt and
equity securities for which FBA has no immediate plan to sell, but which may be
sold in the future if circumstances warrant. Available-for-sale securities are
stated at current fair value. Realized gains and losses are included in
noninterest income upon commitment to sell, based on the amortized cost of the
individual security sold. Unrealized gains and losses are recorded, net of
related income tax effects, in a separate component of stockholders' equity. All
previous fair value adjustments included in stockholders' equity are reversed
upon sale.
<PAGE> 82
Investment securities designated as held to maturity are those debt
securities which FBA has the positive intent and ability to hold until maturity.
Held-to-maturity securities are stated at amortized cost, in which the
amortization of premiums and accretion of discounts are recognized over the
contractual maturities or estimated lives of the individual securities, adjusted
for anticipated prepayments, using the level yield method.
At December 31, 1997 and 1996, all investment securities were classified as
available for sale.
Loans. Loans held for portfolio are carried at cost, adjusted for
amortization of premiums and accretion of discounts using a method which
approximates the level yield method. Interest and fees on loans are recognized
as income using the interest method. Loans held for portfolio are stated at cost
as FBA has the ability and it is management's intention to hold them to
maturity.
The accrual of interest on loans is discontinued when it appears that
interest or principal may not be paid in a timely manner in the normal course of
business. Generally, payments received on nonaccrual and impaired loans are
recorded as principal reductions. Interest income is recognized after all
principal has been repaid or an improvement in the condition of the loan has
occurred which would warrant resumption of interest accruals.
A loan is considered impaired when it is probable a creditor will be unable
to collect all amounts due, both principal and interest, according to the
contractual terms of the loan agreement. When measuring impairment, the expected
future cash flows of an impaired loan are discounted at the loan's effective
interest rate. Alternatively, impairment is measured by reference to an
observable market price, if one exists, or the fair value of the collateral for
a collateral-dependent loan. Regardless of the historical measurement method
used, FBA measures impairment based on the fair value of the collateral when the
creditor determines foreclosure is probable. Additionally, impairment of a
restructured loan is measured by discounting the total expected future cash
flows at the loan's effective rate of interest as stated in the original loan
agreement. FBA continues to use its existing nonaccrual methods for recognizing
interest income on impaired loans.
Loans Held for Sale. Mortgage loans held for sale are carried at the lower
of cost or market value which is determined on an individual loan basis. Gains
or losses on the sale of loans held for sale are determined on a specific
identification method.
Allowance for Possible Loan Losses. The allowance for possible loan losses
is maintained at a level considered adequate to provide for potential losses.
The provision for possible loan losses is based on a periodic analysis of the
loans by management, considering, among other factors, current economic
conditions, loan portfolio composition, past loan loss experience, independent
appraisals, loan collateral and payment experience. In addition to the allowance
for estimated losses on impaired loans, an overall unallocated allowance is
established to provide for unidentified credit losses which are inherent in the
portfolio. As adjustments become necessary, they are reflected in the results of
operations in the periods in which they become known.
Bank Premises and Equipment. Bank premises and equipment are stated at cost
less accumulated depreciation and amortization. Depreciation is computed
primarily using the straight-line method over the estimated useful lives of the
related assets. Amortization of leasehold improvements is calculated using the
straight-line method over the shorter of the useful life of the improvement or
term of the lease. Bank premises and improvements are depreciated over 15 to 29
years and equipment over two to ten years.
Intangibles Associated With the Purchase of Subsidiaries. The excess of
cost over net assets acquired of purchased subsidiaries are amortized using the
straight-line method over the estimated periods to be benefited, which has been
estimated at 15 years.
Foreclosed Property. Foreclosed property, consisting of real estate
acquired through foreclosure or deed in lieu of foreclosure, is stated at the
lower of fair value less applicable selling costs or cost at the time the
property is acquired. The excess of cost over fair value of the property at the
date of acquisition is charged to the allowance for possible loan losses.
<PAGE> 83
Income Taxes. FBA and its subsidiaries join in filing consolidated federal
income tax returns. Each subsidiary pays its allocation of federal income taxes
to FBA, or receives payment from FBA to the extent that tax benefits are
realized. Separate state franchise tax returns are filed in Texas, Delaware and
Nevada for the appropriate entities. FBA and its subsidiaries join in filing
Illinois and California unitary income tax returns with First Banks.
Financial Instruments. A financial instrument is defined as cash, evidence
of an ownership interest in an entity, or a contract that conveys or imposes on
an entity the contractual right or obligation to either receive or deliver cash
or another financial instrument.
Financial Instruments With Off-Balance-Sheet Risk. FBA uses financial
instruments to reduce the interest rate risk arising from its financial assets
and liabilities. These instruments involve, in varying degrees, elements of
interest rate risk and credit risk in excess of the amount recognized in the
consolidated balance sheets. "Interest rate risk" is defined as the possibility
that interest rates may move unfavorably from the perspective of FBA. The risk
that a counterparty to an agreement entered into by FBA may default is defined
as "credit risk." These financial instruments include one interest rate cap
agreement.
FBA is party to commitments to extend credit and commercial and standby
letters of credit in the normal course of business to meet the financing needs
of its customers. These commitments involve, in varying degrees, elements of
interest rate risk and credit risk in excess of the amount recognized in the
consolidated balance sheets.
Interest Rate Futures Contracts. Prior to 1996, interest rate futures
contracts were utilized to manage the interest rate risk of the
available-for-sale securities portfolio. Gains and losses on interest rate
futures contracts, which qualified as hedges, were deferred. Amortization of the
net deferred gains or losses was applied to the interest income of the
available-for-sale securities portfolio using the straight-line method. The net
deferred gains and losses were applied to the carrying value of the
available-for-sale securities portfolio as part of the mark to market valuation.
When the hedged assets were sold, the related gain or loss on the interest rate
futures contract was immediately recognized in the consolidated statements of
operations.
Interest Rate Cap Agreements. Interest rate cap agreements are accounted
for on an accrual basis with the net interest differential being recognized as
an adjustment to interest expense of the related liability. Premiums and fees
paid upon the purchase of interest rate cap agreements are amortized to interest
expense over the life of the agreements using the interest method. In the event
of early termination of an interest rate cap agreement, the net proceeds
received or paid are deferred and amortized over the shorter of the remaining
contract life or the maturity of the related liability. If, however, the amount
of the underlying hedged liability is repaid, then the gain or loss on the
agreement is recognized immediately in the consolidated statements of
operations. The unamortized premiums and fees paid are included in other assets
in the accompanying consolidated balance sheets.
Earnings (Loss) Per Common Share. FBA adopted the provisions of SFAS 128,
Earnings Per Share (SFAS 128), on a retroactive basis effective December 31,
1997. Accordingly, earnings (loss) per common share (EPS) data has been restated
to conform with the provisions of SFAS 128.
SFAS 128 provides for the calculation of a "Basic" and "Diluted" EPS. Basic
EPS is computed by dividing the income (loss) available to common stockholders
(the numerator) by the weighted average number of common shares
outstanding (the denominator) during the year. The computation of dilutive EPS
is similar except the denominator is increased to include the number of
additional common shares that would have been outstanding if the dilutive
potential shares had been issued. In addition, in computing the dilutive effect
of convertible securities, the numerator is adjusted to add back (a) any
convertible preferred dividends and (b) the after-tax amount of interest
recognized in the period associated with any convertible debt. The
implementation of SFAS 128 did not have a material impact on the calculation of
EPS.
<PAGE> 84
(2) Acquisitions
On November 1, 1996, FBA completed its acquisition of Sunrise Bancorp, a
California corporation (Sunrise), and its wholly owned subsidiary, Sunrise Bank,
in exchange for $17.5 million in cash. At the time of the transaction, Sunrise
had $110.8 million in total assets, $45.5 million in cash and cash equivalents
and investment securities, $61.1 million in total loans, net of unearned
discount, and $91.1 million in total deposits. The acquisition was funded from
available cash and borrowings of $14.0 million under a promissory note payable
(Note Payable) with First Banks, Inc., St. Louis, Missouri (First Banks). First
Banks owns a majority of the outstanding voting stock of FBA, representing 65.9%
and 68.8% at December 31, 1997 and 1996, respectively.
On December 1, 1997, FBA completed its acquisition of Surety Bank in
exchange for 264,622 shares of FBA common stock and cash of $3.8 million. The
cash portion of this transaction, which was paid to the former shareholders of
Surety Bank in January 1998, was funded by an advance under the Note Payable. At
the time of the transaction, Surety had $72.8 million in total assets, $14.9
million in cash and cash equivalents and investment securities, $54.4 million in
total loans, net of unearned discount, and $67.5 million in total deposits.
Sunrise was merged into a wholly owned subsidiary of FBA. Sunrise Bank and
Surety Bank were merged into FB California, a newly-formed commercial bank
charter of FBA. The acquisitions of Sunrise and Surety Bank were accounted for
under the purchase method of accounting and, accordingly, the consolidated
financial statements include the financial position and results of operations
for the period subsequent to the acquisition dates, and the assets acquired and
liabilities assumed were recorded at fair value at the acquisition date. The
excess of the cost over the fair value of the net assets acquired was $3.2
million and $3.3 million for Sunrise and Surety Bank, respectively, and is being
amortized over 15 years.
On February 2, 1998, FBA and FCB were merged. Under the terms of the
Agreement and Plan of Merger (Agreement), FCB was merged into FBA, and FCB's
wholly owned subsidiary, First Commercial Bank, was merged into FB California,
an indirect subsidiary bank of FBA. The FCB shareholders received .8888 shares
of FBA common stock for each share of FCB common stock that they held. In total,
FCB shareholders received approximately 751,728 shares of FBA common stock. The
transaction also provided for First Banks to receive 804,000 shares of FBA
common stock in exchange for $10.0 million of the Note Payable. In addition,
FCB's convertible debentures of $6.5 million, which are owned by First Banks,
were exchanged for comparable debentures in FBA.
FCB had six banking offices located in Sacramento, Roseville (2), San
Francisco, Concord and Campbell, California. At December 31, 1997, FCB had total
assets of $191.6 million and net income of $764,000 for the year then ended.
First Banks owned a majority interest in both FBA and FCB. Consistent with
the accounting treatment for companies under common control, the merger was
accounted for by FBA as follows:
First Banks' interest in FCB was accounted for by FBA at First
Banks' historical cost. First Banks' historical cost basis in FCB
was determined under the purchase method of accounting, effective
upon First Banks' acquisition of First Commercial on August 23,
1995. Accordingly, the consolidated financial statements of First
Banks will include the financial position and results of
operations for the periods subsequent to the acquisition date, and
the assets acquired and liabilities assumed were recorded at fair
value at the acquisition date.
Effective with the merger, because the two entities were under the
common control of First Banks, the consolidated financial
statements of FBA will be restated in 1998 to reflect First Banks'
interest in the financial condition and results of operations of
FCB for the periods subsequent to August 23, 1995.
<PAGE> 85
The amount attributable to the interests of the minority
shareholders in the fair value of the net assets of FCB was
accounted for by FBA under the purchase method of accounting.
Accordingly, such amount was reflected by FBA at fair value, as
determined by the market value of FBA common stock exchanged for
the minority interest pursuant to the Agreement.
The following information presents unaudited pro forma condensed results of
operations of FBA, combined with the acquisition of Surety Bank, as if FBA had
completed the transaction on January 1, 1996. In addition, the historical
results of First Banks' interest in FCB is presented as if FBA had acquired
First Banks' interest in FCB on August 25, 1995:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996 1995
---- ---- ----
(dollars expressed in thousands, except per share data)
<S> <C> <C> <C>
Net interest income........................... $ 23,811 19,015 13,274
Provision for possible loan losses........... 2,255 2,469 6,376
Net income (loss)............................ 3,589 352 (4,736)
======== ======= =======
Weighted average shares of common
stock outstanding (in thousands)......... 5,138 5,294 4,332
======== ======= =======
Earnings (loss) per common share:
Basic.................................... $ 0.70 0.07 (1.09)
Diluted.................................. 0.69 0.06 (1.09)
======== ======= =======
</TABLE>
The unaudited pro forma condensed results of operations reflect the
application of the purchase method of accounting for Surety Bank and certain
other assumptions. Purchase accounting adjustments have been applied to
investment securities, bank premises and equipment, deferred tax assets and
liabilities and excess cost required to reflect the assets acquired and
liabilities assumed at fair value. The resulting premiums and discounts are
amortized or accreted to income consistent with the accounting policies of FBA.
The results of operations of Sunrise are not included in the pro forma
combined condensed statements of operations for the year ended December 31, 1996
as the historical results of operations for the period are not representative of
normal operating results subsequent to its acquisition by FBA.
On February 2, 1998, FBA completed its acquisition of Pacific Bay Bank in
exchange for cash of $4.2 million. This transaction was funded by an advance
under the Note Payable. At the time of the transaction, Pacific Bay Bank had
$38.3 million in total assets; $7.4 million in cash and cash equivalents; $29.7
million in total loans, net of unearned discount; and, $35.2 million in total
deposits.
<PAGE> 86
(3) Investments in Debt and Equity Securities
The amortized cost, contractual maturity, unrealized gains and losses and
fair value of investment securities available for sale at December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
Maturity Total
After amor- Gross
1 Year 1-5 5-10 10 tized unrealized Weighted
------- Fair average
or less years years years cost Gains Losses value yield
------- ----- ----- ----- ---- ----- ------ ----- ------
(dollars expressed in thousands)
December 31, 1997:
Carrying value:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury.................. $ 11,000 27,070 -- -- 38,070 240 (1) 38,309 6.00%
U.S. government agencies and
corporations:
Mortgage-backed......... -- 13,449 47 6,755 20,251 38 (20) 20,269 6.06
Other................... 6,483 12,701 -- -- 19,184 6 (15) 19,175 6.14
Federal Home Loan Bank and
Federal Reserve Bank stock
(no stated maturity)........ 6,038 -- -- -- 6,038 -- -- 6,038 5.87
-------- ------ --- ----- ------- --- ---- ------- ----
Total.............. $ 23,521 53,220 47 6,755 83,543 284 (36) 83,791 6.03
======== ====== === ===== ======= === ==== ======= ====
Market value:
Debt securities................ $ 17,490 53,423 47 6,793
Equity securities.............. 6,038 -- -- --
-------- ------- --- -----
Total.............. $ 23,528 53,423 47 6,793
======== ====== === =====
Weighted average yield............ 5.84% 5.98% 6.56% 7.23%
==== ==== ==== ====
December 31, 1996:
Carrying value:
U.S. Treasury.................. $ 20,016 6,072 -- -- 26,088 81 -- 26,169 5.38%
U.S. government agencies and
corporations:
Mortgage-backed......... -- 23,668 -- 8,857 32,525 29 (153) 32,401 6.05
Other................... 18,087 4,969 -- -- 23,056 14 (26) 23,044 5.31
Federal Home Loan Bank an
Federal Reserve Bank stock
(no stated maturity)........ 5,296 -- -- -- 5,296 -- -- 5,296 5.87
-------- ------ --- ---- ------- --- ---- ------- ----
Total.............. $ 43,399 34,709 -- 8,857 86,965 124 (179) 86,910 5.64
======== ====== === ===== ======= === ==== ======= ====
Market value:
Debt securities................ $ 38,122 34,632 -- 8,860
Equity securities.............. 5,296 -- -- --
-------- ------ ---- -----
Total.............. $ 43,418 34,632 -- 8,860
======== ====== ==== =====
Weighted average yield............ 5.34% 5.63% --% 7.17%
========= ====== ==== =====
</TABLE>
Proceeds from sales of securities were $11.1 million, $20.6 million and
$76.0 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Gross gains of $76,000, $185,000 and $2.2 million were realized on
those sales for the years ended December 31, 1997, 1996 and 1995, respectively.
No losses were realized on those sales for the years ended December 31, 1997,
1996 and 1995. For 1995, the net gains on sales of securities were offset by the
recognition of $5.1 million of hedging losses.
The Subsidiary Banks maintain investments in the Federal Home Loan Bank
(FHLB) and the Federal Reserve Bank (FRB). These investments are recorded at
cost, which represents redemption value. The investment in FHLB stock is
maintained at a minimum amount equal to the greater of 1% of the aggregate
outstanding balance of loans secured by residential real estate, or 5% of
advances from the FHLB. The investment in the FRB stock is maintained at a
minimum of 6% of the Subsidiary Banks' capital stock and capital surplus.
Investment securities with a carrying value of approximately $13.9 million
and $8.4 million at December 31, 1997 and 1996, respectively, were pledged in
connection with deposits of public and trust funds, securities sold under
agreements to repurchase and for other purposes as required by law.
<PAGE> 87
(4) Loans and Allowance for Possible Loan Losses
<TABLE>
<CAPTION>
Changes in the allowance for possible loan losses for the years ended
December 31 were as follows:
1997 1996 1995
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Balance, January 1............................................ $ 6,147 5,228 2,756
Acquired allowance for possible loan losses................... 30 2,338 --
------- ------- -------
6,177 7,566 2,756
------- ------- -------
Loans charged-off............................................. (2,744) (4,061) (4,069)
Recoveries of loans previously charged-off.................... 1,282 1,392 715
------- ------- -------
Net loans charged-off............................. (1,462) (2,669) (3,354)
-------- ------- -------
Provision charged to operations............................... 2,000 1,250 5,826
------- ------- -------
Balance, December 31.......................................... $ 6,715 6,147 5,228
======= ======= =======
</TABLE>
At December 31, 1997 and 1996, FBA had $2.4 million and $2.1 million,
respectively, of loans on nonaccrual status. Interest on nonaccrual loans which
would have been recorded under the original terms of the loans was $298,000,
$161,000 and $93,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. Of these amounts, $259,000, $72,000 and $70,000 was actually
recorded as interest income on such loans in 1997, 1996 and 1995, respectively.
At December 31, 1997 and 1996, FBA had $2.9 million and $3.7 million of
impaired loans, which is represented by loans on nonaccrual status and consumer
installment loans 60 days or more past due. The impaired loans had no specific
reserves at December 31, 1997 and 1996. The average recorded investment in
impaired loans was $2.9 million and $2.2 million for the years ended December
31, 1997 and 1996, respectively.
FBA's primary market areas are Houston, Dallas, Irving and McKinney, Texas
and Roseville, Citrus Heights, Vallejo and Fairfield, California. At December
31, 1997, approximately 58% of the total loan portfolio and 56% of the
commercial, financial and agricultural loan portfolio were to borrowers within
this region.
In general, FBA is a secured lender. At December 31, 1997, approximately
97.6% of the loan portfolio was secured. Collateral is required in accordance
with the normal credit evaluation process based upon the creditworthiness of the
customer and the credit risk associated with the particular transaction.
(5) Bank Premises and Equipment
<TABLE>
<CAPTION>
Bank premises and equipment were comprised of the following at December 31:
1997 1996
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Land................................................... $ 3,224 2,424
Buildings and improvements............................. 4,995 3,234
Furniture, fixtures and equipment...................... 4,039 2,619
Construction in progress............................... 86 41
-------- ------
Total......................................... 12,344 8,318
Less accumulated depreciation ......................... 3,665 1,949
-------- ------
Bank premises and equipment, net.............. $ 8,679 6,369
======== ======
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
totaled $640,000, $553,000 and $544,000, respectively.
<PAGE> 88
FBA leases land, office properties and some items of equipment under
operating leases. Certain of the leases contain renewal options and escalation
clauses. Total rent expense was $667,000, $350,000 and $537,000 for the years
ended December 31, 1997, 1996 and 1995, respectively. Future minimum lease
payments under noncancellable operating leases extend through 2019 as follows:
(dollars expressed in thousands)
Year ending December 31:
1998............................................... $ 1,013
1999............................................... 531
2000............................................... 222
2001............................................... 195
2002............................................... 184
Thereafter......................................... 2,495
-------
Total minimum lease payments............. $ 4,640
=======
FBA leases to unrelated parties a portion of its owned banking facilities.
Total rental income was $740,000, $419,000 and $284,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
(6) Promissory Note Payable
FBA borrowed $14.5 million and $14.0 million at December 31, 1997 and 1996,
respectively, from First Banks under a $20.0 million Note Payable. The
borrowings under the Note Payable bear interest at an annual rate of one-quarter
percent less than the "Prime Rate" as reported in the Wall Street Journal. The
principal and accrued interest under the Note Payable are due and payable on
October 31, 2001. The interest expense under the Note Payable was $1.18 million
and $194,000 for the years ended December 31, 1997 and 1996, respectively. The
accrued and unpaid interest under the Note Payable was $1.37 million and
$194,000 at December 31, 1997 and 1996, respectively. There were no balances
outstanding during 1995.
(7) Earnings Per Common Share
<TABLE>
<CAPTION>
The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations for the periods indicated:
Income Shares Per share
(numerator) (denominator) amount
----------- ------------- ------
(dollars expressed in thousands, except per share data)
Year ended December 31, 1997:
<S> <C> <C> <C>
Basic EPS - income available to common stockholders.... $ 3,179 3,607 $ 0.88
=======
Effect of dilutive securities-stock options............ -- 27
------- ------
Diluted EPS - income available to common stockholders.. $ 3,179 3,634 $ 0.87
======= ====== =======
Year ended December 31, 1996:
Basic EPS - income available to common stockholders.... $ 1,569 3,763 $ 0.42
=======
Effect of dilutive securities:
Stock options....................................... -- 61
Warrants............................................ -- 91
------- ------
Diluted EPS - income available to common stockholders.. $ 1,569 3,915 $ 0.40
======= ====== =======
</TABLE>
As a result of the net loss incurred in 1995, the effects of stock options
and warrants were anti-dilutive for the year then ended.
(8) Income Taxes
Total income tax expense of $1.8 million, $1.0 million, and a tax benefit
of $2.1 million for the years ended December 31, 1997, 1996 and 1995,
respectively, were attributable to income from continuing operations.
<PAGE> 89
<TABLE>
<CAPTION>
Income tax expense (benefit) for the years ended December 31 consists of:
1997 1996 1995
---- ---- ----
(dollars expressed in thousands)
Current income tax expense:
<S> <C> <C> <C>
Federal..................................................... $ -- -- --
State....................................................... -- -- --
------- ------ ------
....................................................... -- -- --
------- ------ ------
Deferred income tax expense (benefit):
Federal..................................................... 1,703 1,005 (2,083)
State....................................................... 55 (3) --
------- ------ ------
....................................................... 1,758 1,002 (2,083)
------- ------ -----
Total..................................................... $ 1,758 1,002 (2,083)
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
The effective rates of federal income taxes for the years ended December 31
differ from statutory rates of taxation as follows:
1997 1996 1995
------------------- -------------------- ----------------
Amount Percent Amount Percent Amount Percent
(dollars expressed in thousands)
Income (loss) before provision
<S> <C> <C> <C> <C> <C>
for income tax expense (benefit). $ 4,937 $2,571 $ (5,903)
======= ====== ========
Tax expense (benefit) at federal
income tax rate.................. $ 1,728 35.0% 900 35.0% $ (2,066) (35.0)%
Effects of differences
in tax reporting................. 30 0.6 102 4.0 (17) (.3)
------- ----- ------ ---- ------- ----
Income tax expense (benefit)
at effective rate.............. $ 1,758 35.6% $1,002 39.0% $ (2,083) (35.3)%
======= ===== ====== ===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
December 31,
------------
1997 1996
---- ----
(dollars expressed in thousands)
Deferred tax assets:
<S> <C> <C>
Allowance for possible loan losses......................... $ 2,202 1,754
Foreclosed property........................................ 633 1,856
Alternative minimum tax credit............................. 288 279
Postretirement medical plan................................ 247 353
Quasi-reorganization adjustment of bank premises........... 1,377 1,427
Other...................................................... 426 728
Net operating loss carryforwards........................... 12,086 12,512
--------- ------
Gross deferred tax assets............................ 17,259 18,909
Valuation allowance........................................ (3,447) (3,390)
--------- -------
Net deferred tax assets.............................. 13,812 15,519
--------- -------
Deferred tax liabilities:
FHLB stock dividends....................................... 409 230
Bank premises and equipment................................ 533 466
Other ..................................................... 41 213
--------- -------
Gross deferred tax liabilities....................... 983 909
--------- -------
Net deferred tax assets.............................. $ 12,829 14,610
========= =======
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
Changes to the deferred tax asset valuation allowance for the years ended
December 31 were as follows:
1997 1996 1995
---- ---- ----
(dollars expressed in thousands)
<S> <C> <C> <C>
Balance, January 1......................................... $3,390 2,731 2,731
Current year deferred provision, change in
deferred tax valuation allowance........................ -- -- --
Purchase acquisitions...................................... 57 659 --
------ ----- ------
Balance, December 31....................................... $3,447 3,390 2,731
====== ===== ======
</TABLE>
Subsequently recognized tax benefits relating to $2.7 million of the
valuation allowance for deferred tax assets will be credited directly to capital
surplus under the terms of the quasi-reorganization, implemented on December 31,
1994, and the provisions of SFAS 109. The remaining $747,000 will be credited to
intangibles associated with the purchase of subsidiaries.
At December 31, 1997, FBA has separate limitation year (SRLY) net operating
loss carryforwards (NOLs) of $22.5 million and alternative minimum tax credits
of $288,000. Their utilization is subject to annual limitations. Additionally,
FBA has non-SRLY NOLs of $11.8 million.
The NOLs for FBA at December 31, 1997 expire as follows:
(dollars expressed in thousands)
Year ending December 31:
1998...................................... $ 4,140
1999...................................... 2,641
2000...................................... 103
2001 through 2010......................... 27,417
-------
Total......................... $34,301
=======
For California income tax purposes, FBA has NOLs of approximately $3.0
million. These NOLs expire as follows:
(dollars expressed in thousands)
Year ending December 31:
1998........................................ 1,089
1999........................................ 1,089
2000........................................ 635
2001........................................ 139
------
Total........................................ $2,952
======
The net deferred tax assets were evaluated to determine whether it is more
likely than not the deferred tax assets will be recognized in the future. It has
been determined the net deferred tax assets of FBA should not be fully valued
until FBA can provide an earnings history sufficient to support the respective
net deferred tax asset. A valuation reserve was determined by taking all
positive and negative criteria into consideration. It was determined the
valuation allowance established should be $3.4 million.
(9) Employee Benefit Plans
401(k) Plan. FBA has a savings and incentive plan covering substantially
all employees. Under the plan, employer matching contributions are determined
annually by FBA's Board of Directors. Employee contributions are limited to 15%
of an employee's compensation not to exceed $9,500 for 1997. Total employer
contributions under the plan were $43,000, $23,000 and $41,000 for the years
ended December 31, 1997, 1996 and 1995, respectively. The plan assets are held
and managed under a trust agreement with the trust department of an affiliated
bank.
<PAGE> 91
Pension Plan. FBA has a noncontributory defined benefit pension plan
covering substantially all officers and employees. The accumulation of benefits
under the plan were discontinued during 1994. During 1997, 1996 and 1995, no
contributions were made to the pension plan and FBA did not incur any
expenditures associated with the pension plan. FBA is in the process of
terminating this plan and does not expect to incur a significant gain or loss.
Postretirement Benefits Other Than Pensions. Prior to August 31, 1994, FBA
made certain health care and life insurance benefits available for substantially
all of its retired employees, a portion of the cost of which was paid by FBA.
The estimated cost of such postretirement benefits was accrued as an expense
during the period of an employee's active service to FBA. During 1994, FBA
reevaluated the cost of this plan and changed it to provide contributions for
coverage only to those individuals receiving benefits on August 31, 1994. In
conjunction with the plan restructuring, FBA fully recognized the estimated cost
of the future benefits payable under the plan. Employees retiring after that
date are allowed to purchase coverage, but must pay the entire cost associated
with such coverage.
(10) Directors' Stock Bonus Plan
The 1993 Directors' Stock Bonus Plan provides for annual grants of FBA
common stock to the nonemployee directors of FBA. Directors' compensation of
$13,000, $10,000 and $27,000 was recorded relating to this plan for the years
ended December 31, 1997, 1996 and 1995, respectively. These amounts represented
the market values of the 1,000 shares granted for the years ended December 31,
1997, 1996 and 1995, respectively.
The plan is self-operative, and the timing, amounts, recipients and terms
of individual grants are determined automatically. On July 1 of each year, each
nonemployee director automatically receives a grant of 500 shares of common
stock. The maximum number of plan shares that may be issued shall not exceed
16,667 shares and 9,667 shares remain to be issued at December 31, 1997. The
plan will expire on July 1, 2001.
(11) Commitments and Contingencies
FBA is a party to commitments to extend credit and commercial and standby
letters of credit in the normal course of business to meet the financing needs
of its customers. These instruments involve, to varying degrees, elements of
credit risk and interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The interest rate risk associated with these credit
commitments relates primarily to the commitments to originate fixed-rate loans.
The credit risk amounts are equal to the contractual amounts, assuming the
amounts are fully advanced and the collateral or other security is of no value.
FBA uses the same credit policies in granting commitments and conditional
obligations as it does for on-balance-sheet items.
Commitments to extend credit at December 31 are as follows:
1997 1996
---- ----
(dollars expressed in
thousands)
Credit card commitments....................... $ 1,978 3,140
Other loan commitments........................ 138,844 92,454
Standby letters of credit..................... 1,923 177
======= ======
Credit card and other loan commitments are agreements to lend to a customer
as long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Each customer's creditworthiness is
evaluated on a case-by-case basis. The amount of collateral obtained, if deemed
necessary upon extension of credit, is based on credit evaluation of the
customer. Collateral held varies but may include accounts receivable, inventory,
property, plant, equipment, income-producing commercial properties and single
family residential properties. Collateral is generally required except for
consumer credit card commitments.
<PAGE> 92
Standby letters of credit are conditional commitments issued to guarantee
the performance of a customer to a third party. The letters of credit are
primarily issued to support private borrowing arrangements and commercial
transactions. Most letters of credit extend for less than one year. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. Upon issuance of the
commitments, FBA holds marketable securities, certificates of deposit, inventory
or other assets as collateral supporting those commitments for which collateral
is deemed necessary.
(12) Stockholders' Equity
Stock Options. On April 19, 1990, the Board of Directors of FBA adopted the
1990 Stock Option Plan (1990 Plan). The 1990 Plan currently provides that no
more than 200,000 shares of common stock will be available for stock options.
One-fourth of each stock option becomes exercisable at the date of the grant and
at each anniversary date of the grant. The options expire ten years from the
date of the grant. There were no options granted under this plan during the
three years ended December 31, 1997.
At December 31, 1997, there were 36,833 shares available for future stock
options and 13,334 shares of common stock reserved for the exercise of
outstanding options. Transactions relating to the 1990 Plan for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------- ------------------
Average Average Average
option option option
Amount price Amount price Amount price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding options, January 1....... 57,500 $ 3.75 67,500 $ 3.75 98,133 $ 3.75
Options exercised and redeemed....... (44,166) 3.75 (10,000) 3.75 (30,633) 3.75
--------- ------ -------
Outstanding options, December 31..... 13,334 3.75 57,500 3.75 67,500 3.75
========= ======= ====== ======= ====== =======
Options exercisable, December 31..... 13,334 57,500 67,500
========= ====== ======
</TABLE>
Warrants. In connection with a previous restructuring of FBA, a warrant to
purchase common stock was granted to the Federal Deposit Insurance Corporation
(FDIC). On October 1, 1996, FBA purchased the outstanding warrant to acquire
131,336 shares of FBA common stock at $0.75 per share from the FDIC for an
aggregate amount of $1.28 million. The purchase of the warrant was applied as a
reduction of capital surplus.
Distribution of Earnings of the Subsidiary Banks. The Subsidiary Banks are
restricted by various state and federal regulations as to the amount of
dividends which are available for payment of dividends to FBA. Under the most
restrictive of these requirements, the future payment of dividends from the
Subsidiary Banks is limited to approximately $1.0 million at December 31, 1997,
unless prior permission of the regulatory authorities is obtained.
(13) Transactions With Related Parties
FBA purchases certain services and supplies from or through First Banks.
FBA's financial position and operating results could significantly differ from
those that would be obtained if FBA's relationship with First Banks did not
exist.
First Banks provides management services to FBA and its Subsidiary Banks.
Management services are provided under a management fee agreement whereby FBA
compensates First Banks on an hourly basis for its use of personnel for various
functions including internal audit, loan review, income tax preparation and
assistance, accounting, asset/liability and investment services, loan servicing
and other management and administrative services. Fees paid under this agreement
were $931,000, $687,000 and $422,000 for the years ended December 31, 1997, 1996
and 1995 respectively. The fees paid for management services are at least as
favorable as could have been obtained from an unaffiliated third party.
<PAGE> 93
Because of the affiliation with First Banks and the geographic proximity of
certain of their offices, FBA shares the cost of certain personnel and services
used by FBA and First Banks. This includes the salaries and benefits of certain
loan and administrative personnel. The allocation of the shared costs are
charged and/or credited under the terms of cost sharing agreements entered into
during 1997. Because this involves distributing essentially fixed costs over a
larger asset base, it allows each bank to receive the benefit of personnel and
services at a reduced cost. Fees paid under these agreements were $383,000 for
the year ended December 31, 1997.
Effective April 1, 1997, First Services L.P., a limited partnership
indirectly owned by First Banks' Chairman and his children through its general
partners and limited partners, began providing data processing and various
related services to FBA under the terms of data processing agreements.
Previously, these services were provided by a subsidiary of First Banks. Fees
paid under these agreements were $643,000, $311,000 and $374,000 for the years
ended December 31, 1997, 1996 and 1995, respectively. The fees paid for data
processing services are at least as favorable as could have been obtained from
an unaffiliated third party.
FBA's Subsidiary Banks had $41.9 million and $21.4 million in whole loans
and loan participations outstanding at December 31, 1997 and 1996, respectively,
that were purchased from banks affiliated with First Banks. In addition, FBA's
Subsidiary Banks had sold $42.7 million and $26.7 million in whole loans and
loan participations to affiliates of First Banks at December 31, 1997 and 1996,
respectively. These loans and loan participations were acquired and sold at
interest rates and terms prevailing at the dates of their purchase or sale and
under standards and policies followed by FBA's Subsidiary Banks.
FBA has borrowed $14.5 million and $14.0 million at December 31, 1997 and
1996, respectively, from First Banks under a $20 million Note Payable, dated
November 4, 1997. This Note Payable replaces a $15 million note payable under
similar terms to First Banks. The borrowings under the Note Payable bear
interest at an annual rate of one-quarter percent less than the "Prime Rate" as
reported in the Wall Street Journal. The interest expense was $1.18 million and
$194,000 for the years ended December 31, 1997 and 1996, respectively. The
principal and accrued interest under the Note Payable are due and payable on
October 31, 2001. The accrued and unpaid interest under the Note Payable was
$1.37 million and $194,000 at December 31, 1997 and 1996, respectively.
Outside of normal customer relationships, no directors, executive officers
or stockholders holding over 5% of FBA's voting stock, and no corporations or
firms with which such persons or entities are associated, currently maintain or
have maintained, any significant business or personal relationships with FBA or
its subsidiaries, other than that which arises by virtue of such position or
ownership interest in FBA, except as described above.
(14) Interest Rate Risk Management and Derivative Financial Instruments
With Off-Balance-Sheet Risk
Derivative financial instruments held by FBA at December 31, 1997 and 1996
consist of an interest rate cap agreement with a notional amount of $10.0
million and credit exposure of $222,000 and $335,000, respectively.
FBA's interest rate cap agreement limits the interest expense associated
with certain of its interest-bearing liabilities. In exchange for an initial
fee, the interest rate cap agreement entitles FBA to receive interest payments
when a specified index rate exceeds a predetermined rate. The agreement
outstanding at December 31, 1997 and 1996 effectively limits the interest rate
to 5.0% on $10 million of interest-bearing liabilities from October 15, 1997 to
May 15, 2000. At December 31, 1997 and 1996, the unamortized costs were $242,000
and $353,000, respectively, and were included in other assets. The amount
receivable under the agreement was $8,000 at December 31, 1997. There were no
amounts receivable under the agreement at December 31, 1996.
Previously, FBA sold interest rate futures contracts and purchased options
on interest rate futures contracts to hedge the interest rate risk of its
available-for-sale securities portfolio. There were no outstanding positions of
interest rate futures for the years ended December 31, 1997 and 1996. For the
year ended December 31, 1995, FBA incurred a net loss on interest rate futures
contracts of $5.95 million, of which $806,000 was amortized to income as a yield
adjustment to the investment security portfolio and $5.14 million was included
in the cost basis in determining the gain or loss upon the sale of the
securities. There were no gains or losses from interest rate futures contracts
for the years ended December 31, 1997 and 1996.
<PAGE> 94
(15) Fair Value of Financial Instruments
Fair values of financial instruments are management's estimate of the
values at which the instruments could be exchanged in a transaction between
willing parties. These estimates are subjective and may vary significantly from
amounts that would be realized in actual transactions. In addition, other
significant assets are not considered financial assets including deferred tax
assets and bank premises and equipment. Further, the tax ramifications related
to the realization of the unrealized gains and losses can have a significant
effect on the fair value estimates and have not been considered in any of the
estimates.
<TABLE>
<CAPTION>
The estimated fair value of FBA's financial instruments at December 31 were
as follows:
December 31, 1997 December 31, 1996
-------------------- --------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------ ---------- ------ ----------
(dollars expressed in thousands)
Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents............... $ 26,442 26,442 21,964 21,964
Investment securities................... 83,791 83,791 86,910 86,910
Net loans............................... 306,722 307,911 235,727 238,266
Accrued interest receivable............. 2,963 2,963 2,348 2,348
Liabilities:
Demand and savings deposits............. 214,180 214,180 175,994 175,994
Time deposits........................... 169,762 170,437 143,812 144,179
Accrued interest payable................ 2,246 2,246 710 710
Borrowings.............................. 17,307 17,307 16,092 16,092
Off-balance-sheet:
Interest rate cap agreement............. 242 222 353 335
Unfunded loan commitments............... --- --- --- ---
</TABLE>
The following methods and assumptions were used in estimating the fair
value of financial instruments:
Financial Assets:
Cash and cash equivalents and accrued interest receivable: The carrying
values reported in the consolidated balance sheets approximate fair value.
Investment securities: Fair value for securities available for sale were
the amounts reported in the consolidated balance sheets. If quoted market prices
were not available, fair values were based upon quoted market prices of
comparable instruments.
Net loans: The fair value for most loans was estimated utilizing discounted
cash flow calculations that applied interest rates currently being offered for
similar loans to borrowers with similar risk profiles. The carrying values for
loans are net of the allowance for possible loan losses and unearned discount.
Financial Liabilities:
Deposits: The fair value disclosed for deposits generally payable on demand
(i.e., non-interest-bearing and interest-bearing demand, savings and money
market accounts) were considered equal to their respective carrying amounts as
reported in the consolidated balance sheets. The fair value disclosed for demand
deposits does not include the benefit that results from the low-cost funding
provided by deposit liabilities compared to the cost of borrowing funds in the
market. The fair value for certificates of deposit was estimated utilizing a
discounted cash flow calculation that applied interest rates currently being
offered on similar certificates to a schedule of aggregated monthly maturities
of time deposits.
<PAGE> 95
Borrowings and accrued interest payable: The carrying values reported in
the consolidated balance sheets approximate fair value.
Off-Balance-Sheet:
Interest rate cap agreement: The fair value of the interest rate cap
agreement is estimated by comparison to market rates quoted on new agreements
with similar creditworthiness.
Unfunded loan commitments: The majority of the commitments to extend credit
and commercial and standby letters of credit contain variable interest rates and
credit deterioration clauses and, therefore, the carrying value of these credit
commitments approximates fair value.
(16) Regulatory Capital
The Subsidiary Banks are subject to various regulatory capital requirements
administered by the federal and state 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 Subsidiary Banks' financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Subsidiary Banks must meet specific capital guidelines that involve
quantitative measures of the Subsidiary Banks' assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Subsidiary Banks' capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weighting and
other factors.
Quantitative measures established by regulations to ensure capital adequacy
require the Subsidiary Banks to maintain certain minimum capital ratios. The
Subsidiary Banks are required to maintain a minimum risk-based capital to
risk-weighted assets ratio of 8.0%, with at least 4.0% being "Tier 1" capital
(as defined in the regulations). In addition, a minimum leverage ratio (Tier 1
capital to total assets) of 3.0% plus an additional cushion of 100 to 200 basis
points is expected. In order to be considered well capitalized under Prompt
Corrective Action provisions, a bank is required to maintain a risk weighted
asset ratio of at least 10%, a Tier 1 to risk weighted assets ratio of at least
6%, and a leverage ratio of at least 5%. As of December 31, 1996, the date of
the most recent notification from FBA's primary regulator, BankTEXAS was
categorized as well capitalized under the regulatory framework for Prompt
Corrective Action. Management believes, as of December 31, 1997, each of the
Subsidiary Banks was well capitalized as defined by the FDIC Improvement Act.
<TABLE>
<CAPTION>
At December 31, 1997 and 1996, FBA's and the Subsidiary Banks' capital
ratios were as follows:
Risk-Based Capital Ratios
-------------------------
Total Tier 1 Leverage Ratio
----------------- ---------------- ---------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FBA........................ 7.89% 7.64% 6.63% 6.38% 6.11% 5.31%
BankTEXAS.................. 12.26 10.29 11.00 9.04 8.90 7.53
FB California.............. 13.03 -- 11.77 -- 13.80 --
Sunrise Bank (1)........... -- 17.67 -- 16.39 -- 10.88
- - ----------------
(1) Sunrise Bank was merged into FB California on December 1, 1997.
</TABLE>
(17) Contingent Liabilities
In the ordinary course of business, there are various legal proceedings
pending against FBA and/or the Subsidiary Banks. Management, in consultation
with legal counsel, is of the opinion the ultimate resolution of these
proceedings will have no material effect on the financial condition or results
of operations of FBA or the Subsidiary Banks.
<PAGE> 96
<TABLE>
<CAPTION>
(18) Parent Company Only Financial Information
Condensed Balance Sheets
December 31,
------------
1997 1996
---- ----
(dollars expressed in thousands)
Assets:
<S> <C> <C>
Cash.................................................................... $ 922 439
Investment in subsidiary................................................ 55,182 43,958
Deferred tax assets..................................................... 3,307 3,297
Other assets............................................................ 157 143
---------- -------
Total assets.......................................................... $ 59,568 47,837
========== =======
Liabilities and stockholders' equity:
Promissory note payable................................................. $ 14,500 14,000
Accrued and other liabilities........................................... 5,204 339
---------- -------
Total liabilities..................................................... 19,704 14,339
Stockholders' equity...................................................... 39,864 33,498
---------- ------
Total liabilities and stockholders' equity............................ $ 59,568 47,837
========== ======
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Operations
Years ended December 31,
1997 1996 1995
(dollars expressed in thousands)
Income (loss):
<S> <C> <C> <C>
Dividends from subsidiary...................................... $ 1,425 -- --
Other.......................................................... 16 211 315
------- ------
Total income................................................ 1,441 211 315
------- ------ -------
Expense:
Interest....................................................... 1,176 246 140
Other.......................................................... 496 338 32
------- ------ -------
Total expense............................................... 1,672 584 172
------- ------ -------
Income (loss) before income tax (benefit) expense........... (231) (373) 143
Income tax (benefit) expense..................................... (688) (126) 68
------- ------ -------
Income (loss) before equity in undistributed
income (loss) of subsidiary............................... 457 (247) 75
Equity in undistributed income (loss) of subsidiary.............. 2,722 1,816 (3,895)
------- ------ -----
Net income (loss)........................................... $ 3,179 1,569 (3,820)
======= ===== =====
</TABLE>
<PAGE> 97
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Years ended December 31,
------------------------
1997 1996 1995
---- ---- ----
(dollars expressed in thousands)
Operating activities:
<S> <C> <C> <C>
Net income (loss)............................................. $ 3,179 1,569 (3,820)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Credit for deferred income taxes........................... 688 126 --
Equity in undistributed (income) loss of subsidiary........ (2,722) (1,816) 3,895
Dividends from subsidiary.................................. 1,425 -- --
Other, net................................................. (1,090) (1,987) (552)
----------- -------- -------
Net cash provided by (used in) operating activities.. 1,480 (2,108) (477)
---------- -------- -------
Investing activities:
Purchase of investment securities............................. -- (12,618) (21,191)
Proceeds from maturity of investment securities............... -- 7,152 8,345
Proceeds from sales of investment securities.................. -- 4,496 25,752
Capital contributions to subsidiary........................... -- (17,052) (3,750)
---------- ------- -------
Net cash provided by (used in) investing activities.. -- (18,022) 9,156
---------- ------- -------
Financing activities:
Increase in promissory note payable........................... 500 14,000 --
Exercise of stock options..................................... 15 38 115
Repurchase of common stock for treasury....................... (1,512) (2,010) (828)
---------- --------- -------
Net cash provided by (used in) financing activities.. (997) 12,028 (713)
----------- ------- -------
Net increase (decrease) in cash and cash equivalents. 483 (8,102) 7,966
Cash and cash equivalents at beginning of year.................. 439 8,541 575
---------- --------- -------
Cash and cash equivalents at end of year........................ $ 922 439 8,541
========== ========= =======
Noncash investing and financing activities:
Issuance of common stock in purchase accounting acquisition... $ 4,763 -- --
Cash paid for interest........................................ -- 475 110
=========== ========= =======
</TABLE>
(19) Subsequent Events
As described in Note 2 to the consolidated financial statements and
presented in the pro forma information on the consolidated balance sheets and
consolidated statements of operations, FBA completed the acquisitions of FCB and
Pacific Bay Bank on February 2, 1998 in exchange for 751,728 shares of FBA
common stock and cash of $4.2 million, respectively. The total assets of FCB and
Pacific Bay Bank were $192.5 million and $38.3 million, respectively, at the
date of the transaction.
The accounting treatment for the acquisition of FCB is summarized in Note 2
to the consolidated financial statements. The acquisition of Pacific Bay Bank
was accounted for under the purchase method of accounting and was funded through
an advance under the Note Payable. The excess of the cost over the fair value of
the net assets acquired was $4.08 million and $1.43 million for FCB and Pacific
Bay Bank, respectively, and is being amortized over 15 years.
The accompanying pro forma consolidated balance sheet and pro forma
consolidated statement of operations reflect the acquisitions of FCB and Pacific
Bay Bank as if they had been completed on December 31, 1997.
<PAGE> 98
[LETTERHEAD OF KPMG Peat Marwick LLP]
The Board of Directors and Stockholders
First Banks America, Inc.:
We have audited the accompanying consolidated balance sheets of First Banks
America, Inc. and subsidiaries (the Company) as of December 31, 1997 and 1996,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the years in the three year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Banks America,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/KPMG Peat Marwick LLP
------------------------
St. Louis, Missouri
March 6, 1998
<PAGE> 99
Directors of First Banks America, Inc.
James F. Dierberg Chairman of the Board, President and Chief
Executive Officer of First Banks America,
Inc., St. Louis, Missouri; Chairman of
the Board, President and Chief Executive
Officer, First Banks, Inc., St. Louis,
Missouri.
Allen H. Blake Vice President, Chief Financial Officer
and Secretary, First Banks America, Inc.,
St. Louis, Missouri; Executive Vice
President, Chief Financial Officer and
Secretary, First Banks, Inc., St. Louis,
Missouri.
Charles A. Crocco, Jr. Partner in the law firm of Crocco & De Maio,
P. C., New York, New York.
Albert M. Lavezzo Partner in the law firm of Favaro, Lavezzo,
Gill, Caretti & Neppell, Vallejo,
California.
Edward T. Story, Jr. President and Chief Executive Officer of
SOCO International, Inc., Comfort, Texas.
Mark T. Turkcan Executive Vice President, Retail Banking,
First Banks, Inc., St. Louis, Missouri.
Donald W. Williams Executive Vice President, Chief Credit
Officer, First Banks, Inc., St. Louis,
Missouri.
Executive Officers of First Banks America, Inc.
James F. Dierberg Chairman of the Board, President and Chief
Executive Officer
Allen H. Blake Vice President, Chief Financial Officer and
Secretary
David F. Weaver Executive Vice President
Directors and Senior Officers of BankTEXAS N.A.
David F. Weaver Chairman of the Board, President and Chief
Executive Officer
Donald W. Williams Director
Alan M. Meyer Director
Joseph Milcoun, Jr. Director, Vice President, Retail Banking
Arved E. White Director, Senior Vice President and Chief
Lending Officer
Monica J. Rinehart Assistant Secretary, Vice President and
Controller
Directors and Senior Officers of First Bank of California
Donald W. Williams Chairman of the Board, President and Chief
Executive Officer
Jerry Brannigan Director
James E. Culleton Director, President, Chief Operating Officer
and Secretary
Fred L. Harris Director
Albert M. Lavezzo Director
Terrance M. McCarthy Director, Senior Vice President and Chief
Credit Officer
Arleen R. Scavone Director, Vice President, Retail Banking
Fred K. Sibley Director
Kathryn L. Perrine Vice President and Chief Financial Officer
Joseph H. Plant Senior Vice President, Commercial Lending
Ralph J. Sabin Senior Vice President, Commercial Lending
Gary M. Sanders Senior Vice President, Commercial Lending
<PAGE> 100
INVESTOR INFORMATION
FBA's Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission, is available without charge to any stockholder upon request.
Requests should be directed to Allen H. Blake, First Banks America, Inc., 11901
Olive Boulevard, St. Louis, Missouri 63141.
The common stock of FBA is traded on the New York Stock Exchange with the
ticker symbol "FBA" and is frequently reported in newspapers of general
circulation with the symbol "FBKSAM" and in the Wall Street Journal with the
symbol "FBA." As of March 6, 1998, there were approximately 1,725 record holders
of common stock.
Common stock price range:
1997 1996
------------------ ----------------
High Low High Low
First quarter $12.75 10.13 12.75 9.63
Second quarter 13.38 12.38 10.50 9.25
Third quarter 18.00 12.81 10.38 9.38
Fourth quarter 24.06 17.13 10.38 9.75
<TABLE>
<CAPTION>
For information concerning the Company please contact:
<S> <C> <C>
David F. Weaver Allen H. Blake Transfer Agent
Executive Vice President Vice President, Chief Financial ChaseMellon Shareholders
P. O. Box 630369 Officer and Secretary Services L.L.C.
Houston, Texas 77263-0369 11901 Olive Boulevard 85 Challenger Road
Telephone: 713/954-2400 St. Louis, Missouri 63141 Overpeck Centre
Telephone: 314/995-8700 Ridgefield Park, NJ 07660
Telephone: 888/213-0965
www.chasemellon.com
</TABLE>
<PAGE> 101
EXHIBIT 21
First Banks America, Inc.
Significant Subsidiaries
The following is a list of all subsidiaries of the Company and the
jurisdiction of incorporation or organization. BankTEXAS National Association
and First Bank of California are wholly-owned by Sundowner Corporation, and
Sundowner Corporation is wholly owned by First Banks America, Inc.
Jurisdiction of Incorporation
Name of Subsidiary or Organization
------------------ ------------------------------
Sundowner Corporation Nevada
BankTEXAS National Association United States
First Bank of California California
<PAGE> 102
EXHIBIT 23(a)
Independent Auditors' Consent
The Board of Directors
First Banks America, Inc.
We consent to incorporation by reference in the registration statement (No.
33-42607) on Form S-8 of First Banks America, Inc. and subsidiaries of our
report dated March 6, 1998, relating to the consolidated balance sheets of First
Banks America, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, which
report appears in the December 31, 1997 annual report on Form 10-K of First
Banks America, Inc.
/s/KPMG Peat Marwick LLP
------------------------
St. Louis, Missouri
March 26, 1998
<PAGE> 103
[ARTICLE] 9
[CIK] 0000310979
[NAME] First Banks America, Inc.
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-mos
[FISCAL-YEAR-END] Dec-31-1997
[PERIOD-START] Jan-01-1997
[PERIOD-END] Dec-31-1997
[CASH] 23,537
[INT-BEARING-DEPOSITS] 690
[FED-FUNDS-SOLD] 2,215
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 83,791
[INVESTMENTS-CARRYING] 0
[INVESTMENTS-MARKET] 0
[LOANS] 313,437
[ALLOWANCE] 6,715
[TOTAL-ASSETS] 451,256
[DEPOSITS] 383,942
[SHORT-TERM] 2,807
[LIABILITIES-OTHER] 10,143
[LONG-TERM] 14,500
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 627
[OTHER-SE] 39,237
[TOTAL-LIABILITIES-AND-EQUITY] 451,256
[INTEREST-LOAN] 23,159
[INTEREST-INVEST] 5,073
[INTEREST-OTHER] 651
[INTEREST-TOTAL] 28,883
[INTEREST-DEPOSIT] 11,314
[INTEREST-EXPENSE] 12,834
[INTEREST-INCOME-NET] 16,049
[LOAN-LOSSES] 2,000
[SECURITIES-GAINS] 76
[EXPENSE-OTHER] 11,676
[INCOME-PRETAX] 4,937
[INCOME-PRE-EXTRAORDINARY] 4,937
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 3,179
[EPS-PRIMARY] .88
[EPS-DILUTED] .87
[YIELD-ACTUAL] 8.46
[LOANS-NON] 2,411
[LOANS-PAST] 1,158
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 4,500
[ALLOWANCE-OPEN] 6,147
[CHARGE-OFFS] (2,744)
[RECOVERIES] 1,282
[ALLOWANCE-CLOSE] 6,715
[ALLOWANCE-DOMESTIC] 6,715
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 0
</TABLE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-8937
FIRST BANKS AMERICA, INC.
-------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-1604965
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
135 North Meramec, Clayton, Missouri 63105
------------------------------------------
(address of principal executive offices) (Zip Code)
(314) 854-4600
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class April 30, 1998
----- --------------
Common Stock, $.15 par value 3,232,217
Class B Common Stock, $.15 par value 2,500,000
<PAGE> 2
First Banks America, Inc.
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997......................................... -1-
Consolidated Statements of Income for the three
months ended March 31, 1998 and 1997.......................... -3-
Consolidated Statements of Changes in Stockholders' Equity for
the three months ended March 31, 1998 and 1997 and
the nine months ended December 31, 1997....................... -4-
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997................................. -5-
Notes to Consolidated Financial Statements...................... -6-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... -10-
PART II OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K......................... -16-
SIGNATURES................................................................ -17-
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST BANKS AMERICA, INC.
Consolidated Balance Sheets (unaudited)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
ASSETS
------
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks....................................... $ 32,651 32,257
Interest-bearing deposits with other financial institutions-
with maturities of three months or less..................... 2,271 690
Federal funds sold............................................ 42,250 2,215
----------- --------
Total cash and cash equivalents........................... 77,172 35,162
----------- --------
Investment securities - available for sale, at fair value........ 141,131 148,181
Loans:
Real estate construction and development...................... 96,035 93,454
Commercial and financial...................................... 113,312 109,763
Real estate mortgage.......................................... 166,160 149,951
Consumer and installment...................................... 71,017 75,023
Loans held for sale........................................... -- 5,708
----------- --------
Total loans............................................... 446,524 433,899
Unearned discount............................................. (2,425) (2,444)
Allowance for possible loan losses............................ (12,063) (11,407)
----------- --------
Net loans................................................. 432,036 420,048
----------- --------
Bank premises and equipment, net of
accumulated depreciation.................................... 11,382 10,697
Intangibles associated with the purchase of
subsidiaries................................................ 8,794 7,189
Accrued interest receivable...................................... 4,062 4,819
Foreclosed property, net......................................... 725 601
Deferred income taxes............................................ 13,739 14,141
Other assets..................................................... 3,368 2,826
----------- --------
Total assets.............................................. $ 692,409 643,664
=========== ========
</TABLE>
<PAGE> 4
FIRST BANKS AMERICA, INC.
Consolidated Balance Sheets (unaudited)
(dollars expressed in thousands, except per share data)
(continued)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
LIABILITIES
-----------
Deposits:
Demand:
<S> <C> <C>
Non-interest-bearing............................................ $ 101,270 97,393
Interest-bearing................................................ 73,433 73,199
Savings.......................................................... 158,625 147,623
Time:
Time deposits of $100 or more................................... 57,725 52,472
Other time deposits............................................. 209,504 185,840
----------- ---------
Total deposits................................................ 600,557 556,527
Short-term borrowings................................................ 3,453 3,687
Promissory note payable.............................................. 13,450 14,900
Accrued interest payable............................................. 4,803 4,185
Deferred tax liability............................................... 1,049 1,092
Payable to former shareholders of Surety Bank........................ -- 3,829
Accrued and other liabilities........................................ 5,756 5,058
12% convertible debentures........................................... 6,500 6,500
Minority interest in subsidiary...................................... -- 2,795
----------- ---------
Total liabilities............................................. 635,568 598,573
----------- ---------
STOCKHOLDERS' EQUITY
--------------------
Common Stock:
Common stock, $.15 par value; 6,666,666 shares authorized;
3,238,417 and 2,144,865 shares issued and outstanding at
March 31, 1998 and December 31, 1997, respectively.............. 486 322
Class B common stock, $.15 par value; 4,000,000 shares
authorized; 2,500,000 shares issued and outstanding
at March 31, 1998 and December 31, 1997......................... 375 375
Capital surplus...................................................... 59,858 47,014
Retained earnings since elimination of accumulated deficit
of $259,117, effective December 31, 1994......................... 2,498 1,398
Common treasury stock, at cost; 496,056 shares and 386,458
shares at March 31, 1998 and December 31, 1997,
respectively..................................................... (6,814) (4,350)
Accumulated other comprehensive income............................... 438 332
----------- ---------
Total stockholders' equity.................................... 56,841 45,091
----------- ---------
Total liabilities and stockholders' equity.................... $ 692,409 643,664
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
FIRST BANKS AMERICA, INC.
Consolidated Statements of Income (unaudited)
(dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1998 1997
---- ----
Interest income:
<S> <C> <C>
Interest and fees on loans................................................ $ 10,568 7,453
Investment securities..................................................... 2,033 1,781
Federal funds sold and other.............................................. 395 377
--------- ----------
Total interest income................................................. 12,996 9,611
--------- ----------
Interest expense:
Deposits:
Interest-bearing demand................................................. 349 354
Savings................................................................. 1,454 766
Time deposits of $100 or more........................................... 775 529
Other time deposits..................................................... 2,784 2,314
Promissory note payable and other borrowings.............................. 537 545
--------- ----------
Total interest expense................................................ 5,899 4,508
--------- ----------
Net interest income................................................... 7,097 5,103
Provision for possible loan losses........................................... 300 550
--------- ----------
Net interest income after provision for possible loan losses.......... 6,797 4,553
--------- ----------
Noninterest income:
Service charges on deposit accounts and customer service fees............. 739 575
Gain on sales of securities, net.......................................... 92 --
Other income.............................................................. 319 296
--------- ----------
Total noninterest income.............................................. 1,150 871
--------- ----------
Noninterest expense:
Salaries and employee benefits............................................ 2,135 1,550
Occupancy, net of rental income........................................... 491 571
Furniture and equipment................................................... 347 267
Federal Deposit Insurance Corporation premiums............................ 43 38
Postage, printing and supplies............................................ 167 148
Data processing fees...................................................... 475 327
Legal, examination and professional fees.................................. 890 750
Communications............................................................ 200 164
(Gain) loss on sale of foreclosed property, net of expenses............... 157 (9)
Other..................................................................... 1,152 658
--------- ----------
Total noninterest expense............................................. 6,057 4,464
--------- ----------
Income before provision for income taxes and minority interest
in income of subsidiary............................................ 1,890 960
Provision for income taxes................................................... 790 361
--------- ----------
Income before minority interest in income of subsidiary............... 1,100 599
Minority interest in income of subsidiary.................................... -- 86
--------- ----------
Net income............................................................ $ 1,100 513
========= ==========
Earnings per common share:
Basic................................................................. $ 0.22 0.13
Diluted............................................................... 0.22 0.12
========= ==========
Weighted average shares of common stock outstanding.......................... 4,911 4,082
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
FIRST BANKS AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (unaudited)
Three months ended March31, 1998 and nine months
ended December 31, 1997 (dollars expressed
in thousands, except per share data)
<TABLE>
<CAPTION>
Accu-
mulated
other Total
Class B Compre- Retained Common compre- stock-
Common common- Capital hensive earnings treasury hensive holders'
stock stock surplus income (deficit) stock income equity
----- ----- ------- --------------- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated balances, January 1, 1997........... $ 282 375 42,553 -- (2,251) (2,838) (36) 38,085
Three months ended March 31, 1997:
Comprehensive income:
Net income.................................. -- -- -- $ 513 513 -- -- 513
Other comprehensive income, net of tax (1) -
Unrealized losses on securities, net of
reclassification adjustment (2)......... -- -- -- (399) -- -- (339) (339)
------
Comprehensive income........................ -- -- -- $ 174
======
Exercise of stock options..................... -- -- 4 -- -- -- 4
Repurchases of common stock................... -- -- -- -- (331) -- (331)
------- ---- ------- ----- ----- ---- -------
Consolidated balances, March 31, 1997............ 282 375 42,557 (1,738) (3,169) (375) 37,932
Nine months ended December 31, 1997:
Comprehensive income:
Net income.................................. -- -- -- $3,136 3,136 -- -- 3,136
Other comprehensive income, net of tax (1)
Unrealized gains on securities
net of reclassification adjustment (2).. -- -- -- 707 -- -- 707 707
------
Comprehensive income........................ $3,843
======
Issuance of common stock for purchase
accounting acquisition...................... 40 -- 4,723 -- -- -- 4,763
Exercise of stock options..................... -- -- 11 -- -- -- 11
Redemption of stock option.................... -- -- (290) -- -- -- (290)
Compensation paid in common stock............. -- -- 13 -- -- -- 13
Repurchases of common stock................... -- -- -- -- (1,181) -- (1,181)
------- ---- ------- ----- ------ ---- -------
Consolidated balances, December 31, 1997......... 322 375 47,014 1,398 (4,350) 332 45,091
Three months ended march 31, 1998:
Comprehensive income:
Net income.................................. -- -- -- $1,100 1,100 -- -- 1,100
Other comprehensive income, net of (1) -
Unrealized gains on securities, net of
of reclassification adjustment (2)...... -- -- -- 106 -- -- 106 106
-----
Comprehensive income........................ -- -- -- $1,206
======
Issuance of common stock for acquisition
of entity under common control.............. 43 -- 2,965 -- -- -- 3,008
Conversion of promissory note payable......... 121 -- 9,879 -- -- -- 10,000
Repurchases of common stock................... -- -- -- -- 2,464) -- (2,464)
------- ---- ------- ----- ----- ---- -------
Consolidated balances, March 31, 1998............ $ 486 375 59,858 2,498 (6,814) 438 56,841
======= ==== ======= ===== ====== ==== =======
</TABLE>
<TABLE>
<CAPTION>
Three months Nine months
ended March 31, ended
1998 1997 December 31, 1997
---- ---- -----------------
Disclosure of reclassification amount:
<S> <C> <C> <C>
Unrealized gains arising during the period.......................... $198 (339) 783
Less: reclassification adjustment for gains included in net income.. 92 -- 76
---- ---- -----
Unrealized gains on securities...................................... $106 (339) 707
==== ==== =====
</TABLE>
- - ---------
(1) Components of other comprehensive income are shown net of tax.
(2) Represents the net display with gross amounts and reclassification
adjustment included on the face of the statement.
See accompanying notes to consolidated financial statements.
<PAGE> 7
FIRST BANKS AMERICA, INC.
Consolidated Statements of Cash Flows (unaudited)
(dollars expressed in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1997
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income................................................................ $ 1,100 513
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion, net........................... 467 60
Provision for possible loan losses...................................... 300 550
Decrease in accrued interest receivable................................. 967 197
Interest accrued on liabilities......................................... 5,899 4,508
Payments of interest on liabilities..................................... (5,345) (4,010)
Provision for income taxes.............................................. 790 361
Payments of income taxes................................................ (196) --
Gain on sales of securities, net........................................ 92 --
Other operating activities, net......................................... 366 (471)
--------- --------
Net cash provided by operating activities............................. 4,440 1,708
--------- --------
Cash flows from investing activities:
Cash received from acquired entities, net of cash paid.................... 3,241 --
Maturities of investment securities....................................... 32,850 41,365
Purchases of investment securities........................................ (25,399) (56,208)
Net decrease in loans..................................................... 15,739 8,318
Recoveries of loans previously charged off................................ 530 560
Purchases of bank premises and equipment.................................. (807) (89)
Other investing activities, net........................................... 219 37
--------- --------
Net cash provided by (used in) investing activities................... 26,373 (6,017)
--------- --------
Cash flows from financing activities:
Increase (decrease) in deposits........................................... 8,869 (3,487)
Increase in borrowed funds................................................ 4,792 4,520
Repurchases of common stock for treasury.................................. (2,464) (331)
Other financing activities, net .......................................... -- 4
--------- --------
Net cash provided by financing activities............................. 11,197 706
--------- --------
Net increase (decrease) in cash and cash equivalents.................. 42,010 (3,603)
Cash and cash equivalents, beginning of period............................... 35,162 42,874
--------- --------
Cash and cash equivalents, end of period..................................... $ 77,172 39,271
========= ========
Non-cash investing and financing activities:
Issuance of common stock for purchase accounting acquisition.............. $ 3,008 --
Conversion of promissory note payable to common stock..................... 10,000 --
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 8
FIRST BANKS AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying consolidated financial statements of First Banks
America, Inc. (FBA or the Company) are unaudited and should be read in
conjunction with the consolidated financial statements contained in the 1997
annual report on Form 10-K. In the opinion of management, all adjustments,
consisting of normal recurring accruals considered necessary for a fair
presentation of the results of operations for the interim periods presented
herein, have been included. Operating results for the three month period ended
March 31, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
In connection with FBA's acquisition of First Commercial Bancorp, Inc.
(FCB) and its wholly owned subsidiary, First Commercial Bank (First Commercial)
as of February 2, 1998, FBA's financial information for the periods prior to the
acquisition has been restated to include the 61.48% ownership interest of First
Banks, Inc. (First Banks), FBA's majority owner, in FCB consistent with the
accounting treatment applicable to entities under common control. First Banks
owned 71.84% of FBA as of March 31, 1998. The remaining interest in FCB acquired
by FBA, or 38.52%, is reflected in the consolidated financial statements as
minority interest for the periods prior to the acquisition.
The consolidated financial statements include the accounts of FBA and
its subsidiaries, all of which are wholly owned. All significant intercompany
accounts and transactions have been eliminated. In addition to the
aforementioned restatement of 1997 financial information, certain
reclassifications of 1997 amounts have been made to conform with the 1998
presentation.
FBA operates through two banking subsidiaries, BankTEXAS N.A.,
headquartered in Houston, Texas (BankTEXAS) and First Bank of California,
headquartered in Roseville, California (FB California), collectively referred to
as the Subsidiary Banks.
(2) Transactions with Related Party
FBA purchases certain services and supplies from or through its
majority shareholder, First Banks. FBA's financial position and operating
results could significantly differ from those that would be obtained if FBA's
relationship with First Banks did not exist.
First Banks provides management services to FBA and the Subsidiary
Banks. Management services are provided under a management fee agreement whereby
FBA compensates First Banks on an hourly basis for its use of personnel for
various functions including internal auditing, loan review, income tax
preparation and assistance, accounting, asset/liability and investment services,
loan servicing and other management and administrative services. Fees paid under
this agreement were $440,000 and $317,000 for the three months ended March 31,
1998 and 1997, respectively. Fees payable to First Banks generally increase as
FBA expands through acquisitions and internal growth, reflecting the higher
levels of service needed to operate the Subsidiary Banks.
Because of its affiliation through First Banks and the geographic
proximity of certain of their banking offices, FB California and First Bank &
Trust (FB&T), a wholly owned subsidiary of First Banks, share the cost of
certain personnel and services used by the banks. This includes the salaries and
benefits of certain loan and administrative personnel. The allocation of the
shared costs are charged and/or credited among the banks under the terms of a
cost sharing agreement. Expenses associated with loan origination personnel are
allocated based on the relative loan volume between the banks. Costs of most
other personnel are allocated on an hourly basis. Because this involves
distributing essentially fixed costs over a larger asset base, it allows each
bank to receive the benefit of personnel and services at a reduced cost. Fees
paid under the cost sharing agreement were $256,000 and $174,000 for the three
month periods ended March 31, 1998 and 1997, respectively.
<PAGE> 9
Effective April 1, 1997, First Services L.P., a limited partnership
indirectly owned by First Banks' Chairman and his children through its General
Partners and Limited Partners, began providing data processing and various
related services to FBA under the terms of data processing agreements. Prior to
April 1, 1997, a subsidiary of First Banks provided data processing and various
related services to FBA. Fees paid under these agreements were $429,000 and
$283,000 for the three months ended March 31, 1998 and 1997, respectively. The
fees paid for management services and data processing are significantly lower
than FBA was previously paying its nonaffiliated vendors. Fees payable to First
Services L.P. generally increase as FBA expands through acquisitions and
internal growth, reflecting the higher levels of service needed to operate the
Subsidiary Banks.
The Subsidiary Banks had $62.8 million and $66.9 million in whole loans
and loan participations outstanding at March 31, 1998 and December 31, 1997,
respectively, that were purchased from banks affiliated with First Banks. In
addition, the Subsidiary Banks had sold $74.0 million and $54.7 million in whole
loans and loan participations to affiliates of First Banks at March 31, 1998 and
December 31, 1997, respectively. These loans and loan participations were
acquired and sold at interest rates and terms prevailing at the dates of their
purchase or sale and under standards and policies followed by the Subsidiary
Banks.
FBA has borrowed $13.5 million and $14.9 million from First Banks at
March 31, 1998 and December 31, 1997, respectively, under a $20.0 million
promissory note payable. The borrowings under the note bear interest at an
annual rate of one-quarter percent less than the "Prime Rate" as reported in the
Wall Street Journal. The interest expense was $272,000 and $276,000 for the
three months ended March 31, 1998 and 1997, respectively. The principal and
accrued interest under the note are due and payable on October 31, 2001. The
accrued and unpaid interest under the note was $1.64 million and $1.37 million
at March 31, 1998 and December 31, 1997, respectively. As more fully discussed
in Note 4, on February 2, 1998, FBA exchanged 804,000 shares of its common stock
for $10.0 million outstanding under the promissory note payable.
In connection with FBA's acquisition of FCB, FBA issued convertible
debentures to First Banks of $6.5 million. These debentures replaced similar FCB
debentures previously owned by First Banks. The related interest expense for
these debentures was $210,000 and $213,000 for the three months ended March 31,
1998 and 1997, respectively. FBA is not required to pay interest on the
debentures prior to maturity. At maturity in 2001, principal and accrued
interest are payable in FBA common stock (at a conversion rate of $12.50 per
share), unless FBA elects to pay cash and First Banks does not exercise its
right to convert principal and interest into FBA common stock.
(3) Regulatory Capital
FBA and the Subsidiary Banks are subject to various regulatory capital
requirements administered by federal and state 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 FBA and the Subsidiary Banks' assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Subsidiary Banks' capital amounts and regulatory classification
are also subject to qualitative judgments by the regulators about components,
risk weighting, and other factors which may affect possible regulatory actions.
Quantitative measures established by regulations to ensure capital
adequacy require the Subsidiary Banks to maintain certain minimum capital
ratios. The Subsidiary Banks are required to maintain a minimum risk-based
capital to risk-weighted assets ratio of 8.00%, with at least 4.00% being "Tier
1" capital. Tier 1 capital is composed of total stockholders' equity excluding
the net fair value adjustment for securities available for sale and excess net
deferred tax assets, as defined by regulation. In addition, a minimum leverage
ratio (Tier 1 capital to total assets) of 3.00% plus an additional cushion of
100 to 200 basis points is expected. In order to be well capitalized under
Prompt Corrective Action provisions, the Subsidiary Banks are required to
maintain a risk weighted assets ratio of at least 10%, a Tier 1 to risk weighted
assets ratio of at least 6%, and a leverage ratio of at least 5%. As of December
31, 1997, the date of the most recent notification from the Subsidiary Banks'
primary regulators, the Subsidiary Banks were categorized as well capitalized
<PAGE> 10
under the regulatory framework for Prompt Corrective Action. Management
believes, as of March 31, 1998, the Subsidiary Banks are well capitalized as
defined by the Federal Deposit Insurance Corporation Improvement Act of 1991.
At March 31, 1998 and December 31, 1997, FBA's and the Subsidiary
Banks' capital ratios were as follows:
<TABLE>
<CAPTION>
Risk-based capital ratios
-------------------------
Total Tier 1 Leverage Ratio
----- ------ --------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FBA 9.08% 6.88% 7.82% 6.63% 6.77% 4.79%
BankTEXAS 12.99 12.26 11.73 11.00 9.24 8.90
FB California 13.18 12.19 11.91 10.93 11.12 10.40
</TABLE>
(4) Acquisitions
On February 2, 1998, FBA completed its acquisition of FCB and its
wholly owned subsidiary, First Commercial. In the transaction, the FCB
shareholders received .8888 shares of FBA common stock for each share of FCB
common stock. Cash was paid in lieu of issuing fractional shares. In total, FCB
shareholders received approximately 752,000 shares of FBA common stock in the
transaction, including 462,176 shares received by First Banks in exchange for
its 61.48% ownership of FCB. The transaction also provided for First Banks to
receive 804,000 shares of FBA common stock in exchange for $10.0 million of
FBA's promissory note payable to First Banks, and for the exchange of FCB
convertible debentures of $6.5 million, which were owned by First Banks, for
comparable debentures of FBA. The Agreement was negotiated and approved by
special committees of the Boards of Directors of FCB and FBA. These special
committees were comprised solely of independent directors of the two respective
Boards of Directors.
First Commercial has six banking offices located in Sacramento,
Roseville (2), San Francisco, Concord and Campbell, California. At February 2,
1998, FCB had total assets of $192.5 million, investment securities of $64.4
million, loans, net of unearned discount of $118.9 million and deposits of
$173.1 million. The transaction was accounted for as a business combination of
entities under common control. Accordingly, FBA assumed First Banks' 61.48%
interest in FCB at its historical cost basis. The remaining 38.52%, or minority
interest, owned by unaffiliated parties was recorded at fair value. The excess
of the cost over the fair value of the minority interest's share in the fair
value of the net assets acquired was $1.6 million and is being amortized over 15
years. First Commercial was merged into FB California.
On February 2, 1998, FBA also completed its acquisition of Pacific Bay
Bank, San Pablo, California (Pacific Bay). Under the terms of the Pacific Bay
Agreement, Pacific Bay shareholders received $14.00 per share in cash for their
stock, an aggregate of $4.2 million. The transaction was accounted for using the
purchase method of accounting. The excess of the cost over the fair value of the
net assets acquired was $1.5 million and is being amortized over 15 years. This
transaction was funded from an advance under the promissory note payable to
First Banks.
Pacific Bay operated a banking office in San Pablo, California and a
loan production office in Lafayette, California. At February 2, 1998, Pacific
Bay had total assets of $38.3 million, investment securities of $232,000, loans,
net of unearned discount, of $29.7 million and deposits of $35.2 million.
Pacific Bay was merged into FB California.
<PAGE> 11
The following information presents unaudited pro forma condensed
results of operations of FBA for the three months ended March 31, 1997, combined
with the acquisition of Surety Bank, as if FBA had completed the transaction on
January 1, 1997. In addition, the historical results of First Banks' interest in
FCB is presented as if FBA had acquired First Banks' interest in FCB on January
1, 1997:
March 31, 1997
(dollars expressed in thousands,
except per share data)
Net interest income............................... $ 5,952
Provision for possible loan losses................ 585
Net income (loss)................................. 695
=======
Weighted average shares of common stock
Outstanding (in thousands)................... 5,440
=======
Earnings (loss) per common share:
Basic........................................ $ 0.13
Diluted...................................... 0.13
=======
Unaudited pro forma condensed results of operations are not included
for the three months ended March 31, 1998, as the proforma results did not
significantly differ from actual results.
The unaudited pro forma condensed results of operations reflect the
application of the purchase method of accounting for Surety Bank and certain
other assumptions. Purchase accounting adjustments have been applied to
investment securities, bank premises and equipment, deferred tax assets and
liabilities and excess cost required to reflect the assets acquired and
liabilities assumed at fair value. The resulting premiums and discounts are
amortized or accreted to income consistent with the accounting policies of FBA.
<PAGE> 12
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
The discussion herein contains certain forward looking statements
regarding the financial condition, results of operations and business of the
Company. These forward looking statements are subject to risks and
uncertainties, not all of which can be predicted or anticipated. Factors that
may cause actual results to differ materially from those contemplated by such
forward looking statements include general market conditions, conditions
affecting the banking industry generally and factors having a specific impact on
the Company, including but not limited to fluctuations in interest rates and in
the economy; the impact of laws and regulations applicable to the Company and
changes therein; competitive conditions in the markets in which the Company and
the Subsidiary Banks conduct their operations; and the ability of the Company to
respond to changes in technology. Additional factors potentially affecting the
Company's results were identified in the Annual Report on Form 10-K filed with
the Securities and Exchange Commission. Readers should not place undue reliance
on any forward-looking statements herein.
General
FBA is a registered bank holding company, incorporated in Delaware and
headquartered in Clayton, Missouri. At March 31, 1998, FBA had approximately
$692.4 million in total assets; $444.1 million in total loans, net of unearned
discount; $600.6 million in total deposits; and $56.8 million in total
stockholders' equity. FBA operates through its Subsidiary Banks.
As previously discussed in Notes 1 and 4 to the consolidated financial
statements, FBA's financial information presented in this Report on Form 10-Q
has been restated to reflect its acquisition of FCB.
Through the Subsidiary Banks' six locations in Texas and eleven
locations in the San Francisco - Sacramento corridor of northern California, FBA
offers a broad range of commercial and personal banking services including
certificate of deposit accounts, individual retirement and other time deposit
accounts, checking and other demand deposit accounts, interest checking
accounts, savings accounts and money market accounts. Loans include commercial
and industrial, real estate construction and development, commercial and
residential real estate and consumer loans. Other financial services include
credit-related insurance, automatic teller machines and safe deposit boxes.
The following table lists the Subsidiary Banks at March 31, 1998:
Loans, net of
Number of Total unearned Total
locations assets discount deposits
(dollars expressed in thousands)
FB California 11 $415,806 270,713 365,405
BankTEXAS 6 271,902 173,386 235,215
Financial Condition
FBA's total assets were $692.4 million and $643.7 million at March 31,
1998 and December 31, 1997, respectively, after the restatement for the
acquisition of FCB, as previously discussed in Notes 1 and 4 to the consolidated
financial statements. The increase in adjusted total assets from December 31,
1997 is primarily attributable to FBA's acquisition of Pacific Bay, which
provided total assets of $38.3 million.
<PAGE> 13
During the three months ended March 31, 1998, FBA purchased $2.5
million of its common stock for treasury. FBA utilized available cash and a $1.5
million advance under its promissory note payable to First Banks to fund its
repurchase of common stock. As announced by FBA on April 29, 1998, the Board of
Directors authorized the purchase of an additional 5% of its common stock for
treasury.
Results of Operations
Net Income
Net income was $1.1 million, or $0.22 per share on a diluted basis, for
the three months ended March 31, 1998, compared to $513,000, or $0.12 per share
on a diluted basis, for the same period in 1997. The improved operating results
of FBA reflect the improved performance of both BankTEXAS and FB California.
BankTEXAS' net income increased to $753,000 from $629,000 for the three month
periods ended March 31, 1998 and 1997, respectively. FB California recorded net
income of $739,000 for the three month period ended March 31, 1998, in
comparison to $395,000 for the same period in 1997. The results for the first
quarter of 1998 include a net charge of $225,000, or $0.05 per share on a
diluted basis, in settlement of certain litigation. Excluding this charge,
earnings per share on a diluted basis for the first quarter of 1998 would have
been $0.27.
Net Interest Income
Net interest income was $7.10 million, or 4.77% of average
interest-earning assets, for the three months ended March 31, 1998, compared to
$5.10 million, or 4.30% of average interest-earning assets, for the same period
in 1997. The improved net interest income is primarily attributable to the net
interest-earning assets provided by the acquisitions of Surety Bank and Pacific
Bay and the improving yield on BankTEXAS' repositioned loan portfolio and the
effect of the exchange of $10.0 million of the promissory note payable for
common stock.
<PAGE> 14
The following table sets forth certain information relating to FBA's
average balance sheets, and reflects the average yield earned on
interest-earning assets, the average cost of interest-bearing liabilities and
the resulting net interest income for the three month periods ended March 31:
<TABLE>
<CAPTION>
1998 1997
------------------------- --------------------------
Interest Interest
Average income/ Yield/ Average income/ Yield/
balance expense rate balance expense rate
------- ------- ---- ------- ------- ----
(dollars expressed in thousands)
Assets
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans.................................... $ 438,421 10,568 9.78% $ 326,474 7,453 9.26%
Investment securities.................... 136,501 2,033 6.04 125,544 1,781 5.75
Federal funds sold and other............. _28,062 395 5.71 29,360 377 5.21
--------- ------ ---------- ------
Total interest-earning assets...... 602,984 12,996 8.74 481,378 9,611 8.10
------ ------
Nonearning assets........................... 62,166 42,194
--------- ----------
Total assets....................... $ 665,150 $ 523,572
========= ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits......... $ 73,291 349 1.93% $ 68,211 354 2.10%
Savings deposits......................... 151,237 1,454 3.90 98,052 766 3.17
Time deposits of $100 or more............ 51,594 775 6.09 39,465 529 5.44
Other time deposits...................... 205,975 2,784 5.48 171,480 2,314 5.47
--------- ----- --------- ------
Total interest-bearing deposits.... 482,097 5,362 4.51 377,208 3,963 4.26
Notes payable and other ................. 24,602 537 8.85 24,393 545 9.06
--------- ----- --------- ------
Total interest-bearing liabilities. 506,699 5,899 4.72 401,601 4,508 4.55
----- ------
Noninterest-bearing liabilities:
Demand deposits.......................... 91,230 72,129
Other liabilities........................ 12,360 9,795
--------- ---------
Total liabilities.................. 610,289 483,525
Stockholders' equity........................ 54,861 40,047
--------- ---------
Total liabilities and
stockholders' equity............. $ 665,150 $ 523,572
========= ==========
Net interest income......................... 7,097 5,103
===== =====
Net interest margin......................... 4.77% 4.30%
==== ====
</TABLE>
Provision for Possible Loan Losses
The provision for possible loan losses was $300,000 and $550,000 for
the three month periods ended March 31, 1998 and 1997, respectively. The
decrease in the provision for possible loan losses for the first quarter of
1998, compared to the same period in 1997, is primarily attributable to improved
asset quality of FBA's existing loan portfolio, as determined by management's
review and evaluation of the credit quality of the loans in the portfolio and
its assessment of the adequacy of the allowance for possible loan losses.
Net loan charge-offs were $529,000 for the three month period ended
March 31, 1998, compared to $422,000 for the same period in 1997. The increase
in net loan charge-offs is primarily attributable to the loans obtained through
the acquisition of Pacific Bay. The acquired allowance for possible loan losses
totaled $885,000 at the acquisition date. See "-- Lending and Credit Management"
for a summary of nonperforming loans and a summary of loan loss experience.
<PAGE> 15
Noninterest Income
Noninterest income was $1.2 million for the three month period ended
March 31, 1998 compared to $871,000 for the same period in 1997. Noninterest
income consists primarily of service charges on deposit accounts and customer
service fees.
Service charges on deposit accounts and customer service fees
increased to $739,000 for the three month period ended March 31, 1998, in
comparison to $575,000 for the same period in 1997. This increase is primarily
attributable to the acquisitions of Surety Bank and Pacific Bay Bank.
Noninterest Expense
Noninterest expense was $6.1 million for the three month period ended
March 31, 1998, compared to $4.5 million for the same period in 1997. The
increase is attributable to the noninterest expense of Surety Bank and Pacific
Bay. Additionally, other expenses for the three months ended March 31, 1998
includes a $350,000 charge in settlement of certain litigation.
Occupancy, net of rental income, declined to $491,000 for the three
months ended March 31, 1998 from $571,000 for the same period in 1997. This is
the result of increased sub-leasing of excess space within FBA's banking
premises, relocation of certain California branches and the related reductions
in expenses attributable to centralization of recently acquired entities'
functions into FBA's systems.
Lending and Credit Management
Interest earned on the loan portfolio is the primary source of income
of FBA. Total loans, net of unearned discount, represented 64.1% and 67.0% of
total assets as of March 31, 1998 and December 31, 1997, respectively. Total
loans, net of unearned discount, were $444.1 million and $431.5 million at March
31, 1998 and December 31, 1997, respectively. The increase in loans, as
summarized on the consolidated balance sheet, is attributable to the acquisition
of Pacific Bay and to the expansion of the corporate lending function of FBA.
The expansion has generated growth in the commercial and commercial real estate
mortgage loan portfolios. Offsetting the growth in corporate lending is the
continuing decrease in the consumer indirect automobile loan portfolio.
<PAGE> 16
FBA's nonperforming loans consist of loans on a nonaccrual status and
loans on which the original terms have been restructured. The following is a
summary of nonperforming assets and past due loans at the dates indicated:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
(dollars expressed in thousands)
Nonperforming assets:
<S> <C> <C>
Nonperforming loans............................................... $ 6,003 2,846
Other real estate................................................. 725 601
----------- ----------
Total nonperforming assets..................................... $ 6,728 3,447
=========== ==========
Loans past due and still accruing:
Over 30 days to 90 days........................................... $ 12,428 7,866
Over 90 days...................................................... 672 1,158
----------- ----------
Total past due loans........................................... $ 13,100 9,024
=========== ==========
Loans, net of unearned discount..................................... $ 444,099 431,455
=========== ==========
Asset quality ratios:
Allowance for possible loan losses to loans....................... 2.72% 2.64%
Nonperforming loans to loans ..................................... 1.35 0.66
Allowance for possible loan losses to
nonperforming loans ........................................... 200.95 400.81
Nonperforming assets to loans and other real estate............... 1.51 0.80
=========== =========
</TABLE>
Nonperforming loans, consisting of loans on nonaccrual status and
restructured loans, were $6.0 million at March 31, 1998 in comparison to $2.8
million and $2.4 million at December 31, 1997 and March 31, 1997, respectively.
The increase is primarily attributable to the loans obtained through the
acquisition of Pacific Bay. The acquired allowance for possible loan losses
totaled $885,000 at the acquisition date.
Impaired loans, consisting of loans on a nonaccrual status and indirect
consumer and installment loans 60 days or more past due, were $6.3 million and
$3.4 million at March 31, 1998 and December 31, 1997, respectively.
The allowance for possible loan losses is monitored on a monthly basis.
Each month, credit administration provides FBA's management with detailed lists
of loans on the watch list and summaries of the entire loan portfolio of each
Subsidiary Bank by risk rating. These are coupled with analyses of changes in
the risk profiles of the portfolios, changes in past due and nonperforming loans
and changes in watch list and classified loans over time. In this manner, the
overall increases or decreases in the levels of risk in the portfolios are
monitored continually. Factors are applied to the loan portfolios for each
category of loan risk to determine acceptable levels of allowance for possible
loan losses. These factors are derived primarily from the actual loss experience
of the Subsidiary Banks and from published national surveys of norms in the
industry. The calculated allowances required for the portfolios are then
compared to the actual allowance balances to determine the provisions necessary
to maintain the allowances at appropriate levels. In addition, management
exercises judgment in its analysis of determining the overall level of the
allowance for possible losses. In its analysis, management considers the change
in the portfolio, including growth and composition, and the economic conditions
of the regions in which FBA operates.
Based on this quantitative and qualitative analysis, the allowance for
possible loan losses is adjusted. Such adjustments are reflected in the
consolidated statements of operations.
<PAGE> 17
The following is a summary of the loan loss experience:
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------
1998 1997
---- ----
(dollars expressed in thousands)
<S> <C> <C>
Allowance for possible loan losses, beginning of period.................... $ 11,407 10,744
---------
Acquired allowances for possible loan losses............................ 885 --
--------- --------
12,292 10,744
--------- --------
Loans charged-off....................................................... (1,059) (982)
Recoveries of loans previously charged-off.............................. 530 560
--------- --------
Net loan charge-offs.................................................... (529) (422)
--------- --------
Provision for possible loan losses...................................... 300 550
--------- --------
Allowance for possible loan losses, end of period.......................... $ 12,063 10,872
========= ========
</TABLE>
Liquidity
The liquidity of FBA and the Subsidiary Banks is the ability to
maintain a cash flow which is adequate to fund operations, service debt
obligations and meet other commitments on a timely basis. The primary sources of
funds for liquidity are derived from customer deposits, loan payments,
maturities, sales of investments and operations. In addition, FBA and the
Subsidiary Banks may avail themselves of more volatile sources of funds through
issuance of certificates of deposit in denominations of $100,000 or more,
federal funds borrowed, securities sold under agreements to repurchase and
borrowings from the Federal Home Loan Bank. The aggregate funds acquired from
those sources were $61.2 million and $56.2 million at March 31, 1998 and
December 31, 1997, respectively.
At March 31, 1998, FBA's more volatile sources of funds mature as
follows:
(dollars expressed
in thousands)
Three months or less............................... $ 21,562
Over three months through six months............... 13,606
Over six months through twelve months.............. 13,315
Over twelve months................................. 12,695
---------
Total........................................ $ 61,178
=========
Management believes the available liquidity and earnings of the
Subsidiary Banks will be sufficient to provide funds for FBA's operating and
debt service requirements both on a short-term and long-term basis.
Effect of New Accounting Standards
FBA adopted the provisions of Statement on Financial Accounting
Standards (SFAS) No. 130 - Reporting Comprehensive Income (SFAS 130)
retroactively on January 1, 1998. SFAS 130 established standards for reporting
and displaying income and its components (revenues, gains and losses) in a full
set of general purpose financial statements. The statement requires all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Comparative financial
statements provided for earlier periods have been restated to reflect the
application of SFAS 130. The implementation of SFAS 130 did not have a material
impact on FBA's consolidated financial statements.
During 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 131 - Disclosures about Segments of an Enterprise and Related
Information (SFAS 131). SFAS 131 establishes standards for the way public
business enterprises report information about operating segments in annual
<PAGE> 18
financial statements and requires those enterprises report selected information
about operating segments in interim financial reports issued to shareholders.
Additionally, SFAS 131 establishes standards for related disclosures about
products and services, geographic areas, and major customers superseding SFAS
No. 14 - Financial Reporting for Segments of a Business Enterprise. FBA is
currently evaluating information required by SFAS 131 and believes expanded
disclosure information will be required to be included in FBA's consolidated
financial statements for fiscal years beginning after December 15, 1997.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Report on Form 8-K
(a) The exhibits are numbered in accordance with the Exhibit Table of Item
601 of Regulation S-K.
Exhibit
Number Description
10(t) Debenture by and between First Banks America, Inc.
and First Banks, Inc., dated February 2, 1998
11 Calculations of Earnings Per Share
27 Article 9 - Financial Data Schedule (EDGAR only)
(b) A current report on Form 8-K was filed by FBA on February 13, 1998.
Item 2 of the Report describes the acquisition of First Commercial
Bancorp, Inc. by First Banks America, Inc. on February 2, 1998. In
addition, Item 7 of the Report presents financial statements of the
acquired entity and pro forma financial information of the combined
group.
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST BANKS AMERICA, INC.
Registrant
Date: May 8, 1998 By:/s/ James F. Dierberg
---------------------
James F. Dierberg
Chairman, President
and Chief Executive Officer
Date: May 8, 1998 By:/s/ Allen H. Blake
------------------
Allen H. Blake
Vice President,
Chief Financial Officer
and Secretary
(Principal Financial Officer)
<PAGE> 20
Exhibit 10(t)
FIRST BANKS AMERICA, INC.
a Delaware corporation
DEBENTURE
This is the Sole Debenture of
an Issuance of Debentures Totaling
$6,500,000.00
By First Banks America, Inc. on this Date
Amount of Debenture: $6,500,000.00 February 2, 1998
Due: October 31, 2000
1. Promise to Pay. FIRST BANKS AMERICA, INC., a Delaware corporation
(the "Company"), for value received, promises to pay to FIRST BANKS, INC., a
Missouri corporation, or its successors and assigns (the "Holder"), the sum of
Six Million Five Hundred Thousand Dollars ($6,500,000.00), together with
interest on the principal amount hereof (not compounded) at the rate of interest
of twelve percent (12%) annually. Unless otherwise provided herein, payments on
this Debenture shall be in dollars of the United States of America and payments
shall be made to the address of the Holder specified in Section 13 below.
2. Assumption of Accrued Interest. This Debenture is intended to
replace certain indebtedness of First Commercial Bancorp, Inc., a Delaware
corporation that was merged with and into the Company, to the Holder under that
certain convertible debenture in the principal amount of $1.5 million, dated
October 31, 1995, and that certain convertible debenture in the principal amount
of $5.0 million, dated December 28, 1995 (collectively the "FCB Debentures").
The Company hereby agrees to repay the accrued and unpaid interest under the FCB
Debentures as if such interest had accrued under this Debenture in accordance
with the terms of this Debenture.
3. Payments. The Company shall make payments on this Debenture when, in
the sole and absolute discretion of the Board of Directors of the Company, the
Company has sufficient funds to make such a payment of interest or principal on
this Debenture and can make such a payment in accordance with law and all
applicable regulatory requirements; provided, however, if and to the extent the
Company has not previously paid interest or principal on this Debenture, then
(i) prior to October 31, 2000 ("Maturity"), the Holder of this Debenture shall
have the right to convert unpaid interest or principal at the times and in the
manner described in Section 5, and upon such conversion, that portion of
interest or principal so converted shall be deemed paid in full and (ii) upon
Maturity, the Debenture shall be payable and convert to common stock, $0.15 par
value per share (the "Company Common"), pursuant to the provisions of Section
5(b). Notwithstanding anything to the contrary herein, Company shall give Holder
ten (10) days prior written notice of Company's intention to make any payment to
Holder on the Debenture.
<PAGE> 21
4. No Security. The obligations of Company hereunder shall not be
secured by any assets of the Company.
5. Conversion Rights.
(a) Right to Convert. At the sole option and discretion of the
Holder of this Debenture, unpaid principal and accrued but unpaid interest may
be converted into shares of Company Common at the Conversion Price set forth in
Subsection (c) below. A Holder desiring to convert shall follow the conversion
procedure set forth in Subsection (d). On the date that the conversion is
effective as provided in Subsection (d) below, all or any portion of the unpaid
principal and interest which has then accrued but remains unpaid, and which
Holder elects to convert, shall be converted into shares of Company Common.
(b) Automatic Conversion. Notwithstanding the provisions of
Section 5(a) above and absent an Event of Default, at Maturity, all unpaid
principal and accrued but unpaid interest shall be automatically converted into
Company Common at the Conversion Price set forth in Subsection (c) below. Once
the automatic conversion has occurred, no further interest shall accrue, and the
Holder shall be deemed to be paid in full.
(c) Conversion Price. The price per share of Company Common at
which the convertible portion of the interest or principal of this Debenture may
be converted (the "Conversion Price") shall be equal to $14.06 per share.
(d) Conversion Procedure. If Holder desires to convert all or
any portion of the unpaid principal or accrued but unpaid interest of this
Debenture, then Holder shall deliver a written notice to the Company stating
that the Holder desires to convert and specifying the amount of unpaid principal
and accrued by unpaid interest that Holder wishes to convert. Promptly after
receipt of such written notice, the Company shall deliver to the Holder of this
Debenture any and all documents which the Company shall require in order to
permit the conversion, including, without limitation, any and all documents
necessary to comply with applicable securities law exemptions or to satisfy any
and all requirements of applicable law and regulations, including any
requirements of any regulatory bodies having jurisdiction over the Company.
Promptly after receipt from Holder by the Company of such documents as the
Company may require to permit conversion, the Company shall send written notice
to the Holder and the Holder shall execute the written notice that the portion
of this Debenture that the Holder requested be converted has in fact been
converted into common stock of the Company at the Conversion Price and
specifying the number of shares of Company Common to which the Holder will be
entitled as a result of such conversion. The conversion shall be deemed to have
taken effect as of the date of such written notice from the Holder to the
Company, and, promptly thereafter, the Company shall cause to be delivered to
the Holder from the Company or its transfer agent, a certificate representing
such shares of Company Common, which shares shall bear a legend substantially in
the form of that set forth in Section 8 of this Debenture (with such changes as
are necessary to reflect that the legend condition affects the shares
represented by that certificate in lieu of the language pertaining to this
Debenture). With respect to an automatic conversion of the Debenture on and as
of October 31, 2000, such conversion shall occur automatically as set forth
herein, except that no notice shall be required.
6. Adjustment for Dividends, Subdivisions, Combinations or
Reclassifications. In case the Company shall: (a) pay a dividend or make a
distribution in shares of its capital stock (whether shares of Company Common
Stock or of capital stock of any other class); (b) subdivide the outstanding
shares of Company Common Stock into a greater number of shares; (c) combine the
outstanding shares of Company Common Stock into a smaller number of shares; or
(d) reclassify shares of Company Common Stock such that additional shares of
capital stock of the Company are issued to holders of Company Common Stock;
then, and in each such case, the per share Conversion Price in effect
immediately prior to such action shall be adjusted so that the Holder of this
Debenture thereafter upon the Conversion hereof shall be entitled to receive the
number of shares of capital stock of the Company which such Holder would have
owned immediately following such action had this Debenture been converted
immediately prior thereto. An adjustment made pursuant to this Section 6 shall
become effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination, or reclassification. If, as a result of
an adjustment made pursuant to this Section 6, the Holder of this Debenture
shall become entitled to receive shares of two or more classes of capital stock
of the Company, the Board of Directors of the Company (whose determination shall
be conclusive) shall determine the allocation of the adjusted Conversion Price
between or among shares of such classes of capital stock.
All calculations under this Section 6 shall be made to the nearest
one-hundredth of a cent or to the nearest one-hundredth of a share, as the case
may be, but in no event shall the Company be obligated to issue fractional
shares upon the conversion of this Debenture.
<PAGE> 22
7. Reservation. The Company shall, at all times, reserve and keep
available, out of its authorized but unissued shares of Company Common, solely
for the purpose of effecting the conversion of this Debenture, the full number
of shares of Company Common deliverable upon the conversion of all Debentures
from time to time outstanding. The Company shall from time to time in accordance
with Delaware law, increase the authorized number of shares of Company Common if
at any time the authorized number of such shares remaining unissued shall not be
sufficient to permit the conversion of all of the Debentures at the time
outstanding.
8. Restricted Nature of Debenture. The Holder of this Debenture
understands that the Company may require, upon the conversion of this Debenture
into Company Common, that the Holder make certain representations to the Company
to comply with applicable securities law exemptions. The Holder understands that
this Debenture and Company Common into which this Debenture is convertible are
"restricted securities" under the Securities Act of 1933 and this Debenture and
the Company Common into which this Debenture is convertible is and will be
subject to the following legend condition:
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). THE DEBENTURE HAS BEEN ACQUIRED BY THE
HOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF: (1) AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THAT ACT;
(2) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED; OR (3) A "NO ACTION LETTER" FROM THE
SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT THE STAFF OF THE
COMMISSION WILL NOT RECOMMEND THAT ANY ACTION BE TAKEN UNDER THE ACT
AGAINST THE COMPANY IF SUCH PROPOSED SALE IS CONSUMMATED WITHOUT
REGISTRATION UNDER THE ACT.
The issuance of the Company Common may be delayed in order for the Company to
obtain any and all necessary regulatory approvals and to comply with federal and
securities laws.
9. Default. Each of the following shall constitute an event of
default ("Events of Default") under this Debenture:
(a) Default or breach by the Company in the due observance or
performance of any of the terms, covenants or agreements set forth in
this Debenture if such default is not remedied by such the Company or
waived by Holder within 30 days following the Company's receipt of
notice thereof.
(b) The Company (i) fails to pay, or admits in writing such
Borrower's inability to pay, such Borrower's debts as they become due,
or otherwise becomes insolvent (however evidenced); (ii) makes an
assignment for the benefit of creditors; (iii) files a petition in
bankruptcy, is adjudicated insolvent or bankrupt, petitions or applies
to any tribunal for any receiver or any trustee of the Company or any
substantial part of the Company's property; (iv) commences any
proceeding relating to the Company under any reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, whether now or hereafter in effect; (v) if
there is commenced against the Company any such proceeding which
remains undismissed for a period of thirty (30) days, or the Company by
any act indicates its consent to, approval of, or acquiescence in any
such proceeding or the appointment of any receiver of or any trustee
for such Borrower or of any substantial part of the Company's property,
or suffers any such receivership or trusteeship to continue
undischarged for a period of 30 days or the Company takes any
partnership or corporate action to authorize any of the foregoing; or
(vi) is placed in receivership by any federal or state agency with
regulatory authority over the Company.
<PAGE> 23
(c) The Company files a certificate of dissolution under
applicable state law or is liquidated or dissolved or suspends or
terminates the operation of its business, or has commenced against it
any action or proceeding for its liquidation or dissolution or the
winding up of its business, or takes any corporate action in
furtherance thereof.
10. Rights and Remedies in the Event of Default. Upon any Event of
Default, and at any time thereafter, Holder may, at its option, do any one or
more of the following: (a) Declare this Debenture to be immediately due and
payable in cash; or (b) exercise any other rights or remedies available to
holder under this Debenture or otherwise available to Holder at law or in
equity.
11. Modification. The terms of this Debenture may be amended or
modified by the Company with the written consent of the Holder. If the Holder
transfers or assigns all or a portion of this Debenture to a permitted assignee
or transferee, then the Holders, by vote of Holders holding a majority of the
principal amount of this Debenture, may authorize any amendment, modification,
or waiver of compliance by the Company of the provisions or defaults under this
Debenture. Any such consent or waiver by the Holder (or majority in interest of
subsequent Holders) of the Debenture shall be conclusive and binding upon the
Holder (and all other Holders) and upon all future holders of this Debenture.
12. Governing Law and Attorneys' Fees. This Debenture and the rights
and obligations of the parties hereunder are to be governed by and construed and
interpreted in accordance with the laws of the State of Missouri applicable to
contracts made and to be performed wholly within Missouri, without regard to
choice or conflict of laws rules. If either party incurs legal expenses in any
action arising out of this Debenture, then the prevailing party in such action
shall be entitled to recover from the nonprevailing party all reasonably
attorneys' fees, expert witness fees, and other costs, in addition to any other
relief to which such party may be entitled. This Debenture and the agreements
referred to herein constitute the entire agreement among the parties pertaining
the subject matter hereof and fully supersede any and all prior agreements
between the parties hereto respecting the subject matter hereof.
13. Notices. Any notice required to be given to the Holder of this
Debenture shall be deemed given if it is set forth in writing addressed to the
Holder at the Holder's address appearing on the books of the Company. Notices to
the Company shall be in writing and sent to the President, or any Executive Vice
President of the Company in care of the then present principal place of business
of the Company. Such notices shall be deemed effectively delivered: (a) three
business days after deposit in the United States mail, postage prepaid; (b) when
actually received if delivered by personal delivery; or (c) as of two business
days after delivery to Federal Express or some other third-party who will
guarantee delivery by overnight courier addressed to the address of such party
as provided in this Section.
<PAGE> 24
14. Usury Law Provision. All payments due hereunder are hereby
expressly limited so that in no contingency or event whatsoever shall the amount
paid or agreed to be paid to the Holder of this Debenture for the use,
forbearance, or detention of the money exceed the highest lawful rate
permissible. If, from any circumstance, whatsoever, fulfillment of any of the
provisions of this Debenture, or any other agreement referred to herein, as of
the time performance of such provision shall be due, shall involve a payment
that exceeds the lawful amount permissible under law which a court of competent
jurisdiction may deem applicable, then the obligations to be fulfilled shall be
reduced to the limit of such validity, and if from any circumstance the Holder
of this Debenture shall ever receive as interest an amount which would exceed
the highest lawful rate, such amount which would be excessive interest shall be
applied to the reduction of unpaid principal balance due hereunder, and not to
the payment of interest, or, if such excessive interest exceeds the unpaid
principal balance due hereunder, the excess shall be refunded to the
undersigned.
15. Non-Transferable. Except with the consent of the Company (which
consent shall not be unreasonably withheld) or to an entity controlled by or
under common control with Holder, this Debenture is not transferable by the
Holder hereof.
FIRST BANKS AMERICA, INC.
By /s/James F. Dierberg
--------------------
James F. Dierberg
Chairman of the Board, President,
and Chief Executive Officer
<PAGE> 25
Exhibit 11
The following is a reconciliation of the numerators and denominators of
the basic and diluted EPS computations for the periods indicated:
<TABLE>
<CAPTION>
Income Shares Per share
(numerator) (denominator) amount
---------- ------------- ------
(dollars expressed in thousands, except per share data)
Quarter ended March 31, 1998:
<S> <C> <C> <C>
Basic EPS - income available to common stockholders.... $ 1,100 4,911 $ 0.22
=======
Effect of dilutive securities-stock options............ -- 13
------- ------
Diluted EPS - income available to common stockholders.. $ 1,100 4,924 $ 0.22
======= ====== =======
Quarter ended March 31, 1997:
Basic EPS - income available to common stockholders.... $ 513 4,082 $ 0.13
=======
Effect of dilutive securities-stock options............ -- 57
------- ------
Diluted EPS - income available to common stockholders.. $ 513 4,139 $ 0.12
======= ====== =======
</TABLE>
The 12% convertible debentures were anti-dilutive for the periods
presented above and therefore, have not been included in the EPS calculations.
<PAGE> 26
<TABLE>
[ARTICLE] 9
[CIK] 0000310979
[NAME] First Banks America, Inc.
[MULTIPLIER] 1,000
<S> <C>
[PERIOD-TYPE] 3-mos
[FISCAL-YEAR-END] Dec-31-1998
[PERIOD-START] Jan-01-1998
[PERIOD-END] Mar-31-1998
[CASH] 32,651
[INT-BEARING-DEPOSITS] 2,271
[FED-FUNDS-SOLD] 42,250
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 141,131
[INVESTMENTS-CARRYING] 0
[INVESTMENTS-MARKET] 0
[LOANS] 444,099
[ALLOWANCE] 12,063
[TOTAL-ASSETS] 692,409
[DEPOSITS] 600,557
[SHORT-TERM] 3,453
[LIABILITIES-OTHER] 11,608
[LONG-TERM] 19,950
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 861
[OTHER-SE] 55,980
[TOTAL-LIABILITIES-AND-EQUITY] 692,409
[INTEREST-LOAN] 10,568
[INTEREST-INVEST] 2,033
[INTEREST-OTHER] 395
[INTEREST-TOTAL] 12,996
[INTEREST-DEPOSIT] 5,362
[INTEREST-EXPENSE] 5,899
[INTEREST-INCOME-NET] 7,097
[LOAN-LOSSES] 300
[SECURITIES-GAINS] 92
[EXPENSE-OTHER] 6,057
[INCOME-PRETAX] 1,890
[INCOME-PRE-EXTRAORDINARY] 1,890
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 1,100
[EPS-PRIMARY] .22
[EPS-DILUTED] .22
[YIELD-ACTUAL] 8.74
[LOANS-NON] 6,003
[LOANS-PAST] 672
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 5,317
[ALLOWANCE-OPEN] 11,407
[CHARGE-OFFS] (1,059)
[RECOVERIES] 530
[ALLOWANCE-CLOSE] 12,063
[ALLOWANCE-DOMESTIC] 12,063
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 2,915
</TABLE>
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
First Banks America, Inc.:
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
St. Louis,Missouri
July 1, 1998
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
First Commercial Bancorp, Inc.:
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
St. Louis,Missouri
July 1, 1998
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-2 of
our report dated June 19, 1998, on our audits of the consolidated financial
statements of Redwood Bancorp and Subsidiaries. We also consent to the
reference to our firm under the captions "Experts".
/s/ Coopers & Lybrand, L.L.P.
San Francisco, California
June 30, 1998
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) --
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
---------------------
FIRST BANKS AMERICA, INC.
(Exact name of obligor as specified in its charter)
Delaware xx-xxxxxxx
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
135 North Meramec, Clayton, Missouri 63105
(314) 854-4600
(Address of principal executive offices) (Zip Code)
--------------------
% SUBORDINATED DEBENTURES
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System,
Washington, D.C., Federal Deposit Insurance Corporation,
Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Boston Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT
OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as
now in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement
of Eligibility and Qualification of Trustee (Form T-1)
filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference
thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO
COMMENCE BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the
trustee to commence business was necessary or issued is on
file with the Securities and Exchange Commission as Exhibit
2 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO
EXERCISE CORPORATE TRUST POWERS, IF SUCH AUTHORIZATION
IS NOT CONTAINED IN THE DOCUMENTS SPECIFIED IN
PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe,
Inc. (File No. 22-17940) and is incorporated herein by
reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is
on file with the Securities and Exchange Commission as
Exhibit 4 to the Statement of Eligibility and Qualification
of Trustee (Form T-1) filed with the Registration Statement
of Eastern Edison Company (File No. 33-37823) and is
incorporated herein by reference thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR
IS IN DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(b) OF THE ACT.
The consent of the trustee required by Section 321(b) of
the Act is annexed hereto as Exhibit 6 and made a part
hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE
PUBLISHED PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR
EXAMINING AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 2nd day of June, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /S/ PAUL D. ALLEN
-----------------------------------------
PAUL D. ALLEN
VICE PRESIDENT
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by FIRST
BANKS AMERICA, INC. of its % SUBORDINATED DEBENTURES, we hereby consent
that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /S/ PAUL D. ALLEN
-------------------------------------
PAUL D. ALLEN
VICE PRESIDENT
DATED: JUNE 2, 1998
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business December 31, 1997,
-----------------
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin 2,220,829
Interest-bearing balances 10,076,045
Securities 10,373,821
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary 5,124,310
Loans and lease financing receivables:
Loans and leases, net of unearned income 6,270,348
Allowance for loan and lease losses 82,820
Allocated transfer risk reserve 0
Loans and leases, net of unearned income and allowances 6,187,528
Assets held in trading accounts 1,241,555
Premises and fixed assets 410,029
Other real estate owned 100
Investments in unconsolidated subsidiaries 38,831
Customers' liability to this bank on acceptances outstanding 44,962
Intangible assets 224,049
Other assets 1,507,650
-----------
Total assets 37,449,709
==============
LIABILITIES
Deposits:
In domestic offices 10,115,205
Noninterest-bearing 7,739,136
Interest-bearing 2,376,069
In foreign offices and Edge subsidiary 14,791,134
Noninterest-bearing 71,889
Interest-bearing 14,719,245
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary 7,603,920
Demand notes issued to the U.S. Treasury and Trading Liabilities 194,059
Trading liabilities 1,036,905
Other borrowed money 459,252
Subordinated notes and debentures 0
Bank's liability on acceptances executed and outstanding 44,962
Other liabilities 972,782
Total liabilities 35,218,219
-----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus 0
Common stock 29,931
Surplus 444,620
Undivided profits and capital reserves/Net unrealized holding gains (losses) 1,763,076
Cumulative foreign currency translation adjustments (6,137)
Total equity capital 2,231,490
-----------
Total liabilities and equity capital 37,449,709
-----------
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true
and correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
----------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) --
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
---------------------
FIRST AMERICA CAPITAL TRUST
(Exact name of obligor as specified in its charter)
Delaware xx-xxxxxxx
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
135 North Meramec, Clayton, Missouri 63105
(314) 854-4600
(Address of principal executive offices) (Zip Code)
--------------------
PREFERRED SECURITIES
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY
AUTHORITY TO WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth
of Massachusetts, 100 Cambridge Street, Boston,
Massachusetts.
Board of Governors of the Federal Reserve System,
Washington, D.C., Federal Deposit Insurance Corporation,
Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE
TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE
EACH SUCH AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Boston Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT
OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE
TRUSTEE AS NOW IN EFFECT.
A copy of the Articles of Association of the trustee, as
now in effect, is on file with the Securities and
Exchange Commission as Exhibit 1 to Amendment No. 1 to
the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Morse
Shoe, Inc. (File No. 22-17940) and is incorporated herein
by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO
COMMENCE BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the
trustee to commence business was necessary or issued is
on file with the Securities and Exchange Commission as
Exhibit 2 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1)
filed with the Registration Statement of Morse Shoe,
Inc. (File No. 22-17940) and is incorporated herein by
reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities
and Exchange Commission as Exhibit 3 to Amendment No. 1
to the Statement of Eligibility and Qualification of
Trustee (Form T-1) filed with the Registration Statement
of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect,
is on file with the Securities and Exchange Commission
as Exhibit 4 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Eastern Edison Company (File
No. 33-37823) and is incorporated herein by reference
thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS
IN DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(b) OF THE ACT.
The consent of the trustee required by Section 321(b) of
the Act is annexed hereto as Exhibit 6 and made a part
hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE
TRUSTEE PUBLISHED PURSUANT TO LAW OR THE REQUIREMENTS
OF ITS SUPERVISING OR EXAMINING AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which
relates to matters peculiarly within the knowledge of the obligor or any
underwriter for the obligor, the trustee has relied upon information
furnished to it by the obligor and the underwriters, and the trustee
disclaims responsibility for the accuracy or completeness of such
information.
The answer furnished to Item 2. of this statement will be
amended, if necessary, to reflect any facts which differ from those stated
and which would have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939,
as amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts,
has duly caused this statement of eligibility to be signed on its behalf by
the undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 2nd day of June, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /S/ PAUL D. ALLEN
--------------------------------------
PAUL D. ALLEN
VICE PRESIDENT
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust
Indenture Act of 1939, as amended, in connection with the proposed issuance
by FIRST BANKS AMERICA CAPITAL TRUST of its PREFERRED SECURITIES,
we hereby consent that reports of examination by Federal, State, Territorial
or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /S/ PAUL D. ALLEN
---------------------------------
PAUL D. ALLEN
VICE PRESIDENT
DATED: JUNE 2, 1998
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking
institution organized and operating under the banking laws of this
commonwealth and a member of the Federal Reserve System, at the close of
business December 31, 1997, published in accordance with a call made by the
-----------------
Federal Reserve Bank of this District pursuant to the provisions of the
Federal Reserve Act and in accordance with a call made by the Commissioner of
Banks under General Laws, Chapter 172, Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin 2,220,829
Interest-bearing balances 10,076,045
Securities 10,373,821
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary 5,124,310
Loans and lease financing receivables:
Loans and leases, net of unearned income 6,270,348
Allowance for loan and lease losses 82,820
Allocated transfer risk reserve 0
Loans and leases, net of unearned income and allowances 6,187,528
Assets held in trading accounts 1,241,555
Premises and fixed assets 410,029
Other real estate owned 100
Investments in unconsolidated subsidiaries 38,831
Customers' liability to this bank on acceptances outstanding 44,962
Intangible assets 224,049
Other assets 1,507,650
------------
Total assets 37,449,709
===============
LIABILITIES
Deposits:
In domestic offices 10,115,205
Noninterest-bearing 7,739,136
Interest-bearing 2,376,069
In foreign offices and Edge subsidiary 14,791,134
Noninterest-bearing 71,889
Interest-bearing 14,719,245
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary 7,603,920
Demand notes issued to the U.S. Treasury and Trading Liabilities 194,059
Trading liabilities 1,036,905
Other borrowed money 459,252
Subordinated notes and debentures 0
Bank's liability on acceptances executed and outstanding 44,962
Other liabilities 972,782
Total liabilities 35,218,219
------------
EQUITY CAPITAL
Perpetual preferred stock and related surplus 0
Common stock 29,931
Surplus 444,620
Undivided profits and capital reserves/Net unrealized holding gains (losses) 1,763,076
Cumulative foreign currency translation adjustments (6,137)
Total equity capital 2,231,490
------------
Total liabilities and equity capital 37,449,709
------------
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true
and correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) --
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
---------------------
FIRST BANKS AMERICA, INC.
(Exact name of obligor as specified in its charter)
Delaware 75-1604965
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
135 North Meramec, Clayton, Missouri 63105
(314) 854-4600
(Address of principal executive offices) (Zip Code)
--------------------
GUARANTEE
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY
AUTHORITY TO WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System,
Washington, D.C., Federal Deposit Insurance Corporation,
Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE
EACH SUCH AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Boston Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT
OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as
now in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement
of Eligibility and Qualification of Trustee (Form T-1)
filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference
thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the
trustee to commence business was necessary or issued is on
file with the Securities and Exchange Commission as Exhibit
2 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe,
Inc. (File No. 22-17940) and is incorporated herein by
reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is
on file with the Securities and Exchange Commission as
Exhibit 4 to the Statement of Eligibility and Qualification
of Trustee (Form T-1) filed with the Registration Statement
of Eastern Edison Company (File No. 33-37823) and is
incorporated herein by reference thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS
IN DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(b) OF THE ACT.
The consent of the trustee required by Section 321(b) of
the Act is annexed hereto as Exhibit 6 and made a part
hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which
relates to matters peculiarly within the knowledge of the obligor or any
underwriter for the obligor, the trustee has relied upon information
furnished to it by the obligor and the underwriters, and the trustee
disclaims responsibility for the accuracy or completeness of such
information.
The answer furnished to Item 2. of this statement will be amended,
if necessary, to reflect any facts which differ from those stated and which
would have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts,
has duly caused this statement of eligibility to be signed on its behalf by
the undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 2nd day of June, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /S/ PAUL D. ALLEN
-------------------------------------------
PAUL D. ALLEN
VICE PRESIDENT
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by FIRST BANKS
AMERICA, INC. of its GUARANTEE, we hereby consent that reports of examination
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /S/ PAUL D. ALLEN
---------------------------------------------
PAUL D. ALLEN
VICE PRESIDENT
DATED: JUNE 2, 1998
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking
institution organized and operating under the banking laws of this
commonwealth and a member of the Federal Reserve System, at the close of
business December 31, 1997, published in accordance with a call made by the
-----------------
Federal Reserve Bank of this District pursuant to the provisions of the
Federal Reserve Act and in accordance with a call made by the Commissioner of
Banks under General Laws, Chapter 172, Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin 2,220,829
Interest-bearing balances 10,076,045
Securities 10,373,821
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary 5,124,310
Loans and lease financing receivables:
Loans and leases, net of unearned income 6,270,348
Allowance for loan and lease losses 82,820
Allocated transfer risk reserve 0
Loans and leases, net of unearned income and allowances 6,187,528
Assets held in trading accounts 1, 241,555
Premises and fixed assets 410,029
Other real estate owned 100
Investments in unconsolidated subsidiaries 38,831
Customers' liability to this bank on acceptances outstanding 44,962
Intangible assets 224,049
Other assets 1,507,650
------------
Total assets 37,449,709
===============
LIABILITIES
Deposits:
In domestic offices 10,115,205
Noninterest-bearing 7,739,136
Interest-bearing 2,376,069
In foreign offices and Edge subsidiary 14,791,134
Noninterest-bearing 71,889
Interest-bearing 14,719,245
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary 7,603,920
Demand notes issued to the U.S. Treasury and Trading Liabilities 194,059
Trading liabilities 1,036,905
Other borrowed money 459,252
Subordinated notes and debentures 0
Bank's liability on acceptances executed and outstanding 44,962
Other liabilities 972,782
Total liabilities 35,218,219
------------
EQUITY CAPITAL
Perpetual preferred stock and related surplus 0
Common stock 29,931
Surplus 444,620
Undivided profits and capital reserves/Net unrealized holding gains (losses) 1,763,076
Cumulative foreign currency translation adjustments (6,137)
Total equity capital 2,231,490
------------
Total liabilities and equity capital 37,449,709
------------
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true
and correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
