As filed with the Securities and Exchange Commission on October 1, 1996
Registration No. 333-------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
36-2301786
(I.R.S. Employer Identification No.)
224-18TH STREET, SUITE 202, ROCK ISLAND, ILLINOIS 61201-8737 (309) 794-1120
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
DOUGLAS M. KRATZ, 224-18TH STREET, SUITE 202, ROCK ISLAND, ILLINOIS 61201-8737
(309) 794-1120
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Michele D. Vaillancourt Philip J. Hanrahan
Winthrop & Weinstine, P.A. Foley & Lardner
3000 Dain Bosworth Plaza Firstar Center
60 South Sixth Street 777 East Wisconsin Avenue
Minneapolis, Minnesota 55402 Milwaukee, Wisconsin 53202
Telephone: (612) 347-0700 Telephone: (414) 297-5645
Facsimile: (612) 347-0600 Facsimile: (414) 297-2900
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after this
Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
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, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. -----
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. -----
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: -----
CALCULATION OF REGISTRATION FEE
-------------------------------
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM
CLASS OF SECURITIES AMOUNT OFFERING AGGREGATE AMOUNT OF
TO BE TO BE PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT PRICE FEE
- ------------------- --------- -------- ------------ ------------
- ----% Notes Due 2006 10,000 $1,000 $10,000,000 $3,031
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
CROSS REFERENCE SHEET SHOWING HEADING OR LOCATION
IN THE PROSPECTUS OF INFORMATION REQUIRED BY
ITEMS 1 THROUGH 13, PART I, OF FORM S-2
Form S-2 Item and Heading Prospectus Heading or Location
- ------------------------- ------------------------------
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus .............. Outside Front Cover Page.
2. Inside Front and Outside Back
Cover Pages of Prospectus ........ Additional Information; Outside Back
Cover Page.
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Outside Front Cover Page; Prospectus
Charges .......................... Summary; Risk Factors; Financial
Services Corporation of the Midwest.
4. Use of Proceeds .................. Use of Proceeds.
5. Determination of Offering Price .. Outside Front Cover Page;
Underwriting.
6. Dilution ......................... Not applicable.
7. Selling Security Holders ......... Not applicable.
8. Plan of Distribution ............. Outside Front Cover Page;
Underwriting.
9. Description of Securities to be
Registered ................ Prospectus Summary; Description of
Notes
10.Interests of Named Experts and Not applicable.
Counsel ..........................
11.Information With Respect to The
Registrant ....................... Prospectus Summary; Consolidated
Selected Financial Data; Management's
Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations; Financial
Services Corporation of the Midwest;
Business; Management; Certain
Transactions; Principal Shareholders.
12.Incorporation of Certain
Information by Reference ......... Incorporation of Certain Documents by
Reference.
13.Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities .................. Not applicable.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not
be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED OCTOBER 1, 1996
PROSPECTUS
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
$10,000,000
----% NOTES DUE 2006
Financial Services Corporation of the Midwest ("FSCM") hereby offers to sell
$10,000,000 principal amount of ----% Notes Due 2006 ("Notes") under the terms
and conditions described herein. The Notes will be dated November 1, 1996 and
will bear interest at the rate of ----% per annum. Interest on the Notes will
be payable on May 1 and November 1 of each year, beginning May 1, 1997. Notes
in the aggregate amount of $750,000 are required to be redeemed prior to
maturity on November 1 in each of the years 2000 through 2005 (inclusive), with
a principal payment of $5,500,000 due on November 1, 2006. The Notes will be
unsecured. The Notes will be subject to redemption by FSCM at any time upon not
less than 30 days' prior notice to the trustee for the Notes and not less than
15 days' prior notice to the holders of the Notes for an amount equal to the
principal amount of such Notes plus accrued interest to the date of redemption.
In addition, any redemption made on or prior to November 1, 1998 will be subject
to a prepayment premium of 3% of the principal amount of the Notes redeemed.
Any redemption made after November 1, 1998 will not be subject to a prepayment
premium. See "Description of Notes."
THE NOTES OFFERED HEREBY INVOLVE CERTAIN RISKS TO THE PERSONS ACQUIRING THEM.
SEE "RISK FACTORS" ON PAGE -----.
There are no assurances that any secondary market will develop for the Notes.
The Underwriter may effect secondary market transactions upon compliance with
applicable securities laws. See "Underwriting."
THE NOTES WILL BE DEBT OBLIGATIONS OF FSCM, WILL NOT BE OBLIGATIONS OF A BANK,
AND WILL NOT BE INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.
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.
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(2)<F2> FSCM(3)<F3>
-------- ------------- -----------
Per Note............ $1,000 (1)<F1> $37.50 $962.50
Total............... $10,000,000 $375,000 $9,625,000
(1)<F1>Plus accrued interest from November 1, 1996 to date of delivery and a
handling charge of $5.00 per transaction to be paid to the Underwriter for
clerical and mailing expense.
(2)<F2>See "Underwriting" as to FSCM's agreement to indemnify the Underwriter.
(3)<F3>Before deduction of offering expenses payable by FSCM estimated at
$150,000.
The Notes are offered by the Underwriter subject to prior sale and when, as, and
if issued by FSCM and delivered to and accepted by the Underwriter named herein.
B.C. ZIEGLER AND COMPANY
215 North Main Street
West Bend, Wisconsin 53905
The date of this Prospectus is -------------, 1996.
NO OFFICER, EMPLOYEE OR AGENT OF FSCM AND NO DEALER, SALESMAN OR OTHER PERSON
HAS BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY FSCM OR BY THE UNDERWRITER. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF FSCM
SINCE THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES TO WHICH IT
RELATES BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
ADDITIONAL INFORMATION
FSCM is subject to the informational requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports with the Securities and Exchange Commission (the "Commission"). The
reports filed by FSCM with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and should be available for inspection at
the Commission's Regional Offices located at 7 World Trade Center, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60611.
Copies of such material also can be obtained from the Public Reference Section
of the Commission's principal office in Washington, D.C. 20549 at prescribed
rates. Such reports and other information also may be inspected without charge
at a Web site maintained by the Commission at http://www.sec.gov.
FSCM has filed with the Commission a Registration Statement on Form S-2 (such
Registration Statement, including all exhibits and amendments thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Notes offered by this Prospectus. This
Prospectus does not contain all the information set forth in the Registration
Statement. Additional information may be obtained from the Commission's
principal office in Washington, D.C. Statements contained in this Prospectus or
in any document incorporated by reference in this Prospectus as to the contents
of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit or incorporated by reference to
the Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by FSCM with the Commission are incorporated by
reference in this Prospectus:
1. FSCM's Annual Report on Form 10-K for the year ended March 31, 1996;
and
2. FSCM's Quarterly Report on Form 10-Q for the three month period ended
June 30, 1996.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
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.
THIS PROSPECTUS INCORPORATES FSCM DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE
AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS
IS DELIVERED, ON WRITTEN OR ORAL REQUEST, WITHOUT CHARGE, DIRECTED TO FINANCIAL
SERVICES CORPORATION OF THE MIDWEST, 224-18TH STREET, SUITE 202, ROCK ISLAND,
ILLINOIS 61201-8719 (TELEPHONE NUMBER (309) 794-1120), ATTENTION: PATRICIA A.
HAYS.
NOTICE TO NEW HAMPSHIRE RESIDENTS: Neither the fact that a registration
statement or an application for a license has been filed with the State of New
Hampshire nor the fact that a security is effectively registered or a person is
licensed in the State of New Hampshire constitutes a finding by the Secretary of
State of New Hampshire that any document filed under RSA 421-B of the New
Hampshire Uniform Securities Act is true, complete and not misleading. Neither
any such fact nor the fact that an exemption or exception is available for a
security or a transaction means that the Secretary of State has passed in any
way upon the merits or qualifications of, or recommended or given approval to,
any person, security or transaction. It is unlawful to make, or cause to be
made, to any prospective purchaser, customer or client any representation
inconsistent with the provisions of this paragraph.
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the more
detailed information and consolidated financial statements appearing elsewhere
in this Prospectus. This Prospectus contains a number of forward-looking
statements which reflect the current views of management of Financial Services
Corporation of the Midwest with respect to future events that may have an effect
on its future financial performance. These forward-looking statements are
subject to various risks and uncertainties, including those set forth under
"Risk Factors" and elsewhere herein, that could cause actual results to differ
materially from historical results or those currently anticipated. Potential
investors are cautioned not to place undue reliance on these forward-looking
statements.
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
Financial Services Corporation of the Midwest ("FSCM") is a one-bank holding
company incorporated under Delaware law and having its principal executive
office at 224-18th Street, Suite 202, Rock Island, Illinois 61201-8719, with its
telephone number being (309) 794-1120. FSCM owns all of the outstanding shares
of THE Rock Island Bank, National Association ("TRIB"), which has its principal
place of business in Rock Island, Illinois. In 1974, FSCM acquired all of the
shares of TRIB, then an Illinois state banking corporation. On November 1,
1995, TRIB became a national bank and relocated its official office from Rock
Island, Illinois to Bettendorf, Iowa. TRIB's trade area includes portions of
Rock Island County and Henry County in Illinois and Scott County in Iowa (which
together had a 1995 population of approximately 288,100) and includes the
Greater Quad Cities Metropolitan Area, which encompasses the municipalities of
Davenport and Bettendorf, Iowa; and Rock Island, Moline, East Moline, Milan,
Silvis, Colona and Green Rock, Illinois. TRIB is a member of the Federal
Reserve System, and its deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC").
Measured by total deposits as of June 30, 1996, TRIB was the third largest of
the 18 banks and four savings institutions in the Quad Cities metropolitan area.
At June 30, 1996 and March 31, 1996, on a consolidated basis, FSCM had deposits
of $303,446,000 and $301,818,000, respectively; assets of $389,172,000 and
$386,967,000, respectively; gross loans and direct financing leases ("leases")
of $256,877,000 and $255,965,000, respectively; and stockholders' equity of
$24,490,000 and $24,287,000, respectively.
RISK FACTORS
The Notes offered hereby involve certain risks to the persons acquiring them.
See "Risk Factors," which includes a discussion as to the nature of the
obligations of FSCM with respect to the Notes.
- ----% NOTES DUE 2006
Total principal amount
to be issued.... $10,000,000
Interest rate... ----------%
Maturity........ November 1, 2006
Indenture....... The Notes offered hereby will be issued under an
Indenture dated as of November 1, 1996 ("Indenture").
M&I First National Bank of West Bend, Wisconsin, will be
the trustee under the Indenture ("Trustee"). See
"Description of Notes."
Redemption...... The Notes are subject to mandatory redemption through
operation of the Mandatory Redemption Fund in the amount
of $750,000 on each of November 1, 2000 through 2005
(inclusive), with a final maturity of $5,500,000 on
November 1, 2006. See "Description of Notes -- Mandatory
Redemption Fund." FSCM may redeem any or all of the
Notes at any time upon not less than 30 days' notice to
the Trustee and not less than 15 days' notice to the
holders of the Notes for an amount equal to the principal
amount of such Notes plus accrued interest to the date of
redemption. In addition, any redemption made on or prior
to November 1, 1998 will be subject to a prepayment
premium of 3% of the principal amount of the Notes so
redeemed. Any redemption made after November 1, 1998
will not be subject to a prepayment premium or penalty.
See "Description of Notes -- Optional Redemption."
Priority........ The Notes will be senior obligations and not subordinate
to any other unsecured debt. At the time of issuance,
the Notes will be senior in right of payment to $750,000
of mandatory convertible debentures issued in 1989
("MCDs") and payable on parity with $500,000 of such
MCDs. See "Description of Notes."
Minimum purchase $3,000, plus multiples of $1,000 in fully registered
form.
Security for Notes The Notes will be unsecured.
Indenture covenants The Indenture contains certa in covenants with respect to
the Notes, FSCM, and TRIB. The aggregate principal
amount of the Notes issued under the Indenture will be
$10,000,000. The Indenture limits the payment of
dividends on FSCM's Common Stock to no more than 30% of
the previous year's Consolidated Net Income (as defined
in the Indenture). See "Description of Notes --
Restrictions on Dividends on, and Redemptions of Stock."
In addition, the Indenture requires FSCM and TRIB to
maintain Consolidated Tangible Net Worth (as defined in
the Indenture) of not less than $19,000,000 and
$23,000,000, respectively. See "Description of Notes --
Maintenance of Consolidated Tangible Net Worth." The
Indenture also limits the total debt that can be incurred
by FSCM and its subsidiaries to 60% of FSCM's
Consolidated Tangible Net Worth (excluding, however, the
principal amount of MCDs to the extent they are fully
subordinated to the prior payment in full of principal
and interest on the Notes; currently $750,000 of the MCDs
are subordinated). See "Description of Notes --
Limitation on Indebtedness." The Indenture contains
other covenants, including limitations on mergers and
acquisitions and capital expenditures. See "Description
of Notes."
USE OF PROCEEDS
Estimated net proceeds of $9,475,000 from the sale of the Notes will be used to
prepay in full $4,500,000 of principal and approximately $159,375 of interest
due under FSCM's 8.50% Notes Due 1999 issued by FSCM in December 1992 (the "1992
Notes"), to make a capital contribution to TRIB of approximately $4,000,000, and
to repay a $550,000 loan from a correspondent bank. The remaining approximately
$265,625 in proceeds will be used by FSCM as working capital. See "Use of
Proceeds" and "Capitalization."
COMPOSITION OF LOANS AND DIRECT FINANCING LEASES BY TRIB
At June 30, 1996 and March 31, 1996, TRIB had total loans and leases outstanding
of $256,877,000 and $255,965,000, respectively. These totals were composed of
the following types and amounts of loans and leases:
LOANS AND LEASES DISTRIBUTION
June 30, 1996 March 31, 1996
------------------- ----------------
Percent Percent
(Dollars in thousands) Amount of Total Amount of Total
- --------------------- ------ -------- ------ --------
Commercial, financial
and agricultural $86,498 33.7% $85,578 33.4%
Direct financing leases 5,815 2.3 5,719 2.3
Real estate:
Residential mortgage(1)<F4> 57,736 22.5 64,248 25.1
Construction 24,797 9.6 21,823 8.5
Commercial mortgage 61,200 23.8 62,746 24.5
Consumer, not secured by a
real estate mortgage(2)<F5> 20,831 8.1 15,851 6.2
-------- ------ -------- ------
Total loans and leases $256,877 100.0% $255,965 100.0%
-------- ------ ------- ------
-------- ------ ------- ------
(1)<F4>For the three months ended June 30, 1996 and the fiscal year ended
March 31, 1996, includes $18,307 and $18,820, respectively, of first mortgages
pending conclusion of their sale to the Federal Home Loan Mortgage Corporation
("Freddie Mac"), Fannie Mae and the Illinois Housing Development Authority
("IHDA"); home equity lines of credit; home improvement loans; and consumer
loans for which junior liens were taken as primary and secondary sources of
security.
(2)<F5>Consumer loans, both direct and indirect.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary of FSCM's consolidated selected financial information
should be read in conjunction with the detailed Consolidated Financial
Statements and Notes thereto contained at the end of this Prospectus.
Three Fiscal
(Dollars in thousands, Months Ended Years Ended
except for per share amounts) June 30, March 31,
- ----------------------------- ---------------- -----------------------
INCOME STATEMENT DATA 1996 1995 1996 1995 1994
---- ---- ---- ---- ----
For the period:
Net interest income $3,990 $3,252 $14,438 $13,864 $12,382
Provision for possible loan
and lease losses 525 430 1,905 2,510 1,970
Other income 875 813 3,315 3,149 3,515
Other expenses 2,757 2,610 10,527 9,919 10,327
Income taxes 543 339 1,768 1,516 1,267
Net income $1,040 $686 $3,553 $3,068 $2,333
BALANCE SHEET DATA
At end of period:
Total assets $389,172 $344,887 $386,967 $337,454 $304,075
Loans and leases, net 252,047 220,736 251,502 208,244 177,101
Securities 100,633 77,777 90,423 71,822 79,939
Deposits 303,446 273,268 301,818 271,611 250,774
1992 Notes Payable 4,500 5,000 4,500 5,000 5,000
Mandatory convertible
debentures 1,250 1,250 1,250 1,250 1,250
Stockholders' equity 24,490 22,431 24,287 21,961 19,751
FINANCIAL RATIOS
For the period:
Return on average assets 1.09%(1)<F6>0.81%(1)<F6> 0.99% 0.99% 0.83%
Return on average common
stockholders' equity 19.65(1)<F6>13.52(1)<F6> 17.49 17.24 13.79
Net interest margin 4.48 4.07 4.31 4.77 4.69
At end of period:
Tier 1 capital to risk
weighted assets 9.06 9.39 8.97 9.28 9.81
Total capital to risk
weighted assets 11.51 13.15 11.66 13.14 15.34
Tier 1 capital to total
assets (leverage) 6.62 6.37 6.83 6.78 6.33
EARNINGS TO FIXED CHARGE RATIOS
For the period:
Consolidated:
Excluding interest
on deposits 2.54 2.07 2.30 2.72 2.60
Including interest
on deposits 1.38 1.27 1.33 1.43 1.37
Parent company only(2)<F7> 1.44 1.20 1.26 1.04 --
(1)<F6>Annualized.
(2)<F7>The dollar amount of deficiency in earnings necessary to cover fixed
charges was $274 for the fiscal year ended March 31, 1994.
RISK FACTORS
An investment in the Notes involves certain special considerations and risks.
Each prospective investor should carefully consider all of the following special
considerations and risks in addition to the information set forth elsewhere in
this Prospectus.
RISKS INHERENT IN BANKING INDUSTRY
There are certain special considerations and risks inherent in the business of
banking that are not unique to FSCM or TRIB but are common to all entities
involved in the banking industry. Set forth below are some of the special
considerations and risks inherent in the business of banking.
Regulation of Bank Holding Companies
The United States banking system is highly regulated, with both individual
states and the federal government having rights regarding the chartering,
supervision and examination of banks and bank holding companies. Bank holding
companies, including FSCM, and national banks, including TRIB, are each subject
to federal regulation and supervision. FSCM is subject to the Bank Holding
Company Act of 1956, as amended ("Holding Company Act"), and to regulation and
supervision by the Federal Reserve System, including the Board of Governors of
the Federal Reserve System ("Federal Reserve Board"). The Federal Reserve Board
possesses cease and desist powers over bank holding companies to prevent or
remedy unsafe or unsound practices or violations of law. These and other
restrictions limit how FSCM may conduct its business and obtain financing. See
"Supervision and Regulation -- Regulation of FSCM."
Regulation of TRIB
TRIB is subject to supervision and examination by the Office of the Comptroller
of the Currency ("OCC"), which is TRIB's primary federal regulator, and the
Federal Deposit Insurance Corporation ("FDIC"), which has secondary federal
responsibility for the regulation and supervision of TRIB. The various federal
laws and regulations apply to many aspects of TRIB's operations and financial
condition, including dividends, reserves, deposits, loans, investments, mergers,
acquisitions, and the establishment of branch offices and facilities. These and
other restrictions limit how TRIB may conduct its business and obtain financing.
See "Supervision and Regulation -- Regulation of TRIB."
Restrictions on Payment of Dividends by TRIB to FSCM
The ability of FSCM to meet its debt service requirements with respect to the
Notes is dependent upon the ability of TRIB to pay dividends to FSCM on TRIB's
common stock, as FSCM has no other source of significant income. As set forth
above, TRIB is subject to federal law and regulations which limit the amount of
dividends TRIB may pay to FSCM. For example, the payment of dividends by TRIB
as a national banking association is affected by the requirement to maintain
adequate capital pursuant to the capital adequacy guidelines issued by the OCC.
All banks and bank holding companies are required to have a minimum total
capital to risk-weighted assets (total capital) ratio of 8.00% and a minimum
Tier 1 capital to risk-weighted assets (Tier 1) ratio of 4.00%. Additionally,
banking organizations must maintain a minimum Tier 1 capital to total assets
(leverage) ratio of 3.00%. This 3.00% leverage ratio is a minimum for banking
organizations without any supervisory, financial or operational weaknesses or
deficiencies. However, most banking organizations, including TRIB, are expected
to maintain a leverage ratio of 100 to 200 basis points above this minimum
depending on their financial condition. As of June 30, 1996, TRIB's leverage
ratio was 7.74%, its total capital ratio was 11.91%, and its Tier 1 ratio was
10.66%. Assuming that a capital contribution of $4,000,000 by FSCM to TRIB as
described in "Use of Proceeds" was made as of such date, TRIB's leverage ratio
would have been 8.70%, its total capital ratio would have been 13.18%, and its
Tier 1 ratio would have been 11.92%. If (i) the OCC increases any of these
required ratios; (ii) the total of risk-weighted assets of TRIB increases
significantly; and/or (iii) the income of TRIB decreases significantly, TRIB's
Board of Directors may decide or be required to retain a greater portion of
TRIB's earnings to achieve or maintain the required capital or asset ratios.
This would reduce the amount of funds available for the payment of dividends by
TRIB to FSCM. Further, in some cases, the OCC could take the position that it
has the power to prohibit TRIB from paying dividends if, in its view, such
payments would constitute unsafe or unsound banking practices. In addition,
whether dividends are paid and their frequency and amount will depend on the
financial condition and performance, and the discretion of management, of TRIB.
The foregoing restrictions on dividends paid by TRIB may limit FSCM's ability to
obtain funds from such dividends for its cash needs, including funds for payment
of its debt service requirements on the Notes and operating expenses. During
the two months ended August 31, 1996, TRIB declared dividends of $500,000, which
are payable to FSCM on September 30, 1996. During the three month period ended
June 30, 1996 and the fiscal years ended March 31, 1996, 1995 and 1994, TRIB
paid to FSCM dividends of $500,000, $1,813,000, $1,562,000, and $1,500,000,
respectively. The amount of dividends TRIB could pay FSCM as of June 30, 1996
without prior regulatory approval, which is limited by statute to the sum of
undivided profits for the current year plus net profits for the preceding two
years, was $5,141,000. See "Supervision and Regulation -- Regulation of TRIB."
FSCM's failure to pay interest on the Notes for a period of 30 days, or its
failure to pay principal on the date due, would constitute an Event of Default
under the Indenture. See "Description of Notes -- Defaults and Certain Rights
on Default."
Impact of Interest Rates and Economic Conditions
The results of operations for financial institutions, including FSCM and TRIB,
may be materially and adversely affected by changes in prevailing economic
conditions, including changes in interest rates, declines in real estate market
values and the monetary and fiscal policies of the federal government. See
"Risk Factors -- Special Considerations Regarding an Investment in FSCM --
Competition; Dependence on Economic Conditions" and "Supervision and
Regulation." The profitability of FSCM and TRIB is in part a function of the
spread between the interest rates earned on loans and the interest rates paid on
deposits and other interest-bearing liabilities. Like most banking
institutions, TRIB's net interest margin will continue to be affected by general
economic conditions and other factors that influence market interest rates and
TRIB's ability to respond to changes in such rates. At any given time, TRIB's
assets and liabilities will be such that they are affected differently by a
given change in interest rates, and as a result an increase or decrease in rates
could have a positive or negative effect on TRIB's net income, capital and
liquidity. At June 30, 1996, TRIB had more interest sensitive liabilities
repricing than it had interest sensitive assets. Based upon TRIB's analysis,
and due to the underlying interest rate characteristics of the repricing
instruments, this means that as of that date, net interest income would be
negatively affected by a significant increase in interest rates and slightly
negatively affected in a falling interest rate environment. See "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations."
Deregulation
There have been significant changes in the banking industry in past years. Many
of the changes have resulted from federal legislation intended to deregulate the
banking industry. This legislation has, among other things, increased the power
of non-banks to expand into traditional banking services. Proposed legislation
currently in Congress contains modification of some of the prohibitions on the
type of businesses in which bank holding companies may engage. In addition,
other types of financial institutions, including securities brokerage companies,
insurance companies, and investment banking firms, have been given and may
continue to be given powers to engage in activities which traditionally have
been engaged in only by banks. Such changes may continue to place FSCM and TRIB
in more direct competition with other financial institutions. See "Supervision
and Regulation -- Deregulation."
SPECIAL CONSIDERATIONS REGARDING AN INVESTMENT IN FSCM
In addition to the special considerations and risks inherent in the banking
business described above, there are special considerations and risks associated
with an investment in FSCM and the Notes, as described below.
Allowance for Possible Loan and Lease Losses
The allowance for possible loan and lease losses represents TRIB's estimates of
the amount of the loan and lease portfolio that will not be repaid and
consequently will have to be written off. The allowance is established by
management using historical experience and by making various assumptions and
judgments about the ultimate collectibility of the loan and lease portfolio.
The allowance for possible loan and lease losses as of June 30, 1996 and March
31, 1996 was $4,830,000 and $4,463,000, respectively, which represented 1.88%
and 1.74%, respectively, of the total amount of loans and leases. There can be
no assurance that the allowance will prove to be sufficient to cover future loan
and lease losses. FSCM's profitability and financial condition would be
adversely affected to the extent that the estimated allowance is insufficient to
cover future loan and lease losses incurred. See "Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations -- Three
Months Ended June 30, 1996 and 1995 -- Provision for Possible Loan and Lease
Losses" and "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations -- Years Ended March 31, 1996, 1995 and 1994
- -- Provision for Possible Loan and Lease Losses."
Substantial Final Payment for Notes
Notes in the aggregate amount of $750,000 are required to be redeemed prior to
maturity on November 1 in each of the years 2000 through 2005 (inclusive), with
a principal payment of $5,500,000 due on November 1, 2006. If FSCM does not
have sufficient funds to pay the Notes at maturity, it would have to seek
additional funds through the issuance of debt or equity securities to the public
and/or by borrowing funds from other outside sources. No assurances can be made
that acceptable market conditions will exist at such time for the sale of debt
or equity securities of FSCM or that FSCM would be able to borrow sufficient
funds to enable it to retire the Notes at maturity. See "Description of Notes -
- - Mandatory Redemption Fund."
Competition; Dependence on Economic Conditions
TRIB is engaged in the highly competitive business of commercial banking. There
were approximately 18 banks and four savings institutions in the Quad Cities
metropolitan area as of June 30, 1996. Measured by total deposits, TRIB was the
third largest as of that date. TRIB's competitors include local, regional and
national banking and nonbanking entities which are not necessarily subject to
the same regulatory standards or restrictions. In addition, every bank,
including TRIB, is affected by the economic conditions and the economy of the
area in which it operates. Because TRIB is located in the Quad Cities
metropolitan region of Illinois and Iowa, it is dependent to an extent on the
success of significant employers in that area, including John Deere & Co., the
federal Rock Island Arsenal, Genesis Medical Center and Alcoa, which in turn are
affected by the economies of their industries. Therefore, TRIB and FSCM remain
vulnerable to downturns in the economy of the Quad Cities metropolitan area and
to downturns in the economy in general. Adverse economic conditions could have
a negative impact upon the quality of TRIB's loan and lease portfolio, TRIB's
ability to pay dividends to FSCM, and FSCM's earnings. See "Business --
Monetary Policies and Economic Condition."
Lack of Active Market; Market Value
Currently, there is no market for the Notes, and there can be no assurance that
any market will develop. The Underwriter presently intends to make a market in
the Notes but is under no obligation to do so. If a market does develop for the
Notes, there can be no assurance that it will continue until maturity of the
Notes. Any market that may develop could be limited. If a trading market does
not develop or is not maintained, holders of the Notes may experience difficulty
in reselling them.
Lack of Diversification
FSCM's business activity consists of its ownership of the common stock of TRIB.
As a result, FSCM lacks diversification as to business activities and market
area, and any event affecting TRIB will have a direct effect on FSCM. See
"Business."
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
FSCM is a bank holding company which was incorporated under the laws of the
State of Delaware in 1973 and has its principal office at 224-18th Street, Suite
202, Rock Island, Illinois 61201-8719, with its telephone number being (309)
794-1120. FSCM owns all of the outstanding stock of TRIB. FSCM has no other
material assets and conducts no other material business activities. As a bank
holding company, FSCM is subject to extensive regulation. See "Supervision and
Regulation -- Regulation of FSCM."
TRIB is a national banking association that provides a wide variety of full-
service commercial banking products. Its principal place of business is located
in downtown Rock Island, Illinois, while its official office is in Bettendorf,
Iowa. TRIB also owns and operates four other offices, three of which are in
Rock Island and one of which is in East Moline, Illinois. TRIB's trade area
includes portions of Rock Island County and Henry County in Illinois and Scott
County in Iowa, which include the Greater Quad Cities Metropolitan Area.
Measured by total deposits as of June 30, 1996, TRIB was the third largest of
the 18 banks and four savings institutions in the Quad Cities metropolitan area.
As of June 30, 1996 and March 31, 1996, on a consolidated basis, the deposits of
FSCM were $303,446,000 and $301,818,000, respectively; its assets were
$389,172,000 and $386,967,000, respectively; its gross loans and leases were
$256,877,000 and $255,965,000, respectively; and its stockholders' equity was
$24,490,000 and $24,287,000, respectively.
FSCM and TRIB file consolidated federal income tax returns.
The principal sources of FSCM's cash are dividends and direct reimbursement for
income taxes paid to it by TRIB. However, there are restrictions on the extent
to which TRIB can pay dividends to FSCM or otherwise supply funds to it. See
"Supervision and Regulation -- Regulation of TRIB."
USE OF PROCEEDS
The net proceeds to be received by FSCM from the sale of Notes in this offering,
after deducting $525,000 of estimated offering expenses (including underwriting
commissions of $375,000), will be approximately $9,475,000. FSCM intends to use
the net proceeds as follows:
$4,659,375 to pay $4,500,000 of principal and $159,375 of estimated
interest due under the 1992 Notes(1)<F8>;
4,000,000 to make a capital contribution to TRIB;
550,000 to repay principal on a loan from a correspondent
bank(2)<F9>; and
265,625 to be used by FSCM as working capital.
---------
$9,475,000 Total
---------
---------
(1)<F8>The 1992 Notes bear interest at the rate of 8.5% per annum. Interest
only is payable semi-annually. The 1992 Notes are subject to mandatory
redemption in the amount of $500,000 on each of December 1, 1996, 1997 and
1998, plus a final maturity of $3,000,000 due on December 1, 1999.
(2)<F9>During the three months ended June 30, 1996, FSCM borrowed $1,000,000
from a correspondent bank under its $10,000,000 line of credit with such
bank. The proceeds of the loan were used to acquire a $1,500,000 loan from
TRIB. In July 1996, FSCM repaid $450,000 in principal on its correspondent
bank loan, thus reducing the outstanding principal amount to $550,000 as of
July 31, 1996. The correspondent bank loan bears interest at a rate equal to
the correspondent bank's prime lending rate, which was 8.25% per annum at
July 31, 1996. Interest on the loan is payable quarterly, and unpaid
principal and interest are due on July 31, 1997.
CAPITALIZATION
The following table sets forth the consolidated liabilities and capitalization
of FSCM at June 30, 1996 and as adjusted to reflect the sale of the Notes
offered hereby and the application of the estimated net proceeds from the
offering to prepay the principal of $4,500,000 and to pay estimated interest due
under the 1992 Notes, and to repay a correspondent bank loan in the amount of
$550,000:
June 30, 1996
-----------------------
Dollars in thousands Actual As Adjusted
- -------------------- ------ -----------
Liabilities:
1992 Notes ..................... $4,500 $---
Notes ......................... --- 10,000
Mandatory convertible debentures 1,250 1,250
Correspondent bank loan(1)<F10>. 1,000 ---
----- ------
Total notes and loans payable 6,750 11,250
----- ------
Stockholders' Equity:
Capital stock:
Preferred, no par value;
authorized, 100,000 shares:
Class A Preferred Stock, stated
value
$100 per share; authorized
50,000 shares; issued and
outstanding, 50,000 shares 5,000 5,000
Class B Preferred Stock, stated
value
$500 per share; authorized
1,000 shares; issued and
outstanding, 1,000 shares 500 500
Class C Preferred Stock, stated
value
$425 per share; authorized
2,400 shares; issued and
outstanding, 2,400 shares 1,020 1,020
Common, par value $.50 per share;
authorized, 600,000 shares;
issued 340,662 shares;
outstanding 176,611 shares 170 170
Capital surplus ................ 2,574 2,574
Net unrealized loss on available-for-
sale securities ................ (1,022) (1,022)
Retained earnings(2)<F11>....... 21,497 21,387
Treasury stock ................. (5,249) (5,249)
------- -------
Total stockholders' equity .. 24,490 24,380
------- -------
Total capitalization ........... $30,240 $35,630
------- -------
------- -------
(1)<F10>Subsequent to June 30, 1996, a payment of $450 was made on the
correspondent bank loan, leaving a balance of $550, which will be repaid from
the proceeds of the offering.
(2)<F11>Decreased due to write-off of $110 of unamortized 1992 Note offering
costs.
CONSOLIDATED SELECTED FINANCIAL DATA
The following table summarizes selected consolidated financial information and
is qualified in its entirety by the more detailed consolidated financial
statements and notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
(Dollars in thousands, Three Months Ended
except per share amounts) June 30, Fiscal Years Ended March 31,
- -------------------------- ------------- -----------------------------------------------
1996 1995 1996 1995 1994 1993 1992
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income $8,154 $6,979 $30,271 $24,571 $22,024 $20,729 $17,702
Interest expense 4,164 3,727 15,833 10,707 9,642 10,183 9,939
-------- -------- -------- -------- -------- -------- --------
Net interest income 3,990 3,252 14,438 13,864 12,382 10,546 7,763
Provision for possible loan
and lease losses 525 430 1,905 2,510 1,970 2,180 892
-------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for possible
loan and lease losses 3,465 2,822 12,533 11,354 10,412 8,366 6,871
Other income 875 813 3,304 3,149 3,515 3,905 1,671
Investment securities gains --- --- 11 --- --- 173 156
Other expenses 2,757 2,610 10,527 9,919 10,327 8,572 6,782
Income taxes 543 339 1,768 1,516 1,267 1,319 625
-------- -------- -------- -------- -------- -------- --------
Income before cumulative
effect(1)<F12> 1,040 686 3,553 3,068 2,333 2,553 1,291
Cumulative effect(1)<F12> --- --- --- --- --- (132) 158
-------- -------- -------- -------- -------- -------- --------
Net income $1,040 686 $3,553 $3,068 $2,333 $2,421 $1,449
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
PER COMMON SHARE:
Income before cumulative
effect(1)<F12> $5.04 $3.07 $16.87 $14.21 $10.07 $13.30 $6.86
Cumulative effect(1)<F12> --- --- --- --- --- (.76) .90
Net income 5.04 3.07 16.87 14.21 10.07 12.54 7.76
Fully diluted net income 3.18 2.08 10.80 9.10 6.73 9.06 6.30
Book value 101.75 90.86 100.60 88.18 76.21 67.17 57.91
Book value assuming
conversion of MCDs(2)<F13> and
Convertible Preferred
Stock 77.57 70.14 76.80 68.35 60.25 54.23 50.61
Cash dividends 0.50 0.38 1.76 1.52 1.52 1.26 1.00
PERIOD-END BALANCES:
Total assets $389,172 $344,887 $386,967 $337,454 $304,075 $268,334 $203,572
Loans and leases, net 252,047 220,736 251,502 208,244 177,101 154,998 118,043
Securities 100,583 77,777 90,423 71,822 79,939 64,093 63,498
Deposits 303,446 273,268 301,818 271,611 250,774 217,602 169,225
Notes payable 4,500 5,000 4,500 5,000 5,000 5,000 5,250
MCDs(2)<F13> 1,250 1,250 1,250 1,250 1,250 1,250 1,250
Stockholders' equity 24,490 22,431 24,287 21,961 19,751 18,182 11,166
EARNINGS TO FIXED CHARGE RATIOS:
Consolidated:
Excluding interest on deposits 2.54 2.07 2.30 2.72 2.60 3.52 2.03
Including interest on deposits 1.38 1.27 1.33 1.43 1.37 1.38 1.19
Parent company only(3)<F14> 1.44 1.20 1.26 1.04 --- --- ---
PERCENTAGES:
Average equity to average
assets 6.45% 6.58% 6.52% 6.71% 6.80% 5.67% 5.48%
Net income to average
common equity 19.65 13.52 17.49 17.24 13.79 19.64 14.28
Net income to average
assets 1.09 0.81 0.99 0.99 0.83 0.99 0.75
Dividend payout ratio 9.92 12.38 10.43 10.70 15.09 10.05 12.89
COMMON SHARES OUTSTANDING:
Common shares outstanding 176,611 175,111 176,611 175,511 173,611 173,611 175,306
Weighted average common
shares outstanding 176,611 175,111 175,123 174,079 173,611 174,363 175,306
Weighted average common and
contingently issuable common shares
outstanding 332,176 338,608 335,327 343,796 353,431 265,615 225,306
(1)<F12>Cumulative effects on prior years of changing to different accounting
principles.
(2)<F13>Mandatory convertible debentures ("MCDs").
(3)<F14>The dollar amounts of deficiency in earnings necessary to cover fixed
charges were $274, $303, and $289 for the fiscal years ended March 31, 1994,
1993, and 1992, respectively.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and the notes thereto included elsewhere in this
Prospectus.
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
FINANCIAL OVERVIEW
Net income and earnings per fully diluted common share equaled $1,040,000 and
$3.18, respectively, for the three months ended June 30, 1996 as compared to
$686,000 and $2.08, respectively, for the three months ended June 30, 1995. The
$354,000, or 51.60%, increase in net income between the three month periods
primarily resulted from a 22.69% increase in net interest income. Changes in
net income between the three month periods ended June 30, 1996 and 1995 were as
follows:
Changes
(Dollars in thousands) in Income
- ---------------------- ---------
Interest income $1,175
Interest expense (437)
------
Net interest income 738
Provision for possible loan and lease losses (95)
Other income 62
Other expenses (147)
Income taxes (204)
------
Net increase in net income $354
------
------
The efficiency and overhead ratios are two commonly used performance
measurements. Both measure the coverage of operating expense by net interest
income. In the efficiency ratio, other income is added to net interest income,
and in the overhead ratio, other income is netted against operating expense.
Lower ratios generally reflect better performance and therefore are considered
more favorable. FSCM's ratios as of June 30, 1996 and 1995 and Peer Group
comparisons as presented in the Bank Holding Company Performance Reports
("Federal Reserve Reports") prepared by the Division of Banking, Supervision and
Regulation of the Federal Reserve Board, are presented below. FSCM's Peer Group
is defined in the Federal Reserve Reports as bank holding companies with
consolidated assets between $300,000,000 and $500,000,000. The Peer Group
numbers presented here and throughout the Prospectus are as of March 31, 1996 --
the most recent date available. The improvement in the ratios between three
month comparative periods was primarily the result of increased net interest
income.
FSCM
-----------------
June 30, June 30, Peer
1996 1995 Group
------- ------- ------
Efficiency Ratio.................. 56.67% 64.21% 62.86%
Overhead Ratio.................... 47.17 55.26 (1)<F15>
(1)<F15> Not available.
INCOME STATEMENTS
Net Interest Income
Comparison of net interest income between the three month periods ended June 30,
1996 versus 1995 reflected an increase in average interest-earning assets of
$36,323,000, or 11.37%. The majority of the increase occurred in net loans and
leases, which increased $37,082,000, or 17.46%. Further, $27,050,000 shifted
from federal funds sold to investment securities and interest-bearing deposits
with other financial institutions -- both of which also tend to yield a slightly
higher rate of return than that of federal funds sold. In addition, between the
three month comparative periods, loan yields improved 28 basis points and
investment security yields improved 44 basis points. As a result, the overall
yield on interest-earning assets increased 42 basis points to 9.16% from 8.74%
and compared favorably to FSCM's Peer Group yield on interest-earning assets of
8.29% as of March 31, 1996.
Growth of $22,684,000 in average time deposits and $13,293,000 in securities
sold under agreements to repurchase ("repurchase agreements") funded the
increase in average interest-earning assets. The cost of interest-bearing
liabilities trended downward with a nine basis point reduction in the cost of
time deposits and a 55 basis point reduction in the cost of repurchase
agreements. As a result, the overall cost of funds dropped eight basis points
to 5.14% from 5.22% in comparison of the three month periods ended June 30, 1996
and 1995, respectively. FSCM's Peer Group cost of funds equaled 4.38% as of
March 31, 1996. Strong funding demands and intense local competition for funds
has contributed to the unfavorable comparison to Peer Group.
The net interest margin (net interest income divided by average total interest-
earning assets) improved 41 basis points to yield 4.48% for the three months
ended June 30,1996 as compared to the margin of 4.07% for the three months ended
June 30, 1995. Again, FSCM's margin trailed that of its Peer Group, which
equaled 4.66% as of March 31, 1996, primarily due to the higher cost of funds.
AVERAGE BALANCE AND INTEREST RATE ANALYSIS
Three Months Ended
----------------------------------------------
(Dollars in thousands) June 30, 1996 June 30, 1995
- --------------------- ----------------------- ---------------------
Average Average
Average Annual Average Annual
ASSETS Balance Interest Rate Balance Interest Rate
- ------ -------- -------- ------ ------- -------- ------
Interest-bearing deposits with
other financial institutions $4,879 $64 5.25 $166 $3 7.23%
Investment securities 96,030 1,433 5.97 74,452 1,029 5.53
Federal funds sold 5,473 72 5.26 32,523 489 6.01
Loans and leases, net(1)<F16> 249,517 6,585 10.56 212,435 5,458 10.28
-------- ----- ------- -----
Total interest-earning
assets(1)<F16> $355,899 8,154 9.16 $319,576 6,679 8.74
-------- ----- -------- -----
-------- --------
LIABILITIES
- -------------
Savings deposits $76,828 485 2.53 $74,500 472 2.53
Time deposits 190,244 2,912 6.12 167,560 2,603 6.21
Federal funds purchased 408 6 5.88 --- --- ---
Securities sold under agreements to
repurchase 49,372 625 5.06 36,079 506 5.61
Other short-term borrowings 1,169 17 5.82 932 13 5.58
Notes payable 4,500 95 8.44 5,000 106 8.48
Mandatory convertible debentures 1,250 24 7.68 1,250 27 8.64
------- ----- ------ -----
Total interest-bearing
liabilities $323,711 4,164 5.14% $285,321 3,727 5.22
-------- ----- -------- -----
-------- --------
Net interest income $3,990 $3,252
------ ------
------ ------
Net interest margin (net interest
income divided by average
total interest-
earning assets) 4.48% 4.07%
----- -----
----- -----
(1)<F16>Non-accruing loans and leases are included in the average balance.
INTEREST VARIANCE ANALYSIS
Three Months Ended
June 30, 1996 vs. June 30, 1995
-------------------------------
Increase (Decrease)
Due to Changes in(1)<F17>
-------------------------------
Average Average Total
(Dollars in thousands) Balance Rate Change
- ---------------------- ------- ----- ------
Interest income:
Interest-bearing deposits with other
financial institutions............. $85 $(24) $61
Investment securities.............. 298 106 404
Federal funds sold................. (407) (10) (417)
Loans and leases................... 953 174 1,127
----- ---- -----
Total interest income............ 929 246 1,175
---- ---- -----
Interest expense:
Savings deposits................... 15 (2) 13
Time deposits...................... 352 (43) 309
Federal funds purchased............ --- 6 6
Securities sold under agreements to
repurchase......................... 186 (67) 119
Other short-term borrowings........ 3 1 4
Notes payable...................... (11) --- (11)
Mandatory convertible debentures... --- (3) (3)
---- ---- ----
Total interest expense........... 545 (108) 437
---- ----- -----
Change in net interest income........ $384 $354 $738
---- ---- ----
---- ---- ----
(1)<F17>The change in interest due to the volume and rate has been allocated to
the change in average rate. Nonaccruing loans and leases are included in the
average balance. Loan and lease fees of $399 and $302 for the three months
ended June 30, 1996 and 1995, respectively, are included in the interest income
on loans and leases.
The preceding interest variance analysis quantifies the impact of the previously
discussed changes between three month comparative periods. The positive impact
on net interest income due to changes in interest-earning assets from increased
average balances and average rates totaled $929,000 and $246,000, respectively.
The increased average balances of interest-bearing liabilities resulted in a
$545,000 increase in interest expense. However, the decrease in cost of
interest-bearing liabilities resulted in a $108,000 interest expense savings.
When combined, the net increase in net interest income due to increased asset
and liability balances totaled $384,000. Further, the favorable average rate
changes for both assets and liabilities combined to total a $354,000 increase in
net interest income. As a result, net interest income increased a total of
$738,000 between the three month comparative periods ended June 30, 1996 and
1995.
Provision for Possible Loan and Lease Losses
The provision for possible loan and lease losses totaled $525,000 and $430,000
for the three months ended June 30, 1996 and 1995, respectively. The amount of
the provision was based on management's assessment of the adequacy of the
allowance for possible loan and lease losses in relation to both non-performing
loans (those past-due 90 days or more and loans in a nonaccrual status) and
total loans and leases outstanding. Net charge-offs for the three months ended
June 30, 1996 and 1995 totaled $158,000 and $695,000, respectively. The
allowance, stated as a percentage of non-performing loans and leases, equaled
253.41% and 141.32% as of June 30, 1996 and 1995, respectively. FSCM's
comparative Peer Group ratio equaled 334.45% as of March 31, 1996. The
improvement in the ratio between the 1996 and 1995 periods resulted from both a
$1,263,000 increase in the allowance and a $618,000 decrease in non-performing
loans and leases. Management is currently satisfied that the level of the
allowance is adequate to provide for future losses.
Other Income
Total other income increased $62,000, or 7.6%, between the three month periods
ended June 30, 1996 and 1995. Although slight improvement was experienced in
most areas, the more significant changes included a $21,000 increase in gains
from sales of loans and leases and a $28,000 increase in other income.
Other Expenses
Other expense equaled $2,757,000 for the three months ended June 30, 1996, a
$147,000, or 5.63%, increase from the $2,610,000 expense for the three months
ended June 30, 1995. The following discussion describes the more significant of
the changes between periods.
Salaries and employee benefits, which comprised 57.82% of total other expenses,
increased $226,000, or 16.52%, between periods. The number of full-time
equivalent employees rose to 181 at June 30, 1996 from 164 at June 30, 1995 --
partially as a result of new office expansion. However, due to asset growth,
the ratio of assets per employee rose to $2,150,000 at June 30, 1996 from
$2,103,000 at June 30, 1995. Further, personnel expense, stated as a percentage
of average assets, equaled 1.67% for the three months ended June 30, 1996 as
compared to FSCM's Peer Group ratio of 1.72% as of March 31, 1996.
Expenses associated with the new offices in Bettendorf and Rock Island which
were acquired/built and furnished during the fiscal year ended March 31, 1996,
resulted in an increase of $118,000 in the occupancy and equipment categories as
compared to the 1995 period. Depreciation expense increased $130,000 between
the periods.
The $146,000 decrease in insurance expense reflected the reduced FDIC premium
rate which decreased during the course of fiscal 1996 from $0.23 per $100 of
deposits to a base fee of $2,000 per year. The amounts of FDIC insurance
assessments included in insurance expense for the three months ended June 30,
1996 and 1995 were $1,000 and $143,000, respectively.
Included in other miscellaneous expense for the three months ended June 30, 1995
was an $80,000 charge related to an efficiency study performed by a national
consulting firm during fiscal 1996 to review operational functions and system
structures. Additionally, the 1995 expense also included an accrual of
approximately $124,000 for anticipated occupancy and equipment expenses
associated with the new offices.
Income Taxes
The opening of an Iowa office during fiscal 1996 established nexus in Iowa and
thus created an additional state tax obligation. Taxes of $543,000 for the
three months ended June 30, 1996 included accruals of $473,000 for Federal
income taxes and $70,000 for State of Iowa taxes. The $339,000 tax expense for
the three months ended June 30, 1995 related solely to federal tax liabilities.
The effective tax rates for the 1996 and 1995 three month periods equaled 34.30%
and 33.07%, respectively.
RISK MANAGEMENT
FSCM's internal credit administration performs continuous loan reviews; monitors
loan documentation; ensures compliance with internal policies and governmental
regulations; and maintains the internal loan and lease watch list. FSCM also
employs an internal audit/compliance staff to provide on-going account audits
and reviews of regulatory compliance. In addition, management continues to
cautiously assess the risks associated with the potential future impact of
adverse changes in the overall economic climate and more stringent regulatory
standards and requirements. An asset/liability committee monitors the liquidity
position of FSCM in order to provide for future liquidity requirements as well
as maintain an acceptable interest rate return on assets. Further, computer
simulation modeling is used to assess the interest rate sensitivity
characteristics of assets and liabilities and predict possible impacts of new
marketing and product development strategies.
As depicted in FSCM's Consolidated Statements of Cash Flows, the operating and
financing activities are generally net sources of liquidity, and investing
activities are net uses of liquidity. For the three months ended June 30, 1996,
the primary sources of cash provided by operating activities included proceeds
from the sale of loans and leases coupled with net income and the provision for
possible loan and lease losses; these same two components provided positive net
cash flow from operating activities for the three months ended June 30, 1995.
For both three month periods, cash was used in investing activities primarily to
fund the net increase in loans and leases and was provided by financing
activities from the net increases in deposits and short-term borrowings. The
resulting net decrease in cash and due from banks totaled $944,000 and
$2,577,000 for the three months ended June 30, 1996 and 1995, respectively.
BALANCE SHEETS
Overview
Assets totaled $389,172,000 at June 30, 1996, a $2,205,000 increase from the
March 31, 1996 balance of $386,967,000. Total loans and leases comprised 64.76%
of total assets at June 30, 1996 -- FSCM's Peer Group comparative ratio was
58.94% as of March 31, 1996. FSCM's ratio of average interest-earning assets to
total average assets of 93.07% at June 30, 1996 continued to compare favorably
to that of its Peer Group, which equaled 92.08% as of March 31, 1996.
Correspondingly, average interest-bearing liabilities and average non-interest-
bearing deposits equaled 84.67% and 7.99%, respectively, of the total average
assets at June 30, 1996. FSCM's Peer Group ratio of interest-bearing
liabilities to total average assets equaled 76.41% as of March 31, 1996. The
unfavorable variance primarily resulted from FSCM's funding and capital
structure in which the average balances in both non-interest-bearing deposits
and stockholders' equity were lower than that of its Peer Group.
Investments
Investments totaled $100,583,000 at June 30, 1996, or 25.85% of total assets.
Based on stated maturities except for mortgage-backed obligations for which
the assumed maturity was used -- the weighted average life of the investment
portfolio approximated 39 months. Investments are categorized at the time of
purchase as either held-to-maturity or available-for-sale. Securities
categorized as held-to-maturity are carried at amortized cost. Securities
categorized as available-for-sale are carried at fair market value with the net
after-tax difference between the amortized cost and the fair market value
carried as an unrealized adjustment to stockholders' equity. At March 31, 1996,
the amortized cost of securities available-for-sale exceeded the fair market
value by $640,000. Due to an increased interest rate curve between March and
June 1996, the difference between the two values grew to $1,547,000.
Loans and Direct Financing Leases
Net loans and leases totaled $252,047,000 at June 30, 1996, an increase of
$545,000 from the March 31, 1996 balance of $251,502,000. As portrayed in the
following table, the decrease between periods of $6,512,000 in residential
mortgage loans primarily resulted from the sale of a $7,448,000 adjustable rate
portfolio. Further, the $4,980,000 increase in consumer loans was primarily
generated through growth in indirect loans. During fiscal 1996, a new consumer
loan program commenced that focused on relationships with auto, boat and
recreational vehicle dealers. Volume in this type of indirect lending
approximated between $1,000,000 to $1,500,000 per month. However, it should be
noted that said indirect lending is viewed as traditional consumer lending and
not subprime consumer lending.
During the quarter-ended June 30, 1996, FSCM acquired a $1,516,000 loan from
TRIB as permitted by authority received from the Federal Reserve Board under the
Holding Company Act. It is not the intent of FSCM's management to actively
generate loans but merely use such authority to primarily supplement TRIB's
lending capabilities.
The following table presents the comparative distribution of loans and leases as
of the dates indicated.
LOAN AND LEASE DISTRIBUTION
June 30, March 31,
(Dollars in thousands) 1996 1996
- ---------------------- -------- --------
Commercial, financial and agricultural..... $86,489 $85,578
Direct financing leases.................... 5,815 5,719
Real estate:
Residential mortgage(1)<F18>.......... 57,736 64,248
Construction.......................... 24,797 21,823
Commercial mortgage................... 61,200 62,746
Consumer, not secured by a real estate mortgage(2)<F19> 20,831 15,851
-------- --------
Total loans and leases........... $256,877 $255,965
-------- --------
-------- --------
(1)<F18>For the three months ended June 30, 1996 and the fiscal year ended March
31, 1996, includes $18,307 and $18,820, respectively, of first mortgages
pending conclusion of their sale to Freddie Mac, Fannie Mae and the Illinois
Housing Development Authority ("IHDA"); home equity lines of credit; home
improvement loans; and consumer loans for which junior liens were taken as
primary and secondary sources of security.
(2)<F19>Consumer loans, both direct and indirect.
Deposits, Securities Sold Under Agreements to Repurchase and Short-Term
Borrowings
Insured money market accounts ("IMMA") increased $7,980,000 between June 30,
1996 and March 31, 1996 to total $16,618,000 versus $8,638,000. This increase
primarily reflected a shift from other types of funding sources and resulted
from a marketing campaign which focused on the IMMA product.
The $1,000,000 increase in other short-term borrowings reflected a temporary
advance by FSCM made on a correspondent bank line of credit which was used to
fund the aforementioned loan accommodation with TRIB.
Capital Resources
FSCM's capital, as measured by standards established by the federal banking
regulators, exceeded those defined for "well-capitalized" institutions. The
table below sets forth FSCM's ratios as of June 30, 1996 and March 31, 1996, as
well as the regulatory ratios for minimum requirements and "well-capitalized"
institutions.
CAPITAL RATIOS
FSCM REGULATORY REQUIREMENTS
-------------------- ----------------------
JUNE 30, MARCH 31, WELL
DOLLARS IN THOUSANDS 1996 1996 MINIMUM CAPITALIZED
-------------------- -------- --------- -------- -----------
Risk-based capital ratios:
Tier 1 Capital 9.06% 8.97% 4.00% 6.00%
Total Capital 11.51 11.66 8.00 10.00
Leverage 6.62 6.83 3.00 5.00
Stockholders' equity $24,490 $24,287
Net unrealized loss on
available-for-sale
securities, net of taxes 1,022 422
Intangible assets (128) (140)
------ ------
Tier 1 capital 25,384 24,569
Supplementary capital 6,868 7,387
------- ------
Total capital $32,252 $31,956
-------- --------
-------- --------
Total adjusted average assets $383,301 $359,486
-------- --------
-------- --------
Risk weighted assets $280,103 $273,981
-------- --------
-------- --------
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
FINANCIAL OVERVIEW
Total assets increased to $386,967,000 from $337,454,000 as of March 31, 1996
and 1995, respectively. Net income increased to $3,553,000 for the fiscal year
ended March 31, 1996 as compared to $3,068,000 and $2,333,000 earned in fiscal
1995 and 1994, respectively. Correspondingly, earnings per fully diluted common
share ("EPS") equaled $10.80, $9.10 and $6.73 for the fiscal years ended March
31, 1996, 1995 and 1994, respectively, and book value, assuming conversion of
all convertible instruments, equaled $76.80, $68.35 and $60.25 for the
respective periods. The following table presents a more detailed analysis of
the increases in EPS between fiscal 1996 and 1995 and between fiscal 1995 and
1994.
FISCAL YEARS FISCAL YEARS
ENDED ENDED
MARCH 31, MARCH 31,
1996 VS. 1995 VS.
MARCH 31, 1995 MARCH 31, 1994
-------------- --------------
Net in come per fully diluted common share,
prior year $9.10 $6.73
Increase(decrease) from changes in:
Earning asset volume 5.99 1.54
Rates and other effects on net interest
income (4.29) 2.72
Provision for possible loan and lease
losses 1.76 (1.53)
Other income 0.48 (1.04)
Other expense (1.77) 1.15
Income taxes (0.74) (0.73)
------ ------
Subtotal 10.53 8.84
Changes in weighted average common and
contingently issuable common shares
outstanding (0.27) (0.26)
------ ------
Net income per fully diluted common share $10.80 $9.10
------ ------
------ ------
Other selected ratios of FSCM are presented in the following table for the
fiscal years ended March 31, 1996, 1995 and 1994:
PERFORMANCE RATIOS
FISCAL YEARS ENDED MARCH 31,
---------------------------
1996 1995 1994
----- ----- -----
Return on average assets.......... 0.99% 0.99% 0.83%
Return on average common equity... 17.49 17.24 13.79
Dividend payout ratio............. 10.43 10.70 15.09
The dividend payout ratio, which divides dividends declared per common share by
the primary earnings per common share before dilution, indicates on a per share
basis the percentage of common shareholder investment returned to the
shareholder as opposed to reinvested into the business. A more comprehensive
discussion of changes in the asset and liability structure and earnings
performance that contributed to the changes in the aforementioned ratios can be
found in the following discussion under the related sections.
INCOME STATEMENTS
The following table identifies the changes in income by major categories between
fiscal 1996 and 1995 and between fiscal 1995 and 1994:
FISCAL YEARS FISCAL YEARS
ENDED ENDED
MARCH 31, 1996 MARCH 31, 1995
VS. MARCH 31, VS. MARCH 31,
(DOLLARS IN THOUSANDS) 1995 1994
- ---------------------- -------------- -------------
Increase in interest income $5,700 $2,547
Increase in interest expense (5,126) (1,065)
------ ------
Increase in net interest margin 574 1,482
(Increase) decrease in provision for
possible loan and lease losses 605 (540)
Increase (decrease) in other income 166 (366)
(Increase) decrease in other expense (608) 408
Increase in income taxes (252) (249)
------ ------
Increase in net income $485 $735
------ ------
------ ------
The efficiency ratio, which divides total other expense by the sum of net
interest income and other income, equaled 59.33%, 58.30% and 64.96% for the
fiscal years ended March 31, 1996, 1995 and 1994, respectively. A lower ratio
generally reflects a better control of operating expenses and therefore is more
favorable. FSCM's Peer Group efficiency ratio equaled 62.86% as of March 31,
1996.
Net Interest Income
Interest income increased to $30,271,000 for the fiscal year ended March 31,
1996 from $24,571,000 for the comparable period in fiscal 1995. The $5,700,000
increase resulted from increases in both average balance and yield of interest-
earning assets. The average balance rose to $335,323,000 for fiscal 1996 from
$290,474,000 during the previous fiscal year and was primarily distributed in
loans. The yield on interest-earning assets rose 57 basis points to 9.03% from
8.46% for the respective fiscal years ended March 31, 1996 and 1995.
Correspondingly, interest expense increased to $15,833,000 from $10,707,000 in
fiscal 1996 and 1995, respectively. Again, the $5,126,000 increase was the
result of increases in both the average interest-bearing liabilities outstanding
and the cost on such liabilities. The average balance of interest-bearing
liabilities increased to $301,043,000 from $259,964,000 for the fiscal years
ended March 31, 1996 and 1995, respectively, and was primarily comprised of
increases in time deposits and securities sold under agreements to repurchase.
The cost of interest-bearing liabilities rose 114 basis points to 5.26% from
4.12% for the respective periods. The spread between the yield on interest-
earning assets and cost of interest-bearing liabilities decreased 57 basis
points to 3.77% from 4.34% for the fiscal years ended March 31, 1996 and 1995,
respectively. Correspondingly, the net interest margin, a ratio of net interest
income to interest-earning assets, also decreased to 4.31% from 4.77% for the
respective fiscal years. Combined, the $2,060,000 positive impact on net
interest income due to increases in average balances was partially offset by the
$1,486,000 negative net impact due to the changes in average yields and rates.
The net difference, $574,000, brought net interest income up to $14,438,000 from
$13,864,000 for the fiscal years ended March 31, 1996 and 1995, respectively.
See "Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations -- Years Ended March 31, 1996, 1995 and 1994 -- Risk
Management."
In comparing fiscal 1995 to 1994, average interest-earning assets grew to
$290,474,000 from $263,812,000 and interest-bearing liabilities grew to
$259,964,000 from $235,265,000, respectively. Additionally, the yield on
interest-earning assets rose 11 basis points to 8.46% from 8.35%; however, the
cost of interest-bearing liabilities increased only two basis points to 4.12%
from 4.10% for the respective fiscal years. The resulting net interest spread,
therefore, increased to 4.34% from 4.25%, respectively, and the net interest
margin increased to 4.77% from 4.69%.
The following tables present three years of comparative information of average
balances, average interest rates, related interest amounts and the interest
variance analysis of rate and balance differences between the periods.
<TABLE>
AVERAGE BALANCE AND INTEREST RATE ANALYSIS
<CAPTION>
(DOLLARS IN THOUSANDS) MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1994
- ---------------------- ------------------------------ ----------------------------- --------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
ASSETS BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
- ------- ------- --------- -------- -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with
other financial institutions $715 $39 5.45% $319 $15 4.70% $1,437 $58 4.04%
Investment securities 86,602 5,003 5.78 77,379 3,930 5.08 73,595 3,507 4.77
Federal funds sold 17,360 1,021 5.88 22,082 1,050 4.76 16,850 513 3.04
Loans and leases, net(1)<F20> 230,646 24,208 10.50 190,694 19,576 10.27 171,930 17,946 10.44
------- ------ ------- ------ ------- ------
Total interest-earning assets 335,323 30,271 9.03 290,474 24,571 8.46 263,812 22,024 8.35
------ ------ ------
Cash and due from banks 11,618 10,243 10,004
Property and equipment 4,787 3,626 3,766
Other assets 7,477 6,670 4,815
-------- -------- --------
Total assets $359,205 $311,013 $282,397
-------- -------- --------
-------- -------- --------
LIABILITIES AND
STOCKHOLDERS' EQUITY
- ----------------------
Savings deposits $74,394 1,834 2.47 $90,941 2,359 2.59 $115,033 3,619 3.15
Time deposits 176,038 11,030 6.27 136,841 6,670 4.87 91,969 4,777 5.19
Federal funds purchased 169 10 5.92 16 1 6.25 9 --- ---
Securities sold under
agreements to repurchase 43,120 2,375 5.51 25,034 1,118 4.47 21,071 725 3.44
Other short-term borrowings 1,239 70 5.65 882 42 4.76 933 27 2.89
Notes payable 4,833 411 8.50 5,000 425 8.50 5,000 425 8.50
Mandatory convertible
debentures 1,250 103 8.24 1,250 92 7.36 1,250 69 5.52
------- ------ ------- ------ ------- -----
Total interest-bearing
liabilities 301,043 15,833 5.26 259,964 10,707 4.12 235,265 9,642 4.10
------ ------ -----
Non-interest-bearing deposits 29,676 26,316 24,123
Other liabilities 5,070 3,862 3,808
------- ------- -------
Total liabilities 335,789 290,142 263,196
Stockholders' equity 23,416 20,871 19,201
-------- ------- -------
Total liabilities and
stockholders' equity $359,205 $311,013 $282,397
-------- -------- --------
-------- -------- --------
Net interest income $14,438 $13,864 $12,382
------- ------- -------
------- ------- -------
Net interest margin (net
interest income divided
by average total interest-
earning assets) 4.31% 4.77% 4.69%
----- ----- -----
----- ----- -----
(1)<F20>Nonaccruing loans and leases were included in the average balance.
</TABLE>
<TABLE>
INTEREST VARIANCE ANALYSIS
<CAPTION>
FISCAL YEARS FISCAL YEARS
ENDED MARCH 31, 1996 ENDED MARCH 31, 1995
VS. MARCH 31, 1995 VS. MARCH 31, 1994
--------------------------- ---------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGES IN (1)<F21> DUE TO CHANGES IN (1)<F21>
AVERAGE AVERAGE TOTAL AVERAGE AVERAGE TOTAL
(DOLLARS IN THOUSANDS) BALANCE RATE CHANGE BALANCE RATE CHANGE
----------------------- -------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest-bearing deposits with other
financial institutions $19 $5 $24 $(45) $2 $(43)
Investment securities 468 605 1,073 180 243 423
Federal funds sold (225) 196 (29) 159 378 537
Loans and leases 4,101 531 4,632 1,959 (329) 1,630
------ ----- ----- ----- ----- -----
Total interest income 4,363 1,337 5,700 2,253 294 2,547
------ ----- ----- ----- ----- -----
Interest expense:
Savings deposits (429) (96) (525) (758) (502) (1,260)
Time deposits 1,911 2,449 4,360 2,331 (438) 1,893
Securities sold under agreements
to repurchase 808 449 1,257 136 257 393
Short-term borrowings 17 11 28 (1) 16 15
Federal funds purchased 10 (1) 9 --- 1 1
Notes payable (14) --- (14) --- --- ---
Mandatory convertible debentures --- 11 11 --- 23 23
------ ----- ----- ----- ----- -----
Total interest expense 2,303 2,823 5,126 1,708 (643) 1,065
------ ----- ----- ----- ----- -----
Change in net interest income $2,060 $(1,486) $574 $545 $937 $1,482
------ ----- ----- ----- ----- -----
------ ----- ----- ----- ----- -----
(1)<F21>The change in interest due to the volume and rate has been allocated to
the change in average rate. Nonaccruing loans and leases are included in the
average balance. Loan and lease fees of $1,393, $1,330, and $1,013 for the
fiscal years ended March 31, 1996, 1995, and 1994, respectively, are included
in interest income on loans and leases.
</TABLE>
Provision for Possible Loan and Lease Losses
The amounts of the provisions for possible loan and lease losses were
$1,905,000, $2,510,000 and $1,970,000 for the fiscal years ended March 31, 1996,
1995 and 1994, respectively. The amount of the provision is based on
management's continuous assessment of the adequacy of the allowance for possible
loan and lease losses in relation to nonperforming and total loans and leases
outstanding. The provision, stated as a percentage of average assets, equaled
0.53%, 0.81% and 0.70% for the fiscal years ended March 31, 1996, 1995 and 1994,
respectively, as compared to FSCM's Peer Group of 0.15% as of March 31, 1996.
See "Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations -- Years Ended March 31, 1996, 1995 and 1994 --
Balance Sheet -- Loans and Direct Financing Leases."
Other Income
Total other income equaled $3,315,000, $3,149,000 and $3,515,000 for the fiscal
years ended March 31, 1996, 1995 and 1994, respectively. Stated as a percentage
of average assets, other income was 0.92%, 1.01% and 1.24% for these respective
years. FSCM's comparative Peer Group ratio was 0.99% as of March 31, 1996.
Trust fees totaled $322,000, $361,000 and $304,000 for the fiscal years ended
March 31, 1996, 1995 and 1994, respectively. Two trust officer positions were
vacated during fiscal 1996 and the department underwent restructuring. Trust
fees decreased as a result of the reduced generation of new business.
Subsequent to fiscal 1996 year-end, a trust officer was employed. Management
anticipates that such changes made in the department structure will result in
trust business growth.
In October 1995, $7,152,000 of securities held available-for-sale were sold,
resulting in the recognition of an $11,000 gain. This transaction resulted from
a minor adjustment in portfolio structure made by management.
TRIB generates and sells to investors residential mortgage loans on which the
servicing rights have been retained. These investors include Freddie Mac,
Fannie Mae and the Illinois Housing Development Authority ("IHDA"). Loan
servicing fees generated from loans sold totaled $680,000, $677,000 and $618,000
for the fiscal years ended March 31, 1996, 1995 and 1994, respectively. The
outstanding balances of the serviced loans as of March 31, 1996, 1995 and 1994
were $165,003,000, $155,657,000 and $163,212,000, respectively.
Service charges on deposit accounts increased $66,000 to $1,065,000 for the
fiscal year ended March 31, 1996 from $999,000 in fiscal 1995 and $744,000 in
fiscal 1994. The growth between fiscal years primarily resulted from increases
in service charges associated with business depository accounts and with
overdrawn accounts. Said increases reflect the general growth in both personal
and business deposit accounts and to a lesser extent the June 1994 increase in
the overdraft assessment.
Insurance commissions represent the fee income TRIB receives for the sale of
credit life and accident and health insurance on consumer loans. The amount of
income varies proportionally to the amount of new loan volume and penetration of
insurance coverage. Insurance commissions for the fiscal years ended March 31,
1996, 1995 and 1994 totaled $294,000, $323,000 and $503,000, respectively. A
portion of the decrease between fiscal 1995 and 1994 reflected the maintenance
of higher reserve levels based on insurance rebate experience.
Other miscellaneous income totaled $581,000, $657,000 and $408,000 for the
respective fiscal years. Primary components of the category include fee income
associated with merchant credit card processing, which totaled $212,000,
$213,000 and $179,000 for the respective fiscal years, and income generated from
increases on two key person life insurance policies surrender values which
totaled $188,000, $167,000 and $32,000. Additionally, in fiscal 1995, a
$100,000 one-time gain was recognized from the sale of equipment previously
leased by TRIB to a third party.
Other Expenses
Total other expense equaled $10,527,000, $9,919,000 and $10,327,000 for the
fiscal years ended March 31, 1996, 1995 and 1994, respectively. In March 1995,
the Board of Directors entered into an agreement with a national consulting firm
to perform a limited scope review of selected departments' operational functions
and system structure. Fiscal 1996 other operating expense included $78,000 of
the total of $110,000 paid for the review. FSCM has implemented approximately
half of the recommendations and anticipates further progress during fiscal 1997.
The $281,000 annualized estimated before tax benefit resulting from the
implemented recommendations was distributed as follows: revenue enhancements -
$11,000, labor efficiencies - $181,000, and expense reductions - $89,000.
Approximately $100,000 of the labor savings was offset due to increased staffing
in the Bettendorf, Iowa office; therefore, although an actual reduction was not
realized by this redistribution, labor costs did not increase with the office
expansion to the extent they would have otherwise.
Salaries and employee benefits, which comprised over 50% of total other expense,
totaled $5,904,000, $5,272,000 and $5,386,000 for fiscal 1996, 1995 and 1994,
respectively. Stated as a percentage of average assets, personnel expense for
the respective fiscal years equaled 1.64%, 1.70% and 1.91%. FSCM's Peer Group
ratio was 1.72% as of March 31, 1996. The numbers of full-time equivalent
employees as of March 31, 1996, 1995 and 1994 were 175, 163 and 155,
respectively.
Net occupancy expense increased to $801,000 from $754,000 and $538,000 for
fiscal 1996, 1995 and 1994, respectively. Contributing to the increase between
fiscal 1996 and 1995 was $42,000 of additional depreciation expense associated
with the Bettendorf office which opened on November 1, 1995. The majority of
the increase in expense between fiscal 1995 and 1994 was associated with office
expansions in Rock Island and East Moline, Illinois, which included a $71,000
one-time charge related to the remaining book value of an office that was torn
down and the rental of trailers for temporary offices. See "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations -- Years Ended March 31, 1996, 1995 and 1994 -- Balance Sheets --
Premises, Furniture and Equipment."
Insurance expense totaled $281,000, $713,000 and $659,000 for fiscal 1996, 1995
and 1994, respectively. As of the end of May 1995, the FDIC determined that its
Bank Insurance Fund was fully recapitalized, as it had met the mandated level of
$1.25 per $100 of deposits. The FDIC reduced the premium rate on insurance
assessments, retroactive to June 1995, from $0.23 to $0.04 per $100 of deposits.
Further, commencing January 1996, the assessment factor was reduced to the
minimum of $2,000 per year. The FDIC insurance premiums comprised $157,000,
$560,000 and $497,000 of the total insurance expense for the respective years.
The increase in equipment expense to $947,000 from $651,000 and $633,000 for the
fiscal years ended March 31, 1996, 1995 and 1994, respectively, resulted
primarily from increased depreciation expense, which equaled $611,000, $385,000
and $368,000, respectively. Approximately $1,500,000 was invested in fiscal
1996 to equip and furnish the new offices and to acquire and upgrade information
delivery systems. See "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations -- Years Ended March 31, 1996,
1995 and 1994 -- Balance Sheets -- Premises, Furniture and Equipment."
Data processing expense totaled $569,000, $551,000 and $541,000 for fiscal 1996,
1995 and 1994, respectively, which represented a 2.6% average annual increase.
Although the number of accounts supported by the data service provider has
grown, the relatively stable expense in this area primarily reflects the benefit
negotiated when the data servicing contract was renewed in fiscal 1995 which
established a minimum base level number of accounts that has not been exceeded.
Management anticipates that in fiscal 1997, data processing expense will
increase due to exceeding the established minimum.
Management's commitment to advertising and business promotion has remained
stable, equaling $400,000, $420,000 and $448,000 for the years ended March 31,
1996, 1995 and 1994, respectively. It is anticipated that advertising and
business promotion expense in fiscal 1997 will, at a minimum, be comparable to
fiscal 1996's expense level.
Other operating expense totaled $1,625,000, $1,558,000 and $2,122,000 for the
years ended March 31, 1996, 1995 and 1994 respectively. Significant changes
between fiscal 1996 and 1995 included $67,000 in dealer expense associated with
the indirect consumer loan department which was started in fiscal 1996 and an
increase of $49,000 in professional fees which primarily resulted from the
aforementioned efficiency study. The relatively high fiscal 1994 other expense
included $250,000 of amortization cost associated with a three-year non-compete
covenant and a $250,000 one-time charge paid to a secondary market residential
real estate loan investor.
Income Taxes
Income taxes totaled $1,768,000, $1,516,000 and $1,267,000 for the fiscal years
ended March 31, 1996, 1995 and 1994, respectively. These tax levels equate to
effective tax rates of 33.2%, 33.1% and 35.2% for the respective fiscal years.
Included in taxes were amounts associated with various state taxing authorities
which totaled $23,000, $3,000 and $13,000, respectively. Management recognizes
that the exposure to state taxes probably will increase due to TRIB's November
1995 relocation into Iowa.
RISK MANAGEMENT
Risk management encompasses many different types of risk, including credit risk,
liquidity risk and interest rate risk. Regulatory agencies have modified their
examination procedures to rate the exposure of financial institutions to risk by
the various types of risk and the direction of change in the risk as well as
management's ability to monitor and control each type of risk. See
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations -- Years Ended March 31, 1996, 1995 and 1994 -- Balance
Sheets -- Loans and Direct Financing Losses" for a discussion of management's
control of credit risk; a table of asset quality is included for review and
comparison.
Liquidity measures the ability to meet all present and future financial
obligations in a timely manner. FSCM's (parent company only) sources of
liquidity have historically been provided by cash distributions from TRIB, the
proceeds from long-term and short-term debt issuances, and the liquidation of
assets. On a consolidated basis, additional sources of liquidity include
federal funds sold, retail deposits generated by the office network,
correspondent bank credit lines (including secured borrowings from the Federal
Home Loan Bank) and non-pledged investment securities. The sale of loans also
provides a source of liquidity. The amount of short-term assets, which are
generally considered liquid assets and earn a lower rate of interest than other
investment options, must be carefully monitored in terms of the overall funding
strategy to maintain an acceptable interest rate margin. FSCM's consolidated
statements of cash flows for the years ended March 31, 1996, 1995 and 1994
indicate that operating and financing activities are net sources of liquidity
and that investing activities use liquidity. For the fiscal years ended March
31, 1996, 1995 and 1994, net cash provided by operating activities primarily
resulted from net income combined with the provision for possible loan and lease
losses. Further, net increases in loans and leases represented the primary use
of cash in investing activities, while net increases in deposits and short-term
borrowings represented the primary source of cash provided by financing
activities. For fiscal 1996, 1995 and 1994, cash and due from banks increased
by $468,000, $2,471,000 and $763,000, respectively.
Computer simulated sensitivity analysis is used as TRIB's primary method of
quantifying and evaluating interest rate risk. FSCM manages its asset and
liability positions with the objective of minimizing the impact market interest
rate volatility has on net interest income. The asset/liability committee meets
every two weeks to review various reports pertaining to asset/liability
management, including liquidity reports, historic yield and rate analysis,
dynamic and static gap reports, dynamic and static interest rate shock reports,
market advertisements and competitive market interest rates. Interest rate
shock refers to the impact on interest sensitive assets and liabilities that a
200 basis point interest rate change would have measured by the variance in net
interest income over a one-year time horizon based on actual and projected
account balances and maturities. The interest rate shock reports are also used
in budgeting and product development to quantify the impact on net interest
income of various interest rate and balances ssumptions.
The decrease between fiscal 1996 and 1995 in the net interest margin, which
equaled 4.31% and 4.77% for the respective fiscal years, resulted from a deposit
campaign introduced at the end of fiscal 1995 which generated $33,000,000 in
relatively high cost time deposits. Subsequent to the campaign, the interest
rate environment reversed. The national average prime rate which increased 50
basis points on February 1, 1995 to 9.00% decreased by 25 basis points three
times during fiscal 1996, the last on February 1, 1996 when the prime rate was
adjusted to 8.25%. Although the net interest margin has shown improvement since
the aforementioned deposit campaign, further improvement should occur during
fiscal 1997 when approximately $33,000,000 in deposits are repriced to current
market rates.
Gap refers to the difference between the amount of interest rate sensitive
assets in a particular time period less the amount of comparable interest rate
sensitive liabilities. The following table presents FSCM's interest rate
sensitivity as measured by a gap analysis. The negative interest rate
sensitivity gap position indicates that within each period, there are more
interest sensitive liabilities repricing than there are interest sensitive
assets. Theoretically, this position would result in the generation of more net
interest income in a declining interest rate environment and less net interest
income in a rising interest rate environment. However, due to the underlying
interest rate characteristics of the repricing instruments, TRIB's dynamic shock
analysis indicated that a rising interest rate environment would have a positive
impact on net interest income and that interest income would be slightly at risk
in a falling interest rate environment (dollars in thousands):
<TABLE>
INTEREST RATE SENSITIVITY ANALYSIS
<CAPTION> AFTER 6 AFTER 1
AFTER 3 MONTHS YEAR
WITHIN MONTHS BUT BUT AFTER NON-
BY REPRICING DATES THREE BUT WITHIN WITHIN FIVE INTEREST-
AS OF MARCH 31, 1996 MONTHS WITHIN 6 ONE YEAR FIVE YEARS BEARING TOTAL
- -------------------- ------- -------- --------- --------- --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment securities $5,604 $13,812 $7,079 $55,600 $8,328 $--- $90,423
Loans and leases 96,465 17,707 40,863 88,601 10,642 1,687 255,965
Other earning assets 11,910 --- 4,851 --- --- --- 16,761
Other assets 82 --- --- 29 --- 23,707 23,818
------- ------- ------- ------- ------- ------- -------
Total assets 114,061 31,519 52,793 144,230 18,970 25,394 386,967
------- ------- ------- ------- ------- ------- -------
Cumulative assets 114,061 145,580 198,373 342,603 361,573 386,967 386,967
------- ------- ------- ------- ------- ------- -------
LIABILITIES AND EQUITY:
Savings deposits 74,872 --- --- --- --- --- 74,872
Time deposits 32,404 61,397 59,604 36,531 724 --- 190,660
Securities sold under agreements to
repurchase and short-term borrowings 42,789 4,522 1,387 1,648 --- --- 50,346
Notes payable --- --- 500 4,000 --- --- 4,500
Mandatory convertible debentures 1,250 --- --- --- --- --- 1,250
Demand deposits --- --- --- --- --- 36,286 36,286
Other liabilities --- --- --- --- --- 4,766 4,766
Stockholders' equity 500 --- --- --- 6,020 17,767 24,287
------- ------- ------- ------- ------- ------- -------
Total sources of funds 151,815 65,919 61,491 42,179 6,744 58,819 386,967
------- ------- ------- ------- ------- ------- -------
Cumulative sources of funds 151,815 217,734 279,225 321,404 328,148 386,967 386,967
------- ------- ------- ------- ------- ------- -------
Interest rate sensitivity gap (37,754) (34,400) (8,698) 102,051 12,226 (33,425) ---
Cumulative interest rate
sensitivity gap (37,754) (72,154) (80,852) 21,199 33,425 --- ---
</TABLE>
BALANCE SHEETS
The following table compares the composition of the respective year-end balance
sheets by analysis of major components as a percentage of assets and selected
March 31, 1996 Peer Group comparisons.
MARCH 31, MARCH 31, PEER
1996 1995 GROUP
--------- -------- -----
ASSETS:
Interest-earning:
- -----------------
Interest-bearing deposits with other
financial institutions 1.2% 0.1% 0.5%
Investment securities 23.4 21.3 29.2
Federal funds sold 3.1 9.7 3.0
Loans and leases, net 65.0 61.7 58.9
---- ---- ----
Total interest-earning assets 92.7 92.8 91.6
---- ---- ----
Non-interest-earning:
- ---------------------
Cash and due from banks 3.7 4.1 4.0
Premises, furniture and equipment 1.5 1.1 N/A
Other assets 2.1 2.0 N/A
------ ------ ------
Total non-interest-earning assets 7.3 7.2 8.4
------ ------ ------
Total assets 100.0% 100.0% 100.0%
------ ------ ------
------ ------ ------
LIABILITIES:
Interest-bearing:
- -----------------
Interest-bearing deposits 68.6% 70.5%
Repurchase agreements and short-term
borrowings............ 13.0 10.0
Notes payable......... 1.2 1.5
----- ----
Total interest-bearing liabilities 82.8 82.0
----- ----
Non-interest-bearing:
- ---------------------
Non-interest-bearing deposits 9.4 9.9
Other liabilities..... 1.2 1.2
---- ----
Total non-interest-bearing liabilities 10.6 11.1
---- ----
Total liabilities...... 93.4 93.1
---- ----
MCDS AND STOCKHOLDERS' EQUITY:
Interest-bearing:
- -----------------
MCDs.................. 0.3 0.4
Preferred Stock....... 1.7 1.9
---- ----
Total interest-bearing capital 2.0 2.3
---- ----
Non-interest-bearing:
- ---------------------
Common stockholders' equity 4.6 4.6
---- ----
Total MCDs and stockholders' equity 6.6 6.9
---- -----
Total liabilities, MCDs and
stockholders'equity.... 100.0% 100.0%
------ ------
------ ------
Investments
Investments increased 25.9% to total $90,423,000 as of March 31, 1996, up from
$71,822,000 at fiscal year-end 1995. The portfolio was predominantly composed
of U.S. agency obligations, 86.5%, and U.S. Treasury notes, 9.0%. Further, of
the total portfolio, 21.2% matures (or is scheduled to mature) within a one-year
time frame and 63.7% is due between one year to five years from March 31, 1996.
Management's relatively conservative investment profile has resulted in the
weighted average yield on the portfolio averaging 5.78% for fiscal 1996 as
opposed to FSCM's Peer Group yield of 6.42% as of March 31, 1996.
In December 1995, securities with an amortized cost of $34,999,000 and an
unrealized gain of $95,000 were transferred from held-to-maturity to available-
for-sale in accordance with a one-time reassessment of securities classification
permitted under Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Such
decision was based on management's desire to enhance the liquidity and
flexibility of the investment portfolio with consideration also given to the
amendment in regulatory capital ratios which excluded from the computation any
unrealized gains or losses on available-for-sale investments.
During fiscal 1996, management invested approximately $18,099,000 in agency
mortgage backed securities and $2,327,000 in a bank-qualified local municipality
obligation. These investments had average lives of approximately five years and
were made to diversify the investment portfolio and improve yield.
The investment portfolio as of fiscal year-end 1995 contained $46,005,000 in
structured notes comprised of U.S. Agency securities with step-up rate and
callable provisions. During fiscal 1996, a majority of these issues were called
and thereby provided liquidity. Additionally, due to the interest rate
environment, management was able, for the most part, to reinvest the proceeds
from the called securities at higher yields than what had been earned. As of
March 31, 1996, only $8,977,440 remained outstanding in structured notes.
The following tables include details of investment securities and the
maturities, weighted average yields and carrying values of these securities as
of the dates indicated:
INVESTMENT SECURITY ANALYSIS
MARCH 31,
-----------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
- ---------------------- ----- ----- -----
HELD-TO-MATURITY:
U.S. Treasury ............. $6,033 $7,106 $---
U.S. Government Agencies .. 18,980 63,040 60,971
State and Political
Subdivisions ............ 2,326 --- ---
Other ..................... 1,776 1,676 763
------- ------ -------
Total ..................... $29,115 $71,822 $61,734
------- ------- -------
------- ------- -------
AVAILABLE-FOR-SALE:
U.S. Treasury ............. $2,074 $--- $10,078
U.S. Government Agencies .. 42,041 --- 8,000
Mortgage-backed Obligations
Of Federal Agencies ..... 17,193 -- --
------ ----- ------
Total ..................... $61,308 $ --- $18,078
------- ------ -------
------- ------ -------
<TABLE>
INVESTMENT SECURITY MATURITY ANALYSIS
<CAPTION>
MARCH 31, 1996
------------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
---------------- ----------------- ---------------- ----------------
(DOLLARS IN THOUSANDS) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD TOTAL
- ---------------------- ------ ----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $6,033 6.38% $2,074 5.93% $--- ---% $--- ---% $8,107
U.S. Government
agencies 10,971 4.50 46,049 5.88 4,001 5.73 --- --- 61,021
State and political
subdivisions --- --- 2,326 4.07 --- --- --- --- 2,326
Mortgage-backed
obligations of
federal agencies 2,165 6.17 7,083 6.17 5,961 6.17 1,984 6.17 17,193
Other investments 10 5.50 70 6.19 400 8.00 1,296 6.52 1,776
------ ----- ------ ----- ------ ----- ------ ----- -------
Total $19,179 5.28% $57,602 5.85% $10,362 6.07% $3,280 6.31% $90,423
------ ----- ------ ----- ------ ----- ------ ----- -------
------- ----- ------ ----- ------ ----- ------ ----- -------
</TABLE>
The weighted average yields are calculated on the basis of the carrying value
and effective yields weighted for the scheduled maturity of each security.
Loans and Direct Financing Leases
Although local competition for loan generation continues to intensify, TRIB, due
to its strong commitment to provide quality service to all segments of its
market area, was able to increase its loan penetration.
The $43,889,000, or 20.69%, net growth in loans and direct financing leases
between March 31, 1996 and 1995 was distributed throughout the loan portfolio
with the exception of direct financing leases. The $11,344,000 growth in
commercial loans and the $11,217,000 increase in commercial mortgage loans were
not concentrated in any specific area but portray TRIB's overall commitment, as
a community bank, to the continued expansion and development of the entire Quad
Cities market. The $9,440,000 growth experienced in the consumer loan portfolio
was primarily attributed to TRIB's introduction of an indirect loan program.
The $7,270,000 increase in the construction loan portfolio resulted primarily
from TRIB's commitment to provide innovative lending programs to those involved
in both residential and commercial real estate expansion and development. The
$5,762,000 increase in one-to-four family residential mortgage loans primarily
resulted from an in-house executive loan program and an increase in loans
pending sale on the secondary market. The $1,144,000 decrease between fiscal
1996 and 1995 in TRIB's direct financing lease portfolio resulted from scheduled
repayments which outpaced production due to TRIB's emphasis on a higher quality
market niche.
<TABLE>
LOANS AND LEASES DISTRIBUTION
<CAPTION>
MARCH 31,
---------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994 1993 1992
- ---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $85,578 $74,234 $59,818 $48,145 $42,754
Direct financing leases 5,719 6,863 16,218 21,827 3,712
Real estate:
Residential mortgage 64,248(1)<F22> 58,486(1)<F22> 46,754(1)<F22> 36,745(1)<F22> 25,558(1)<F22>
Construction 21,823 14,553 11,747 8,489 6,149
Commercial mortgage 62,746 51,529 40,116 37,360 37,578
Consumer 15,851(2)<F23> 6,411(2)<F23> 6,192(2)<F23> 6,071(2)<F23> 5,068(2)<F23>
--------- -------- -------- -------- --------
Total loans and leases $255,965 $212,076 $180,845 $158,637 $120,819
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
(1)<F22>For the fiscal years ended March 31, 1996, 1995, 1994, 1993 and 1992,
includes $18,820, $14,515, $13,868, $17,665 and $9,590, respectively, of first
mortgages pending conclusion of their sale to Freddie Mac, Fannie Mae and
IHDA; home equity lines of credit; home improvement loans; and consumer loans
for which junior liens were taken as primary and secondary sources of
security.
(2)<F23>Consumer loans, both direct and indirect, not secured by real estate
mortgages.
</TABLE>
LOANS AND LEASES MATURITY ANALYSIS
MARCH 31, 1996
-------------------------------------------------
AFTER ONE
ONE YEAR BUT WITHIN AFTER
(DOLLARS IN THOUSANDS) OR LESS FIVE YEARS(1)<F24>FIVE YEARS(1)<F24>TOTAL
- ---------------------- ------- ------------ ---------- -------
Commercial, financial
and agricultural $71,355 $14,218 $5 $85,578
Direct financing leases 2,248 3,452 19 5,719
Real estate:
Residential mortgage 16,609 36,250 11,389 64,248
Construction 18,285 3,538 --- 21,823
Commercial Mortgage 32,777 29,955 14 62,746
Consumer 1,303 12,069 2,479 15,851
-------- ------- ------- --------
Total loans and leases $142,577 $99,482 $13,906 $255,965
-------- ------- ------- --------
-------- ------- ------- --------
(1)<F24>The amount of loans and leases due after one year which had a
pre-determined interest rate was $109,300, and loans and leases which have
floating or adjustable interest rates were $4,088.
TRIB is an active originator of residential real estate mortgage loans sold on
the secondary market with the servicing rights retained. For fiscal 1996 and
1995, TRIB serviced portfolios totaling $165,003,000 and $155,657,000,
respectively.
TRIB's commercial and commercial real estate portfolios include loans to
businesses involved in a wide spectrum of activities with a preponderance in the
manufacturing, wholesale, retail, transportation, and hotel industries. Total
loans to any particular group of customers engaged in similar activities and
having similar economic characteristics did not exceed 10% of total loans and
leases as of March 31, 1996, which is in compliance with defined parameters for
concentrations of credit as established in TRIB's loan policy. As a result of a
majority of loans made within TRIB's market area, the loan portfolio has risk
due to the geographic concentration of loan distribution.
Under Section 4(c)(8) of the Holding Company Act, on March 14, 1996, FSCM was
granted authority to participate in the non-banking activity of making and
servicing loans pursuant to Section 225.25(b)(1) of Regulation Y of the Federal
Reserve Board. Management does not intend to actively generate loans but to use
such authority to primarily supplement TRIB's lending capabilities.
The Board of Directors of FSCM and TRIB continue to concentrate efforts and
resources to maintain satisfactory asset quality. In fiscal 1996, FSCM's
internal credit administration department performed continuous loan review
functions with in-depth financial analysis performed on specific larger, more
complex credit facilities. This department monitors documentation, collateral,
compliance with established loan and lease policies, and the internal loan and
lease watch list. With the assistance of FSCM's credit administration
department, TRIB's loan committee has been able to identify, evaluate, and
initiate corrective action for marginal loans in order to maintain satisfactory
asset quality. The credit administration department also provides input into
the methodology for maintaining an adequate allowance for possible loan and
lease losses. Combined, these components have been integral elements of FSCM's
and TRIB's loan and lease monitoring system that have resulted to date in
satisfactory loan and lease portfolio performance. Despite these critical
systems and controls, management continues to cautiously assess the risks
associated with the potential future impact of adverse changes in the overall
economic climate and more stringent regulatory standards and requirements.
Generally, interest on loans is accrued and credited to income based on the
outstanding principal balance. It is TRIB's policy to discontinue the accrual
of interest income on any loan when, in the opinion of management, there is
reasonable doubt as to the timely collectibility of interest and principal or to
comply with regulatory requirements. Nonaccrual loans are returned to an
accrual status when, in the opinion of management, the financial position of the
borrower indicates that there is no longer any reasonable doubt as to the timely
payment of principal and interest and only after all accrued and unpaid interest
has been brought current. The following table reflects TRIB's nonperforming
assets as of the dates indicated.
ASSET QUALITY
MARCH 31,
-----------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994 1993 1992
- --------------------- ---- ---- ---- ---- ----
Nonperforming loans and leases:
Nonaccrual loans and leases:
Commercial, financial
and agricultural $339 $1,076 $147 $956 $1,515
Direct financing leases 28 96 405 236 ---
Real estate:
Residential mortgage 388 419 258 107 258
Construction 51 --- --- --- ---
Commercial mortgage 427 1,020 848 658 580
Consumer 45 31 36 12 102
------ ----- ----- ----- -----
Total nonaccrual loans
and leases 1,278 2,642 1,694 1,969 2,455
Accruing loans and leases 90 days
or more past due 189 323 748 58 452
------ ----- ------ ----- -----
Total nonperforming
loans and leases 1,467 2,965 2,442 2,027 2,907
Other real estate owned 457 378 341 322 416
------ ------ ------ ------ ------
Total nonperforming assets $1,924 $3,343 $2,783 $2,349 $3,323
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Allowance for possible loan
and lease losses $4,463 $3,832 $3,744 $3,639 $2,759
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Allowance as a percentage of
nonperforming loans and leases 304.23% 129.24%153.32% 179.53% 94.91%
Allowance as a percentage of total
loans and leases 1.74 1.81 2.07 2.29 2.28
Nonperforming loans, leases and other
real estate owned as a percentage of
total loans, leases and other
real estate owned 0.75 1.57 1.54 1.48 2.74
Nonperforming loans and leases as a
percentage of total loans and leases 0.57 1.40 1.35 1.28 2.41
The $1,364,000 decline in nonaccrual loans and leases between fiscal year-ends
1996 and 1995 was primarily attributable to transactions in the commercial and
commercial mortgage loan portfolios. The commercial loan portfolio reflected a
$737,000 decrease in nonaccrual loans during fiscal 1996 resulting from the
collection of three large accounts aggregating approximately $498,000 and the
elimination through charges to the allowance for loan and lease losses of
approximately $251,000 related to loans to three former customers. The
commercial mortgage loan portfolio experienced a $593,000 decline in nonaccrual
loans from fiscal 1995 to 1996 which was the result of four customers that
encountered severe financial difficulties which forced TRIB to initiate
foreclosure on the real estate collateral. During one of these foreclosures,
the property was sold and the loan paid prior to TRIB obtaining title. During
two of the foreclosures, TRIB obtained title and disposed of the real property
during the year. In the fourth instance, TRIB continues to reflect the carrying
value of the property in other real estate owned as of March 31, 1996. However,
the balance in the other real estate owned account increased only $79,000
between fiscal 1996 and 1995 despite sizable transactions which occurred during
the year. Additionally, $397,000 of the $427,000 balance in nonaccrual
commercial mortgages related to one customer whose financial status deteriorated
during fiscal 1996 to such an extent as to warrant placing it in nonaccrual
status. The $134,000 decrease in accruing loans and leases 90 days and more
past due as of March 31, 1996 as compared to March 31, 1995 reflected one
commercial loan that was placed on nonaccrual during fiscal 1996 but had been
charged-off prior to March 31, 1996. FSCM's Peer Group's ratio of the allowance
to total loans and leases was 1.49% as of March 31, 1996, compared to 1.74% for
FSCM. The $1,498,000 overall decline in the total of nonperforming loans and
leases decreased the ratio of nonperforming loans and leases to total loans and
leases dramatically to 0.57% as of fiscal year-end 1996 from 1.40% as of fiscal
year-end 1995. As of March 31, 1996, FSCM's Peer Group ratio of nonperforming
loans and leases to total leases was 0.99%. The allowance for possible loan and
lease losses was increased to provide for potential future unknown losses;
however, the growth in the total loans and leases outstanding outpaced the
increases in the allowance for possible loan and lease losses, thereby resulting
in a seven basis point decline in the comparative ratio between these components
to 1.74% from 1.81% for fiscal year-ends 1996 and 1995, respectively.
Management has striven to maintain the allowance for possible loan and lease
losses at a conservative level to provide for the known and inherent risks in
the loan and lease portfolios. The allowance is based on a continuous review of
previous loan and lease loss experience, current economic conditions and the
underlying collateral value pledged to support the loans and leases. In this
regard, in the opinion of management, TRIB's allowance for loan and lease losses
is maintained at a satisfactory level. Loans and leases which are deemed
uncollectible are charged-off and deducted from the allowance. The provision
for possible loan and lease losses and recoveries are added to the allowance.
The $631,000 increase in the allowance for possible loan and lease losses
between fiscal year-ends 1996 and 1995 resulted from reduced net charge-offs
and was reflected in the increase in the unallocated reserve. Please refer to
the table on the following page. The following is a summary of activity
affecting the allowance for the periods indicated.
ANALYSIS OF THE ALLOWANCE FOR
POSSIBLE LOAN AND LEASE LOSSES
YEARS ENDED MARCH 31,
----------------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994 1993 1992
- ---------------------- ----- ----- ------ ------ -----
Balance at beginning of period $3,832 $3,744 $3,639 $2,759 $2,335
Charge-offs:
Commercial, financial and
agricultural 436 3,168 70 651 575
Direct financing leases 129 201 2,345 127 ---
Real estate:
Residential mortgage 420 258 94 119 9
Construction --- 47 --- --- ---
Commercial mortgage 882 638 4 653 131
Consumer 118 86 24 10 20
----- ----- ----- ----- -----
Total 1,985 4,398 2,537 1,560 735
----- ----- ----- ----- -----
Recoveries:
Commercial, financial and
agricultural 361 109 118 164 240
Direct financing leases 173 1,634 406 26 ---
Real estate:
Residential mortgage 105 113 36 32 8
Construction --- 47 --- --- ---
Commercial mortgage 28 48 108 16 5
Consumer 44 25 4 22 14
----- ------ ------ ----- -----
Total 711 1,976 672 260 267
----- ----- ----- ----- -----
Net charge-offs 1,274 2,422 1,865 1,300 468
Provision for possible loan and
lease losses 1,905 2,510 1,970 2,180 892
------ ------ ------ ------ ------
Balance at end of period $4,463 $3,832 $3,744 $3,639 $2,759
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of net charge-offs during the
year to average loans and leases
outstanding during the year 0.55% 1.27% 1.08% 0.92% 0.43%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Commercial loan charge-offs taken during fiscal 1996 included $375,000 resulting
from management's analysis of the substantial decline in the financial condition
of four customers whose loans had been on nonaccrual status and whose businesses
experienced rapid deterioration. Fiscal 1996 commercial mortgage loan charge-
offs included $566,000 related to two long-standing problem credits and $294,000
related to two customers whose businesses failed. In both of these instances
management chose an assertive course of action and realigned the carrying value
with liquidation-based appraised values. Collection of all these amounts are
being pursued to the fullest degree possible and management anticipates
substantial recoveries.
As previously discussed, based on internal procedures, any known troubled credit
as of March 31, 1996 had been specifically identified, regardless of whether
past due 90 days or more, or in nonaccrual status. Additionally, an overall
loan and lease portfolio analysis was performed based on historic loss
performance, local economic conditions and collateral value pledged to support
advances. As a result of these evaluations, the following allocation of the
allowance for possible loan and lease losses was made as of the dates indicated
(dollars in thousands):
<TABLE>
ALLOCATION OF THE ALLOWANCE FOR
POSSIBLE LOAN AND LEASE LOSSES
<CAPTION>
March 31, 1996 March 31, 1995 March 31, 1994 March 31, 1993 March 31, 1992
---------------- -------------- ------------- -------------- --------------
% of % of % of % of % of
Loans Loans Loans Loans Loans
and and and and and
Leases Leases Leases Leases Leases
to Total to Total to Total to Total to Total
Balance at end of Loans Loans Loans Loans Loans
period and and and and and
applicable to: Amount Leases Amount Leases Amount Leases Amount Leases Amount Leases
- ----------------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $1,720 33.4% $1,533 35.0% $1,443 33.1% $1,875 30.3% $1,704 35.4%
Direct financing
leases 115 2.3 126 3.2 641 9.0 393 13.8 111 3.1
Real estate:
Residential
mortgage 499 25.1 425 27.6 117 25.9 106 23.2 73 21.1
Construction 238 8.5 164 6.9 26 6.5 25 5.4 85 5.1
Commercial
mortgage 794 24.5 1,342 24.3 1,118 22.1 1,029 23.5 637 31.1
Consumer 359 6.2 71 3.0 293 3.4 211 3.8 149 4.2
Unallocated 738 N/A 171 N/A 106 N/A --- N/A --- N/A
----- ------ ----- ------ ----- ------ ----- ------ ----- ------
Total $4,463 100.0% $3,832 100.0% $3,744 100.0% $3,639 100.0% $2,759 100.0%
----- ------ ----- ------ ----- ------ ----- ------ ----- ------
----- ------ ----- ------ ----- ------ ----- ------ ----- ------
</TABLE>
Premises, Furniture and Equipment
Premises, furniture and equipment (fixed assets) totaled $5,953,000 and
$3,623,000 as of March 31, 1996 and 1995. The 66.7% increase was comprised of
$3,400,000 in additional fixed asset investments net of $1,000,000 in
depreciation expense.
In September 1995, in conjunction with changing to a National Association, TRIB
purchased an office location in Bettendorf, Iowa for $709,000. The purchase
consisted of land, building and miscellaneous equipment. An additional $148,000
was invested to remodel and $340,000 to furnish and equip the office which
opened for business November 1, 1995.
Construction of an enlarged office, encompassing two adjoining residential
properties TRIB acquired in fiscal 1994, at the 18th Avenue ("Hilltop") location
in Rock Island, Illinois, was completed and operations were transferred from the
temporary office to the new facility on November 29, 1995. Approximately
$1,000,000 was invested in the construction project and an additional $436,000
was invested to furnish and equip the office.
A new computer support system for item processing was installed during the
fourth quarter of fiscal 1996 replacing 14-year old equipment. Also purchased
was new laser-printing equipment to enhance the appearance and readability of
the report output, including customer statements. The platform system
supporting teller operations was updated to provide increased capabilities and
enhance the work flow. TRIB's existing local area network ("LAN"), which links
the personal computer workstations and provides access to TRIB's mainframe
system, was supplemented with office LAN installations and interconnected into
the primary system by means of a wide area network ("WAN").
The office expansion into both East Moline and Bettendorf, and the construction
of the enlarged Hilltop office in Rock Island, should provide better access to
the retail markets and thereby enhance TRIB's overall market presence. The
installation of new equipment and technological upgrades will enhance
productivity and customer convenience. Although the considerable fixed asset
investments in fiscal 1996 should reduce the amount of interest-earning assets
and increase operating expenses through additional facility expense allocations,
it is anticipated that the reinvestment of the additional funds garnered through
the expanded office sites will gradually offset the short-term negative impact
on earnings.
TRIB's 42nd Avenue, East Moline office commenced operations in February 1995 out
of a temporary office established at the location. Construction of a permanent
office at the site, which was acquired in fiscal 1994, has been temporarily
deferred.
In fiscal 1995, FSCM's total investment in fixed assets included approximately
$258,000 for land purchases, $231,000 for building improvements and $279,000 for
equipment and furniture acquisitions.
It is anticipated that in fiscal 1997, fixed asset investments could include
approximately $200,000 in current premises investments and $800,000 for updated
computer technology.
Deposits, Securities Sold Under Agreements to Repurchase, and Other Short-Term
Borrowings
Deposits, securities sold under agreements to repurchase ("repurchase
agreements") and other short-term borrowings totaled $301,818,000, $48,846,000
and $1,500,000, respectively, as of March 31, 1996. These balances compare to
$271,611,000, $33,371,000 and $366,000, respectively, as of the previous fiscal
year end.
The $30,207,000 increase in deposits, or 11.12%, centered in time deposit
products. This growth consisted primarily of local non-institutional funds
generated by targeted marketing campaigns. The growth in repurchase agreements
was divided amongst daily agreements primarily utilized by corporate customers
for cash management, $4,353,000; customer term agreements, $4,583,000; and term
agreements with the State of Illinois, $6,500,000. The short-term borrowings
were totally comprised of treasury, tax and loan deposits at both fiscal year
ends.
TRIB does not actively seek or heavily rely on large deposit accounts over
$100,000. As of fiscal year-end 1996 and 1995, these types of deposits
comprised only 6.45% and 6.27%, respectively, of total assets as compared to the
Peer Group ratio of 8.77% as of March 31, 1996. Maturity distributions of time
certificates of deposit in denominations of $100,000 or more as of March 31,
1996 were as follows (dollars in thousands):
$100,000 AND MORE TIME DEPOSITS
MARCH 31,
TIME TO MATURITY 1996
- ---------------- --------
3 months through 6 months........................ $4,181
Over 3 months through 6 months................... 9,706
Over 6 months through 12 months.................. 6,359
Over 12 months................................... 4,703
-------
Total............................................ $24,949
-------
-------
Short-term borrowings include repurchase agreements and other short-term
borrowing arrangements. The obligations to repurchase securities sold were
reflected as a liability in the consolidated balance sheets; the investments
securing the repurchase agreements remained classified as an asset under
investments. Included in repurchase agreements as of fiscal year-end 1996 and
1995 were funds received from the State of Illinois totaling $18,455,000 and
$11,955,000, respectively. Other short-term borrowings generally include
federal funds purchased, which are overnight transactions; interest-bearing
notes due to the U.S. Treasury, which are generally called within several days;
and any advance from the Federal Home Loan Bank ("FHLB"), which would be less
than one year in term.
During fiscal 1996, TRIB utilized its membership in the FHLB, which required a
stock investment, to obtain a short-term fixed rate $1,000,000 advance which
expired prior to fiscal year-end. Borrowings from the FHLB are on a secured
basis, collateralized by pledges of either the FHLB stock or the one-to-four
family residential real estate first lien mortgage portfolio, or both. As of
fiscal year-end 1996, approximately $37,705,000 could have been obtained by
means of FHLB advances.
FSCM considers short-term borrowings a reliable funding alternative which were
primarily comprised of managed corporate accounts and public funds. Balance and
rate information is reflected in the following table:
SHORT-TERM BORROWINGS
MARCH 31, MARCH 31, MARCH 31,
(DOLLARS IN THOUSANDS) 1996 1995 1994
- ---------------------- --------- --------- ---------
Balance outstanding at fiscal year-end $50,346 $33,737 $24,128
Maximum month-end balance 62,128 38,143 27,024
Average balance for the year 44,528 25,932 22,013
Weighted average interest rate for the
year 5.51% 4.48% 3.42%
Weighted average interest rate at
year-end 5.29 5.85 3.57
1992 Notes Payable
As of March 31, 1996, and 1995, FSCM had $4,500,000 and $5,000,000,
respectively, in outstanding 1992 Notes, which bear interest at an 8.50% per
annum rate and are due December 1, 1999. A $500,000 mandatory redemption
payment was made or must be made on each of December 1, 1995 through 1998
(inclusive) until December 1, 1999, when the remaining $3,000,000 is due. FSCM
also has a $10,000,000 unrestricted line of credit available from a
correspondent bank, none of which was in use as of March 31, 1996. See Note 8
of the Notes to Consolidated Financial Statements for information regarding
covenants of the 1992 Notes and correspondent bank line.
Mandatory Convertible Debentures
A total of $1,250,000 of mandatory convertible debentures ("MCDs") were issued
in March and April 1989. The MCDs bear interest at a rate of 1/2% below the
reference rate of a correspondent bank. The correspondent bank's reference rate
was 8.25% at March 31, 1996; therefore, as of that date, the MCDs' interest rate
equaled 7.75%. The interest is payable quarterly on March 31, June 30,
September 30, and December 31. The MCDs are held by directors and a former
director of FSCM and his wife. Subject to a 90-day notice and obtaining any
regulatory approvals or legal opinions necessary, the MCDs are convertible at
any time on or prior to March 31, 2001 at the option of the holders into a
number of shares of FSCM's Common Stock determined by dividing the principal
amount of the MCDs by a purchase price equal to $25 per share, as adjusted for
any stock splits, stock dividends or other similar occurrences. The MCDs are
subordinate to all senior indebtedness of FSCM, except that only $750,000 of the
MCDs is subordinate to the 1992 Notes.
Stockholders' Equity
Consistent with strategic objectives and goals, FSCM maintains a strong capital
base which provides a solid foundation for anticipated future asset growth and
promotes depositor and investor confidence. Capital management is a continuous
process to ensure that capital is provided for current needs and anticipated
growth. FSCM's strong capital position has enabled it to profitably expand its
asset and deposit bases while maintaining capital ratios at levels comparable to
that of other quality banking organizations and in excess of regulatory
standards.
Stockholders' equity totaled $24,287,000 and $21,961,000 as of March 31, 1996
and 1995, respectively. Net income totaled $3,553,000 in fiscal 1996 as opposed
to $3,068,000 in fiscal 1995, a 15.81% increase. In March 1996, FSCM sold 1,500
shares of Common Stock from Treasury Stock to the 401(k) defined contribution
retirement plan sponsored by TRIB. The $67.50 sales price was based on an
independent stock appraisal's average per share fair market value for
transactions involving small stock block sizes. Dividends declared during
fiscal 1996 totaled $308,000 for Common Stock, consisting of $0.38 per share for
the first two quarters and $0.50 per share for the last two quarters of fiscal
1996, and $598,000 for Preferred Stock. Additionally, included in stockholders'
equity was $422,000 of net unrealized losses on available-for-sale securities,
net of taxes. Combined, these components resulted in a net change in equity of
$2,326,000, or 10.59%.
FSCM's capital position, as detailed in its capital ratios, exceeds the
regulatory capital minimums established for well-capitalized financial
institutions. The table below details the components and percentages of FSCM's
regulatory risk weighted capital ratios as of the indicated dates.
CAPITAL RATIOS
MARCH 31, MARCH 31, REGULATORY REQUIREMENTS
--------------------------
(DOLLARS IN THOUSANDS) 1996 1995 MINIMUM WELL CAPITALIZED
- ---------------------- ------- ------- ------- ----------------
Stockholders' equity..... $24,287 $21,961
Preferred Stock
limitation(1)<F27> --- (706)
Unrealized loss on available-
for-sale securities,
net of taxes......... 422 ---
Intangible assets........ (140) (193)
------ ------
Tier 1 capital...... 24,569 21,062
Supplementary capital.... 7,387 8,794
------- ------
Total capital....... $31,956 $29,856
------- -------
------- -------
Total adjusted average
assets................. $359,486 $310,820
-------- --------
-------- --------
Risk weighted assets..... $273,981 $227,040
-------- --------
-------- --------
Tier 1 capital........... 8.97% 9.28% 4.00% 6.00%
Total capital............ 11.66 13.15 8.00 10.00
Leverage ratio........... 6.83 6.78 3.00 5.00
(1)<F27>Cumulative Preferred Stock is limited to 25% of the total of Tier 1
capital; any excess qualifies as supplementary capital.
The growth in capital has eliminated the Preferred Stock deduction from the Tier
1 capital components. Tier 1 capital and total capital increased 16.65% and
7.03% between March 31, 1996 and 1995, respectively. Total adjusted average
assets and risk weighted assets increased 15.66% and 20.68% for the respective
fiscal year-ends. As a result of the growth in risk weighted assets, both the
Tier 1 and total capital ratios decreased. However, due to the lower growth
rate of adjusted average assets and the increase in allowable Preferred Stock in
Tier 1 capital, the leverage ratio experienced a slight increase between years.
FUTURE OUTLOOK
The banking industry has experienced major change over the past several years
and will face significant challenges in the years to come. With the ease in
interstate banking regulations, competition between local banks and large
regional banks have intensified, resulting in a tightening of interest margins
due to the economies of scale regional banks are able to employ. Competition
for financial products has intensified as more funds have been diverted away
from financial institutions and into money fund investments. Recently, the
total investment in money funds reached a level that exceeded the total amount
of deposits in banks. The ability of community banks to compete as equals with
both regional banks and nonbank entities for financial products is essential.
Local banks must focus on cost control and develop strong reputations for niche
lending in their communities. Legislation must be proactive as not to restrict
product development or create competitive disadvantages.
Currently, due to banks having essentially prepaid the FDIC insurance premiums
to fully finance the Bank Insurance Fund, banks pay a minimal insurance premium.
However, the Savings Insurance Fund has not yet attained the Congressional
mandated level; therefore, the savings and loan associations' premium rate has
not been reduced. Much publicity has been associated with this dichotomy in
premium rates. Should Congress pass legislation requiring banks to aid in the
"fix" of the savings and loan industry, earnings will be adversely impacted.
The distribution and delivery of banking services has taken a significant step
into the twenty-first century. Rather than the customer coming to the
traditional bank offices, banks are now coming to the customers. The number of
banking outlets in large retail stores are expanding at tremendous rates.
Additionally, the advancement in computer technology and the explosion in the
number of home personal computers has resulted in the advent of electronic home
banking via the Internet.
The banking environment is undergoing drastic change. In order to stay
competitive and survive in the future, banks must be able to provide the same
products and financial services as other bank and non-bank entities, adapt to
the rapidly changing technology, and readily meet the customers' future demands.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of
a financial institution are monetary in nature. As a result, interest rates
have more impact on a financial institution's performance than the effect of
general levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services. The
liquidity and the maturity structure of FSCM's assets and liabilities are
important to the maintenance of acceptable performance levels.
IMPACT OF RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of"; SFAS No. 122, "Accounting for Mortgage
Servicing Rights"; and SFAS No. 123, "Accounting for Stock-Based Compensation,"
all become effective for FSCM beginning after March 31, 1996. SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities," becomes effective for transactions after December 31, 1996.
SFAS No. 121 generally requires an estimation of future cash flows to identify
asset impairment, and SFAS No. 122 attempts to standardize the accounting
treatment of originated mortgage servicing rights to those purchased, if it is
practicable to separately estimate the fair values of the loan and servicing
rights. SFAS No. 125 supersedes SFAS No. 122 for transactions after
December 31, 1996. SFAS No. 125 uses a financial components approach wherein if
a financial asset is transferred and control is surrendered, it would be
considered sold. Management believes that adoption of these statements will not
have a material effect on the financial statements.
SFAS No. 123 defines a fair value based method of accounting for employee stock
option plans. However, SFAS No. 123 allows an entity to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Entities electing to use the method of accounting specified in APB Opinion 25
must make pro forma disclosures of net income and earnings per share as if the
fair value method of accounting defined in SFAS No. 123 had been applied. FSCM
plans to measure compensation cost using APB Opinion 25; therefore, the adoption
of SFAS No. 123 will not have any impact on FSCM's financial condition or
results of operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This Prospectus contains forward-looking information, and actual results may
differ materially from such information. Factors that may cause actual results
to differ materially from the forward-looking information contained herein
include the policies of the Board of Governors of the Federal Reserve System
regarding interest rates and other economic factors, the accuracy of
management's estimates of the provisions for loan and lease losses, competition,
regulatory changes and conditions, and general and regional economic conditions.
BUSINESS
GENERAL
FSCM is a bank holding company incorporated in 1973 under Delaware law and
registered under the Holding Company Act. FSCM's principal place of business
is located at 224-18th Street, Suite 202, Rock Island, Illinois. In 1974, FSCM
acquired all of the outstanding shares of TRIB, which was then an Illinois
chartered state commercial bank serving both the Iowa and Illinois Quad Cities'
communities. On November 1, 1995, TRIB became a national banking association
known as THE Rock Island Bank, National Association, and relocated its official
office from Rock Island, Illinois to Bettendorf, Iowa. TRIB is a member of the
Federal Reserve System and its deposits are insured by the FDIC.
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
FSCM's investment in TRIB represented 89.29% of FSCM's parent company only total
assets of $32,034,000 as of June 30, 1996, and FSCM's 1992 Notes constituted
59.65% of FSCM's liabilities as of said date.
FSCM's primary sources of cash flows are derived from dividend and tax payments
from TRIB. The amount of dividends or other funds paid to FSCM by TRIB is
restricted by certain regulatory provisions. Income taxes are computed on a
separate company basis, and tax payments are paid to FSCM by subsidiaries in
accordance with an intercompany tax allocation agreement.
FSCM is a one-bank holding company registered under the Holding Company Act,
and, as such, it is subject to supervision by the Federal Reserve Board.
Regulated areas with which FSCM must comply include, but are not limited to,
obtaining approval before any acquisition, obtaining approval prior to any
change in control, restrictions on the types of financial activities FSCM may
engage in, maintenance of prescribed capital adequacy standards, prohibitions of
certain related transactions, completion of various prescribed reports, and
submission to periodic examinations. See "Supervision and Regulation."
THE ROCK ISLAND BANK, NATIONAL ASSOCIATION
TRIB's trade area includes portions of Rock Island County and Henry County in
Illinois and Scott County in Iowa, which include the Quad Cities metropolitan
area, encompassing the municipalities of Davenport and Bettendorf, Iowa; and
Rock Island, Moline, East Moline, Milan, Silvis, Colona and Green Rock,
Illinois. The total population of TRIB's trade area in 1995 was approximately
306,500. TRIB provides a wide variety of full-service commercial banking
products. These products are offered to individuals, service businesses,
industries, governmental units, financial institutions and other entities.
Locations at which these products may be obtained include TRIB's official office
located in Bettendorf, Iowa, its principal place of business in Rock Island,
Illinois, four other offices (three of which have extended hours), and its five
on-premise and one off-premise automatic teller machines ("ATMs"). The retail
banking services TRIB offers include accepting demand, savings and time deposits
in the forms of regular checking accounts, NOW accounts, money market accounts,
passbook savings, statement savings, certificates of deposit and club accounts.
Deposit customers are eligible for ATM cards and Visa debit cards, which provide
convenient access through the six TRIB-owned ATMs as well as devices established
by other financial institutions that participate in the Illinois Transfer
System, an electronic funds transfer corporation, and CIRRUS, an international
electronic transaction interchange. Additionally, TRIB makes secured and
unsecured commercial, construction, mortgage and consumer loans and equipment
leases and provides a variety of trust services, including administration of
estates, personal trust and employee benefit programs.
TRIB is subject to regulation and supervision, as a national bank, by the OCC
and, as a member of the Federal Reserve System, by the Federal Reserve Board.
Because TRIB's deposits are insured up to the applicable limit (currently
$100,000) by the FDIC, TRIB is also subject to regulation by the FDIC. Iowa and
Illinois usury laws impose certain interest rate and fee restrictions on TRIB.
See "Supervision and Regulation."
MONETARY POLICIES AND ECONOMIC CONDITIONS
The monetary policies of regulatory authorities, including the Federal Reserve
Board, have a significant effect on the operating results of bank holding
companies and their subsidiary banks, including FSCM and TRIB. The Federal
Reserve Board regulates the national supply of bank credit. Among the means
available to the Federal Reserve Board to regulate such supply are open market
operations in U.S. government securities, changes in the discount rate on
depository institution borrowings, and changes in reserve requirements against
depository institution deposits. These means are used in varying combinations
to influence the growth and distribution of bank loans, investments, and
deposits, and their use may affect interest rates charged on loans or paid for
deposits.
The laws and regulations to which FSCM and TRIB are subject are constantly under
review by Congress, regulatory agencies and state legislatures. These laws and
regulations may be changed dramatically in the future, which could affect the
ability of bank holding companies to engage in certain activities such as
nationwide banking, securities underwriting and insurance, as well as the amount
of capital that banks and bank holding companies must maintain, premiums paid
for deposit insurance and other matters directly affecting earnings. It is not
certain which changes will occur, if any, or the effect such changes will have
on the profitability of FSCM and TRIB, their ability to compete effectively, or
the composition of the financial services industry.
The banking industry also is affected by general economic conditions, such as
inflation, recession, unemployment and other factors. In addition, the
business of FSCM and TRIB could be affected by the economic conditions of the
industries in which the major employers in the Quad Cities metropolitan area are
involved, including John Deere & Co., the federal Rock Island Arsenal, Genesis
Medical Center and Alcoa. For example, a downturn in the farm equipment
industry may adversely affect John Deere & Co., causing layoffs, worker
relocations, reduced purchasing from local supply vendors, and other events that
could adversely affect FSCM and TRIB. As a further example, cutbacks in defense
industry spending could adversely affect employment at the federal Rock Island
Arsenal, the economy in the Quad Cities area, and thus FSCM and TRIB.
The foregoing references to applicable laws, statutes, regulations and
legislation are brief summaries thereof which do not purport to be complete and
are qualified in their entirety by reference to such statutes, regulations and
legislation.
EMPLOYEES
As of June 30, 1996, FSCM's and TRIB's combined total number of employees was
193, of which 181 were considered to be full-time equivalent employees.
Management considers its relations with employees to be good.
PROPERTIES
TRIB's official office was moved on November 1, 1995 to a one-story structure
acquired in September 1995 located at 3120 Middle Road, Bettendorf, Iowa. The
7,711 square foot office was remodeled and furnished prior to its opening date
and is presently staffed by approximately 17 full and part-time retail deposit
and loan personnel.
The downtown Rock Island, Illinois office, which was retained as a principal
office when the official office moved to Bettendorf, Iowa, is a six-story
structure owned by TRIB and located at the northwest corner of Third Avenue and
18th Street, Rock Island, Illinois. In May 1992, TRIB purchased the building
adjoining the downtown office to the north on 18th Street. The acquired two-
story building was subsequently remodeled and annexed to TRIB's downtown office
structure. In total, TRIB occupies approximately 29,500 square feet of office
space in the expanded downtown office (excluding basement storage), while FSCM
occupies approximately 800 square feet of space. The remaining space of 17,750
square feet is available for rental to other occupants and was fully leased as
of June 30, 1996 to four tenants.
TRIB also owns and operates four other offices: in Rock Island, Flatiron Square
is located within the city's business district at 1606-5th Avenue and Hilltop is
conveniently located near residential areas at 3411-18th Avenue; in East Moline,
the office is located on a business corridor with nearby residential areas at
680-42nd Avenue. All of these offices have walk-in lobby and drive-up access.
The Flatiron Square office contains approximately 2,230 square feet of space.
During fiscal 1996, a new 5,450 square foot one-story structure was constructed
at the Hilltop office site. The East Moline office is currently operating out
of a temporary facility. Additionally, TRIB occupies approximately 320 square
feet of office space at the Friendship Manor, a life care retirement home
located at 1209-21st Avenue, Rock Island. This office is open during limited
hours two days per week and provides depository services primarily to residents
and employees of Friendship Manor.
TRIB is currently limited to a total investment of $5,000,000 in land and net
premises that can be acquired before approval from the OCC is necessary.
Approval was requested and received to invest up to $6 million in land and net
premises. As of June 30, 1996, TRIB had $4,182,000 invested in land and net
premises. In addition, covenants of the correspondent bank loan agreement and
the 1992 Notes impose further limitations. As of June 30, 1996, FSCM and TRIB's
net fixed asset investments were restricted to an amount not to exceed 3% of
consolidated assets or approximately an additional $5,874,000.
FSCM's management believes that upon construction of a permanent structure at
the East Moline, Illinois site, the existing premises will be adequate to serve
their respective locations.
LEGAL PROCEEDINGS
FSCM is not engaged in any legal actions or proceedings, and management knows of
no pending or threatened legal actions or proceedings involving FSCM. TRIB is
involved in legal actions in various stages of litigation and investigation.
After reviewing all actions pending or threatened involving TRIB, management
believes that such legal actions constitute ordinary routine litigation
incidental to TRIB's business and that the ultimate resolution of these matters
should not materially affect FSCM's consolidated financial position or
operations or that such legal actions otherwise are not material.
SUPERVISION AND REGULATION
The following discussion of applicable statutes, regulations and policies are
brief summaries thereof, do not purport to be complete and are qualified in
their entirety by reference to such statutes, regulations and policies.
REGULATION OF FSCM
FSCM is a one-bank holding company registered under the Holding Company Act and,
as such, is subject to supervision by the Federal Reserve Board.
APPROVAL OF ACQUISITIONS
FSCM must obtain the approval of the Federal Reserve Board prior to consummating
the following: the acquisition of all or substantially all of the assets of a
bank or another bank holding company; the merger or consolidation with another
bank holding company; or the direct or indirect acquisition of ownership or
control of any voting shares of a bank or a bank holding company if, after such
acquisition, FSCM would own or control more than 5% of such voting shares
(unless it already owns or controls the majority of such shares). In addition,
the direct or indirect acquisition by a bank holding company of more than 5% of
the voting shares, or all or substantially all of the assets, of a bank located
in another state requires approval by the Federal Reserve Board. Although such
approval may generally be granted without regard to any contrary laws of the
second state, certain additional state or federal restrictions on interstate
banking may apply. See "Supervision and Regulation -- Interstate Banking."
FSCM must also obtain Federal Reserve Board approval prior to redeeming any of
its equity securities in an amount equal to 10% or more of its net worth in any
12-month period. Furthermore, under certain circumstances, any redemptions,
dividends or distributions with respect to FSCM's equity securities may be
considered an unsafe or unsound practice by the Federal Reserve Board.
APPROVAL OF CHANGES IN CONTROL
Before any "company," as defined in the Holding Company Act, may acquire
"control," as defined in the Holding Company Act, over FSCM, the prior approval
of the Federal Reserve Board is generally required. The term "company" is
defined in the Holding Company Act to include any bank, corporation, general or
limited partnership, association or similar organization, business trust or any
other trust (unless by its terms, the trust must terminate either within 25
years or within 21 years and ten months after the death of individuals living on
the effective date of the trust). The term "control" is defined in the Holding
Company Act to include the following: ownership, control, or power to vote 25%
or more of the outstanding shares of any class of voting stock of a bank or
other company, directly or indirectly or acting through one or more persons;
control in any manner over the election of a majority of the directors,
trustees, or general partners (or individuals exercising similar functions) of
the bank or other company; the power to exercise, directly or indirectly, a
controlling influence over the management of policies of the bank or other
company as determined by the Federal Reserve Board; or conditioning in any
manner the transfer of 25% or more of the outstanding shares of any class of
voting securities of a bank or other company upon the transfer of 25% or more of
the outstanding shares of any class of voting securities of another bank or
other company. In addition, before any individual or entity which is not
required to seek prior approval from the Federal Reserve Board as set forth
above may acquire control of FSCM, prior notice to the Federal Reserve Board is
required pursuant to Section 225.41 of Regulation Y of the Federal Reserve
Board.
Under Section 225.41 of Regulation Y, the following transactions constitute, or
are presumed to constitute, the acquisition of "control" requiring prior notice:
(1) the acquisition of any voting securities of a bank holding company if, after
the transactions, the acquiring person (or persons acting in concert) owns,
controls, or holds with the power to vote 25% or more of any class of voting
securities of the institution; or (2) the acquisition of any voting securities
of a bank holding company if, after the transaction, the acquiring person (or
persons acting in concert) owns, controls, or holds with the power to vote 10%
or more (but less than 25%) of any class of voting securities of the
institution, and if: (i) the institution has registered securities under
Section 12 of the Securities Exchange Act of 1934 ("Exchange Act"), or (ii) no
other person will own a greater percentage of that class of voting securities
immediately after the transaction. FSCM's Class A Preferred Stock is registered
under the Exchange Act.
PERMISSIBILITY OF OTHER FINANCIAL ACTIVITIES
Under the Holding Company Act, FSCM is clearly permitted, directly or through
subsidiaries, to engage in a variety of financial activities (and to own shares
of companies engaged in certain activities) found by the Federal Reserve Board
to be so closely related to banking or managing or controlling banks as to be a
proper incident thereto. A bank holding company is normally not permitted,
however, to acquire direct or indirect ownership of more than 5% of the voting
shares of any company which is not a bank or is engaged in activities determined
by the Federal Reserve Board to not be closely related to banking. Certain
exemptions are available with respect to subsidiaries engaged in servicing and
liquidating activities, companies acquired by a bank holding company in
satisfaction of debts previously contracted, or companies engaged in certain
insurance activities.
Another principal exception to the general prohibition against more than 5%
ownership of subsidiaries engaged in nonbanking activities allows the
acquisition, sometimes subject to an application or notice process, of interests
in companies whose activities are found by the Federal Reserve Board, by order
or regulation, to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. Some of the activities that have been
previously determined by regulation to be closely related to banking are making
or servicing loans; trust company functions; insurance agency activities and
insurance underwriting; limited leasing activities; community development;
performing certain data processing services; providing management consulting
services to depository institutions; acting as an investment or financial
advisor; and providing securities brokerage services. Other activities approved
by the Federal Reserve Board include consumer financial counseling; futures and
options advisory services; check guaranty services; collection agency and credit
bureau services; and real and personal property appraisals.
In determining whether a particular activity is a proper incident to banking or
managing or controlling banks, the Federal Reserve Board considers whether the
performance of such activity by an affiliate of the holding company can
reasonably be expected to produce benefits to the public, such as greater
convenience, increased competition, or gains in efficiency, which outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest, or unsound banking practices. The
Federal Reserve Board also differentiates between activities commenced de novo
and activities commenced through the acquisition of a going concern and is
empowered to presume that expansion of a nonbanking activity de novo results in
benefits to the public through increased competition.
PROHIBITIONS OF CERTAIN RELATED TRANSACTIONS
FSCM and TRIB are prohibited from engaging in certain tie-in arrangements in
connection with the extension of credit, the lease or sale of any property, or
the furnishing of services. TRIB is also subject to certain restrictions
imposed by the Federal Reserve Act on extensions of credit to, investments in
the stock or other securities of, the taking of such stocks or securities as
collateral for loans to, or the purchase of assets from or the guarantee of
obligations of, FSCM or any of its subsidiaries. The provisions of Section 23A
of the Federal Reserve Act and related statutes place limits on all insured
banks (including TRIB) as to the amount of loans or extensions of credit to, or
investments in, or certain other transactions with, their parent bank holding
company and certain of such holding company's other subsidiaries and as to the
amount of advances to third parties collateralized by the securities or
obligations of bank holding companies or their subsidiaries. In addition, most
of these loans and certain other transactions must be secured in prescribed
amounts. Certain exemptions from the foregoing restrictions apply to
transactions between 80% or more owned bank subsidiaries of the same bank
holding company. FSCM owns all of the stock of TRIB.
CAPITAL ADEQUACY STANDARDS
Each federal banking regulatory agency, including the Federal Reserve Board, is
required to cause banking institutions to achieve and maintain adequate capital
by establishing minimum levels of capital and other appropriate measures. The
Federal Reserve Board has issued capital adequacy guidelines, which are
applicable to FSCM and which affect its ability to pay dividends. These
guidelines provide for a minimum ratio of qualifying total capital to weighted-
risk assets of 8.00%, of which at least 4.00% should be in the form of Tier 1
capital. These guidelines and regulations further provide that capital adequacy
is to be considered on a case-by-case basis in view of various qualitative
factors that affect a bank or bank holding company's overall financial
condition.
For purposes of calculating these ratios, an institution's "qualifying total
capital" primarily consists of Tier 1 and Tier 2 capital. Tier 1 capital ("core
capital elements") generally consists of the sum of common stockholders' equity,
qualifying non-cumulative perpetual preferred stock (including related surplus),
qualifying cumulative perpetual preferred stock (including related surplus and
subject to certain limitations), and minority interests in consolidated
subsidiaries, minus goodwill and certain other intangible assets (except certain
mortgage servicing rights and limited purchased credit card relationships).
Tier 2 capital ("supplementary capital elements") includes the allowance for
loan and lease losses; perpetual preferred stock and related surplus; hybrid
capital investments, perpetual debt and mandatory convertible debt securities;
and term subordinated debt and intermediate term preferred stock, including
related surplus. The Federal Reserve Board's capital adequacy guidelines also
permit certain perpetual debt securities to be treated as primary capital and
impose certain limitations on the amount of mandatory convertible instruments,
perpetual preferred stock, and perpetual debt that may qualify as primary
capital. Therefore, subject to definition and limitation under applicable rules
and regulations, "qualifying total capital" consists of the sum of Tier 1 and
qualifying Tier 2 capital elements (limited to 100% of Tier 1 capital), less
certain investments in banking or finance subsidiaries that are not consolidated
for accounting or supervisory purposes, reciprocal holdings of banking
organizations' capital securities, or other items at the direction of the
Federal Reserve Board.
FSCM's capital is in excess of the Federal Reserve Board's minimum standards.
See "Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operation -- Financial Condition -- Capital Resources." In
addition, the Federal Reserve Board has issued a policy statement that
discourages bank holding companies experiencing earnings weaknesses, inadequate
capital, or other serious problems from paying dividends that are not covered by
earnings or are derived from borrowed funds or unusual or nonrecurring gains.
Bank holding companies also are expected to maintain adequate capital to meet
financial obligations as they come due and to serve as a financial resource to
their subsidiaries. Capital directives, including cease and desist orders,
formal agreements, memoranda of understanding, and board of director
resolutions, may be issued to mandate the maintenance of adequate capital
levels.
ENFORCEMENT POWERS OF FEDERAL RESERVE BOARD
The Federal Reserve Board has enforcement powers over bank holding companies and
their nonbanking subsidiaries to forestall activities that represent unsafe or
unsound practices or constitute violations of law. These powers may be
exercised through the issuance of cease and desist orders or other actions. The
Federal Reserve Board is also empowered to assess civil penalties against
companies or individuals who violate the Holding Company Act in amounts of up to
$1,000,000 for each day's violation, to order termination of nonbanking
activities of nonbanking subsidiaries of bank holding companies, and to order
termination of ownership and control of nonbanking subsidiaries by bank holding
companies.
REGULATION OF TRIB
As a national banking association, TRIB is subject to primary regulation by the
OCC. All national banks are also members of the Federal Reserve System and, to
a limited extent, some regulations promulgated by the Federal Reserve Board
apply to TRIB. In addition, because the deposits of TRIB are insured up to the
applicable limit (currently $100,000) by the FDIC, the FDIC has certain
regulatory powers with respect to TRIB.
REGULATION BY THE OCC
The OCC issues charters, regulations, conducts examinations, and generally
supervises the operation of national banks. This supervision extends to a
comprehensive regulatory scheme governing, among other things, capital
requirements, lending limits, transactions between affiliates, and the safety
and soundness of TRIB's activities in general. In addition, the consent of the
OCC generally would be required for any major corporate reorganization involving
TRIB, including a merger or significant purchase or disposition of assets. Any
national bank which does not operate in accordance with or conform to
regulations, policies and directives may be sanctioned for non-compliance. For
example, proceedings may be instituted against any member institution or any
director, officer, employee or person participating in the conduct or affairs of
such institution who engages in unsafe and unsound practices, which includes a
violation of applicable laws and regulations. In addition, the FDIC has
secondary responsibility for regulation of TRIB, and it has the authority to
terminate the insurance of accounts pursuant to procedures established for that
purpose.
REGULATORY RESTRICTIONS ON PAYMENT OF DIVIDENDS; CAPITAL ADEQUACY STANDARDS
Most of FSCM's cash flow and income is derived from dividends paid to it by
TRIB. Federal laws and OCC regulations prohibit the withdrawal of any portion
of TRIB's capital and place certain statutory limitations on the payment of
dividends. National banks may pay dividends in an amount no greater than the
amount of its undivided profits, subject to other provisions of applicable law.
In addition, the board of directors may declare dividends of so much of the
undivided profits of the bank as the directors deem expedient, except that until
the surplus fund of such bank equals its common capital, no dividends may be
declared unless there has been carried to the surplus fund not less than 10% of
its net income of the preceding two consecutive six-month periods in the case of
annual dividends; provided, however, that any amounts paid into a fund for the
retirement of any preferred stock out of a bank's net income for such period or
periods shall be deemed to be additions to its surplus fund if, upon the
retirement of such preferred stock, the amounts so paid into such retirement
fund may then properly be carried to surplus. In any such case, the bank is
required to transfer to surplus the amounts so paid into such retirement fund on
account of the preferred stock as such stock is retired. In addition, the
approval of the OCC is required if the total of all dividends declared by a bank
in any calendar year exceed the total of its net income of that year combined
with its retained net income of the preceding two years, less any required
transfers to surplus or a fund for the retirement of any preferred stock.
The payment of dividends by any national bank is affected by requirements that
banks maintain adequate capital pursuant to the capital adequacy guidelines
issued by the OCC. These guidelines provide for a minimum ratio of qualifying
total capital (after deductions) to risk-weighted assets of 8.0%. These
guidelines and regulations further provide that capital adequacy is to be
considered on a case-by-case basis in view of various qualitative factors that
affect a bank or bank holding company's overall financial condition. For
purposes of calculating these ratios, Tier 1 capital generally consists of the
sum of common stockholders' equity, non-cumulative perpetual preferred stock,
and minority interests in consolidated subsidiaries. Tier 2 capital is
comprised of the allowance for loan and lease losses, cumulative perpetual
preferred stock, long-term preferred stock, convertible preferred stock and any
related surplus, hybrid capital instruments and term subordinated debt
instruments. Each of the elements in Tier 2 capital is subject to limitations.
Several items, such as goodwill and certain other intangible assets and deferred
tax assets, are deducted from Tier 1 capital when calculating a risk-based
capital ratio. In addition, investments (both equity and debt) in
unconsolidated banking and finance subsidiaries and reciprocal holdings of bank
capital instruments are deducted from total capital. A national bank's
"qualifying capital base" consists of the sum of Tier 1 (after deductions) and
qualifying Tier 2 capital elements as defined in applicable rules and
regulations. "Risk-weighted assets" also are calculated in accordance with
applicable rules and regulations. TRIB is in compliance with the Federal
Reserve Board's minimum capital guidelines described above because it has
capital ratios above such guidelines. At June 30, 1996, TRIB's leverage ratio
was 6.62%, its total capital ratio was 11.51%, and its Tier 1 ratio was 9.06%.
The above regulations and restrictions on dividends paid by TRIB may limit
FSCM's ability to obtain funds from such dividends for its cash needs, including
funds for the payment of operating expenses and debt service on the Notes. In
addition, the OCC would take the position that it has the power to prohibit TRIB
from paying dividends if, in its view, such payments would constitute unsafe or
unsound banking practices. During the two months ended August 31, 1996, the
three months ended June 30, 1996 and fiscal 1996, 1995 and 1994, FSCM was able
to obtain dividends sufficient to meet its cash flow needs. For the two months
ended August 31, 1996, TRIB declared dividends of $500,000, which are payable to
FSCM on September 30, 1996. During the three months ended June 30, 1996 and the
years ended March 31, 1996, 1995 and 1994, the dividends paid by TRIB were
$500,000, $1,813,000, $1,562,000 and $1,500,000, respectively. FSCM anticipates
having sufficient cash flow to meet its obligations to pay debt service on the
Notes.
PROHIBITIONS ON CERTAIN RELATED TRANSACTIONS
Section 23B of the Federal Reserve Act prohibits member banks (such as TRIB) and
their subsidiaries and certain affiliates from engaging in certain transactions
(including, for example, loans) with certain affiliates unless the transactions
are substantially the same, or at least as favorable to such bank or its
subsidiaries, as those prevailing at the time for comparable transactions with
or involving other non-affiliated companies. In the absence of such comparable
transactions, any transaction between a member bank and its affiliates must be
on terms and under circumstances, including credit standards, that in good faith
would be offered to or would apply to non-affiliated companies.
INTEREST RATES AND USURY LAWS
The National Bank Act allows national banks to charge "interest" at the rate
allowed by the state where the bank's home office is located to customers within
that state and to customers located outside its home state. The term "interest"
in this context is viewed expansively to include many lending charges, as
expressed by the OCC in a recently issued Interpretive Letter and a recent
United States Supreme Court decision. Accordingly, TRIB, with its main office
located in Iowa but with customers in both Iowa and Illinois, may charge both
Iowa and Illinois customers the maximum rate allowable under Iowa law.
INTERSTATE BANKING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Riegle-Neal Act") permits interstate banking and branching by national banks on
a national level, thereby eliminating geographic barriers. Pursuant to the
Riegle-Neal Act, the Federal Reserve Board has the authority to approve an
application by an adequately capitalized and adequately managed bank holding
company to acquire control of, or acquire all or substantially all of the assets
of, a bank located in a state other than the home state of such bank holding
company. Although state laws may in some ways restrict interstate branching,
the Riegle-Neal Act provides that approval by the Federal Reserve Board
generally may be granted without regard to whether such a transaction is
prohibited under the laws of either state.
The Riegle-Neal Act contains three main branching provisions which focus on the
following issues: interstate banking; interstate branching; and interstate
branching on a de novo basis. First, with regard to interstate banking (as
discussed above), the Riegle-Neal Act essentially provides that a bank holding
company may acquire a bank in another state regardless of contrary state law.
Second, effective as of June 1, 1997, federal regulatory agencies will be
permitted to approve mergers between insured banks with different home states
regardless of contrary state law. Notwithstanding the foregoing, a state may
"opt out" of this law by passing legislation which expressly prohibits
interstate mergers. If a state does so, it must enact the law before June 1,
1997, and the law must be non-discriminatory; that is, the law must apply
equally to state and national banks. National banks with their home office in a
state where legislation is passed to "opt out" of the Riegle-Neal Act's
interstate branching provisions would be effectively prohibited from
participating in any interstate merger. Similarly, banks from outside the state
would be prohibited from merging with in-state banks. At this time, it is yet
unclear whether a state's decision to "opt out" is an irreversible action. For
those states which want to expedite the effective date of this provision of the
Riegle-Neal Act, state legislatures may "opt in" at any time prior to June 1,
1997. By doing so, a state will pave the way for interstate mergers prior to
the effective date of June 1, 1997. If a state takes no legislative action to
"opt out" or to "opt in" early, then interstate mergers will be permitted with
banks which maintain their home offices in that state as of June 1, 1997.
Under the Riegle-Neal Act, there is a distinction between the acquisition of an
entire bank and the acquisition of a single branch of a bank. The foregoing
discussion relates to the acquisition of an entire bank. Under the Riegle-Neal
Act, however, if state law expressly allows it, a bank may acquire a single
branch of a bank in another state.
Illinois has passed legislation which permits interstate merger transaction
beginning June 1, 1997. Thus, as of June 1, 1997, any national bank with its
home office in Illinois is assured of the opportunity to branch on an interstate
basis by acquiring entire banks located in other states.
The Iowa legislature has not passed any law which permits interstate mergers
prior to June 1, 1997. If Iowa neither "opts out" nor "opts in" early,
interstate mergers will be permitted under the Riegle-Neal Act beginning on June
1, 1997.
With regard to resulting operations, any main office or branch operating at the
time of an interstate merger may be retained and operated as a main office or
branch. Additional branching by the resulting bank is permitted wherever any
bank involved in the transaction could have branched under federal and state law
prior to the merger. Thus, if TRIB engaged in an interstate merger with a bank
(Bank A) from another state (State A), and assuming that the laws of TRIB's home
state and State A permit interstate bank mergers, the resulting bank could be
operated as it was prior to the merger, either as a main office or branch.
Furthermore, the resulting bank could thereafter establish branch offices
wherever TRIB or Bank A could establish branches under federal and state law
PRIOR to the merger.
The third key provision of the Riegle-Neal Act addresses interstate branching on
a de novo basis. Effective June 1, 1997, this provision permits federal
regulators to approve an application by an insured bank to establish and operate
a de novo branch in the state in which it has no branches and which is not its
home state. For purposes of the Riegle-Neal Act, a de novo branch is defined as
a branch office of a national bank or state bank that is originally established
as a branch and does not become a branch as a result of an acquisition,
conversion, merger or consolidation. However, a state must specifically "opt
in" to this section of the Riegle-Neal Act. In order to do so successfully, a
state must pass legislation before June 1, 1997 which specifically permits de
novo branching and which is nondiscriminatory as to its application. After June
1, 1997, if a national bank opens a de novo branch in a state which permits de
novo branching, the bank would then be able to avail itself of the benefits of
banking laws in that state which apply to state-chartered banks, including
intrastate banking laws. With respect to specific legislative action in this
area by Illinois and Iowa, as of this date, neither state has passed legislation
to "opt in" to the de novo provision of the Riegle-Neal Act.
DEREGULATION
There have been significant changes in the banking industry in past years. Many
of these changes have been effected by federal legislation intended to
deregulate the banking industry. This legislation has, among other things,
eliminated interest rate restrictions on time deposit accounts and increased the
power of nonbanks to expand into traditional banking services.
Future changes in the banking industry may include some modification of
prohibitions on the types of businesses in which bank holding companies may
engage. In addition, other types of financial institutions, including mutual
funds, securities brokerage companies, insurance companies, and investment
banking firms, have been given, and may continue to be given, powers to engage
in activities which generally have been engaged in only by banks. Such changes
may place FSCM and TRIB in more direct competition with these other financial
institutions.
LIMITATIONS ON ACQUISITIONS
FSCM is subject to laws which may have the effect of making it more difficult to
acquire voting control of FSCM, although FSCM's management is not aware of any
recent efforts that might be made to obtain control of FSCM.
Any "change in control" of FSCM would be subject to the prior approval of the
applicable bank regulatory authorities, including the Federal Reserve Board
under the Holding Company Act and Regulation Y of the Federal Reserve Board.
See "Supervision and Regulation -- Regulation of FSCM." The prior approval of
the Federal Reserve Board is required before any "company" may acquire "control"
over FSCM (as defined in the Holding Company Act). In addition, before any
individual or entity which is not required to seek prior approval from the
Federal Reserve Board may acquire control of FSCM, prior notice to the Federal
Reserve Board is required pursuant to Regulation Y of the Federal Reserve Board.
Under Regulation Y, a "change in control" includes the acquisition of voting
securities which would cause the acquiring person to own, control, or hold,
after such acquisition, 10% or more (but less than 25%) of any class of voting
securities of a bank holding company (i) if the bank holding company has
registered securities under the Exchange Act, or (ii) no other person will own a
greater percentage of that class of voting securities immediately after the
transaction. FSCM's Class A Preferred Stock is registered under the Exchange
Act.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
Banks and bank holding companies are subject to federal and state income taxes.
Generally, a bank's federal income tax liability is determined under provisions
of the Internal Revenue Code of 1986, as amended ("Code"), that are applicable
to corporations. However, Sections 581 through 597 of the Code apply
specifically to financial institutions.
The two primary areas in which the treatment of financial institutions differ
from the treatment of other corporations under the Code are the areas of bond
gains and losses and bad debt deductions. First, gains and losses generated
from the sale or exchange of portfolio debt instruments are generally treated by
financial institutions as ordinary gains and losses as opposed to their
treatment as capital gains and losses by other corporations, as the Code
considers portfolio debt instruments held by banks to be inventory in a trade or
business rather than capital assets. Second, banks are allowed a statutory
method for calculating a reserve for bad debt deductions. Based on its asset
size, TRIB is generally permitted to maintain a bad debt reserve calculated on
an experience method, based on bad debt charge-offs for the current and
preceding five years, or, if larger, a "grandfathered" base year reserve
(reduced proportionately if the amount of outstanding loans at the end of the
taxable year is less than the amount of outstanding loans at the end of the base
year).
STATE TAXATION
FSCM files a consolidated state income tax return in Illinois based on
consolidated income generated in that state. Illinois taxes banks and bank
holding companies under primarily the same provisions as other corporations as
calculated under the applicable Code provisions, with some modifications as
required by state law, such as allowing the deduction of interest earned on U.S.
government securities. TRIB files an Iowa franchise tax return based upon
income generated from business conducted in Iowa. Tax returns are also filed by
TRIB in New Jersey and Connecticut due to leasing activities in those states.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of FSCM and TRIB as of June 30, 1996 were
as follows:
Name Age Title
- ---- --- -----
Benjamin D. Farrar, Jr. 67 Chairman of the Board of FSCM and TRIB
Douglas M. Kratz 45 President, Chief Executive Officer, Chief
Financial Officer, Secretary, and Director of
FSCM; Vice Chairman of the Board of TRIB
John T. Kustes 45 Treasurer and Director of FSCM; Senior Vice
President, Senior Operations Officer, Assistant
Secretary and Director of TRIB
Perry B. Hansen 48 Director of FSCM; President, Chief Executive
Officer, Secretary and Director of TRIB
Jean M. Hanson 38 Controller and Chief Accounting Officer of FSCM;
Controller and Vice President of TRIB
Richard J. Carlson 44 Chief Operating Officer and Senior Lending Officer
of TRIB
Donald P. Ackerman 62 Executive Vice President and Commercial Loan
Manager of TRIB
J. Bryant Goodall 44 Vice President and Senior Trust Officer of TRIB
Benjamin D. Farrar, Jr. has been Chairman of FSCM since March 1991 and a
Director of FSCM since July 1974. From 1960 until he semi-retired in 1985, Mr.
Farrar was actively involved as President and Director of Ben Farrar and Co.,
Inc., an insurance agency located in Rock Island, Illinois. Mr. Farrar has been
a Director of TRIB since 1969 and Chairman of TRIB since March 1991. He plans
to retire as Chairman and a Director of FSCM and TRIB during fiscal 1997 and
relocate to Georgia.
Douglas M. Kratz has been President, Chief Executive Officer, Secretary, and a
Director of FSCM and a Director of TRIB since 1985, and he was appointed Vice
Chairman of the Board of TRIB in 1993. Mr. Kratz is also an officer of Richey
Corporation, Rock Island, Illinois, a consulting firm which provides services to
various financial institutions and non-banking industries, including FSCM. See
"Certain Transactions."
John T. Kustes is Senior Vice President and Senior Operations Officer of TRIB
and has held positions in TRIB's operations department for more than the past
five years and has been a Director of FSCM and TRIB since March 1991. Mr.
Kustes has been an officer of FSCM since 1986 and currently serves as FSCM's
Treasurer.
Perry B. Hansen has been the President, Chief Executive Officer, Secretary, and
a Director of TRIB and a Director of FSCM since 1985.
Jean M. Hanson has been the Controller of FSCM and TRIB since December 1984 and
Vice President of TRIB since August 1995.
Richard J. Carlson joined TRIB as Senior Vice President - Loans in January 1994
and was appointed Chief Operating Officer and Senior Lending Officer in March
1995. Until his employment with TRIB, he had been employed as Vice President
for Firstar Bank Cedar Rapids, N.A., Cedar Rapids, Iowa, since February 1992.
Mr. Carlson's previous work experience also includes serving as President of
Security Savings Bank, Eagle Grove, Iowa, from November 1991 through February
1992, and as Executive Vice President of Iowa State Savings Bank, Clinton, Iowa,
from January 1979 through November 1991.
Donald P. Ackerman was Senior Vice President of TRIB from February 1992 until
March 1995 when he was appointed Executive Vice President and Commercial Loan
Manager. Prior to February 1992, Mr. Ackerman was self-employed, performing
independent loan reviews for various financial institutions.
J. Bryant Goodall has served as Vice President of TRIB's trust department for
more than the past five years. In February 1996 he was also appointed Senior
Trust Officer.
All of the Directors of FSCM and TRIB hold office until the next shareholders'
meeting and until their successors are duly elected and qualified or until their
earlier death, resignation or removal from office. The executive officers of
FSCM and TRIB are elected annually by the respective Boards of Directors and
hold office until their successors are appointed and qualified or until their
earlier death, resignation, or removal from office.
EXECUTIVE COMPENSATION
The follow Summary Compensation Table sets forth the compensation for fiscal
1996, 1995 and 1994 awarded to or earned by FSCM's Chief Executive Officer and
the four highest paid executives of FSCM and TRIB whose salary and bonus earned
in fiscal 1996 exceeded $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation All Other
------------------- ---------
Director or Executive Officer Year Salary Bonus Compensation(1)
<F28>
- ----------------------------- ---- ------ ----- --------------
Douglas M. Kratz(2)<F29> 1996 $-- $-- $21,575
President, Chief Executive Officer, 1995 -- -- 22,288
Chief Financial Officer, Secretary and 1994 -- -- 21,350
Director of FSCM and Vice Chairman of
the Board of TRIB
Perry B. Hansen 1996 182,706 66,000 21,575
Director of FSCM and President, Chief 1995 176,526 21,888 21,125
Executive Officer, Secretary and 1994 167,177 72,000 21,238
Director of TRIB
John T. Kustes 1996 75,507 16,380 21,575
Treasurer and Director of FSCM and 1995 72,766 5,408 21,738
Senior Vice President, Senior 1994 68,931 18,000 21,263
Operating Officer, Assistant Secretary
and Director of TRIB
Richard J. Carlson 1996 100,227 28,500 10,900
Chief Operating Officer and Senior 1995 85,965 6,180 11,750
Lending Officer of TRIB 1994 9,508 -- 338
Donald P. Ackerman 1996 97,721 14,140 10,900
Executive Vice President and 1995 94,091 4,532 11,750
Commercial Loan Manager of TRIB 1994 89,368 17,120 11,038
(1)<F28>Consists of compensation received from participation in
director and committee meetings of FSCM and TRIB.
(2)<F29>Mr. Kratz does not receive a salary or bonus from FSCM or TRIB.
See "Certain Transactions."
1996 COMBINED INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
On July 25, 1996, FSCM's Board of Directors adopted the 1996 Combined Incentive
and Nonstatutory Stock Option Plan ("Option Plan"), which was approved by FSCM's
shareholders at the Annual Meeting held on August 22, 1996. The following
discussion of the principal features and effects of the Option Plan is qualified
in its entirety by reference to the text of the Option Plan.
General
Options that qualify as incentive stock options ("Incentive Stock Options") as
defined in Section 422 of the Internal Revenue Code of 1986, as amended
("Code"), and options that are not Incentive Stock Options ("Nonstatutory Stock
Options") may be granted under the Option Plan. Certain terms of Incentive
Stock Options are prescribed by the Code. Incentive Stock Options granted under
the Option Plan may be granted only to individuals who are employees of either
FSCM or any "parent corporation" or "subsidiary corporation" of FSCM
(collectively, "Affiliates"), as such terms are defined in Sections 424(e) and
424(f) of the Code. Nonstatutory Options granted under the Option Plan may be
granted to employees or nonemployees of FSCM, including, but not limited to,
persons or entities who are independent contractors but not employees of FSCM.
Administration
The Option Plan is administered by FSCM's Board of Directors or a committee of
the Board of Directors appointed by the Board ("Committee"). The Option Plan
gives broad powers to the Board or the Committee, as the case may be, to
administer and interpret the Option Plan.
Shares Subject to Option Plan
The Option Plan provides for the grant of options to acquire up to 20,000 shares
of FSCM's Common Stock. As of August 31, 1996, no options had been granted
under the Option Plan. The number of shares of Common Stock available under the
Option Plan and purchasable pursuant to options issued under the Option Plan
will be adjusted to prevent dilution in the event of a stock split, combination
of shares, stock dividend or other recapitalization.
Terms of Options
Term and Exercise. Upon the grant of an option under the Option Plan, and
- ------------------
subject to the terms of the Option Plan, the FSCM Board of Directors or the
Committee determines its terms, including the number of shares of FSCM's Common
Stock subject to the option, the exercise price at which the shares may be
purchased upon exercise of an option, and the conditions and limitations
applicable to the exercise of the option. However, no Incentive Stock Option
may be exercisable after the expiration of ten years from the date of grant, and
no Incentive Stock Option granted to a person who, at the time of grant, owns
more than 10% of the total combined voting power of all classes of stock of FSCM
or its Affiliates, may be exercisable after the expiration of five years from
the date of grant.
Upon the exercise of any option, payment may be made in cash or its equivalent,
or, if and to the extent permitted by the Board of the Committee, by exchanging
shares of Common Stock owned by the optionee, or by a combination of the
foregoing. The Board or the Committee also may include as a term of an option
granted under the Option Plan, at the date of grant, a provision allowing the
optionee to apply the difference between the exercise price of the option and
the then-current fair market value of a share of Common Stock purchasable upon
exercise of the option to the exercise price, thus reducing the number of shares
actually purchased upon exercise of the option.
Transferability of Options; Termination of Employment. All options granted
- -----------------------------------------------------
under the Option Plan are not transferable in any manner except by will or the
laws of descent and distribution, and during the lifetime of each optionee, the
option is exercisable only by that optionee. As a condition to the exercise of
an option, the optionee must represent and agree that any and all shares of
Common Stock purchased upon exercise will be acquired for investment and not for
resale. Upon an optionee's death, such optionee's options will pass by will or
the laws of descent and distribution and may be exercised only by such
optionee's personal representative, distributees or legatees but only to the
extent determined by the Board of Directors or the Committee at the time of
grant of the option as shall be indicated in the option agreement evidencing the
grant of such option.
Subject to the discretion of the Board of Directors or the Committee to
determine otherwise at the time of grant of an Incentive Stock Option, upon
termination of an optionee's employment with FSCM or an Affiliate, whether such
termination is due to death, voluntary termination, involuntary termination or
otherwise, (i) all Incentive Stock Options held by the optionee may thereafter
be exercised only to the extent the optionee was entitled to exercise such
Incentive Stock Options as of the date of such termination of employment; and
(ii) all Incentive Stock Options held by the optionee shall terminate three
months after the effective date of any such termination of employment.
Subject to the discretion of the Board of Directors or the Committee to provide
for otherwise at the time of grant of a Nonstatutory Stock Option, upon
termination (as determined solely by the Board of Directors or the Committee) of
the relationship between an optionee and FSCM or its Affiliates, whether such
relationship consisted of such optionee serving as an employee of, a member of
the Board of Directors of, or an independent contractor providing services to,
FSCM or its Affiliate; (i) all Nonstatutory Stock Options held by the optionee
may thereafter be exercised only to the extent the optionee was entitled to
exercise such Nonstatutory Stock Options as of the date of such relationship
termination; and (ii) all Nonstatutory Stock Options held by the optionee shall
terminate three months after the effective date of any such relationship
termination.
Limit on Exercise of Incentive Stock Options
The aggregate fair market value, determined as of the time an Incentive Stock
Option is granted, of the shares of Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by an optionee during any
calendar year under the Option Plan, and any other stock option plan of the
Company or an Affiliate, may not exceed $100,000.
Exercise Price
The exercise price of an option granted under the Option Plan will not be less
than the greater of (i) $100 per share or (ii) the fair market value of the
Common Stock at the time the option is granted (as determined by the Board of
Directors or the Committee). In addition, Incentive Stock Options granted on
the same date must have the same exercise price. With respect to Incentive
Stock Options granted to an employee owning stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or its
Affiliates, then the terms of the Incentive Stock Options must specify that the
option exercise price will be not less than the greater of (x) $100 per share or
(y) 110% of the fair market value of the Common Stock at the time the option is
granted. The Board or the Committee may grant Nonstatutory Stock Options with
an exercise price that is less than the fair market value of the Common Stock at
the time the option is granted so long as the exercise price is equal to or
greater than $100 per share.
Termination and Amendment
The Option Plan will continue in effect for the grant of options until July 25,
2006, unless sooner terminated as described in the Option Plan. However, the
expiration of the term of the Option Plan shall not affect options previously
granted under the Option Plan which are then outstanding. The Board of
Directors may at any time terminate the Option Plan, although any such
termination will not affect options already granted, and such options will
remain in full force and effect as if the Option Plan had not been terminated.
Subject to the exception described in the Option Plan, the Board of Directors or
the Committee may amend the Option Plan from time to time in such respects as it
may deem advisable, including, without limitation, amending the Option Plan so
as to affect options already granted, other than to increase the exercise price
of an option and/or to decrease or terminate the options already granted.
The Option Plan defines the term "acceleration event" ("Acceleration Event") to
mean (i) any liquidation, dissolution, or sale of all or substantially all of
the assets of FSCM, (ii) any merger of FSCM into another corporation where FSCM
is not the survivor thereof, (iii) any transaction involving the transfer of
FSCM's securities representing greater than 50% of the voting power of all
issued and outstanding securities of FSCM or (iv) any other event which, in the
opinion of the Board of Directors or the Committee, is likely to lead to a
change in control of FSCM, whether or not such change in control actually
occurs. Upon the occurrence of an Acceleration Event, the Board of Directors or
the Committee may elect to terminate all or part of the options outstanding
under the Option Plan as of the effective date of the Acceleration Event if each
optionee is given at least 30 calendar days' written notice of such termination
and upon receipt by an optionee of the Acceleration Event Notice, and assuming
occurrence of the Acceleration Event, all options held by the optionee will have
their vesting accelerated and be exercisable in full.
SEVERANCE AGREEMENT
TRIB and Richard J. Carlson ("Officer"), TRIB's Chief Operating Officer and
Senior Lending Officer, entered into a Continuity/Severance Agreement dated
December 22, 1995 ("Severance Agreement"). The Severance Agreement provides
that if a "Change in Control" occurs before December 31, 1998, and if the
Officer is terminated by TRIB within 90 days of the public announcement of the
Change in Control for any reason other than "Good Cause" (as the terms "Change
of Control" and "Good Cause" are defined in the Severance Agreement), the
Officer is entitled to a severance payment from TRIB equal to 24 months of
salary. The Severance Agreement further provides that if a Change in Control
occurs between January 1, 1999 and December 31, 2000, and if the Officer is
terminated by TRIB during that period for any reason other than Good Cause, the
Officer is entitled to a severance payment equal to the greater of 12 months of
salary or the amount determined by subtracting from 24 months the number of
months that have elapsed during the period from January 1, 1999 to the date the
Officer is terminated. If a Change in Control occurs after December 31, 2000,
and if the Officer is terminated by TRIB within two years after the date of the
Change in Control for any reason other than Good Cause, the Officer is entitled
under the Severance Agreement to a Severance Payment equal to 12 months of
salary. The Severance Agreement also provides that upon the occurrence of a
Change in Control, if the Officer voluntarily terminates his employment for
"Good Reason" (as the term "Good Reason" is defined in the Severance Agreement)
after the Change in Control but on or before December 31, 1999, the Officer is
entitled to a severance payment equal to 12 months of salary. The Severance
Agreement also contains a covenant not to compete on the part of the Officer and
a confidentiality clause.
COMPENSATION OF DIRECTORS
Directors receive fees of $350 per FSCM Board of Directors' meeting and $500 per
TRIB Board of Directors' meeting, regardless of whether they attend the meeting.
Members of TRIB's Loan and Trust Committees receive $50 per hour for attended
meetings of these Committees. During the fiscal year ended March 31, 1996,
Benjamin D. Farrar, Jr. received cash compensation and bonus of $24,720 and
$9,000, respectively, for the performance of administrative responsibilities
relating to his position as Chairman of the Board and Patricia J. Farrar
received cash compensation of $6,475 for the performance of her duties as a
Director of TRIB.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of June 30, 1996 regarding
the beneficial ownership of FSCM's Common Stock and includes information
regarding FSCM's other classes of equity securities by each person who is known
by FSCM to beneficially own more than 5% of FSCM's Common Stock, by each of
FSCM's Directors, by each person named in the Summary Compensation Table and by
all Directors and executive officers as a group.
Number of Shares of Percent of
Common Outstanding
Name and Address of Stock Beneficially Shares of Common
Beneficial Owner Owned(1)(2)<F31><F32> Stock(2)<F32>
- ------------------- -------------------- ----------------
Douglas M. Kratz
224 - 18th Street, Suite 202
Rock Island, IL 61201-8719 67,319(3)<F33> 32.3%(3)<F33>
Perry B. Hansen
224 - 18th Street, Suite 202
Rock Island, IL 61201-8719 66,963(4)<F34> 32.1%(4)<F34>
Benjamin D. Farrar, Jr.
224 - 18th Street, Suite 202
Rock Island, IL 61201-8719 21,711(5)<F35> 10.9%(5)<F35>
Marshall & Ilsley Corporation
770 North Water Street
Milwaukee, WI 53202 20,211 11.4%
Ira J. and Donna L. Weindruch
151 - 35th Avenue
Rock Island, IL 61201-6133 20,000(6)<F36> 10.2%(6)<F36>
Miriam Friedman
1337 - 21st Avenue
Rock Island, IL 61201-4412 9,792 5.5%
John T. Kustes
224 - 18th Street, Suite 202
Rock Island, IL 61201-8719 1,564(7)<F37> *<F30>
Richard J. Carlson
224 - 18th Street, Suite 202
Rock Island, IL 61201-8719 0 0
Donald P. Ackerman
224 - 18th Street, Suite 202
Rock Island, IL 61201-8719 0 0
All executive officers and
directors
as a group (9 persons) 159,000(8)<F38> 60.8%(2)<F32>
*<F30>Less than one percent (1%).
(1)<F31>Unless otherwise indicated, each person or group has sole voting and
investment power with respect to all outstanding shares.
(2)<F32>The amount of shares beneficially owned and the percentage calculation
for each individual includes all shares of Common Stock that each such
individual may obtain upon the conversion of MCDs issued by FSCM or other
classes of FSCM's Preferred Stock presently outstanding. The percentage
calculation for each individual is based upon 176,611 shares of Common
Stock outstanding at June 30, 1996, plus all shares of Common Stock that
each such individual may obtain upon the conversion of MCDs or other
classes of Preferred Stock presently outstanding.
(3)<F33>Includes 10,000 shares of Common Stock into which $250,000 in principal
amount of MCDs owned by Mr. Kratz are convertible; 10,000 shares of Common
Stock which may be acquired upon conversion of $250,000 in principal amount
of MCDs now owned by Mr. and Mrs. Weindruch as shown in this Table but
which are purchasable by Mr. Kratz upon exercise of an option owned by him;
3,700 shares of Common Stock into which 333 shares of Class B Preferred
Stock owned by Mr. Kratz are convertible; and 8,000 shares of Common Stock
into which 800 shares of Class C Preferred Stock owned by Mr. Kratz are
convertible. The acquisition of certain amounts of Common Stock upon
conversion of the Class B or Class C Preferred Stock or the MCDs would
require prior approval by the Federal Reserve Board if such acquisition
constituted a change in control under the Holding Company Act.
(4)<F34>Includes 10,000 shares of Common Stock into which $250,000 in principal
amount of MCDs owned by Mr. Hansen are convertible; 10,000 shares of Common
Stock which may be acquired upon conversion of MCDs in the principal amount
of $250,000 now owned by Mr. Ira J. Weindruch and Mrs. Donna Weindruch (Mr.
Weindruch's spouse) as shown in this Table but which are purchasable by Mr.
Hansen upon exercise of an option owned by him; 3,700 shares of Common
Stock into which 333 shares of Class B Preferred Stock owned by Mr. Hansen
are convertible; 8,000 shares of Common Stock into which 800 shares of
Class C Preferred Stock owned by Mr. Hansen are convertible; 3,663 shares
held under TRIB's 401(k) plan on behalf of Mr. Hansen; and 499 shares held
by Smith Barney on behalf of Mr. Hansen as part of his individual
retirement plan. The acquisition of certain amounts of Common Stock upon
conversion of the Class B or Class C Preferred Stock or the MCDs would
require prior approval by the Federal Reserve Board if such acquisition
constituted a change in control under the Holding Company Act.
(5)<F35>Includes 10,000 shares of Common Stock into which $250,000 in principal
amount of MCDs owned by Mr. Farrar are convertible; 3,711 shares of Common
Stock into which 334 shares of Class B Preferred Stock owned by Mr. Farrar
are convertible; and 8,000 shares of Common Stock into which 800 shares of
Class C Preferred Stock owned by Mr. Farrar are convertible. In addition,
Mr. Farrar's family members own 12,284 shares of Common Stock, the
beneficial ownership of which is disclaimed by Mr. Farrar.
(6)<F36>Consists of 20,000 shares of Common Stock which may be acquired upon
conversion of $500,000 in principal amount of MCDs owned by Mr. and Mrs.
Weindruch but which are purchasable under options granted by them to
Messrs. Hansen and Kratz, as described in Footnotes 3 and 4 above. Such
20,000 shares are shown in the Table as also being owned by Mr. Hansen
(10,000 shares) and Mr. Kratz (10,000 shares).
(7)<F37>Includes 1,414 shares of Common Stock held under TRIB's 401(k) plan on
behalf of Mr. Kustes.
(8)<F38>Consists of the shares of Common Stock described in the above table and
in Footnotes 3, 4, 5, and 7 (including shares that may be acquired upon the
conversion of MCDs or Preferred Stock) and an additional 1,443 shares held
under TRIB's 401(k) plan on behalf of Mrs. Jean M. Hanson.
CERTAIN TRANSACTIONS
Richey Corporation ("Richey") provides to FSCM and TRIB various services,
including services related to strategic planning, regulatory matters,
accounting, auditing, income taxes, and loan administration, pursuant to a
Services Agreement by and between Richey and FSCM dated March 23, 1995, which
replaced a Services Agreement between Richey and FSCM dated April 20, 1989. Mr.
Douglas M. Kratz, the President, Chief Executive Officer, Secretary, and a
Director of FSCM and Vice Chairman of the Board of TRIB, is the Secretary and
Treasurer of Richey. During the fiscal years ended March 31, 1996, 1995 and
1994, Richey received under these Agreements, respectively, $179,889 plus a
bonus of $63,750; $170,947 plus a bonus of $20,000; and $170,329 plus a bonus of
$72,000.
Messrs. Douglas M. Kratz, Perry B. Hansen, and Benjamin D. Farrar, Jr. together
own MCDs in the total aggregate principal amount of $750,000. Pursuant to a
Subordination Agreement by and among Messrs. Kratz, Hansen and Farrar, they have
agreed to subordinate the payment of such MCDs to the payment of the Notes.
FSCM and TRIB obtain a portion of their insurance through Ben Farrar & Company,
Inc. This agency is owned by Messrs. Benjamin D. Farrar, III and Thomas A.
Farrar, sons of Benjamin D. Farrar, Jr., the Chairman of the Board of FSCM and
TRIB. During the years ended March 31, 1996 and 1995, FSCM and TRIB paid to Ben
Farrar & Company, Inc. insurance premiums of $79,804 and $62,741, respectively.
TRIB has had, and expects to have in the future, banking transactions in the
ordinary course of business with executive officers and Directors of FSCM and
TRIB or with an affiliate of such person. Such transactions have been and will
be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated persons and do not and will not involve more than normal risk of
collectibility. See Note 4 of Notes to Consolidated Financial Statements as of
and for the Fiscal Years Ended March 31, 1996, 1995 and 1994.
All of the foregoing transactions and all future and ongoing transactions
between FSCM and TRIB and their affiliates, including Richey, have been and will
be on terms no more favorable than could be obtained from unaffiliated parties
and will be approved by a majority of the Directors of FSCM not interested in
the transaction.
DESCRIPTION OF NOTES
The Notes being offered hereby are $10,000,000 principal amount -----% Notes Due
2006 dated as of November 1, 1996 and maturing November 1, 2006. The Notes are
to be issued under an Indenture dated as of November 1, 1996 ("Indenture") by
and between FSCM and M&I First National Bank of West Bend, Wisconsin, as Trustee
thereunder ("Trustee").
The ability of FSCM to meet its debt service obligations with respect to the
Notes is dependent upon the ability of TRIB to pay dividends on its capital
stock to FSCM. See "Risk Factors -- Restrictions on Payment of Dividends by
TRIB to FSCM." No assurances can be given that TRIB will be able, or be
permitted by the OCC, to make dividend payments to FSCM in an amount which, when
combined with any other income of FSCM, would be sufficient to allow FSCM to
meet its debt service requirements with respect to the Notes.
The ability of FSCM to redeem the Notes and to retire the Notes upon their
maturity is also dependent upon the anticipated increases in cash flow to FSCM
through the receipt of dividends from TRIB during the term of the Notes. See
"Risk Factors -- Substantial Final Payment for Notes." If FSCM does not have
sufficient funds to retire the Notes upon their maturity, FSCM will be required
to seek additional funds through the issuance of debt or equity securities or
by borrowing funds from other outside sources. No assurances can be made that
acceptable public or private market conditions will exist at such time for the
sale of debt or equity securities of FSCM.
The Notes are unsecured obligations of FSCM and are not subordinated in right of
payment to any other unsecured indebtedness of FSCM. The Notes will rank on a
parity with all unsecured and unsubordinated indebtedness of FSCM, including
presently outstanding MCDs in the principal amount of $500,000. The Notes are
senior in right of payment to MCDs in the total aggregate principal amount of
$750,000 owned by Messrs. Douglas M. Kratz, Perry B. Hansen and Benjamin D.
Farrar, Jr. No debt senior in right of payment to the Notes may be issued
without the consent of Noteholders, although FSCM has issued and may issue debt
which is secured by capital stock of TRIB or any other subsidiary. In the event
of a default on any such borrowings, the lender would have the right to dispose
of TRIB's or such subsidiary's stock and apply the proceeds of sale to
indebtedness owing to it prior to any payment from such proceeds on the Notes.
The statements under this heading are subject to and qualified in their entirety
by reference to the detailed provisions of the Indenture, a copy of which has
been filed with the Commission as an exhibit to the Registration Statement
relating to this offering. In the opinion of FSCM's management, all material
terms of the Notes and the Indenture are described herein. References in
parentheses are to the Indenture, and wherever particular provisions of the
Indenture are referred to, such provisions are incorporated by reference as a
part of the statements made, and the statements made herein are qualified in
their entirety by such reference to the Indenture.
GENERAL
The Notes will be limited to $10,000,000 aggregate principal amount, dated as of
November 1, 1996, and will represent an unsecured obligation of FSCM. The Notes
will bear interest at the rate of ----% per annum from November 1, 1996,
initially payable May 1, 1997 and semi-annually thereafter on May 1 and November
1 of each year until the Notes mature on November 1, 2006. The principal
balance and a final interest installment will be paid on the maturity (or
redemption) date of each Note and will include interest accrued thereon from the
last preceding semi-annual interest payment date. (Section 3.01.) The Notes
will be issued only in fully registered form, without coupon, in denominations
of $1,000 and any integral multiple thereof. (Section 3.02.) The Notes will be
transferable only on the Note Register at the principal office of the Trustee in
West Bend, Wisconsin, upon surrender for such purpose. The Notes will be
exchangeable for other Notes of any authorized denominations of a like aggregate
principal amount. With certain exceptions, FSCM may require payment of a fee to
cover any charges and expenses of the Trustee and any tax or governmental charge
that may be imposed in connection with the transfer or exchange of the Notes.
(Section 3.05.)
PAYMENT OF PRINCIPAL AND INTEREST
Principal is to be payable and the Notes may be transferred or exchanged at the
principal office of the Trustee. (Section 3.01.)
Interest will be payable semi-annually on each May 1 and November 1 at the
principal office of the Trustee to the holders of record at the close of
business on the preceding April 15 and October 15, respectively, subject to
certain exceptions. Interest will be paid to holders of Notes by check mailed
to the registered holder's address appearing on the Trustee's Note Register.
(Section 3.01.) Funds on deposit with the Trustee for the purpose of paying
principal and/or interest and unclaimed for three years after the principal
and/or interest has become due and payable will be paid over to FSCM upon
written demand, whereupon holders of Notes may look only to FSCM for payment
thereof. (Section 10.03.)
OPTIONAL REDEMPTION
The Notes are subject to redemption at the option of FSCM, in whole or in part,
in advance of their maturity at any time or from time to time upon not less than
30 days' notice by mail to the Trustee and not less than 15 days' notice by mail
to the holders of the Notes. The redemption price is equal to the principal
amount of the Notes, plus interest accrued to the date fixed for redemption and
a prepayment premium of 3% of the principal amount redeemed on or before
November 1, 1998. No prepayment premium will be paid on Notes redeemed by FSCM
after November 1, 1998. (Section 10.01.)
If less than all of the total outstanding Notes are to be redeemed, the
particular Notes to be redeemed will be selected by the Trustee in such a manner
as the Trustee shall deem fair and appropriate. The Trustee may provide for the
selection for redemption of a portion (in multiples of $1,000) of the principal
amount of any Notes of a denomination larger than $1,000. (Section 11.07.)
MANDATORY REDEMPTION FUND
FSCM will pay over and deposit with the Trustee prior to November 1 in each of
the years 2000 through 2005, inclusive, an amount in cash sufficient to redeem
$750,000 aggregate principal amount of Notes on each of such dates, at the
principal amount thereof, plus accrued interest to the date of redemption.
On November 1, 2006, the balance of $5,500,000 principal amount of the Notes, if
not theretofore redeemed or repurchased by FSCM and canceled, will become due
and payable.
The Trustee shall select the particular Notes to be redeemed through the
operation of the mandatory redemption fund in such a manner as the Trustee shall
deem fair and appropriate. The Trustee may provide for the selection for
redemption of a portion (in multiples of $1,000) of the principal amount of any
Notes of a denomination larger than $1,000.
In lieu of making all or any part of any payment in cash pursuant to the
mandatory redemption fund, FSCM may at its option credit against any mandatory
redemption payment to the Trustee Notes concurrently repurchased by FSCM or
previously redeemed at the option of FSCM or deliver Notes theretofore
repurchased by FSCM. (Section 11.03.)
RESTRICTIONS ON DIVIDENDS ON, AND REDEMPTIONS OF, STOCK
The Indenture allows FSCM to pay cash dividends on shares of all classes of its
Preferred Stock but restricts cash dividends on its Common Stock in an amount in
any fiscal year not in excess of 30% of the Consolidated Net Income of FSCM for
the preceding fiscal year. The Indenture further prohibits the purchase,
redemption or other acquisition or retirement by FSCM or by any of its
Subsidiaries, or other distribution with respect to, any shares of FSCM's
capital stock, except that FSCM may purchase or redeem shares of its Common or
Preferred Stock up to a maximum purchase or redemption price equal to $6,000,000
plus (i) 65% of the net increase in consolidated retained earnings of FSCM from
June 30, 1996 through the end of the calendar month preceding any such purchase
or redemption, plus (ii) the net proceeds from the issuance of any capital stock
by FSCM after June 30, 1996, and minus (iii) the total amount previously
expended for all purchases or redemptions of shares pursuant to the Indenture.
(Section 10.11.)
"Consolidated Net Income" for any period (which may be greater or less than one
year) is defined in the Indenture to mean the amount of consolidated net income
(or deficit) of FSCM and its Subsidiaries and that of its Leasing Subsidiaries
for such period determined on a consolidated basis in accordance with generally
accepted accounting principles; provided, however, that there will not be
included in consolidated net income (i) any net income (or net loss) of a
Subsidiary or Leasing Subsidiary for any period during which it was not a
Subsidiary or Leasing Subsidiary or Leasing Subsidiary; or (ii) any net income
(or net loss) of any business, property or assets acquired (by way of merger,
consolidation, purchase or otherwise) by FSCM, any Subsidiary or any Leasing
Subsidiary for any period prior to the acquisition thereof. (Section 1.01.)
The Indenture defines "Subsidiary" as any corporation a majority of the voting
shares of which are owned by FSCM or by other Subsidiaries or by FSCM and other
Subsidiaries. The Indenture defines "Leasing Subsidiary" as a corporation,
partnership, limited liability company or other entity of which FSCM owns or has
control over, directly or indirectly, of at least a majority of the voting
rights and which corporation, partnership, limited liability company or other
entity is involved solely in the leasing business. FSCM is considering the
formation or acquisition of a Leasing Subsidiary. It is likely that the Leasing
Subsidiary would be highly leveraged. The Leasing Subsidiary would be operated
as a separate entity and, in addition, neither FSCM, TRIB, nor any other FSCM
subsidiary or entity related to FSCM would guarantee or otherwise be
contractually liable for debts or obligations of the Leasing Subsidiary.
However, in the event of any bankruptcy proceeding in which the Leasing
Subsidiary was a debtor, there can be no assurance that a court would not enter
an order consolidating the assets and liabilities of the Leasing Subsidiary with
those of FSCM, in which case FSCM's assets would be available to satisfy the
debts and obligations of the Leasing Subsidiary.
"Consolidated Tangible Net Worth" means the excess, after making appropriate
deductions for any minority interest in net worth of Subsidiaries and Leasing
Subsidiaries, of (i) the tangible assets of FSCM, its Subsidiaries and Leasing
Subsidiaries (excluding intercompany items) which, in accordance with generally
accepted accounting principles, are tangible assets, excluding the unrealized
gain or loss with respect to available-for-sale securities, after deducting
adequate reserves in each case where, in accordance with generally accepted
accounting principles, a reserve is proper, over (ii) all Debt of FSCM, its
Subsidiaries and Leasing Subsidiaries (excluding intercompany items); provided,
however, that (x) in no event shall there be included as tangible assets
goodwill, core deposit intangibles, prepaid expenses (except for prepaid
insurance), deferred charges (except for deferred taxes) or treasury stock or
any securities or Debt of FSCM, a Subsidiary or Leasing Subsidiary; (y) mortgage
servicing rights which are capitalized in accordance with SFAS No. 122
(regardless of whether such rights are treated as intangible assets for
regulatory or other purposes) and the unamortized portion of the costs incurred
in connection with the offering of the Notes pursuant hereto are included as
tangible assets; and (z) all assets and Debt of a Leasing Subsidiary whose
Indebtedness is excluded from the definition of "Consolidated Indebtedness"
shall be excluded in such computation, but the investment of FSCM from time to
time in any such Leasing Subsidiary shall be included as a tangible asset.
"Debt" of any corporation at any time shall include all obligations which in
accordance with generally accepted accounting principles would be included in
determining total liabilities as shown in the liabilities side of a balance
sheet of such corporation at such date.
RESTRICTION ON LIENS
Under the Indenture, FSCM and its Subsidiaries may not permit any liens to exist
or be created upon its property or the property of its Subsidiaries except (i)
liens on the stock of TRIB or any other Subsidiary to secure Indebtedness
permitted under the Indenture; (ii) liens securing Indebtedness in existence on
September 30, 1996; (iii) purchase money liens and liens on property existing at
the time such property is acquired, provided that the obligations secured
thereby shall not exceed the fair market value of such property on the date of
acquisition; (iv) prior liens of other creditors on property comprising
collateral security for defaulted Indebtedness which is repossessed by FSCM or
its Subsidiaries; (v) liens securing obligations or transactions for federal
funds, inter-bank credit facilities, bank deposits, repurchase agreements,
advances from the Federal Home Loan Bank ("FHLB"), or other obligations to
customers or depositors; (vi) liens securing obligations for taxes and
assessments or providing security required by law or governmental regulation as
a condition to the transaction of any business or the exercise of any privilege,
license or right, or the extension, renewal or refunding of the same; (vii)
liens securing workers' compensation, unemployment insurance, old age pensions
or other social security program or to allow FSCM or any Subsidiary to maintain
self-insurance or securing judgments against FSCM or any Subsidiary pending
appeal, and any extension, renewal or refunding of any such liens; and (viii)
liens securing Indebtedness of any Subsidiary of FSCM or TRIB acquired after the
date of the Indenture which was in existence at the date of acquisition and
which was outstanding for at least twelve months prior to the date of
acquisition. (Section 10.12.)
"Indebtedness" of any person is defined in the Indenture to mean all obligations
for borrowed money; all obligations to pay the deferred purchase price of
property or services (with certain exceptions); lease obligations required to be
capitalized under generally accepted accounting principles; all Indebtedness of
another secured by a lien on any asset of such person; and any guarantee of any
item that would be included within this definition. The Indenture excludes from
the definition of Indebtedness (i) the principal amount of FSCM's MCDs, but only
to the extent and so long as the payment of the principal amount thereof is
subordinate to the prior payment of the Notes (currently $750,000 of such MCDs
are so subordinated), and (ii) bank deposits, short-term obligations to
repurchase securities sold under agreements to repurchase federal funds
purchased, demand notes issued by the United States Treasury, advances from the
FHLB, and similar short-term banking obligations. (Section 1.01.)
LIMITATION ON CERTAIN ACQUISITIONS AND MERGERS
The Indenture imposes limitations on acquisitions by, and mergers into, FSCM and
its Subsidiaries where, after any such acquisition or merger, FSCM would not be
in full compliance with the provisions of the Indenture or the Consolidated
Tangible Net Worth of FSCM would be decreased in an amount greater than the sum
of the following: $6,000,000 plus (i) 65% of the net increase in consolidated
retained earnings of FSCM from June 30, 1996 through the end of the calendar
month preceding any such acquisition, merger or consolidation, plus (ii) the net
proceeds from the issuance of any capital stock by FSCM after June 30, 1996, and
minus (iii) the sum expended for all purchases or redemptions of capital stock
permitted pursuant to the Indenture. (Section 10.13.)
LIMITATIONS ON CERTAIN MERGERS AND TRANSFERS OF ASSETS
FSCM may not merge or consolidate with or into another entity or transfer
substantially all of its assets unless, after any such merger, consolidation or
transfer, no defaults exist under the Indenture and the acquiring entity after
the merger, consolidation or transfer has a Consolidated Tangible Net Worth of
at least $150,000,000. The requirement of the acquiring entity to have a
Consolidated Tangible Net Worth of at least $150,000,000 does not apply if the
shareholders of FSCM own at least a majority of the voting shares of the
acquiring entity after the merger, consolidation or transfer. TRIB may not
merge or consolidate with or into any other corporation where such action would
result in a failure to comply with the terms of the Indenture and TRIB may not
otherwise dispose of substantially all of its assets. (Section 8.01.)
LIMITATION ON INDEBTEDNESS
FSCM may not and may not permit any Subsidiary, or any Leasing Subsidiary whose
Indebtedness is included in the computation of "Consolidated Indebtedness," to
issue, assume or incur any Indebtedness unless immediately after incurring any
Indebtedness the ratio of Consolidated Indebtedness to Consolidated Tangible Net
Worth shall not be more than 60%. For the definition of "Indebtedness," see
"Description of Notes -- Restrictions on Liens."
"Consolidated Indebtedness" means the total indebtedness of any corporation, its
Subsidiaries and its Leasing Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles, except that there is
excluded therefrom any Indebtedness of a Leasing Subsidiary where such
Indebtedness is not guaranteed by or supported in any manner by FSCM, any other
Subsidiary of FSCM or by any other entity in which FSCM, directly or indirectly,
owns or controls a majority of the voting interest, or by any assets thereof;
provided, however, that such Leasing Subsidiary has a positive net worth at all
times that such Indebtedness is outstanding.
MAINTENANCE OF CONSOLIDATED TANGIBLE NET WORTH
The Indenture requires that FSCM at all times will maintain its Consolidated
Tangible Net Worth at not less than $19,000,000 and will cause TRIB to maintain
its Consolidated Tangible Net Worth at not less than $23,000,000. (Section
10.14.)
OWNERSHIP OF TRIB
The Indenture requires that FSCM will at all times own at least 80% of the
voting shares and capital stock of TRIB or such percentage as will permit the
consolidation of income and expenses of TRIB and FSCM for federal income tax
purposes. (Section 10.16.)
LIMITATION OF CAPITAL EXPENDITURES
Pursuant to the Indenture, FSCM and its Subsidiaries are not permitted to expend
sums for acquisitions of real property, buildings, leasehold improvements,
machinery or equipment, such that the consolidated book value of FSCM's
premises, furniture and equipment (representing the net sum of land plus
furniture and equipment plus buildings and improvements less accumulated
depreciation) exceeds 3% of the total assets on FSCM's consolidated balance
sheet as of the end of the quarter immediately preceding the expenditure for the
acquisition of the real property, buildings, leasehold improvements, machinery
or equipment. (Section 10.18.)
LIMITATION ON PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture prohibits FSCM and its Subsidiaries from allowing any restrictions
on the ability of the Subsidiaries to (i) pay dividends or pay any Indebtedness
to FSCM or its Subsidiaries; (ii) make loans to FSCM or its Subsidiaries; (iii)
transfer any assets to FSCM; or (iv) guarantee any Indebtedness of FSCM, except
as may be required by law, regulation or order of, or agreement with, any
regulatory authority, or except for restrictions mandated by debt covenants of
any entity acquired by FSCM or any of its Subsidiaries. (Section 10.19.)
LIMITATION ON INVESTMENT
The Indenture provides that the investment of FSCM, any Subsidiary and any other
entity in which FSCM, directly or indirectly, owns or controls at least a
majority of the voting interest in a Leasing Subsidiary or Subsidiaries shall
not exceed (i) twenty-five percent (25%) of the consolidated stockholders'
equity of the Company, as determined from time to time in accordance with
generally accepted accounting principles, excluding, however, the unrealized
gain or loss with respect to available-for-sale securities; plus (ii) the
principal amount outstanding of FSCM's MCDs.
OTHER COVENANTS
The Indenture provides that FSCM will maintain or cause to be maintained all
properties used or useful in the course of its business or the business of TRIB
in good condition, repair and working order. (Section 10.07.) FSCM will also
maintain its corporate existence, rights and franchises, as well as those of
TRIB. (Section 10.05.) FSCM will keep or cause to be kept all of its and its
Subsidiaries' properties insured against loss by fire to the extent of at least
80% of the properties' full insurable value and against other risks typically
insured against by bank holding companies, including public liability insurance.
(Section 10.09.)
MODIFICATION OF INDENTURE AND WAIVER OF CERTAIN COVENANTS
With the consent of holders of at least a majority in principal amount of the
outstanding Notes, the Trustee and FSCM may execute a supplemental indenture to
add provisions to change in any manner or eliminate any provisions of the
Indenture or modify in any manner the rights of the Noteholders; provided, that
without the consent of the holder of each outstanding Note so affected, no such
supplemental indenture may, among other things (i) change the maturity of or any
payment of interest on any Note, or reduce the principal amount thereof or the
rate of interest or premium thereon or the manner of computing such interest; or
(ii) reduce the aforesaid percentage of Noteholders whose consent is required
for the authorization of any such supplemental indenture. (Section 9.02.)
Without the consent of the Noteholders, FSCM and the Trustee may execute
supplemental indentures to add to the covenants of FSCM for the benefit of
holders of Notes, to cure any ambiguity or correct inconsistencies in the
Indenture, or to make other provisions which do not adversely affect holders of
Notes or to insure compliance with the Trust Indenture Act of 1939.
DEFAULTS AND CERTAIN RIGHTS ON DEFAULT
An Event of Default is defined in the Indenture as including (i) default for 30
days in payment of any interest on the Notes; (ii) default in payment of
principal of the Notes; (iii) default by FSCM or TRIB under any other obligation
for borrowed money and the expiration of any grace period to cure any such
default; (iv) default for 60 days, after notice thereof, in the performance of
any other covenant in the Indenture; or (v) certain events of bankruptcy,
insolvency, receivership or reorganization. (Section 5.01.)
In case an Event of Default should occur and be continuing, the Trustee or the
holders of at least 25% in principal amount of the Notes then outstanding may
declare the principal of all Notes to be due and payable. Such declaration may,
under certain circumstances, be rescinded by the holders of a majority in
principal amount of the Notes at the time outstanding. (Section 5.02.)
Subject to the provisions of the Indenture relating to the duties of the Trustee
in case an Event of Default shall occur and be continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the Noteholders unless such Noteholders
have offered to the Trustee reasonable security or indemnity. (Section 5.07.)
Subject to the provisions for indemnification and certain limitations contained
in the Indenture, the holders of a majority in principal amount of the Notes at
the time outstanding 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. (Section 5.13.) Such holders may,
in certain cases, waive any default except a default in payment of principal of
or interest on the Notes. (Section 5.14.)
REPORTS TO TRUSTEE
FSCM is required to file with the Trustee annually a written statement as to the
fulfillment of its obligations under the Indenture. (Section 10.04.)
TRUSTEE
The Trustee under the Indenture is M & I First National Bank, a national banking
association with trust powers, with its principal office located at West Bend,
Wisconsin. The Indenture provides for the appointment of successor trustee(s)
upon the occurrence of certain events. (Article Six.)
DESCRIPTION OF COMMON STOCK
AND PREFERRED STOCK
GENERAL
The authorized capital stock of FSCM consists of 600,000 shares of Common Stock,
$.50 par value ("Common Stock"), and 100,000 shares of Preferred Stock, without
par value ("Preferred Stock"). The authorized and issued shares of Preferred
Stock are divided into 50,000 shares of Class A Preferred Stock ("Class A
Preferred Stock"), 1,000 shares of Class B Preferred Stock ("Class B Preferred
Stock"), and 2,400 shares of Class C Preferred Stock ("Class C Preferred
Stock"). As of the date of the Prospectus, there were issued and outstanding
176,611 shares of Common Stock.
The following summary of the terms of FSCM's capital stock does not purport to
be complete and is subject to and qualified in its entirety by reference to the
applicable provisions of the Delaware Business Corporation Law and FSCM's
Certificate of Incorporation, as amended.
COMMON STOCK
Holders of Common Stock are entitled to receive dividends out of funds legally
available therefor as and if declared by the Board of Directors, provided that,
so long as any shares of Preferred Stock are outstanding, no dividends (other
than dividends payable in Common Stock) or other distributions (including
redemptions and purchases) may be made with respect to the Common Stock unless
full cumulative dividends on the shares of Preferred Stock have been paid.
Under FSCM's current bank loan agreement and under the Indenture for the Notes,
dividends on Common Stock in any fiscal year are limited to an amount not in
excess of 30% of FSCM's Consolidated Net Income for the preceding fiscal year.
Holders of shares of Common Stock are entitled to one vote for each share for
the election of directors and on all other matters. The issued and outstanding
shares of Common Stock are fully paid and nonassessable. The holders of Common
Stock are not entitled to preemptive rights or conversion or redemption rights.
The Common Stock does not have cumulative voting rights in the election of
directors. In the event of the voluntary dissolution, liquidation or winding up
of FSCM, holders of Common Stock will be entitled to receive, pro rata, after
satisfaction in full of the prior rights of creditors (including holders of
FSCM's indebtedness) and holders of Preferred Stock, all the remaining assets of
FSCM available for distribution.
There is no public trading market for the shares of Common Stock. In addition
to the 176,611 shares of Common Stock outstanding at June 30, 1996, there were,
as of such date, 50,000 shares of Common Stock that could be acquired upon the
exercise of conversion rights in connection with outstanding MCDs in the
principal amount of $1,250,000; 70,108 shares of Common Stock that could be
acquired upon conversion of Class A Preferred Stock; 11,111 shares of Common
Stock that could be acquired upon the conversion of Class B Preferred Stock; and
24,000 shares of Common Stock that could be acquired upon the conversion of
Class C Preferred Stock. Under FSCM's Option Plan, as of August 31, 1996, no
options had been granted. There are no outstanding warrants to purchase Common
Stock.
As of June 30, 1996, there were approximately 170 holders of shares of Common
Stock.
PREFERRED STOCK
There are issued and outstanding shares of Class A Preferred Stock, Class B
Preferred Stock, and Class C Preferred Stock.
Class A Preferred Stock is nonvoting except if the payment of dividends falls in
arrears in an aggregate amount at least equal to the full accrued dividends for
six quarterly dividend periods, in which case holders of Class A Preferred Stock
will have the right to elect two representatives to the Board of Directors of
FSCM and shall continue to have such right until all dividends in arrears have
been paid or declared and set apart for payment. Class A Preferred Stock is
entitled to dividends on a cumulative basis at a rate of 9.25% per annum payable
on the first day of March, June, September and December of each year. Class A
Preferred Stock has priority over all other classes of capital stock, both
Common Stock and Preferred Stock, with regard to the payment of dividends and
liquidation rights. FSCM may redeem any or all of the shares of Class A Common
Stock, upon 30 days' prior notice, for the stated value of $100 per share plus
any accrued and unpaid dividends at the redemption date. If the shares of Class
A Common Stock are still outstanding at December 1, 2002, holders thereof have
the option to convert the stock into FSCM's Common Stock according to a defined
formula. At June 30, 1996, and according to such formula, all shares of Class A
Preferred Stock could be converted into 70,108 shares of FSCM's Common Stock.
As of June 30, 1996, there were 530 holders of record of shares of Class A
Preferred Stock.
Class B Preferred Stock is nonvoting and is entitled to dividends on a
noncumulative basis at a rate of 1% in excess of the reference rate of
Manufacturers Hanover Bank of New York on its stated valued of $500 per share.
Class B Preferred Stock is subordinate to Class A Preferred Stock and Class D
Preferred Stock (of which no shares are outstanding) with respect to dividends
and liquidation rights but has priority over all other classes of capital stock,
both Common and Preferred Stock. Subject to the prior redemption rights of
Class A Preferred Stock and Class D Preferred Stock, FSCM may redeem all or any
part of Class B Preferred Stock at any time at a price equal to its stated value
($500 per share) plus accrued and unpaid dividends. Class B Preferred Stock is
convertible, at the option of the holders thereof, into Common Stock at a
conversion price of $45 per share. As of June 30, 1996, there were three
holders of shares of Class B Preferred Stock.
Class C Preferred Stock is nonvoting and is entitled to dividends on a
cumulative basis at the rate of 81/2% per annum of its stated value ($425 per
share). Class C Preferred Stock is subordinate to all classes of Preferred
Stock with respect to dividend and liquidation rights but has priority over
shares of Common Stock. Shares of Class C Preferred Stock are not redeemable by
FSCM, and each share is convertible into 10 shares of Common Stock at the
holders's option. As of June 30, 1996, there were three holders of shares of
Class C Preferred Stock.
In addition, FSCM has designated but has not issued 250 shares of Class D
Preferred Stock for the potential conversion of the MCDs. No agreement has ever
been entered into authorizing conversion of the MCDs into shares of Class D
Preferred Stock.
UNDERWRITING
FSCM has agreed to sell the Notes to the Underwriter, and the Underwriter, B. C.
Ziegler and Company, Inc., has agreed to purchase the Notes, subject to the
terms and conditions of an Underwriting Agreement. The Underwriter is a wholly-
owned subsidiary of The Ziegler Company, Inc. Under the Underwriting Agreement,
the Underwriter is committed to take and to pay for all of the Notes, if any are
taken.
The Underwriter proposes to offer the Notes in part directly to retail
purchasers at the initial public offering price stated on the cover page of this
Prospectus, and in part to certain securities dealers at such prices less a
maximum concession of $20.00 per Note. The Underwriter is entitled to receive a
commission of 3.75% of the principal amount of all Notes sold. The Underwriter
will also charge purchasers of the Notes a service fee of $5.00 per order to
cover its clerical and mailing expenses in processing such orders. The payment
of the fee will not reduce the net proceeds to be received by FSCM from the sale
of the Notes. After the Notes are released for sale to the public, the offering
price and other selling terms may from time to time be varied by the
Underwriter.
The Underwriting Agreement contains reciprocal agreements of indemnity between
FSCM and the Underwriter as to certain liabilities, including liabilities under
the Securities Act of 1933, as amended, in connection with the offering and sale
of the Notes.
LEGAL MATTERS
The validity of the Notes of FSCM being offered hereby is being passed upon for
FSCM by Winthrop & Weinstine, P.A., 3000 Dain Bosworth Plaza, 60 South Sixth
Street, Minneapolis, Minnesota 55402, counsel for FSCM in connection with this
offering, and for the Underwriter by Foley & Lardner, Firstar Center, 777 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202.
EXPERTS
The consolidated financial statements of FSCM as of March 31, 1996 and 1995, and
for each of the two years in the period ended March 31, 1996, included herein
have been included herein in reliance upon the report of McGladrey & Pullen,
LLP, independent auditors, appearing elsewhere herein, and upon the authority of
said firm as experts in accounting and auditing.
The consolidated statements of income, stockholders' equity and cash flows of
FSCM and subsidiaries for the year ended March 31, 1994 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets at June 30, 1996
and March 31, 1996 (unaudited)..............................----
Consolidated Statements of Income for the Three
Months Ended June 30, 1996 and 1995 (unaudited).............----
Consolidated Statements of Stockholders' Equity
for the Three Months Ended June30, 1996
and 1995 (unaudited)........................................----
Consolidated Statements of Cash Flows for the Three
Months Ended June 30, 1996 and 1995 (unaudited).............----
Notes to Consolidated Financial Statements (unaudited).......----
Independent Auditor's Report ................................----
Independent Auditors' Report.................................----
Consolidated Balance Sheets at March 31, 1996 and 1995.......----
Consolidated Statements of Income for the Years Ended
March 31, 1996, 1995 and 1994...............................----
Consolidated Statements of Stockholders' Equity for
the Years Ended March 31, 1996, 1995 and 1994...............----
Consolidated Statements of Cash Flows for the Years
Ended March 31, 1996, 1995 and 1994.........................----
Notes to Consolidated Financial Statements...................----
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
<CAPTION>
(Unaudited)
------------------------
June 30, March 31,
1996 1996
<S> --------- ---------
ASSETS <C> <C>
Cash and due from banks $13,479 $14,423
Interest-bearing deposits with other financial institutions 4,890 4,861
Investment securities:
Held-to-maturity (approximate market value June 30, 1996-$34,176 and
March 31, 1996-$29,072) 34,468 29,115
Available-for-sale (amortized cost June 30, 1996-$67,662 and March 31, 1996-$61,948) 66,115 61,308
Federal funds sold 3,700 11,900
Loan and direct financing leases 256,877 255,965
Less: Allowance for possible loan and lease losses (4,830) (4,463)
--------- ---------
Total loans and leases, net 252,047 251,502
Premises, furniture and equipment, net 5,801 5,953
Accrued interest receivable 3,260 2,653
Other real estate, net 151 457
Other assets 5,261 4,795
--------- ---------
Total $389,172 $386,967
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest-bearing demand $33,001 $36,286
Interest bearing:
N.O.W. accounts 24,035 24,420
Savings 41,053 41,814
Insured money market 16,618 8,638
Other time 188,739 190,660
--------- ---------
Total deposits 303,446 301,818
--------- ---------
Accounts payable and accrued liabilities 6,023 4,766
Securities sold under agreements to repurchase 46,963 48,846
Other short-term borrowings 2,500 1,500
Notes payable 4,500 4,500
Mandatory convertible debentures 1,250 1,250
--------- ---------
Total liabilities 364,682 362,680
--------- ---------
Stockholders' equity:
Capital stock:
Preferred, no par value; authorized, 100,000 shares:
Class A Preferred Stock, stated value $100 per share; authorized, 50,000 shares; issued
and outstanding: 50,000 shares 5,000 5,000
Class B Preferred Stock, stated value $500 per share; authorized, 1,000 shares; issued
and outstanding: 1,000 shares 500 500
Class C Preferred Stock, stated value $425 per share; authorized, 2,400 shares; issued
and outstanding: 2,400 shares 1,020 1,020
Common, par value $.50 per share; authorized, 600,000 shares;
issued: 340,662 shares; outstanding: 176,611 shares 170 170
Capital surplus 2,574 2,574
Net unrealized loss on available-for-sale securities, net of taxes (1,022) (422)
Retained earnings 21,497 20,694
Treasury stock (5,249) (5,249)
--------- ---------
Total stockholders' equity 24,490 24,287
--------- ---------
Total $389,172 $386,967
--------- ---------
--------- ---------
</TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
--------------------
Three Months Ended
June 30,
1996 1995
------- -------
INTEREST INCOME:
Interest and fees on loans and leases .............. $6,585 $5,458
Interest on investment securities .................. 1,433 1,029
Interest on federal funds sold ..................... 72 489
Interest on interest-bearing deposits with other
financial institutions ............................. 64 3
----- -----
Total interest income 8,154 6,979
------ -----
INTEREST EXPENSE:
Interest on deposits ............................... 3,397 3,075
Interest on securities sold under agreements to
repurchase ......................................... 625 506
Interest on other short-term borrowings ............ 23 13
Interest on notes payable .......................... 95 106
Interest on mandatory convertible debentures ....... 24 27
----- -----
Total interest expense ........................... 4,164 3,727
----- -----
Net interest income .............................. 3,990 3,252
PROVISION FOR POSSIBLE LOAN AND LEASE LOSSES.......... 525 430
----- -----
Net interest income after provision for possible
loan and lease losses ............................ 3,465 2,822
----- -----
OTHER INCOME:
Trust fees ......................................... 100 112
Loan servicing fees ................................ 178 168
Gain on sales of loans and leases .................. 112 91
Services charges on deposit accounts ............... 274 263
Insurance commissions .............................. 79 75
Other .............................................. 132 104
----- -----
Total other income ............................... 875 813
----- -----
OTHER EXPENSES:
Salaries and employee benefits ..................... 1,594 1,368
Occupancy, net ..................................... 205 163
Insurance .......................................... 28 174
Equipment .......................................... 238 162
Data processing .................................... 172 137
Advertising ........................................ 121 115
Other operating .................................... 399 491
----- -----
Total other expenses ............................. 2,757 2,610
------ -----
Income before income taxes ....................... 1,583 1,025
INCOME TAXES.......................................... 543 339
----- -----
NET INCOME............................................ $1,040 $686
----- -----
----- -----
Net income available for Common Stock................. $891 $537
------ -----
------ -----
EARNINGS PER COMMON SHARE:
Primary............................................... $5.04 $3.07
------ -----
------ -----
Fully diluted......................................... $3.18 $2.08
------ -----
------ -----
Weighted average common shares outstanding............ 176,611 175,111
------- -------
------- -------
Weighted average common and contingently issuable
common shares outstanding............................. 322,176 338,608
------- -------
------- -------
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands, Except Per Share Amounts)
<CAPTION>
NET
UNREALIZED
LOSS ON
PREFERRED STOCK AVAILABLE-
THREE MONTHS ENDED --------------- COMMON CAPITAL FOR-SALE RETAINED TREASURY
JUNE 30, 1996 (UNAUDITED) CLASS A CLASS B CLASS C STOCK SURPLUSSECURITIES1 EARNINGS STOCK
<F35>
- ------------------------- -------- ------- ------- ------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996 $5,000 $500 $1,020 $170 $2,574 $(422) $20,694 $(5,249)
Net income --- --- --- --- --- --- 1,040 ---
Change in net unrealized loss on
available-for-sale securities1<F35> --- --- --- --- --- (600) --- ---
Cash dividends declared:
Class A Preferred, $2.31 per share --- --- --- --- --- --- (116) ---
Class B Preferred, $11.53 per share --- --- --- --- --- --- (12) ---
Class C Preferred, $9.03 per share --- --- --- --- --- --- (21) ---
Common, $0.50 per share --- --- --- --- --- --- (88) ---
------ ----- ------ ----- ------ ------- ------- --------
BALANCE AT JUNE 30, 1996 $5,000 $500 $1,020 $170 $2,574 $(1,022) $21,497 $(5,249)
------ ----- ------ ----- ------ ------- ------- --------
------ ----- ------ ----- ------ ------- ------- --------
</TABLE>
<TABLE>
<CAPTION>
NET
UNREALIZED
LOSS ON
PREFERRED STOCK AVAILABLE-
THREE MONTHS ENDED --------------- COMMON CAPITAL FOR-SALE RETAINED TREASURY
JUNE 30, 1995 (UNAUDITED) CLASS A CLASS B CLASS C STOCK SURPLUS SECURITIES1 EARNINGS STOCK
<F35>
- ------------------------- -------- ------- ------- ------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995 $5,000 $500 $1,020 $170 $2,521 $--- $18,047 $(5,297)
Net income --- --- --- --- --- --- 686 ---
Change in net unrealized loss on
available-for-sale securities1<F35> --- --- --- --- --- --- --- ---
Cash dividends declared:
Class A Preferred, $2.31 per share --- --- --- --- --- --- (116) ---
Class B Preferred, $12.47 per share --- --- --- --- --- --- (12) ---
Class C Preferred, $9.03 per share --- --- --- --- --- --- (21) ---
Common, $0.38 per share --- --- --- --- --- --- (67) ---
------ ------ ------ ------ ------ ------ ------- --------
BALANCE AT JUNE 30, 1995 $5,000 $500 $1,020 $170 $2,521 $--- $18,517 $(5,297)
------ ------ ------ ------ ------ ------ ------- --------
------ ------ ------ ------ ------ ------ ------- --------
1<F35>Net of taxes.
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
------------------------
Three Months Ended
June 30,
-----------------------
1996 1995
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................ $1,040 $686
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................. 296 167
Provision for possible loan and lease losses ... 525 430
Investment amortization ........................ 75 40
Loans and leases originated for sale ...........(11,548) (9,154)
Proceeds on sale of loans and leases ........... 19,483 8,044
Increase in interest receivable ................ (607) (569)
Increase in interest payable ................... 717 955
(Increase) decrease in other assets ............ (156) 26
Increase in other liabilities .................. 540 566
------ ------
Net cash provided by operating activities ......... 10,365 1,191
------ ------
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Net decrease in federal funds sold ................ 8,200 9,200
Net (increase) decrease in interest-bearing
deposits with other financial institutions ...... (29) 99
Purchase of investment securities
held-to-maturity ................................ (5,375) (6,995)
Proceeds from maturity or call of investment
securities held-to-maturity ..................... --- 1,000
Purchase of investment securities
available-for-sale .............................. (8,353) ---
Proceeds from maturity or call of investment
securities available-for-sale ................... 2,585 ---
Net increase in loans and leases .................. (9,005) (11,812)
Other investing activities, net ................... 160 (486)
------- -------
Net cash used in investing activities .............(11,817) (8,994)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits .......................... 1,628 1,657
Net increase (decrease) in short-term borrowings.. (1,357) 5,010
Proceeds from other borrowings .................... 23,172 3,183
Payments on other borrowings ..................... (23,698) (4,408)
Proceeds from bank note advance .................. 1,000 ---
Cash dividends paid on Preferred Stock ........... (149) (149)
Cash dividends paid on Common Stock ............... (88) (67)
------- -------
Net cash provided by financing activities ......... 508 5,226
------- -------
Net decrease in cash and due from banks ........... (944) (2,577)
Cash and due from banks at the beginning
of the year ..................................... 14,423 13,955
------- -------
Cash and due from banks at the end of the period .. $13,479 $11,378
------- -------
------- -------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Interim Financial Statements - The accompanying unaudited consolidated
----------------------------
financial statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto contained elsewhere
herein.
In the opinion of management of FSCM, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the financial
position of FSCM, its results of operations and its cash flows for the
interim periods presented. Interim results are not necessarily indicative
of the results to be expected for the full year.
2. Supplemental Disclosures of Cash Flow Information - Cash paid for:
-------------------------------------------------
Three Months Ended
June 30
(Dollars in Thousands) ----------------------
---------------------- 1996 1995
------ ------
Interest ............................... $3,447 $2,666
Income taxes ........................... --- ---
3. Earnings Per Common Share Data - The following information was used in the
------------------------------
computation of earnings per common share on both a primary and fully diluted
basis for the respective three month periods.
Three Months Ended
June 30,
(Dollars in Thousands) --------------------------
- ---------------------- 1996 1995
------ -----
Net income................................ $1,040 $686
Accrued preferred dividends............... (149) (149)
------ ------
Primary earnings ...................... 891 537
Accrued convertible preferred dividends... 149 149
Mandatory convertible debentures interest
expense, net of tax....................... 16 18
------ ------
Fully diluted earnings ................ $1,056 $704
------ ------
------ ------
Weighted average common shares
outstanding............................... 176,611 175,111
Weighted average common shares issuable
upon conversion of:
Class A Preferred Stock1 <F36>......... 70,454 78,386
Class B Preferred Stock2 <F37>......... 11,111 11,111
Class C Preferred Stock2 <F37>......... 24,000 24,000
Mandatory convertible debentures2<F37>. 50,000 50,000
------- ------
Weighted average common and
contingently issuable
common shares outstanding ........... 332,176 338,608
------- -------
------- -------
1<F36>The Class A Cumulative Convertible Preferred Stock cannot be converted
into Common Stock until on or after December 1, 2002.
2<F37>The Class B and C Preferred Stock and the mandatory convertible debentures
are convertible at the option of the holders. The holders of the Class B
and C Preferred Stock and certain holders of the mandatory convertible
debentures have consented to provide FSCM with a ninety day notice prior to
the conversion of their securities and allow for the obtainment of any
necessary regulatory approval or legal opinion.
No mandatory convertible debentures or Preferred Stock were converted to common
shares during the periods presented.
[LETTERHEAD OF MCGLADREY & PULLEN, LLP]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Financial Services Corporation of the Midwest
Rock Island, Illinois
We have audited the accompanying consolidated balance sheets of Financial
Services Corporation of the Midwest and subsidiary as of March 31, 1996 and
1995, and the related consolidated statements of income, 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 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 of 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 Financial Services
Corporation of the Midwest and subsidiary as of March 31, 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.
/s/ McGladrey & Pullen, LLP
Davenport, Iowa
April 26, 1996
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Financial Services Corporation of the Midwest
Rock Island, Illinois:
We have audited the consolidated statement of income, stockholders' equity and
cash flows of Financial Services Corporation of the Midwest and subsidiaries for
the year ended March 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial 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 audit provided a reasonable basis for our opinion.
In our opinion, such consolidated financial statements of Financial Services
Corporation of the Midwest and subsidiaries present fairly, in all material
respects, the results of their operations and their cash flows for the year
ended March 31, 1994 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Davenport, Iowa
June 23, 1994
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and 1995
(Dollars in Thousands, Except Per Share Amounts)
1996 1995
------- -------
ASSETS
Cash and due from banks (note 2) $14,423 $13,955
Interest-bearing deposits with other
financial institutions 4,861 198
Investment securities:
Held-to-maturity (approximate market value 1996 --
$29,072; 1995 -- $69,852) (note 3) 29,115 71,822
Available-for-sale (amortized cost 1996 --
$61,948; 1995 -- $0) (note 3) 61,308 ---
Federal funds sold 11,900 32,900
Loans and direct financing leases (note 4) 255,965 212,076
Less: Allowance for possible loan
and lease losses (4,463) (3,832)
-------- --------
Total loans and leases, net 251,502 208,244
Premises, furniture and equipment, net (note 5) 5,953 3,623
Accrued interest receivable 2,653 1,960
Other real estate, net 457 378
Other assets 4,795 4,374
-------- --------
Total $386,967 $337,454
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (note 6):
Non-interest-bearing demand $36,286 $33,496
Interest-bearing:
N.O.W. accounts 24,420 23,974
Savings 41,814 42,823
Money Market 8,638 8,830
Time 190,660 162,488
------- -------
Total deposits 301,818 271,611
Accounts payable and accrued liabilities 4,766 3,895
Securities sold under agreements to repurchase
(note 7) 48,846 33,371
Other short-term borrowings (note 7) 1,500 366
Notes payable (note 8) 4,500 5,000
Mandatory convertible debentures (note 9) 1,250 1,250
------- -------
Total liabilities 362,680 315,493
------- -------
Commitments and contingencies (note 14)
Stockholders' equity (notes 8, 9, and 15):
Capital stock:
Preferred, no par value; authorized, 100,000
shares;
Class A Preferred Stock, stated value $100 per
share;
authorized, 50,000 shares; issued and
outstanding: 1996 and 1995 -- 50,000
shares (note 11) 5,000 5,000
Class B Preferred Stock, stated value $500 per
share; authorized, 1,000 shares; issued and
outstanding: 1996 and 1995 -- 1,000
shares (note 11) 500 500
Class C Preferred Stock, stated value $425 per
share; authorized, 2,400 shares; issued and
outstanding: 1996 and 1995 -- 2,400
shares (note 11) 1,020 1,020
Common, par value $.50 per share; authorized,
600,000 shares; issued: 1996 and
1995 -- 340,662 shares; outstanding:
1996 -- 176,611 shares; 1995 -- 175,111 shares 170 170
Capital surplus 2,574 2,521
Net unrealized loss on available-for-sale
securities, net of taxes (422) ---
Retained earnings 20,694 18,047
Treasury stock (note 12) (5,249) (5,297)
-------- -------
Total stockholders' equity 24,287 21,961
-------- -------
Total $386,967 $337,454
-------- --------
-------- --------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended March 31, 1996, 1995 and 1994
(Dollars in Thousands, Except Per Share Amounts)
1996 1995 1994
------- ------- ------
INTEREST INCOME:
Interest and fees on loans and leases $24,208 $19,576 $17,946
Interest on investment securities 5,003 3,930 3,507
Interest on federal funds sold 1,021 1,050 513
Interest on interest-bearing deposits with
other financial institutions 39 15 58
------ ------ ------
Total interest income 30,271 24,571 22,024
------- ------ ------
INTEREST EXPENSE:
Interest on deposits 12,864 9,029 8,396
Interest on securities sold under
agreements to repurchase 2,375 1,118 725
Interest on other short-term borrowings 80 43 27
Interest on notes payable 411 425 425
Interest on mandatory convertible
debentures 103 92 69
------- ------ ------
Total interest expense 15,833 10,707 9,642
------- ------ ------
Net interest income 14,438 13,864 12,382
PROVISION FOR POSSIBLE LOAN AND
LEASE LOSSES(note 4) 1,905 2,510 1,970
Net interest income after provision ------- ------ ------
for possible loan and lease losses 12,533 11,354 10,412
------- ------ ------
OTHER INCOME:
Trust fees 322 361 304
Investment securities gains 11 --- ---
Loan servicing fees 680 677 618
Gain on sales of loans and leases 362 132 938
Service charges on deposit accounts 1,065 999 744
Insurance commissions 294 323 503
Other 581 657 408
------- ------ ------
Total other income 3,315 3,149 3,515
------- ------- ------
OTHER EXPENSES:
Salaries and employee benefits 5,904 5,272 5,386
Occupancy, net 801 754 538
Insurance 281 713 659
Equipment 947 651 633
Data processing 569 551 541
Advertising 400 420 448
Other operating 1,625 1,558 2,122
------- ------ ------
Total other expenses 10,527 9,919 10,327
------- ------ ------
Income before income taxes 5,321 4,584 3,600
INCOME TAXES (note 10) 1,768 1,516 1,267
------- ------ ------
NET INCOME $3,553 $3,068 $2,333
------- ------ ------
------- ------ ------
Net income available for Common Stock $2,955 $2,474 $1,749
------- ------- -------
------- ------- -------
EARNINGS PER COMMON SHARE (note 18):
Primary $16.87 $14.21 $10.07
------- ------- -------
------- ------- -------
Fully diluted $10.80 $9.10 $6.73
------- ------- -------
------- ------- -------
Weighted average common shares outstanding 175,123 174,079 173,611
------- ------- -------
------- ------- -------
Weighted average common and contingently
issuable common shares outstanding 335,327 343,796 353,431
------- ------- -------
------- ------- -------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended March 31, 1996, 1995 and 1994
(Dollars in Thousands, Except Per Share Amounts)
<CAPTION>
Net
Unrealized
Gain/(Loss)
Preferred Stock on Available
--------------- Common Capital For-Sale Retained Treasury
Class A Class B Class C Stock Surplus Securities1 Earnings Stock
<F38>
------- ------- ------- ------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1993 $5,000 $500 $1,020 $170 $2,484 $--- $14,353 $(5,345)
Net income --- --- --- --- --- --- 2,333 ---
Effect of adoption of SFAS No.
115 (note 1) --- --- --- --- --- 84 --- ---
Cash dividends declared:
Class A Preferred, $9.25 per share --- --- --- --- --- --- (462) ---
Class B Preferred, $35.00 per share --- --- --- --- --- --- (35) ---
Class C Preferred, $36.13 per share --- --- --- --- --- --- (87) ---
Common, $1.52 per share --- --- --- --- --- --- (264) ---
------ ------ ------ ------ ------ ------- ------ -------
BALANCE AT MARCH 31, 1994 5,000 500 1,020 170 2,484 84 15,838 (5,345)
Net income --- --- --- --- --- --- 3,068 ---
Change in net unrealized gain
on available-for-sale securities1<F38> --- --- --- --- --- (84) --- ---
Sale of 1,500 shares of Treasury Stock --- --- --- --- 37 --- --- 48
Cash dividends declared:
Class A Preferred, $9.25 per share --- --- --- --- --- --- (463) ---
Class B Preferred, $44.21 per share --- --- --- --- --- --- (44) ---
Class C Preferred, $36.13 per share --- --- --- --- --- --- (87) ---
Common, $1.52 per share --- --- --- --- --- --- (265) ---
------ ------ ------ ------ ------ ------- ------ -------
BALANCE AT MARCH 31, 1995 5,000 500 1,020 170 2,521 --- 18,047 (5,297)
Net income --- --- --- --- --- --- 3,353 ---
Change in net unrealized loss on
available-for-sale securities1<F38> --- --- --- --- --- (422) --- ---
Sale of 1,500 shares of Treasury Stock --- --- --- --- 53 --- --- 48
Cash dividends declared:
Class A Preferred, $9.25 per share --- --- --- --- --- --- (462) ---
Class B Preferred, $48.66 per share --- --- --- --- --- --- (49) ---
Class C Preferred, $36.13 per share --- --- --- --- --- --- (87) ---
Common, $1.76 per share --- --- --- --- --- --- (308) ---
------ ------ ------ ------ ------ ------- ------ -------
BALANCE AT MARCH 31, 1996 $5,000 $500 $1,020 $170 $2,574 $(422) $20,694 $(5,249)
------ ------ ------ ------ ------ ------- ------ -------
------ ------ ------ ------ ------ ------- ------ -------
1<F38> Net of taxes.
ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31, 1996, 1995 and 1994
(Dollars in Thousands)
1996 1995 1994
------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,553 $3,068 $2,333
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 898 662 984
Provision for possible loan and lease
losses 1,905 2,510 1,970
Gain on sale of investment securities (11) --- ---
Investment amortization 145 439 638
Loans and leases originated for sale (51,287) (32,162) (93,127)
Proceeds on sales of loans and leases 49,634 32,717 94,414
(Increase) decrease in accrued interest
available (693) 91 (286)
Increase in accrued interest payable 633 705 180
Increase in other assets (68) (282) (186)
Increase (decrease) in other liabilities 238 18 1,146
------ ------ ------
Net cash provided by operating activities 4,947 7,766 5,774
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in federal
funds sold 21,000 (7,800) 4,700
Net (increase) decrease in interest-bearing
deposits with other financial institutions (4,663) 297 1,089
Purchase of investment securities
held-to-maturity (18,403) (21,315) (18,047)
Proceeds from maturity and call of
investment securities held-to-maturity 26,000 10,865 21,000
Purchase of investment securities
available-for-sale (64,134) --- (48,909)
Proceeds from maturity and call of
investment securities available-for-sale 30,010 18,000 29,600
Proceeds from sales of investment securities
available-for-sale 7,152 --- ---
Net increase in loans and leases (43,510) (34,208) (25,360)
Purchase of life insurance policies --- --- (2,521)
Purchase of premises, furniture and
equipment (3,363) (769) (834)
Other investing activities, net (79) (37) (19)
-------- ------- --------
Net cash used in investing activities (49,990) (34,967) (39,301)
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 30,207 20,837 33,172
Net increase (decrease) in short-term
borrowings 5,526 5,286 (1,063)
Proceeds from other borrowings 50,431 21,046 12,817
Payments on other borrowings (39,348) (16,723) (9,788)
Payments on notes payable (500) --- ---
Sale of Treasury Stock 101 85 ---
Cash dividends on Preferred Stock (598) (594) (584)
Cash dividends paid on Common Stock (308) (265) (264)
-------- ------- -------
Net cash provided by financing activities 45,511 29,672 34,290
-------- ------- -------
Net increase in cash and due from banks 468 2,471 763
Cash and due from banks at the beginning of
the year 13,955 11,484 10,721
-------- ------- -------
Cash and due from banks at the end of the
year $14,423 $13,955 $11,484
------- ------- -------
------- ------- -------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Services Corporation of the Midwest ("FSCM") is a bank holding company
incorporated in 1973 under Delaware law and registered under the Bank Holding
Company Act of 1956, as amended. FSCM's principal place of business is located
at 224- 18th Street, Suite 202, Rock Island, Illinois. In 1974, FSCM acquired
all outstanding shares of THE Rock Island Bank ("TRIB"), an Illinois chartered
state commercial bank serving both the Illinois and Iowa Quad Cities'
communities since 1932. On November 1, 1995, TRIB became a national bank known
as THE Rock Island Bank, National Association and relocated its head office from
Rock Island, Illinois to Bettendorf, Iowa.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and with the general practice within
the banking industry. In preparing such financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheets and revenues and
expenses for the periods. Actual results could differ significantly from those
estimates. Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance for
possible loan and lease losses.
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of FSCM and TRIB.
All significant intercompany balances and transactions have been eliminated in
consolidation.
(B) INVESTMENT SECURITIES
Investments consist principally of debt securities with fixed maturities.
FSCM adopted Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," effective
March 31, 1994. This statement requires that investments in debt and certain
equity securities be classified in one of three categories: (1) held-to-
maturity securities, which are carried at amortized cost, (2) trading
securities, which are carried at fair market value, with unrealized gains and
losses included in earnings, and (3) available-for-sale securities, which are
carried at fair value, with net, tax effected, unrealized gain and loss
excluded from earnings and reported as a separate component of stockholders'
equity. On December 19, 1995, securities with an amortized cost of $34,999
were transferred from held-to-maturity to available-for-sale in accordance with
a one-time reassessment of securities' classification permitted under SFAS No.
115's implementation guidelines.
Market values of securities are estimated based on available market quotations.
Gains or losses from security transactions are determined based on the carrying
value of the specific security sold.
(C) LOANS AND DIRECT FINANCING LEASES
Generally, interest on loans and direct financing leases ("leases") is accrued
and credited to income based on the principal balance outstanding. It is
FSCM's policy to discontinue the accrual of interest income on any loan or
lease when, in the opinion of management, there is a reasonable doubt as to the
timely collectibility of interest and principal or to comply with regulatory
requirements. Interest accrued previously on such loans and leases is charged
off. Nonaccrual loans and leases are returned to an accrual status when, in
the opinion of management, the financial position of the borrower indicates
that there is no longer any reasonable doubt as to the timely payment of
principal and interest and only after all previously accrued but unpaid
interest has been brought current.
Net nonrefundable loan and lease origination fees and certain direct costs
associated with the lending process are deferred and recognized as a yield
adjustment over the life of the related loan or lease.
Loans and leases held for sale are stated at the lower of cost or market on an
aggregate basis. Gains and losses are recognized on loans and leases sold on a
nonrecourse basis based on the sale price for the loan or lease adjusted for
any normal servicing fees when servicing is retained by FSCM.
Mortgage loan and lease servicing retained on loans and leases sold to others
are not included in the accompanying consolidated balance sheets. The unpaid
principal balances of these loans and leases as of March 31, 1996 and 1995 were
$165,003 and $155,657, respectively. Custodial escrow balances maintained in
connection with the loan and lease servicing were approximately $1,744 and
$1,837 as of March 31, 1996 and 1995, respectively.
(D) ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The allowance for possible loan and lease losses is maintained at a level
deemed appropriate by management to provide for known and inherent risks in the
loan and lease portfolio. The allowance is based upon a continuing review of
past loan and lease loss experience, current economic conditions, and the
underlying collateral value. Loans and leases which are deemed uncollectible
are charged off and deducted from the allowance. The provision for possible
loan and lease losses and recoveries are added to the allowance.
SFAS No. 114 "Accounting by Creditors for Impairment of a Loan," and SFAS No.
118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosure," were adopted as of April 1, 1995. These statements address the
accounting for loans when it is probable that all principal and interest
amounts due will not be collected in accordance with their contractual terms
(i.e., "impaired loans"). The loan impairment is measured based on the
discounted present value of expected future cash flows or the fair market value
of the loan's collateral if the loan is collateral dependent. The portion of
the allowance for loan and lease losses is computed on the amount that the
recorded investment of an impaired loan exceeds the measured value. The
adoption of these standards had no material effect on FSCM's net income.
(E) INCOME TAXES
FSCM and TRIB file a consolidated federal income tax return.
FSCM has a tax allocation agreement which provides that each subsidiary of the
consolidated group pay a tax liability to, or receive a tax refund from, FSCM
computed as if the subsidiary had filed a separate return.
FSCM recognizes certain income and expenses in different time periods for
financial reporting and income tax purposes. The provision for deferred income
taxes is based on an asset and liability approach and represents the change in
deferred income tax accounts during the year, including the effect of enacted
tax rate changes.
(F) TRUST DEPARTMENT ASSETS
Property held for customers in fiduciary or agency capacities is not included
in the accompanying consolidated balance sheets, as such items are not assets
of FSCM.
(G) PREMISES, FURNITURE AND EQUIPMENT
Premises, furniture and equipment are stated at cost less accumulated
depreciation. The provision for depreciation of premises, furniture and
equipment is determined by the straight-line method over the estimated useful
lives of the assets.
(H) OTHER REAL ESTATE
Other real estate represents property acquired through foreclosures or
settlements of loans or property that was subsequently sold on contract.
Property acquired is carried at the lower of the principal amount of the loan
outstanding or the estimated fair value of the property. The excess, if any,
of the principal balance over the fair value of the property at the date
acquired is charged against the allowance for possible loan and lease losses.
Subsequent writedowns required on the basis of later fair value evaluations,
gains or losses on sales, and net expenses incurred in maintaining such
properties are included in other operating expenses. Property subsequently
sold on contract is carried at the contract balance outstanding.
(I) PER COMMON SHARE AMOUNTS
Primary earnings per common share amounts are computed by dividing net income,
after deducting Preferred Stock dividends (net income available for Common
Stock), by the weighted average number of common shares outstanding during the
year. Fully diluted earnings per common share amounts are computed by dividing
net income, after deducting dividends on nonconvertible Preferred Stock and
adding back interest, net of the related income tax effect, on Mandatory
Convertible Debentures ("MCDs"), by the weighted average number of common
shares and contingently issuable common shares outstanding during the year.
(J) CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as those amounts included in the
consolidated balance sheets as "Cash and due from banks."
(K) INSURANCE COMMISSION REVENUE
Revenue from insurance commissions on credit life and accident and health
insurance related to loans is recognized at the effective date of the coverage
because substantially all services related to earning the commissions have been
rendered. A provision is made for probable insurance commission refunds due to
policy cancellations based on prior experience and is netted against insurance
commission revenue.
(L) IMPACT OF RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of," and No. 122, "Accounting for Mortgage
Servicing Rights," both become effective for FSCM beginning after March 31,
1996. SFAS No. 121 generally requires an estimation of future cash flows to
identify asset impairment and SFAS No. 122 attempts to standardize the
accounting treatment of originated mortgage servicing rights to those
purchased, if it is practicable to separately estimate the fair values of the
loan and servicing rights. Management believes that adoption of these
statements will not have a material effect on the financial statements.
(M) RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 consolidated financial statements have
been reclassified to conform with 1996 presentations.
(2) CASH AND DUE FROM BANKS
TRIB's required reserves as a member of the Federal Reserve System were $1,351
and $1,279 as of March 31, 1996 and 1995, respectively.
(3) INVESTMENT SECURITIES
The amortized costs, fair values, and maturities of investment securities held-
to-maturity and available-for-sale as of March 31, 1996 and 1995 are summarized
as follows. Maturities of mortgage-backed obligations were estimated based on
anticipated payments.
<TABLE>
<CAPTION>
1996 1995
----------------------------------------- ------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED FAIR AMORTIZED UNREALIZED FAIR
------------- -------------
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
---------- ------ ------- ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY:
U.S. Treasury maturities:
Within 1 year $6,033 $32 $--- $6,065 $988 $--- $3 $985
From 1 to 5 years --- --- --- --- 6,118 5 20 6,103
------- ----- ------ ------ ------ ----- ------ ------
Total 6,033 2 --- 6,065 7,106 5 23 7,088
------- ----- ------ ------ ------ ----- ------ ------
Obligations of U.S. government
agencies and corporations
maturities:
Within 1 year 5,000 --- 37 4,963 --- --- --- ---
From 1 to 5 years 13,980 68 68 13,980 61,040 25 1,857 59,208
From 5 to 10 years --- --- --- --- 2,000 --- 120 1,880
------- ----- ------ ------ ------ ----- ------ ------
Total 18,980 8 105 18,943 63,040 25 1,977 61,088
------- ----- ------ ------ ------ ----- ------ ------
State and political
subdivisions maturities:
From 1 to 5 years 2,326 --- 40 2,286 --- --- --- ---
------- ----- ------ ------ ------ ----- ------ ------
Other securities maturities:
Within 1 year 10 --- --- 10 --- --- --- ---
From 1 to 5 years 70 2 --- 72 80 --- --- 80
From 5 to 10 years 400 --- --- 400 300 --- --- 300
Over 10 years 1,296 --- --- 1,296 1,296 --- --- 1,296
------- ----- ------ ------ ------ ----- ------ ------
Total 1,776 2 --- 1,778 1,676 --- --- 1,676
------- ----- ------ ------ ------ ----- ------ ------
Total $29,115 $102 $145 $29,072 $71,822 $30 $2,000 $69,852
------- ----- ------ ------ ------ ----- ------ ------
------- ----- ------ ------ ------ ----- ------ ------
AVAILABLE-FOR-SALE:
U.S. Treasury maturities:
From 1 to 5 years $2,074 $--- $--- $2,074 $--- $--- $--- $---
------- ----- ------ ------ ------ ----- ------ ------
Obligations of U.S. government
agencies and corporations
maturities:
Within 1 year 6,000 --- 29 5,971 --- --- --- ---
From 1 to 5 years 32,174 16 121 32,069 --- --- --- ---
From 5 to 10 years 4,004 1 4 4,001 --- --- --- ---
------- ----- ------ ------ ------ ----- ------ ------
Total 42,178 17 154 42,041 --- --- --- ---
------- ----- ------ ------ ------ ----- ------ ------
Mortgage-backed obligations of
federal agencies maturities:
Within 1 year 2,228 --- 63 2,165 --- --- --- ---
From 1 to 5 years 7,290 --- 207 7,083 --- --- --- ---
From 5 to 10 years 6,136 --- 175 5,961 --- --- --- ---
Over 10 years 2,042 --- 58 1,984 --- --- --- ---
------- ----- ------ ------ ------ ----- ------ ------
Total 17,696 --- 503 17,193 --- --- --- ---
------- ----- ------ ------ ------ ----- ------ ------
Total $61,948 $17 $657 $61,308 $--- $--- $--- $---
------- ----- ------ ------ ------ ----- ------ ------
------- ----- ------ ------ ------ ----- ------ ------
In fiscal 1995, included in the category of obligations of U.S. government
agencies and corporations, were structured notes with a book value of $46,005
that had step-up rate and callable provisions which resulted in the advancement
of redemption to a one-year time frame for the majority of the issues.
Securities with an amortized cost of $34,999 and an unrealized gain of $95 were
transferred into available-for-sale from held-to-maturity on December 19, 1995.
This was done in accordance with Financial Accounting Standards Board
implementation guidance which permitted a one-time reassessment of securities'
classification under SFAS No. 115. Such decision was based on management's
desire to enhance the liquidity and flexibility of the investment portfolio with
consideration also given to the amendment in regulatory capital ratios which
excluded from the computation, any unrealized gains or losses on available-for-
sale investments.
As of March 31, 1996 and 1995, investment securities with carrying values of
$72,169 and $59,142, respectively, and fair values of $72,164 and $58,071,
respectively, were pledged to secure public and trust deposits, short-term
borrowings and for other purposes as required or permitted by law.
Proceeds from sales and gross gains and losses related to investment securities
sold for the years ended March 31, 1996, 1995 and 1994 are summarized as
follows:
1996 1995 1994
------ ----- -----
Securities Sold:
Proceeds from sales.............. $7,152 $--- $---
Gross security gains............. 11 --- ---
(4) LOANS AND DIRECT FINANCING LEASES
Loans and leases as of March 31, 1996 and 1995 are summarized as follows:
1996 1995
------- -------
Commercial, financial and agricultural $85,578 $74,234
Direct financing leases........... 5,719 6,863
Real estate:
Residential mortgage............. 64,248 58,486
Construction..................... 21,823 14,553
Commercial mortgage.............. 62,746 51,529
Consumer, not secured by a real estate
mortgage.......................... 15,851 6,411
-------- --------
Total............................. $255,965 $212,076
-------- --------
-------- --------
1996 1995
------ ------
Direct financing leases:
Gross rents receivable........... $6,092 $7,804
Unearned income.................. (1,183) (941)
-------- -------
Total............................ $5,719 $6,863
-------- -------
-------- -------
Direct financing leases are generally short-term equipment type leases. Future
minimum lease payments as of March 31, 1996 are as follows: 1997, $2,829; 1998,
$2,049; 1999, $1,102; 2000, $615; 2001, $288; and 2002, $19. Income on leases
of $947, $1,854 and $3,030 is included in interest and fees on loans and leases
for the fiscal years ended March 31, 1996, 1995 and 1994, respectively.
Changes in the allowance for possible loan and lease losses for the fiscal years
ended March 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994
------- ------ ------
Balance at beginning of year...... $3,832 $3,744 $3,639
Provision for loan and lease losses 1,905 2,510 1,970
Loans and leases charged off...... (1,985) (4,398) (2,537)
Recoveries........................ 711 1,976 672
------- ------- --------
Balance at end of year............ $4,463 $3,832 $3,744
------- ------- -------
------- ------- -------
Although FSCM has a diversified loan and lease portfolio, a substantial natural
geographic concentration of credit risk exists within FSCM's market area.
FSCM's loan portfolio consists of commercial and commercial mortgage loans
extending across many industry types, as well as to individuals. FSCM's leasing
activities consisted primarily of financing arrangements. As of March 31, 1996,
total loans and leases to any group of customers engaged in similar activities
and having similar economic characteristics did not exceed 10% of total loans
and leases.
The table below summarizes nonperforming assets as of March 31, 1996 and 1995:
1996 1995
---- -----
Nonaccrual loans and leases:
Commercial, financial and agricultural $339 $1,076
Direct financing leases 28 96
Real estate:
Residential mortgage 388 419
Construction 51 ---
Commercial mortgage 427 1,020
Consumer 45 31
Other real estate owned 457 378
Accruing loans and leases past-due 90 days or more:
Commercial, financial and agricultural 51 9
Direct financing leases 103 ---
Real Estate:
Residential mortgage --- 17
Construction 25 ---
Commercial mortgage --- 297
Consumer 10 ---
------ ------
Total $1,924 $3,343
------ ------
------ ------
The interest income not recorded, but which would have been earned if the
nonaccrual loans and leases as of March 31 had performed in accordance with
their original terms, was $188, $219 and $146 for the fiscal years ended March
31, 1996, 1995 and 1994, respectively.
As of March 31, 1996, impaired loans totaled $780 for which $197 of the
allowance for possible loan and lease losses was specifically allocated. The
average impaired loans for the year ended totaled $1,849. The amount of
interest which would have been earned if the impaired loans had performed in
accordance with their original terms and the amount of interest income
recognized on a cash basis was $47 and $44, respectively.
Loans are made in the normal course of business to directors, executive officers
and principal holders of equity securities of FSCM and to affiliated companies
in which they have an equity interest. The terms of these loans, including
interest rates and collateral, are similar to those prevailing for comparable
transactions and do not involve more than a normal risk of collectibility.
Changes in such loans during the fiscal years ended March 31, 1996, 1995 and
1994 were as follows:
1996 1995 1994
---- ---- ----
Balance at beginning of year $61 $98 $89
New loans 709 150 204
Repayments (134) (162) (192)
Loans participated to other financial
institutions and other net changes (550) (25) (3)
----- ----- -----
Balance at end of year $86 $61 $98
----- ----- -----
----- ----- -----
Unused lines of credit in the amount of $338 had been extended to directors as
of March 31, 1996.
(5) PREMISES, FURNITURE AND EQUIPMENT
Premises, furniture and equipment as of March 31, 1996 and 1995 are summarized
as follows:
1996 1995
----- -----
Land $1,306 $1,139
Furniture and equipment 5,545 3,996
Buildings and improvements 6,691 5,308
Less accumulated depreciation (7,589) (6,820)
------- ------
Total $5,953 $3,623
------- ------
------- ------
Depreciation expense included in the accompanying consolidated statements of
income was $1,033, $776, and $678 for the fiscal years ended March 31, 1996,
1995 and 1994, respectively.
(6) DEPOSITS
The following is a maturity distribution of time certificates of deposit in
denominations of $100 or more as of March 31, 1996 and 1995:
1996 1995
----- -----
3 months or less $4,181 $2,175
Over 3 months through 6 months 9,706 2,582
Over 6 months through 12 months 6,359 1,682
Over 12 months 4,703 14,733
------ ------
Total $24,949 $21,172
------- ------
------- ------
(7) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT-TERM
BORROWINGS
Securities sold under agreements to repurchase are treated as financings. The
obligations to repurchase securities sold are reflected as a liability in the
consolidated balance sheets and the dollar amount of securities underlying the
agreements remains in investments. The carrying amount, including interest, and
market value of securities sold under agreement to repurchase and the
obligations to repurchase securities sold as of March 31, 1996 and 1995 are
summarized as follows:
1996 1995
---------------- ------------------
CARRYING MARKET CARRYING MARKET
AMOUNT VALUE AMOUNT VALUE
------ ------ ------- ------
U.S. Treasury securities $5,092 $5,112 $5,102 $5,082
Obligations of U.S. Government
agencies and corporations
securities 49,071 49,083 34,901 33,951
Mortgage backed obligations of
federal agencies 11,178 11,178 --- ---
------- ------ ------- -------
Total $65,341 $65,373 $40,003 $39,033
------- ------ ------ ------
------- ------ ------ ------
Securities sold under agreements
to repurchase $48,846 $33,371
------- -------
------- -------
The maturity distribution and weighted average interest rates of securities sold
under agreements to repurchase as of March 31, 1996 are summarized as follows:
WEIGHTED
AVERAGE
AMOUNT RATE
------- ------
Overnight $21,353 5.21%
Term up to 30 days 1,762 5.33
Term of 30 to 90 days 18,174 5.35
Term over 90 days 7,557 5.35
------- ------
Total $48,846 5.29%
------- ------
------- ------
Other short-term borrowings generally include federal funds purchased, which are
overnight transactions, and interest-bearing demand notes due to the U.S.
Treasury, which are generally called within several days. Other short-term
borrowings of $1,500 and $366 as of March 31, 1996 and 1995, respectively, are
comprised of interest-bearing demand notes due to the U.S. Treasury.
Maximum and average balances and rates on aggregate short-term borrowings
outstanding during the fiscal years ended March 31, 1996, 1995 and 1994 are as
follows:
1996 1995 1994
------- ------ ------
Maximum month-end balance $62,128 $38,143 $27,024
Weighted average balance for the year 44,528 25,932 22,013
Weighted average interest rate for
the year 5.51% 4.48% 3.42%
Weighted average interest rate at
year-end 5.29 5.85 3.57
(8) NOTES PAYABLE
Notes payable as of March 31, 1996 and 1995 are summarized as follows:
1996 1995
----- ----
8.50% Notes, due December 1,
1999, uncollateralized $4,500 $5,000
------ ------
------ ------
Interest on the uncollateralized fixed rate 8.50% Notes dated December 1, 1992
is payable on the first of June and December. In addition to the $500 which was
redeemed December 1, 1995, other mandatory redemptions in the amount of $500 are
due on December 1, 1996, 1997 and 1998. The remaining $3,000 matures on
December 1, 1999. FSCM may redeem any or all of the Notes at any time upon not
less than a 30-day notice. The Notes are senior or on parity to any other
uncollateralized debt. As of March 31, 1996, the Notes were senior in right of
payment to $750 of MCDs and payable on parity with $500 of MCDs.
As of March 31, 1996 FSCM had a variable rate $10,000 unrestricted line of
credit available from a correspondent bank, none of which was in use. The line
of credit is collateralized by a pledge of all of the stock of TRIB owned by
FSCM and bears interest at a rate charged by banks to their most preferred
customers ("prime") which was 8.25% at March 31, 1996.
The most restrictive covenants under the correspondent bank loan agreement and
the 8.50% Notes require, among other things, that:
Correspondent Bank Loan:
-----------------------
o FSCM must obtain approval to pay Common Stock dividends in excess of
30% of prior year's consolidated net income;
o Approval is required for fixed asset investments exceeding $250 for
FSCM or outside TRIB's normal banking practices;
o FSCM must obtain approval before the incurrence of any additional debt
and TRIB can incur debt only in the normal course of business;
o FSCM must obtain approval prior to making any investments exceeding
$500 in other than short-term, cash management investments made in the
normal course of business;
o FSCM and TRIB cannot issue any new stock nor can FSCM repurchase any
of its stock from its directors or executive officers without prior
approval and any other redemption of stock by FSCM is limited;
o Mergers or acquisitions require approval;
o FSCM and TRIB must maintain ratios of total capital (Tier 1 and Tier
2) to total assets not less than 6.00% and 7.50%, respectively (March
31, 1996 actual equaled 8.26% and 8.37%, respectively).
o TRIB must maintain a primary capital ratio not less than 5.50% (March
31, 1996 actual equaled 8.53%); and
o TRIB must maintain a return on average assets not less than 0.70%
(March 31, 1996 actual equaled 1.16%).
8.50% Notes:
-----------
o Fixed assets investments are limited to not greater than three percent
of total assets on a consolidated basis; and
o FSCM and TRIB must maintain tangible net worths of not less than
$14,000 and $17,000, respectively (March 31, 1996 actual equaled
$24,583 and $28,814, respectively).
Management believes that FSCM and TRIB were in compliance with all
covenants as of March 31, 1996.
(9) MANDATORY CONVERTIBLE DEBENTURES ("MCDS")
MCDs as of March 31, 1996 and 1995 are summarized as follows:
1996 1995
---- ----
MCDs issued March 31, 1989 $425 $425
MCDs issued April 19, 1989 825 825
----- -----
Total $1,250 $1,250
------ -----
------ -----
On March 23, 1995, agreements were entered into by FSCM with each MCD holder
whereby the mandatory conversion date on both issues of MCDs were extended until
March 31, 2001.
The MCDs bear interest at a rate of 1/2% below the reference rate of a
correspondent bank (7.75% at March 31, 1996). The interest is payable quarterly
on March 31, June 30, September 30, and December 31. The MCDs are held by
directors and former directors of FSCM or members of their immediate families.
Subject to a ninety day notice and obtaining any regulatory approvals or legal
opinions necessary, the MCDs are convertible at any time prior to the extended
conversion date at the option of the holders into a number of shares of FSCM's
Common Stock determined by dividing the principal amount of the MCDs by a
purchase price equal to $25 per share, as adjusted for any stock splits, stock
dividends or other similar occurrences. The MCDs are subordinate to all senior
indebtedness of FSCM and $750 of the MCDs are subordinate to the 8.50% Notes.
(10) INCOME TAXES
Income taxes for the fiscal years ended March 31, 1996, 1995 and 1994 are
summarized as follows:
FEDERAL STATE
------- -----
1996:
Current.................. $2,121 $23
Deferred................. (376) ---
------ ----
Total.................... $1,745 $23
------ ----
------ ----
1995:
Current.................. $1,622 $3
Deferred................. (109) ---
------ ----
Total.................... $1,513 $3
------ ----
------ ----
1994:
Current.................. $1,340 $13
Deferred................. (86) ---
------ -----
Total.................... $1,254 $13
------ -----
------ -----
Income taxes totaled $1,768 for 1996, $1,516 for 1995, and $1,267 for 1994
resulting in effective tax rates of 33.2%, 33.1%, and 35.2%, respectively. The
actual income taxes differ from the "expected" amounts (computed by applying the
U.S. federal corporate income tax rate of 35% for the years 1996, 1995 and 1994,
to income before income taxes) for such years as follows:
1996 1995 1994
----- ----- -----
Computed "expected" amounts $1,862 $1,604 $1,260
Increase (decrease) resulting from:
Effect of graduated tax rate (53) (45) (36)
Tax exempt interest income (5) (1) (4)
Life insurance policies (56) (48) 30
State taxes net of federal benefit 15 2 9
Other, net 5 4 8
----- ----- -----
Total $1,768 $1,516 $1,267
------ ------ -----
------ ------ -----
The components of the net deferred income tax asset as of March 31, 1996 and
1995 are as follows:
1996 1995
---- ----
Allowance for possible loan and lease losses $567 $353
Book depreciation in excess of tax depreciation 358 256
Post-retirement benefits 46 58
Loan origination fees 16 16
Bonuses 44 31
Deferred insurance fee income 212 142
Vacation accrual 65 65
Prepaid expense (55) (56)
Net unrealized loss on available-for-sale
securities net of taxes 218 ---
Other (15) (3)
----- ----
Total $1,456 $862
------ ----
------ ----
FSCM had no valuation allowance for deferred tax assets as of March 31, 1996 or
1995. FSCM has a demonstrated record of profitability for the past ten years.
(11) PREFERRED STOCK
Class A Preferred Stock -- Fifty thousand shares, stated value $100 per share,
were issued December 30, 1992 for a total consideration of $5,000. Costs
associated with the issuance of the stock, $416, were charged to capital
surplus. The stock pays quarterly cumulative dividends at a 9.25% per annum
rate on the first of March, June, September and December. The holders have no
voting rights except if the payment of dividends falls in arrears in an
aggregate amount at least equal to the full accrued dividends for six quarterly
dividend periods, in which case they will have the right to elect two
representatives to the Board of Directors of FSCM and shall continue to have
such right until all dividends in arrears have been paid or declared and set
apart for payment. FSCM may redeem any or all of the stock, upon a thirty day
notice, for the stated value plus any accrued and unpaid dividends at the
redemption date. If the stock is still outstanding at December 1, 2002, holders
of the stock have the option to convert the stock into FSCM's Common Stock
according to a defined formula. Had all shares of Class A Preferred Stock
converted at March 31, 1996, an additional 70,800 shares of FSCM's Common Stock
would have been outstanding.
Class B Preferred Stock -- Holders of the one thousand shares of $500 stated
value per share stock issued November 17, 1986 have no voting rights. Non
cumulative dividends are based on a rate equal to 1% per annum in excess of the
interest rates charged by a New York money center bank to its most preferred
customers. The shares may be redeemed at stated value plus unpaid dividends by
FSCM in whole or in part at any time. Holders have an option to convert the
shares into a total of 11,111 shares of FSCM Common Stock. The Class B
Preferred Stock is owned by certain directors of FSCM.
Class C Preferred Stock -- Twenty-four hundred shares of $425 stated value per
share were issued September 10, 1992 for total consideration of $1,020 to
certain directors of FSCM. The nonvoting, convertible stock pays quarterly
cumulative dividends at an 8.50% per annum rate on the last day of March, June,
September and December and is nonredeemable by FSCM. The Class C Preferred
Stock is convertible into a total of 24,000 shares of FSCM's Common Stock at the
option of the holders.
Class D Preferred Stock -- In June 1992, FSCM designated 250 shares with a
stated value of $5,000 per share for the potential conversion of the MCDs. No
agreement has ever been entered into authorizing conversion of the MCDs into
shares of the Class D Preferred Stock.
All classes of Preferred Stock have priority over Common Stock with respect to
dividends, liquidation and redemption rights. Priority amongst the classes of
Preferred Stock are in the following order, from highest to lowest: Class A,
Class D, Class B, Class C.
(12) TREASURY STOCK SALE
In both March 1996 and December 1994, FSCM sold 1,500 shares of Common Stock
from treasury to the 401(k) defined contribution retirement plan sponsored by
TRIB. The sale prices of $67.50 and $56.38 for the respective dates were based
on independent stock appraisals' average per share fair market value for
transactions involving small stock block sizes.
(13) EMPLOYEE BENEFIT PLANS
An employee savings plan covers substantially all employees of FSCM and its
subsidiary, TRIB. Under the plan, contributions of up to 2% of the
participants' wages are made by the respective subsidiaries. Plan costs, which
are charged to other expenses, were $41, $40, and $45 for the years ended March
31, 1996, 1995, and 1994, respectively.
FSCM provides certain health care and life insurance benefits for eligible
retired employees. In order to qualify for the benefits, a full-time employee
must, at retirement, be at least 55 years old and have completed a minimum of
ten years of service. The benefits consist of up to a sixty dollars per month
contribution by FSCM towards medical premium costs (up to seventy-five dollars
per month for existing retirees) and the payment of life insurance premiums for
coverage in the amount of two times the employee's salary at retirement, which
benefit is reduced for each year of retirement. FSCM has the right to modify or
terminate these benefits. Accrued post retirement benefit liabilities included
in other liabilities as of March 31, 1996 and 1995 were $135 and $170,
respectively. Net periodic post retirement benefit costs for the fiscal years
ended March 31, 1996, 1995 and 1994 were $(20), $(18), and $16, respectively.
(14) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, FSCM is a party to financial instruments with
off-balance-sheet risk to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and letters of
credit. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amounts recognized in the consolidated
financial statements. FSCM's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit, and to potential credit loss associated with letters of credit
issued, is represented by the contractual amount of those instruments. FSCM
uses the same credit policies in making commitments and conditional obligations
as it does for loan and other such on-balance-sheet instruments.
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.
Letters of credit are conditional commitments that are primarily issued to
facilitate trade or support borrowing arrangements and generally expire in one
year or less. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending credit to customers.
As of March 31, 1996, FSCM had $3,412 of irrevocable letters of credit
outstanding and had commitments to lend of approximately $35,336. No material
losses are anticipated by management as a result of such transactions.
(15) DIVIDENDS AND REGULATORY CAPITAL AND RATIOS
In addition to the restriction on the payment of dividends by FSCM discussed in
Note 8, the ability of FSCM to pay dividends to its stockholders is dependent
upon the ability of TRIB to pay dividends to FSCM since FSCM has no other
significant source of income. TRIB is subject to regulation by the Office of
the Comptroller of the Currency and the Federal Deposit Insurance Corporation
under federal law and regulations, which limit the amount of dividends TRIB may
pay to FSCM. The amount of dividends TRIB could pay FSCM as of March 31, 1996,
without prior regulatory approval, which is limited by statute to the sum of net
profits for the current year plus retained net profits of the preceding two
years, was $6,071.
Federal banking regulators (including the Federal Reserve Board which regulates
FSCM), have established, and monitor compliance with, capital adequacy
guidelines. These guidelines include the Tier 1 and total capital ratios which
compare adjusted capital to that of risk weighted assets. Additionally, the
leverage ratio is used to compare adjusted capital to total assets. A 3%
minimum leverage ratio was established for institutions without any supervisory,
financial or operational weaknesses or deficiencies. Most banking
organizations, including FSCM and TRIB, are expected to maintain a leverage
ratio of 100 to 200 basis points above this minimum depending on their financial
condition. The capital guidelines established three measurement categories into
which institutions are grouped; well-capitalized, adequately-capitalized and
less-than-adequately-capitalized. The table below reflects that FSCM and TRIB
exceeded the regulatory capital guidelines for the well-capitalized status as of
March 31, 1996 and 1995.
</TABLE>
<TABLE>
<CAPTION>
FSCM TRIB REGULATORY REQUIREMENTS
----------------- ---------------- ---------------------------
1996 1995 1996 1995 MINIMUM WELL CAPITALIZED
----- ----- ----- ----- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital 8.97% 9.28% 10.56% 11.71% 4.00% 6.00%
Total capital 11.66 13.15 11.82 12.96 8.00 10.00
Leverage ratio 6.83 6.78 8.05 8.56 3.00 5.00
Stockholders' equity $24,287 $21,961 $28,519 $26,606
Preferred stock limitation(1)<F39> --- (706) --- ---
Net unrealized loss on available-for-sale
securities, net of taxes 422 --- 422 ---
Intangible assets (140) (193) --- ---
-------- -------- -------- --------
Tier 1 capital 24,569 21,062 28,941 26,606
Supplementary capital 7,387 8,794 3,437 2,840
-------- -------- -------- --------
Total capital $31,956 $29,856 $32,378 $29,446
-------- -------- -------- --------
-------- -------- -------- --------
Total adjusted average assets $359,486 $310,820 $359,449 $310,785
-------- -------- -------- --------
-------- -------- -------- --------
Risk weighted assets $273,981 $227,040 $273,972 $227,235
-------- -------- -------- --------
-------- -------- -------- --------
(1)<F39>Cumulative Preferred Stock is limited to 25% of the total Tier 1
capital; any excess qualifies as supplementary capital.
</TABLE>
(16) SUPPLEMENTAL DISCLOSURES OF CASH FLOW AND OTHER INFORMATION
Cash paid during the fiscal years ended March 31, 1996, 1995 and 1994 for:
1996 1995 1994
------ ------ -----
Interest................. $15,213 $10,001 $9,462
Income taxes............. 1,855 1,885 1,450
During fiscal 1996 investment securities totaling $34,999 were reclassified from
held-to-maturity to available-for-sale. See Note 1(b).
The consolidated statements of cash flows excludes certain noncash transactions
that had no significant effects on the investing or financing activities of
FSCM.
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following information as of March 31, 1996 and 1995 was provided in
compliance with the requirements of SFAS No. 107, "Disclosures about Fair Value
of Financial Instruments." Quoted market prices, when available, were used as
the measure of fair value. When quoted market prices were not available, fair
values were based on discounted cash flow valuation techniques. These derived
fair values, which were founded on assumptions relative to the timing of future
cash flows and the discount rates, are inherently subjective in nature and
involve matters of judgment. It is FSCM's intent to hold most of its financial
instruments to maturity and therefore the fair values reflected below will
probably not be realized. Because of the assumptions on which the fair market
value information are based, FSCM's fair value information is not necessarily
comparable to that of another financial institution. The aggregate fair value
amounts presented should in no way be construed to represent management's
estimation of the underlying value of FSCM as of March 31, 1996 or 1995.
1996 1995
----------------- ------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
------- ------ ------- -------
FINANCIAL ASSETS:
Cash and due from banks $14,423 $14,423 $13,955 $13,955
Interest-bearing deposits with
other financial institutions 4,861 4,861 198 198
Federal funds sold 11,900 11,900 32,900 32,900
Investment securities:
Held to maturity 29,115 29,072 71,822 69,852
Available for sale 61,308 61,308 --- ---
Loans and leases, net 251,502 252,585 208,244 206,935
Accrued interest receivable 2,653 2,653 1,960 1,960
Other financial assets 127 127 327 327
FINANCIAL LIABILITIES:
Deposits:
Demand 36,286 36,286 33,496 33,496
N.O.W. accounts 24,420 24,420 23,974 23,974
Savings 41,814 41,814 42,823 42,823
Insured money market 8,638 8,638 8,830 8,830
Other time 190,660 192,030 162,488 161,137
Securities sold under agreements
to repurchase 48,846 48,805 33,371 33,297
Other short-term borrowings 1,500 1,500 366 366
Notes payable 4,500 4,410 5,000 4,950
Mandatory convertible debentures 1,250 1,250 1,250 1,250
Other financial liabilities 2,862 2,862 2,243 2,243
The estimated fair values of investment securities were generally based on
quoted market prices. For variable rate financial instruments, the carrying
amount was considered to be a reasonable estimate of fair value. For fixed-rate
financial instruments, the fair value was determined by discounting contractual
cash flows using rates which could have been earned for assets and liabilities
with similar characteristics issued as of the balance sheet date.
(18) EARNINGS PER COMMON SHARE DATA
The following information was used in the computation of earnings per common
share on both a primary and fully diluted basis for the fiscal years ended March
31, 1996, 1995, and 1994:
1996 1995 1994
----- ----- -----
Net income $3,553 $3,068 $2,333
Accrued preferred dividends (598) (594) (584)
----- ----- -----
Primary earnings 2,955 2,474 1,749
MCDs interest expense, net of tax 68 61 45
Accrued convertible preferred dividends 598 594 584
------ ----- -----
Fully diluted earnings $3,621 $3,129 $2,378
------ ------ ------
------ ------ ------
Weighted average common shares
outstanding 175,123 174,079 173,611
Weighted average common shares issuable
upon conversion of:
MCDs 50,000 50,000 50,000
Class A Preferred Stock 75,093 84,606 94,709
Class B Preferred Stock 11,111 11,111 11,111
Class C Preferred Stock 24,000 24,000 24,000
------ ------ ------
Weighted average common and contingently
issuable common shares outstanding 335,327 343,796 353,431
------- ------- -------
------- ------- -------
No conversions occurred during the years presented.
(19) PARENT COMPANY ONLY FINANCIAL INFORMATION
Condensed financial information for FSCM was as follows:
BALANCE SHEETS
MARCH 31, 1996 1995
- -------------- ------ ------
ASSETS
Cash and short-term investments $1,546 $1,568
Investment in TRIB 28,519 26,606
Due from TRIB 46 ---
Other assets 141 423
Deferred income taxes 8 8
------ -----
Total $30,260 $28,605
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
liabilities $233 $394
Notes payable 4,500 5,000
Mandatory convertible debentures 1,250 1,250
------ ------
Total liabilities 5,973 6,644
------ ------
Stockholders' equity:
Preferred Stock 6,520 6,520
Common Stock 170 170
Capital surplus 2,574 2,521
Net unrealized loss on available-
for-sale securities, net of taxes (422) ---
Retained earnings 20,694 18,047
Treasury Stock (5,249) (5,297)
------- -------
Total stockholders' equity 24,287 21,961
------- -------
Total $30,260 $28,605
------- -------
------- -------
STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1996 1995 1994
- --------------------- ----- ----- -----
OPERATING REVENUE:
Dividends received from TRIB $1,813 $1,562 $1,500
Other income 44 45 74
----- ----- -----
Total operating revenue 1,857 1,607 1,574
----- ----- -----
OPERATING EXPENSES:
Professional fees 192 206 220
Other operating expenses 252 248 550
Interest expense:
Interest on notes payable 411 425 425
Interest on mandatory
convertible debentures 103 92 69
---- ---- ----
Total operating expenses 958 971 1,264
---- ---- -----
Net operating income 899 636 310
EQUITY IN UNDISTRIBUTED EARNINGS OF TRIB 2,335 2,118 1,618
----- ----- -----
Income before income tax benefit 3,234 2,754 1,928
INCOME TAX BENEFIT 319 314 405
----- ----- -----
NET INCOME $3,553 $3,068 $2,333
------ ------ ------
------ ------ ------
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1996 1995 1994
- ------------------------ ----- ----- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,553 $3,068 $2,333
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization. 53 53 305
Equity in undistributed
earnings of subsidiaries (2,335) (2,118) (1,618)
(Increase) decrease in other
assets 183 (146) 70
Increase (decrease) in other
liabilities (171) 118 (43)
------ ------ ------
Net cash provided by operating
activities 1,283 975 1,047
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (500) --- ---
Cash dividends paid (906) (859) (848)
Sale of Treasury Stock 101 85 ---
------ ------ -----
Net cash used by financing
activities (1,305) (774) (848)
------ ------ -----
Net increase (decrease) in cash and
cash equivalents (22) 201 199
Cash and cash equivalents at the
beginning of the year 1,568 1,367 1,168
------ ----- -----
Cash and cash equivalents at the
end of the year $1,546 $1,568 $1,367
------ ------ ------
------ ------ ------
TABLE OF CONTENTS
Page
----
Prospectus Summary
Risk Factors
Financial Services Corporation
of the Midwest
Use of Proceeds
Capitalization
Consolidated Selected
Financial Data
Management's Discussion and
Analysis of Consolidated Financial
Condition and Results of
Operations
Business
Supervision and Regulation
Federal and State Taxation
Management
Principal Shareholders
Certain Transactions
Description of Notes
Description of Common Stock and
Preferred Stock
Underwriting
Legal Matters
Experts
Index to Consolidated
Financial Statements
FINANCIAL SERVICES
CORPORATION OF THE MIDWEST
$10,000,000
----% NOTES DUE 2006
PROSPECTUS
B.C. ZIEGLER AND COMPANY
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53905
(414) 334-5521
-----------------, 1996
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(1)<F40>
SEC registration fee................................. $3,031
NASD filing fee....................................
Accountants' fees and expenses..................... 20,000
Printing costs................................... 13,500
Legal fees and expenses............................ 90,000
Blue Sky filing fees and expenses.................. 12,160
Trustee's fees................................... 6,000
Miscellaneous......................................
Total.............................................$150,000
--------
--------
(1)<F40>Except for the SEC registration and NASD filing fees, all expenses are
estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
FSCM is a corporation organized under The General Corporation Law of the State
of Delaware, Title 8 of the Delaware Code (1984). Pursuant to Section 145 of
Title 8 of the Delaware Code, FSCM may provide and has provided that its
officers, directors, employees and agents be indemnified if they act in good
faith and in a manner they reasonably believe to be in or not opposed to the
best interests of FSCM. Such indemnification may cover liabilities under the
Securities Act of 1933 ("Act").
The form of Underwriting Agreement (Exhibit 1 hereto) contains provisions by
which the Underwriter has agreed to indemnify FSCM, each person, if any, who
controls FSCM within the meaning of Section 15 of the Act, each director of
FSCM, and each officer of FSCM who signs this Registration Statement, with
respect to information furnished in writing by or on behalf of the Underwriter
for use in this Registration Statement.
Reference is also made to the summary of the directors' and officers' insurance
policy incorporated by reference as Exhibit 10.8 to this Registration Statement
pursuant to which officers and directors of FSCM and its subsidiaries (including
TRIB) will be indemnified for such expenses and liabilities, in such manner, and
to the extent, provided therein.
ITEM 16. EXHIBITS
1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of FSCM (filed as Exhibit 3.1 to
FSCM's Registration Statement on Form SB-2 dated November 6, 1992,
which exhibit is hereby incorporated herein by reference).
3.2 Bylaws of FSCM in effect on the date hereof (filed as Exhibit 3.2
to FSCM's Registration Statement on Form SB-2 dated November 6,
1992, which exhibit is hereby incorporated herein by reference).
4.1 Form of Indenture.
4.2 Specimen of -----% Notes Due 2006 (see pages Two-1 through Two-5 of
Exhibit 4.1).
4.3 Form of Class A Preferred Stock Certificate (filed as Exhibit 4.3
to FSCM's Amendment No. 1 to Registration Statement on Form SB-2
dated December 7, 1992, which exhibit is hereby incorporated herein
by reference).
4.4 Resolutions adopted by FSCM's Board of Directors on November 19,
1992 as certified by FSCM's secretary, which resolutions set forth
the terms of the Class A Preferred Stock (filed as Exhibit 4.4 to
FSCM's Amendment No. 1 to Registration Statement on Form SB-2 dated
December 7, 1992, which exhibit is hereby incorporated herein by
reference).
4.5 Certificate of Designation amending FSCM's Certificate of
Incorporation (filed as Exhibit 4 to FSCM's Quarterly Report on
Form 10-QSB for the quarter ended December 31, 1992, which exhibit
is hereby incorporated herein by reference).
4.6 Correspondence dated October 20, 1994 from FSCM to M&I First
National Bank's Trust Department ("M&I First") requesting the
Trustee's solicitation of noteholders to amend a covenant
restricting capital expenditures (filed as Exhibit 4.1 to FSCM's
Quarterly Report on Form 10-QSB for the quarter ended December 31,
1994, which exhibit is hereby incorporated herein by reference).
4.7 Correspondence dated November 3, 1994 from M&I First soliciting
noteholders (filed as Exhibit 4.2 to FSCM's Quarterly Report on
Form 10-QSB for the quarter ended December 31, 1994, which exhibit
is hereby incorporated herein by reference).
4.8 Correspondence dated November 22, 1994 from M&I First notifying
FSCM of the positive noteholder solicitation results (filed as
Exhibit 4.3 to FSCM's Quarterly Report on Form 10-QSB for the
quarter ended December 31, 1994, which exhibit is hereby
incorporated herein by reference).
5 Opinion of Winthrop & Weinstine, P.A., including consent.
10.1 Form of Subordination Agreement by and among FSCM, Douglas M.
Kratz, Perry B. Hansen and Benjamin D. Farrar, Jr. pursuant to
which Messrs. Kratz, Hansen, and Farrar have agreed to subordinate
the payment of $750,000 in principal amount of MCDs held by them to
payment of the Notes.
10.2 Revolving Business Note executed by FSCM in favor of M&I Marshall &
Ilsley Bank ("M&I Bank") in the original principal amount of
$10,000,000 dated as of July 31, 1996.
10.3 Continuity/Severance Agreement by and between TRIB and Richard J.
Carlson dated December 22, 1995.
10.4 Amendment, dated as of July 27, 1996, to Letter Agreement dated as
of December 15, 1992 by and between FSCM and M&I Bank.
10.5 Services Agreement for Financial Services Corporation of the
Midwest by and between Richey Corporation and FSCM dated March 23,
1995 (filed as Exhibit 10.1 to FSCM's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 1995, which exhibit is hereby
incorporated herein by reference).
10.6 Letter from M&I Bank to FSCM dated as of December 15, 1992 setting
forth the terms of loans made by M&I Bank to FSCM (filed as Exhibit
10.1 to FSCM's Quarterly Report on Form 10-QSB for the quarter
ended June 30, 1993, which exhibit is hereby incorporated herein by
reference).
10.7 Collateral Pledge Agreement executed by FSCM in favor of M&I Bank
and Master Continuing Consent to Pledge dated March 29, 1991 (filed
as Exhibit 10.5 to FCSM's Registration Statement on Form SB-2 dated
November 6, 1992, which exhibit is hereby incorporated herein by
reference).
10.8 Summary of Material Terms of Directors' and Officers' Liability
Policy covering the policy period from October 18, 1995 to October
18, 1996 (filed as Exhibit 10.6 to FSCM's Quarterly Report on Form
10-Q for the quarter ended December 31, 1995, which exhibit is
hereby incorporated herein by reference).
10.9 Administrative Responsibilities of Benjamin D. Farrar (filed as
Exhibit 10.7 to FSCM's Registration Statement on Form SB-2 dated
November 6, 1992, which exhibit is hereby incorporated herein by
reference).
10.10 Letter setting forth terms of contract of employment of Donald P.
Ackerman dated January 27, 1992 (filed as Exhibit 10.8 to FSCM's
Registration Statement on Form SB-2 dated November 6, 1992, which
exhibit is hereby incorporated herein by reference).
10.11 Data Processing Services Agreement by and between M&I Data
Services, Inc. and FSCM dated October 1, 1994, including all
addenda thereto (filed as Exhibit 10.1 to FSCM's Quarterly Report
on Form 10-QSB for the quarter ended December 31, 1994, which
exhibit is hereby incorporated herein by reference).
10.12 Promissory Note executed by FSCM in favor of Benjamin D. Farrar,
Jr., in the original principal amount of $85,000 dated March 31,
1989 and accompanying Mandatory Stock Purchase Contract by and
between FSCM and Benjamin D. Farrar, Jr., dated March 31, 1989
(filed as Exhibit 10.10 to FSCM's Registration Statement on Form
SB-2 dated November 6, 1992, which exhibit is hereby incorporated
herein by reference).
10.13 Promissory Note executed by FSCM in favor of Perry B. Hansen in the
original principal amount of $85,000 dated March 31, 1989 and
accompanying Mandatory Stock Purchase Contract by and between FSCM
and Perry B. Hansen dated March 31, 1989 (filed as Exhibit 10.11 to
FSCM's Registration Statement on Form SB-2 dated November 6, 1992,
which exhibit is incorporated herein by reference).
10.14 Promissory Note executed by FSCM in favor of Sandra K. Kratz in the
original principal amount of $85,000 dated March 31, 1989 and
accompanying Mandatory Stock Purchase Contract by and between FSCM
and Sandra K. Kratz dated March 31, 1989 (filed as Exhibit 10.12 to
FSCM's Registration Statement on Form SB-2 dated November 6, 1992,
which exhibit is hereby incorporated herein by reference).
10.15 Promissory Note executed by FSCM in favor of Bernard F. Weindruch
in the original principal amount of $85,000 dated March 31, 1989
and accompanying Mandatory Stock Purchase Contract by and between
FSCM and Bernard F. Weindruch dated March 31, 1989 (filed as
Exhibit 10.13 to FSCM's Registration Statement on Form SB-2 dated
November 6, 1992, which exhibit is hereby incorporated herein by
reference).
10.16 Promissory Note executed by FSCM in favor of Ira J. Weindruch in
the original principal amount of $85,000 dated March 31, 1989 and
accompanying Mandatory Stock Purchase Contract by and between FSCM
and Ira J. Weindruch dated March 31, 1989 (filed as Exhibit 10.14
to FSCM's Registration Statement on Form SB-2 dated November 6,
1992, which exhibit is hereby incorporated herein by reference).
10.17 Promissory Note executed by FSCM in favor of Benjamin D. Farrar,
Jr., in the original principal amount of $165,000 dated April 17,
1989 and accompanying Mandatory Stock Purchase Contract by and
between FSCM and Benjamin D. Farrar, Jr., dated April 17, 1989
(filed as Exhibit 10.15 to FSCM's Registration Statement on Form
SB-2 dated November 6, 1992, which exhibit is hereby incorporated
herein by reference).
10.18 Promissory Note executed by FSCM in favor of Perry B. Hansen in the
original principal amount of $165,000 dated April 17, 1989 and
accompanying Mandatory Stock Purchase Contract by and between FSCM
and Perry B. Hansen dated April 17, 1989 (filed as Exhibit 10.16 to
FSCM's Registration Statement on Form SB-2 dated November 6, 1992,
which exhibit is hereby incorporated herein by reference).
10.19 Promissory Note executed FSCM in favor of Sandra K. Kratz in the
original principal amount of $165,000 dated April 17, 1989 and
accompanying Mandatory Stock Purchase Contract by and between FSCM
and Sandra K. Kratz dated April 17, 1989 (filed as Exhibit 10.17 to
FSCM's Registration Statement on Form SB-2 dated November 6, 1992,
which exhibit is hereby incorporated herein by reference).
10.20 Promissory Note executed by FSCM in favor of Bernard F. Weindruch
in the original principal amount of $165,000 dated April 17, 1989
and accompanying Mandatory Stock Purchase Contract by and between
FSCM and Bernard F. Weindruch dated April 17, 1989 (filed as
Exhibit 10.18 to FSCM's Registration Statement on Form SB-2 dated
November 6, 1992, which exhibit is hereby incorporated herein by
reference).
10.21 Promissory Note executed by FSCM in favor of Ira J. Weindruch in
the original principal amount of $165,000 dated April 17, 1989 and
accompanying Mandatory Stock Purchase Contract by and between FSCM
and Ira J. Weindruch dated April 17, 1989 (filed as Exhibit 10.19
to FSCM's Registration Statement on Form SB-2 dated November 6,
1992, which exhibit is hereby incorporated herein by reference).
10.22 Agreement Regarding Transfer of Promissory Notes, Mandatory Stock
Purchase Contracts and Subscription Agreements by and among Bernard
F. Weindruch, as transferor, Ira J. Weindruch, as transferee, and
FSCM dated March 28, 1991 (filed as Exhibit 10.20 to FSCM's
Registration Statement on Form SB-2 dated November 6, 1992, which
exhibit is hereby incorporated herein by reference).
10.23 Agreement Regarding Transfer of Promissory Notes, Mandatory Stock
Purchase Contracts and Subscription Agreements by and among Ira J.
Weindruch, as transferor, Donna F. Weindruch, as transferee, and
FSCM dated June 12, 1991 (filed as Exhibit 10.21 to FSCM's
Registration Statement on Form SB-2 dated November 6, 1992, which
exhibit is hereby incorporated herein by reference).
10.24 Agreement Regarding Transfer of Promissory Notes, Mandatory Stock
Purchase Contracts and Subscription Agreements by and among Sandra
K. Kratz, as transferor, Douglas M. Kratz, as transferee, and FSCM
dated February 1, 1991 (filed as Exhibit 10.22 to FSCM's
Registration Statement on Form SB-2 dated November 6, 1992, which
exhibit is hereby incorporated herein by reference).
10.25 Purchase Option Agreement by and among Ira J. Weindruch and Donna
L. Weindruch, as grantors, and Perry B. Hansen, as grantee, dated
July 6, 1992 (filed as Exhibit 10.23 to FSCM's Registration
Statement on Form SB-2 dated November 6, 1992, which exhibit is
hereby incorporated herein by reference).
10.26 Purchase Option Agreement by and among Ira J. Weindruch and Donna
L. Weindruch, as grantors, and Douglas M. Kratz, as grantee, dated
July 6, 1992 (filed as Exhibit 10.24 to FSCM's Registration
Statement on Form SB-2 dated November 6, 1992, which exhibit is
hereby incorporated herein by reference).
10.27 Conversion Date Extension Agreements by and between FSCM and
Benjamin D. Farrar, Jr., dated March 23, 1995 pertaining to the
Mandatory Stock Purchase Contracts, Promissory Notes, and
Subscription Agreements dated March 31, 1989 and April 17, 1989
(filed as Exhibit 10.25 to FSCM's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1995, which exhibit is hereby
incorporated herein by reference).
10.28 Conversion Date Extension Agreements by and between FSCM and
Douglas M. Kratz, dated March 23, 1995 pertaining to the Mandatory
Stock Purchase Contracts, Promissory Notes, and Subscription
Agreements dated March 31, 1989 and April 17, 1989 (filed as
Exhibit 10.26 to FSCM's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1995, which exhibit is hereby incorporated
herein by reference).
10.29 Conversion Date Extension Agreements by and between FSCM and Perry
B. Hansen, dated March 23, 1995 pertaining to the Mandatory Stock
Purchase Contracts, Promissory Notes, and Subscription Agreements
dated March 31, 1989 and April 17, 1989 (filed as Exhibit 10.27 to
FSCM's Annual Report on Form 10-KSB for the fiscal year ended March
31, 1995, which exhibit is hereby incorporated herein by
reference).
10.30 Conversion Date Extension Agreements by and between FSCM, Perry B.
Hansen, and Ira J. Weindruch and Donna L. Weindruch, dated March
23, 1995 pertaining to the Mandatory Stock Purchase Contracts,
Promissory Notes, and Subscription Agreements dated March 31, 1989
and April 17, 1989 (filed as Exhibit 10.28 to FSCM's Annual Report
on Form 10-KSB for the fiscal year ended March 31, 1995, which
exhibit is hereby incorporated herein by reference).
10.31 Conversion Date Extension Agreements by and between FSCM, Douglas
M. Kratz, and Ira J. Weindruch and Donna L. Weindruch, dated March
23, 1995 pertaining to the Mandatory Stock Purchase Contracts,
Promissory Notes, and Subscription Agreements, dated March 31, 1989
and April 17, 1989 (filed as Exhibit 10.29 to FSCM's Annual Report
on Form 10-KSB for the fiscal year ended March 31, 1995, which
exhibit is hereby incorporated herein by reference).
10.32 Tax Allocation Agreement dated August 19, 1993 (filed as Exhibit
10.30 to FSCM's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1995, which exhibit is hereby incorporated herein
by reference).
10.33 THE Rock Island Bank Employee Savings Trust Plan Document for the
401(k) plan established April 1, 1986 (filed as Exhibit 10.31 to
FSCM's Annual Report on Form 10-KSB for the fiscal year ended March
31, 1995, which exhibit is hereby incorporated herein by
reference).
10.34 Agreement Regarding Convertible Securities (filed as Exhibit 10.1
to FSCM's Quarterly Report on Form 10-QSB for the quarter ended
December 31, 1992, which exhibit is hereby incorporated herein by
reference).
21 Subsidiary of Financial Services Corporation of the Midwest (filed
as Exhibit 22 to FSCM's Annual Report on Form 10-K for the fiscal
year ended March 31, 1996, which exhibit is hereby incorporated
herein by reference).
23.1 Consent of McGladrey & Pullen, LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Winthrop & Weinstine, P.A. (included in Exhibit 5).
25 Statement of Eligibility Under the Trust Indenture Act of 1939 of a
Corporation Designated to Act as Trustee on Form T-1 of M&I First
National Bank.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that it will:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, in the City of Rock
Island, State of Illinois, on --------------------, 1996.
Financial Services Corporation
of the Midwest
By: /s/ Douglas M. Kratz
--------------------------------
Douglas M. Kratz, President
Chief Executive Officer, Chief
Financial Officer, Secretary
and Director
Each person whose signature appears below constitutes and appoints Douglas M.
Kratz and Jean M. Hanson, and each of them, as his or her true and lawful
attorney-in-fact and agent, each 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 the Registration Statement on Form S-2 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
each of them, or their, his or her substitute, 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.
Name Title Date
- ---- ----- ----
/s/ Benjamin D. Farrar, Jr.
- ----------------------- Chairman of the Board September 27, 1996
Benjamin D. Farrar, Jr. of Directors
/s/ Douglas M. Kratz
- ----------------------- President, Chief Executive September 27, 1996
Douglas M. Kratz Officer, Chief Financial
Officer and Secretary
(Principal Executive Officer
and Principal Financial
Officer) and Director
/s/ John T. Kustes
- ---------------------- Treasurer and Director September 27, 1996
John T. Kustes
/s/ Perry B. Hansen
- ---------------------- Director September 27, 1996
Perry B. Hansen
/s/ Jean M. Hanson
- ---------------------- Controller (Principal September 27, 1996
Jean M. Hanson Accounting Officer)
EXHIBIT INDEX
Page
ITEM 27. EXHIBITS ----
1 Form of Underwriting Agreement.
4.1 Form of Indenture.
5 Opinion of Winthrop & Weinstine, P.A., including consent.
10.1 Form of Subordination Agreement by and among FSCM,
Douglas M. Kratz, Perry B. Hansen and Benjamin D.
Farrar, Jr. pursuant to which Messrs. Kratz, Hansen,
and Farrar have agreed to subordinate the payment of
$750,000 in principal amount of MCDs held by them
to payment of the Notes.
10.2 Revolving Business Note executed by FSCM in favor of
M&I Marshall & Isley Bank in the original principal
amount of $10,000,000 dated as of July 31, 1996.
10.3 Continuity/Severance Agreement by and between TRIB
and Richard J. Carlson dated December 22, 1995.
10.4 Amendment, dated as of July 27, 1996, to Letter
Agreement dated as of December 15, 1992 by and
between FSCM and M&I Bank.
23.1 Consent of McGladrey & Pullen, LLP.
23.2 Consent of Deloitte & Touche LLP.
25 Statement of Eligibility Under the Trust Indenture
Act of 1939 of a Corporation Designated to Act as
Trustee on Form T-1 of M&I First National Bank.
EXHIBIT 1
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
$10,000,000
----% NOTES DUE 2006
DATED AS OF NOVEMBER 1, 1996
UNDERWRITING AGREEMENT
---------------, 1996
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
Dear Sirs:
FINANCIAL SERVICES CORPORATION OF THE MIDWEST, a Delaware corporation
(the "Company"), hereby confirms its agreement with you, as follows:
1. THE NOTES. The Company proposes to issue $10,000,000 principal
---------
amount of its -----% Notes Due 2006, dated as of November 1, 1996 (the "Notes")
and to sell the Notes to B.C. Ziegler and Company as underwriter (the
"Underwriter"). The Company proposes to issue the Notes for the purpose of
repaying certain indebtedness, making a contribution to the capital of THE Rock
Island Bank, National Association (the "Bank") and for other corporate purposes.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
---------------------------------------------
represents and warrants to and agrees with you that:
(a) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware and has
been duly qualified as a foreign corporation for the transaction of business and
is in good standing under the laws of each other jurisdiction in which its
ownership or leasing of property or the conduct of its business requires such
qualification and has all requisite power and authority (corporate and other) to
own its properties and conduct its business, as such is currently being
conducted, all as described in the Prospectus (as defined in Section 2(c)
hereof); and each subsidiary of the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
respective jurisdiction of incorporation and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which its ownership or leasing of
property or the conduct of its business would require such qualification and has
all requisite power and authority (corporate and other) to own its properties
and conduct its business as such is currently being conducted, all as described
in the Prospectus;
(b) The Company has an authorized and outstanding capitalization as
set forth under the section entitled "Capitalization" in the Prospectus as of
the date indicated therein and there has been no material change therein except
as disclosed in the Prospectus. All of the issued shares of capital stock of
the company as set forth in the Prospectus have been duly and validly authorized
and issued and are fully paid and nonassessable and conform to the description
thereof contained in the Prospectus; and, except to the extent described in the
Prospectus, all outstanding shares of stock of each subsidiary of the Company
are owned by the Company or another subsidiary of the Company, have been duly
and validly authorized and issued, are fully paid and nonassessable, and except
to the extent described in the Prospectus, the shares of stock of each
subsidiary owned by the Company or a subsidiary thereof are held free and clear
of all liens and encumbrances;
(c) A registration statement on Form S-2 (Registration No. 333- )
with respect to the Notes and any and all of the amendments or supplements
thereto have been carefully prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended to the date hereof (the
"Act"), and the rules and regulations existing as of the date hereof (the "Rules
and Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and have been filed with the Commission. Copies of such
registration statement and amendments or supplements thereto, including the
prospectus, financial statements (including the associated notes and schedules
thereto), documents incorporated by reference and exhibits thereto, have been
delivered to you and your legal counsel. Such registration statement and
prospectus, as finally amended and revised at the time such registration
statement becomes effective with the Commission, are herein respectively
referred to as the "Registration Statement" and the "Prospectus," except that if
the prospectus filed by the Company pursuant to Rule 424(b) of the Rules and
Regulations differs from the prospectus on file at the time the Registration
Statement initially becomes effective, the term "Prospectus" shall refer to the
prospectus filed pursuant to Rule 424(b) from and after the time said prospectus
is filed with or transmitted to the Commission for filing;
(d) The Commission has not issued an order preventing or suspending
the use of any preliminary prospectus (herein referred to as the "Preliminary
Prospectus") with respect to the Notes, and each such Preliminary Prospectus has
conformed fully in all material respects with the requirements of the Act, the
Rules and Regulations, the Trust Indenture Act of 1939, as amended to the date
hereof (the "Trust Indenture Act"), and the rules and regulations thereunder,
and does not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not misleading as of the
time when the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date (as defined in Section 3 hereof). The
Registration Statement and Prospectus, and any and all amendments or supplements
thereto, are in accordance with the Act and the Rules and Regulations, will in
all material respects conform to the requirements of the Act and the Rules and
Regulations, and the indenture filed as an exhibit thereto to be dated as of
November 1, 1996 (the "Indenture") between the Company and M&I First National
Bank, as Trustee (the "Trustee"), under which the Notes will be issued, will be
duly qualified under and will conform in all material respects to the
requirements of, the Trust Indenture Act and the rules and regulations
thereunder, and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will include any 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 not misleading;
(e) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been, and prior to
the Closing Date there will not be, any material change in the capital stock or
debt of the Company or of the Bank (which entity is also included within the use
herein of the term "subsidiaries") or in the consolidated capitalization of the
Company and its subsidiaries or any material adverse change in the general
affairs, management, financial position, net worth or results of operations of
the Bank or of the Company and its subsidiaries considered as a whole, otherwise
than as set forth and described in the Prospectus;
(f) All real properties owned by the Company and its subsidiaries are
held under good and marketable title in fee simple, free and clear of all liens,
claims, encumbrances, easements, covenants and restrictions, subject only to
defects and encumbrances which do not materially affect the value of such
property and do not interfere with the conduct of the business as set forth and
described in the Prospectus; and all real properties held by the Company and its
subsidiaries under lease are held under valid and enforceable leases subject
only to such exceptions as are not material and do not interfere with the
conduct of the business of the Company and its subsidiaries;
(g) The Company is duly registered under the Federal Bank Holding
Company Act of 1956, as amended to the date hereof ("Bank Holding Company Act")
and is in compliance with the rules and regulations thereunder, and the Company
and each subsidiary thereof are in material compliance with, and conduct their
respective businesses in conformity with, all applicable laws and governmental
regulations, including, without limitation, all laws and governmental
regulations governing bank holding companies and banks of all federal and state
jurisdictions to which they are subject. To the best knowledge of the Company,
no change in such laws or regulations has been proposed or is under
consideration which, if made effective, would have an adverse effect upon the
financial condition or operations of the Company and its subsidiaries. Neither
the Company nor any of its subsidiaries is charged with, or, to their knowledge,
is under investigation with respect to, any violation of any such statutes or
regulations, or, except as set forth and described in the Prospectus, is the
subject of any pending or threatened adverse proceedings by any regulatory
authority having jurisdiction over its business, operations or properties other
than as set forth and described in the Prospectus;
(h) There are no legal or governmental proceedings pending to which
the Company or any of its subsidiaries is a party or of which any property of
the Company or any of its subsidiaries is the subject, other than as set forth
and described in the Prospectus and other than proceedings incident to the
conduct in the ordinary course of the kinds of business conducted by the Company
and its subsidiaries which, if determined adversely to the Company and its
subsidiaries, would have a material adverse effect on the business, financial
position, net worth or results of operations of the Company or such
subsidiaries; and no such proceedings are known by the Company to be threatened
or contemplated by governmental authorities or others except as set forth and
described in the Prospectus;
(i) The issuance and sale of the Notes and the compliance by the
Company with all of the provisions of the Notes, the Indenture and this
Agreement will not contravene, conflict with, result in a breach or violation
of, constitute a default under or result in the creation or imposition of any
lien, charge, or encumbrance upon any of the property or assets of the Company
or any of its subsidiaries or any of the terms or provisions of any contract,
license, indenture, mortgage, deed of trust, loan agreement, lease, financing
agreement or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries may
be bound or to which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation of the
provisions of the Certificate (or Articles) of Incorporation or the By-Laws of
the Company or any of its subsidiaries, or of any applicable statute, order,
rule or regulation known to the Company of any court or of any foreign, federal,
state or other regulatory authority or other governmental body having
jurisdiction over the Company, the Bank or any other subsidiary of the Company,
and no consent, approval, authorization, order, registration or qualification
of, or with, any court, public board, agency or any such regulatory authority,
instrumentality or other governmental body is required for the issuance and sale
of the Notes as contemplated by this Agreement, or the execution, delivery or
performance of the Indenture, except the registration under the Act of the
Notes, the qualification of the Indenture under the Trust Indenture Act and such
consents, approvals, authorizations, registrations or qualifications as may be
required under state securities or blue sky laws in connection with the public
offering of the Notes or as otherwise set forth and described in the Prospectus;
(j) This Agreement has been duly authorized, executed and delivered
on behalf of the Company and is a valid and binding agreement of the Company
enforceable in accordance with its terms;
(k) The Notes have been duly authorized, and, when authenticated as
contemplated by the Indenture and issued and delivered pursuant to this
Agreement, will have been duly executed, authenticated, issued and delivered and
will constitute valid and legally enforceable binding obligations of the Company
entitled to the benefits provided by the Indenture, which will be substantially
in the form filed as an exhibit to the Registration Statement; and the Indenture
has been duly authorized by the Company and, when executed and delivered by the
Company and the Trustee, will constitute a valid and legally binding instrument
of the Company enforceable in accordance with its terms;
(l) All taxes payable in connection with the execution or delivery of
the Indenture have been paid;
(m) Deloitte & Touche LLP and McGladrey & Pullen, LLP, who have
certified certain of the financial statements filed with the Commission as parts
of the Registration Statement and Prospectus, are independent certified public
accountants as required by the Act and the Rules and Regulations; and
(n) The consolidated financial statements and schedules relating to
the Company and its subsidiaries in the Registration Statement present fairly
the consolidated financial position and results of operations of the Company and
its subsidiaries as of the dates (and for the periods set forth therein) and
such statements (including the related notes thereto) have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved.
3. PURCHASE, SALE AND DELIVERY. Subject to the terms and conditions
---------------------------
herein set forth, the Company agrees to issue and sell to you, and you agree to
purchase from the Company, the Notes for a purchase price of $9,625,000 plus
accrued interest from November 1, 1996 to the Closing Date.
The certificates for the Notes, in definitive form and in such
authorized denominations and registered in such names as you may request upon at
least 48 hours prior notice to the Company, to be purchased by you shall be
delivered by or on behalf of the Company to you at the offices of Foley &
Lardner, 777 East Wisconsin Avenue, Milwaukee, Wisconsin, or at some other
location to which you and the Company agree, and at such time and date as you
may designate in writing, but in no event later than 10:00 A.M. Milwaukee,
Wisconsin time, on ------------, 1996, such time and date being herein called
the "Closing Date." Such certificates will be made available for checking and
packaging at the offices of Foley & Lardner, at least 24 hours prior to the
Closing Date.
The certificates for the Notes shall be delivered as described above
against payment by you on the Closing Date of the purchase price therefor by
wire transfer pursuant to the orders of the Company.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with
------------------------
you that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective at the earliest possible time as you may designate
or request, and will advise you and your legal counsel promptly and confirm such
advice in writing:
(i) when the Registration Statement has become effective;
(ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the
institution of any proceedings for that purpose, or of any
notification of the suspension of qualification or registration of the
Notes for sale in any jurisdiction or the initiation or threatening of
any proceedings for that purpose; and
(iii)of any request of the Commission for amendment or
supplement of the Registration Statement (either before or after it
becomes effective), the Prospectus, any Preliminary Prospectus or for
additional information.
The Company will use its best efforts to prevent the issuance of any stop order
and to obtain as soon as possible the lifting thereof, if issued. The Company
will not file any amendment or supplement to the Registration Statement (either
before or after it becomes effective), any Preliminary Prospectus or the
Prospectus before you and your legal counsel have been furnished a copy prior to
the filing, or to which you or your legal counsel shall have objected;
(b) If at any time when a prospectus relating to the Notes is
required to be delivered under the Act any event occurs as a result of which the
Prospectus as then amended or supplemented would include an untrue statement of
a material fact, or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act or the Rules and Regulations, the Company will promptly
advise you and your legal counsel and will promptly prepare and file with the
Commission an amendment or supplement which will correct such statement or
omission or an amendment which will effect such compliance;
(c) Not later than sixteen months after the effective date of the
Registration Statement the Company will make generally available to its security
holders an earnings statement (as defined in Rule 158 under the Act) covering a
period of at least twelve months beginning after such effective date, which will
satisfy the provisions of the last paragraph of Section 11(a) of the Act and
Rule 158 promulgated thereunder;
(d) The Company will use its best efforts, when and as required by
you or your legal counsel, to furnish information and otherwise cooperate in
qualifying or registering the Notes for sale under the laws of such
jurisdictions as you may designate, and will continue such qualifications or
registrations in effect for so long as you may request to effect the
distribution of the Notes;
(e) So long as the Notes shall be outstanding, the Company will
furnish to you and your legal counsel, as soon as practicable after the end of
each fiscal year, a consolidated balance sheet and consolidated statements of
income and stockholders' equity of the Company and its subsidiaries at the end
of and for such year, all in reasonable detail and examined and certified by
independent certified public accountants; and the Company will furnish to you
and your legal counsel:
(i) as soon as practicable after the end of each quarterly
fiscal period (except for the last quarterly fiscal period of each
fiscal year), a consolidated balance sheet and consolidated statement
of income of the Company and its subsidiaries for such period (which
need not be audited);
(ii) as soon as available, a copy of each and any report of
the Company or of the Bank mailed to stockholders thereof or filed
with the Commission; and
(iii)from time to time such other information
concerning the Company as you or your legal counsel may request.
(f) Regardless of whether or not the sale of the Notes provided for
herein is consummated, the Company will pay all expenses incident to the sale of
the Notes hereunder and the performance of the obligations of the Company under
this Agreement. Without limiting the generality of the foregoing, and subject
only to the exceptions specifically referred to below, the expenses to be paid
by the Company as aforesaid shall include such of the following as are incident
to the sale of the Notes hereunder:
(i) expenses incident to the performance of the obligations
of the Company under paragraphs (c) and (e) of Section 4 hereof;
(ii) the fees and expenses of the Trustee;
(iii)the printing and preparation of certificates for
the Notes;
(iv) all fees and disbursements of legal counsel for the
Company, of your legal counsel and of Deloitte & Touche LLP and
McGladrey & Pullen, LLP, limited in the case of legal fees (but not
disbursements) of your counsel to $50,000;
(v) the cost of obtaining, preparing, printing,
reproducing, filing and furnishing to you and your legal counsel the
Registration Statement, Prospectus, Preliminary Prospectus, the
Indenture and any and all amendments and supplements to all such
documents, this Agreement, and any other documents required to be
filed or furnished to you or your legal counsel by the Company
pursuant to this Agreement;
(vi) all costs, fees and expenses, including legal counsel
fees, incident to registering or qualifying the Notes under the
securities or blue sky laws of the several states pursuant to Section
4(d) hereof; and
(vii)all fees payable to the National Association of
Securities Dealers, Inc.
(g) There shall be delivered to you and your legal counsel on the
effective date of the Registration Statement, and from time to time thereafter
during such period as in the opinion of your counsel a prospectus is required by
law to be delivered in connection with sales of the Notes, so many copies of the
Prospectus (as supplemented or amended if the Company shall have prepared any
supplements or amendments thereof) as you or your legal counsel may request, and
to you and your legal counsel, prior to the effective date of the Registration
Statement, such number of copies of the Preliminary Prospectus as you or your
legal counsel may request. No charge shall be made for furnishing any thereof;
(h) There shall be delivered to you and your legal counsel, without
charge, two signed copies of the Registration Statement, including all exhibits
thereto and of any amendments or supplements made to the Registration Statement
subsequent to its effective date, and to you and your legal counsel, without
charge, such reasonable number of conformed copies of the Registration Statement
(excluding exhibits) and of any amendments or supplements made to the
Registration Statement subsequent to its effective date as you or your legal
counsel may request; and
(i) The Company will comply with, or cause to be complied with, the
conditions precedent to your obligations specified in Section 5 hereof.
5. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITER. Your
------------------------------------------------
obligations to purchase and pay for the Notes on the Closing Date shall be
subject to the accuracy, as of the date hereof and as of the Closing Date, of
the representations and warranties on the part of the Company herein set forth,
to the accuracy of the Statements of Company officers made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., Milwaukee, Wisconsin time, on the date of this Agreement, or
such later date or time as shall have been consented to in writing by you, and
prior to the Closing Date:
(i) no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for
that purpose shall have been instituted or shall be pending, or, to
the knowledge of the Company after due inquiry of the Commission, or
you, shall be contemplated by the Commission;
(ii) trading in securities on the New York Stock Exchange
shall not have been suspended and minimum or maximum prices shall not
have been established on such Exchange;
(iii)no banking moratorium shall have been declared by
Iowa, Illinois, New York, Wisconsin or United States authorities;
(iv) the United States shall not have become engaged in
hostilities which have resulted in a declaration of a national
emergency or declaration of war and which, in your judgment, render it
inadvisable to proceed with the public offering or the delivery of the
Notes; and
(v) neither the Company nor any of its subsidiaries shall
have sustained since March 31, 1996, 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; since the respective dates as of
which information is given in the Prospectus there shall not have been
any change in the Capital Stock or debt of the Company or the Bank or
a change, or a development involving a prospective change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company, the Bank
or any other subsidiary otherwise than as set forth and described in
the Prospectus; and operating, political, international, economic or
market conditions shall not exist, as of the date hereof or as the
Closing Date, the effect of which, in any case described in this
clause (a), is in your judgment so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering of
the Notes at 100% of the principal amount thereof.
(b) The Notes shall have been qualified or registered for sale under
the state securities or blue sky laws of such jurisdictions as shall have been
specified by you prior to the date hereof;
(c) You shall not have advised the Company that the Registration
Statement or Prospectus, or any amendment or supplement thereto, contains an
untrue statement of fact which, in the opinion of your legal counsel is
material, or omits to state a fact which, in the opinion of such legal counsel,
is material and is required to be stated therein or is necessary to make the
statements therein not misleading;
(d) Prior to the effective date of the Registration Statement and
prior to the Closing Date you shall have received an opinion or opinions of
Winthrop & Weinstine, P.A., as counsel for the Company, dated as of the
effective date and the Closing Date, respectively, in form satisfactory to you
and your legal counsel, to the effect contained in paragraphs (a), (f)
(provided, however, that the opinion of such counsel with respect to paragraph
(f) of Section 2 hereof shall be limited solely to the status of title of the
Company's banking facility located at 230-18th Street, Rock Island, Illinois),
(g), (h) and (i) of Section 2 hereof (in each of these respective paragraphs
where the Company has qualified its representations and warranties to the best
of its knowledge, such counsel may do the same, and with respect to paragraphs
(h) and (i) of Section 2 hereof, such counsel may qualify its opinion, to the
extent acceptable to you and your legal counsel, to the best of its knowledge
after due inquiry of each of the current directors of the Company) and further
to the effect that:
(i) the Company is duly registered under the Bank Holding
Company Act and is in compliance in all material respects with the
provisions thereof and the rules and regulations thereunder, and, the
Company and each subsidiary thereof are in compliance with, and
conduct their respective businesses in conformity with, all other
applicable laws and governmental regulations of jurisdictions to which
they are subject; provided, however, that no opinion need be expressed
by such counsel as to whether the Company and each subsidiary thereof
are in compliance with, and conduct their respective businesses in
conformity with, all applicable laws and governmental regulations
governing the making and enforceability of any loan made by the
Company or any of its subsidiaries to third parties;
(ii) the Company has full power and authority to enter into
and perform this Agreement and the Indenture and to issue and sell the
Notes hereunder and this Agreement and the performance of the
Company's obligations hereunder have been duly authorized by all
necessary corporate action and this Agreement has been duly executed
and delivered by and on behalf of the Company and is a validly and
legally enforceable binding obligation of the Company except to the
extent that rights to indemnification may be limited by public policy
and under the federal securities laws or by any orders, rules and
regulations thereunder, and by order of any court;
(iii)the Notes have been duly authorized, executed,
authenticated, issued and delivered and constitute valid and legally
enforceable binding obligations of the Company entitled to the
benefits provided by the Indenture except as the same may be limited
by bankruptcy, insolvency, reorganization or other laws relating to or
affecting the enforcement of creditors' rights; the terms of the Notes
and the Indenture substantially conform to the descriptions thereof in
the Prospectus;
(iv) the Indenture has been duly authorized, executed and
delivered by the Company, and (assuming that the Indenture has been
duly authorized, executed and delivered by the Trustee) constitutes a
valid and legally enforceable binding instrument of the Company
enforceable against the Company in accordance with its terms, except
as the same may be limited by bankruptcy, insolvency, reorganization
or other laws relating to or affecting the enforcement of creditors'
rights and except to the extent that rights to indemnification may be
limited by public policy and under the federal securities laws or by
any orders, rules and regulations thereunder, and by any order of any
court;
(v) all taxes and fees required to be paid with respect to
the execution of the Indenture and the issuance of the Notes have been
paid; and there is no need to file or record the Indenture with any
governmental authority except in connection with compliance with
federal and state securities laws;
(vi) all of the issued shares of capital stock of the
Company as set forth in the Prospectus have been duly and validly
authorized and issued and are fully paid and nonassessable and conform
to the description thereof contained in the Prospectus; and, except to
the extent described in the Prospectus, all outstanding shares of
stock of each subsidiary of the Company are owned by the Company or
another subsidiary of the Company, have been duly and validly
authorized and issued, are fully paid and nonassessable, and except to
the extent described in the Prospectus, including the financial
statements and notes thereto, the shares of stock of each subsidiary
owned by the Company or a subsidiary thereof are held free and clear
of liens and encumbrances;
(vii)the Registration Statement has become effective
under the Act and the Commission has not issued an order preventing or
suspending the use of any Preliminary Prospectus, the Prospectus or
the effectiveness of the Registration Statement, and to the best of
such counsel's knowledge after due inquiry of the Commission, no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and the Registration Statement, the
Prospectus and each amendment and supplement thereto made by the
Company prior to the Closing Date (other than the financial statements
and related schedules thereto, as to which such counsel need express
no opinion) comply as to form in all material respects with the
requirements of the Act, the Rules and Regulations, the Trust
Indenture Act and the rules and regulations thereunder; the
descriptions in each Preliminary Prospectus and in the Prospectus of
statutes, legal proceedings, contracts and other documents are
accurate in all material respects and present fairly the information
contained therein; such counsel has no reason to believe that the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto as of the date of such opinion
contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading (other than financial statements and
related schedules thereto, as to which such counsel need express no
opinion); and such counsel does not know, after due inquiry and
investigation, of any contracts, leases, agreements or other
documents, or transactions or relationships of a character required to
be filed as an exhibit to the Registration Statement or required to be
described in the Registration Statement, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto which are not
filed or described as required (no opinion need be given as to
consents, approvals, authorizations, registrations or qualifications
required under state securities or blue sky laws in connection with
the public offering of the Notes by you); and
(viiii)the opinion of such counsel may also be subject to
the following matters: (A) the enforceability of each of the
documents herein is subject to applicable statutes of limitations; and
(B) the availability of the remedy of specific performance, injunctive
relief or any other equitable remedy is subject to the discretion of
the court before which any proceedings therefor may be brought.
(e) All corporate proceedings and related matters in connection with
the organization of the Company and the registration, qualification,
authorization, issue, sale and delivery of the Notes shall have been
satisfactory to Foley & Lardner, legal counsel to you, and Foley & Lardner shall
have been furnished with such papers and information as they may have requested
to enable them to pass upon the matters referred to in this paragraph (e);
(f) you shall have received a certificate of the Company signed by
its chief executive officer and its principal financial or accounting officer,
dated the Closing Date, to the effect that:
(i) the representations and warranties of the Company set
forth in Section 2 of this Agreement were true and correct as of the
date of this Agreement and are true and correct as of the Closing
Date, as if again made on and as of the Closing Date, and the Company
has complied with all of the agreements and satisfied all of the
conditions to be performed or satisfied by it at or prior to the
Closing Date;
(ii) no stop order preventing or suspending the
effectiveness of the Registration Statement has been issued; the
Commission has not issued an order preventing or suspending the use of
any Preliminary Prospectus or the Prospectus filed as part of the
Registration Statement or any amendment or supplement thereto; and to
the best of the knowledge of such officers after due inquiry and
investigation of the Commission, no proceedings for that purpose have
been instituted or are pending or contemplated under the Act;
(iii)each of the respective signatories of the
certificate has carefully examined the Registration Statement, each
Preliminary Prospectus and the Prospectus and, in his or her opinion
and to the best of his or her knowledge, information and belief, the
Registration Statement, each Preliminary Prospectus and the Prospectus
and any amendment or supplement thereto, contain all statements
required to be stated therein, and neither the Registration Statement,
any Preliminary Prospectus nor the Prospectus nor any amendment or
supplement thereto includes any untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and, since
the effective date of the Registration Statement, there has occurred
no event required to be set forth in an amended or supplemented
prospectus which has not been so set forth; and
(iv) since the latest dates as of which information is given
in the Registration Statement and the Prospectus, there has not been
any adverse change or a development involving a prospective adverse
change in the business, properties, financial condition or earnings of
the Company or its subsidiaries on a consolidated basis, whether or
not arising from transactions in the ordinary course of business,
except as disclosed in said Registration Statement or Prospectus as
theretofore amended; since such dates and except as so disclosed or in
the ordinary course of business, neither the Company nor any of its
subsidiaries has incurred any material liability or obligation, direct
or indirect, or entered into any other material transaction; since
such dates and except as so disclosed, there has not been any material
change in the capital stock, short-term debt or long-term debt of the
Company or any of its subsidiaries and neither the Company nor any of
its subsidiaries has declared or paid any dividend, or made any other
distribution, upon its outstanding shares of Common Stock payable to
stockholders of record on a date prior to the Closing Date, except
that in August 1996 the Company declared dividends of approximately
$236,514, which were paid in September 1996; since such date and
except as so disclosed, the Company and its subsidiaries have not
incurred any material contingent obligations, and no material
litigation is pending or threatened against the Company or any such
subsidiary; and, since such date and except as so disclosed, neither
the Company nor any such subsidiary has sustained a material loss or
interference by strike, labor dispute, fire, explosion, flood,
windstorm, accident or other calamity (whether or not insured) or from
any court or governmental action, order or decree.
The delivery of the certificate provided for in this paragraph (f)
shall be and constitute a representation and warranty of the Company as to the
facts required in the immediately foregoing subparagraphs (i), (ii), (iii) and
(iv) of this paragraph (f) to be set forth in said certificate.
(g) At the time this Agreement is executed by the Company, you shall
have received a letter addressed to you from Deloitte & Touche LLP and McGladrey
& Pullen, LLP, independent certified public accountants, dated as of a date not
more than five business days prior to the date of this Agreement (which letter
shall be confirmed on the Closing Date with another letter as of the date not
more than five business days prior to the Closing Date), as to certain financial
or accounting matters previously requested by you. There shall not have been
any change or decrease specified in any of these letters which make it
impractical or inadvisable in your judgment to proceed with the purchase or sale
of the Notes as contemplated hereby;
(h) Such further certificates and documents as you or your legal
counsel may request.
6. REIMBURSEMENT OF YOUR EXPENSES. If the sale of the Notes
------------------------------
provided for herein is not consummated because any condition to your obligations
hereunder are not satisfied or because of any refusal, inability or failure on
the part of the Company to perform any agreement herein or comply with any
provision hereof, the Company will reimburse you upon demand for all out-of-
pocket expenses (including reasonable fees and disbursements of legal counsel)
that shall have been incurred by you and them in connection with the proposed
purchase and sale of the Notes, and the Company shall not have any further
liability hereunder except as provided in Section 4 and Section 7 hereof.
7. INDEMNIFICATION.
---------------
(a) The Company will indemnify and hold you harmless against any
losses, claims, damages or liabilities (or actions in respect thereof) to which
you may become subject, which arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto or in any application filed under any blue sky
law or other document executed by the Company specifically for that purpose or
based upon written information furnished by the Company and filed in any state
or other jurisdiction in order to qualify or register any or all of the Notes
under the securities laws thereof (any such document, application or information
being hereinafter referred to as a "Blue Sky Application"), or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse you for any legal or other expenses incurred by
you in connection with investigating or defending any such action or claim;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, Preliminary Prospectus, the
Prospectus, any amendment or supplement thereto or in any Blue Sky Application
in reliance upon and in conformity with written information furnished to the
Company by you expressly for use therein.
The indemnity agreement provided for in this paragraph (a) shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls you
within the meaning of the Act.
(b) You will indemnify and hold harmless the Company against any
losses, claims, damages or liabilities to which the Company may become subject
(or actions in respect thereof) which arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, the Preliminary Prospectus, the Prospectus, any
amendment or supplement thereto or in any Blue Sky Application, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse you for any legal or other expenses incurred
by you in connection with investigating or defending any such action or claim,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, the Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto or in any Blue Sky Application, in reliance upon
and in conformity with written information furnished to the Company by you
expressly for use therein.
The indemnity agreement in this paragraph (b) shall be in addition to
any liability which you may otherwise have and shall extend, upon the same terms
and conditions, to each officer and director of the Company and to each person,
if any, who controls the Company within the meaning of the Act and the Rules and
Regulations. Notwithstanding the provisions of this Section, you shall not be
required to indemnify the Company in any amount in excess of the total price at
which the Notes purchased by you hereunder were offered to the public.
(c) Promptly after receipt by an indemnified party under paragraph
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subdivision, notify the indemnifying party in
writing of the commencement thereof; but the omission to so notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subdivision. In case any such
action shall be brought against any indemnified party, and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under such subdivision for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof, other
than reasonable costs of investigation; and
(d) If the indemnification provided for in this Section is
unavailable to an indemnified party under paragraph (a) or (b) hereof in respect
of any losses, claims, damages or liabilities referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall,
subject to the limitations hereinafter set forth, contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims, damages
or liabilities:
(i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and you from the purchase
and sale of the Notes; or
(ii) if the allocation provided by subparagraph (i) above is
not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in subparagraph
(i) above, but also the relative fault of the Company and you in
connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant
equitable considerations.
The respective relative benefits received by the Company and you shall
be deemed to be in such proportion so that you are responsible for the portion
of the losses, claims, damages or liabilities represented by the percentage that
the "Underwriting Discounts and Commissions per Note" appearing on the cover
page of the Prospectus bears to the "Price to Public per Note" appearing
thereon, and the Company and its officers, directors and controlling persons, in
the aggregate, jointly and severally, are responsible for the remaining portion.
The relative fault of the Company and you shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the Company or by you and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims, damages
and liabilities referred to above shall be deemed to include, subject to the
limitations set forth in paragraph (c) of this Section, any legal or other fees
or expenses reasonably incurred by such party in connection with investigating
or defending any action or claim.
The Company and you agree that it would not be just and equitable if
contribution pursuant to this Section were determined by pro rata or per capita
allocation or by any other method or allocation which does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section, you shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Notes underwritten by you and distributed to the public were offered to the
public exceeds the amount of any damages which you have otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
8. SURVIVAL OF PROVISIONS. The respective agreements, indemnities,
----------------------
representations, warranties and other statements of the Company and you set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of you, the Company
or any of its officers or directors or any controlling person, and will survive
delivery of and payment of the Notes.
9. NOTICES. Any notices which you may desire or be required to give
-------
to the Company hereunder shall be deemed to be duly given when sent by telegram
addressed to, or when delivered to Financial Services Corporation of the
Midwest, 224 - 18th Street, Suite 202, Rock Island, Illinois 61201-8737. Any
notice which the Company may desire or be required to give to you hereunder
shall be deemed to be duly given when sent by telegram addressed to, or when
delivered to you at B.C. Ziegler and Company, 215 North Main Street, West Bend,
Wisconsin 53095.
10. SUCCESSORS. This Agreement will inure to the benefit of and be
----------
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder. The term "successors" as
used in this agreement shall not include any purchasers, as such purchaser, from
you of any of the Notes.
11. APPLICABLE LAW. This Agreement shall be construed in accordance
--------------
with the laws of the State of Illinois applicable to contracts made and to be
performed in that state.
12. COUNTERPARTS. This Agreement may be executed in two or more
------------
fully or partially executed counterparts, each of which shall be deemed an
original binding the signatory thereof, and the entity on whose behalf this
Agreement is executed, against the other party hereto, but all counterparts
together shall constitute one and the same instrument; provided, however, that
you shall have no obligation or liability hereunder until the Company has
executed this Agreement.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and you in
accordance with its terms.
Very truly yours,
FINANCIAL SERVICES CORPORATION
OF THE MIDWEST
By:---------------------------
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
B.C. ZIEGLER AND COMPANY
By: ------------------------
Eugene H. Rudnicki
Senior Vice President
EXHIBIT 4.1
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
AND
M&I FIRST NATIONAL BANK
TRUSTEE
INDENTURE
DATED AS OF NOVEMBER 1, 1996
$10,000,000
-----% NOTES DUE 2006
INDENTURE, DATED AS OF NOVEMBER 1, 1996
BETWEEN FINANCIAL SERVICES CORPORATION OF THE MIDWEST
AND M&I FIRST NATIONAL BANK, TRUSTEE
Cross-reference sheet showing the location in the Indenture of the
provisions inserted pursuant to Sections 310 through 318(a) inclusive of the
Trust Indenture Act of 1939.
INDENTURE
TIA SECTION
--- -------
Section 310 (a)(1)......................................... 6.09
(a)(2)........................................... 6.09
(a)(3)........................................... Not Applicable
(a)(4)........................................... Not Applicable
(b).............................................. 6.08
6.10
Section 311 (a)............................................ 6.13(a)
(b).............................................. 6.13(b)
(b)(2)........................................... 7.03(a)(2)
7.03(b)
Section 312 (a)............................................ 7.01
7.02(a)
(b).............................................. 7.02(b)
(c).............................................. 7.02(c)
Section 313 (a)............................................ 7.03(a)
(b).............................................. 7.03(b)
(c).............................................. 7.03(a)
7.03(b)
(c).............................................. 7.03(c)
Section 314 (a)............................................ 7.04
(b).............................................. Not Applicable
(c)(1)........................................... 1.02
(c)(2)........................................... 1.02
(c)(3)........................................... Not Applicable
(d).............................................. Not Applicable
(e).............................................. 1.02
Section 315 (a)............................................ 6.01(a)
6.01(c)
(b).............................................. 6.02
7.03(a)(7)
(c).............................................. 6.01(b)
(d).............................................. 6.01
(d)(1)........................................... 6.01(a)
(d)(2)........................................... 6.01(c)(2)
(d)(3)........................................... 6.02(c)(3)
(e).............................................. 5.14
Section 316 (a)(1)(A)...................................... 5.12
(a)(1)(B)........................................ 5.13
(a)(2)........................................... Not Applicable
(b).............................................. 5.08
Section 317 (a)(1)......................................... 5.03
(a)(2)........................................... 5.04
(b) 10.03
Section 318 (a)............................................ 1.07
Note: This cross-reference sheet shall not, for any purpose, be deemed to
constitute a part of the Indenture.
TABLE OF CONTENTS
-----------------
ARTICLE ONE
Definitions and Other Provisions of General Application
Section 1.01 Definitions One-1
Section 1.02 Compliance Certificates and Opinions One-8
Section 1.03 Form of Documents Delivered to Trustee One-9
Section 1.04 Act of Noteholders One-9
Section 1.05 Notices, etc., to Trustee and Company One-10
Section 1.06 Notices to Noteholders; Waiver One-10
Section 1.07 Conflict with Trust Indenture Act One-11
Section 1.08 Effect of Headings and Table of Contents One-11
Section 1.09 Successors and Assigns One-11
Section 1.10 Separability Clause One-11
Section 1.11 Benefits of Indenture One-11
Section 1.12 Legal Holidays One-11
Section 1.13 Governing Law One-12
Section 1.14 Counterparts One-12
Section 1.15 Corporate Obligation One-12
Section 1.16 Inspection One-12
ARTICLE TWO
Note Forms
Section 2.01. Forms Generally Two-1
Section 2.02 Form of Note Two-1
ARTICLE THREE
Notes
Section 3.01 Title and Terms Three-1
Section 3.02 Denominations Three-2
Section 3.03 Execution, Authentication, Delivery
and Dating Three-2
Section 3.04 Temporary Notes Three-2
Section 3.05 Registration, Transfer and Exchange Three-3
Section 3.06 Mutilated, Destroyed, Lost and
Stolen Notes Three-4
Section 3.07 Payment of Interest; Interest
Rights Preserved Three-5
Section 3.08 Persons Deemed Owners Three-6
Section 3.09 Cancellation Three-6
Section 3.10 Authentication and Delivery of Notes Three-6
ARTICLE FOUR
Satisfaction and Discharge
Section 4.01 Satisfaction and Discharge of Indenture Four-1
Section 4.02 Application of Trust Money Four-2
Section 4.03 Return of Moneys Four-2
ARTICLE FIVE
Remedies
Section 5.01 Events of Default Five-1
Section 5.02 Acceleration of Maturity: Rescission
and Annulment Five-2
Section 5.03 Collection of Indebtedness and Suits
for Enforcement by Trustee Five-3
Section 5.04 Trustee May File Proofs of Claim Five-4
Section 5.05 Trustee May Enforce Claims Without
Possession of Notes Five-5
Section 5.06 Application of Money Collected Five-5
Section 5.07 Limitation on Suits Five-5
Section 5.08 Unconditional Right of Noteholders to
Receive Principal and Interest Five-6
Section 5.09 Restoration of Rights and Remedies Five-6
Section 5.10 Rights and Remedies Cumulative Five-6
Section 5.11 Delay or Omission Not Waiver Five-7
Section 5.12 Noteholders May Demand Enforcement of
Right by Trustee Five-7
Section 5.13 Control by Noteholders Five-7
Section 5.14 Waiver of Past Defaults Five-8
Section 5.15 Undertaking for Costs Five-8
Section 5.16 Waiver of Stay or Extension Laws Five-8
ARTICLE SIX
The Trustee
Section 6.01 Certain Duties and Responsibilities Six-1
Section 6.02 Notice of Defaults Six-2
Section 6.03 Certain Rights of Trustee Six-2
Section 6.04 Not Responsible for Recitals or
Issuance of Notes Six-3
Section 6.05 May Hold Notes Six-4
Section 6.06 Money Held in Trust Six-4
Section 6.07 Compensation and Reimbursement Six-4
Section 6.08 Disqualification; Conflicting Interests Six-5
Section 6.09 Corporate Trustee Required; Eligibility Six-10
Section 6.10 Resignation and Removal; Appointment
of Successor Six-11
Section 6.11 Acceptance of Appointment by Successor Six-12
Section 6.12 Merger, Conversion, Consolidation or
Succession to Business Six-12
Section 6.13 Preferential Collection of Claims
Against Company Six-13
ARTICLE SEVEN
Noteholders' Lists and Reports by Trustee and Company
Section 7.01 Company to Furnish Trustee Names and
Addresses of Noteholders Seven-1
Section 7.02 Preservation of Information;
Communications to Noteholders Seven-1
Section 7.03 Reports by Trustee Seven-2
Section 7.04 Reports by Company Seven-4
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
Section 8.01 Company May Consolidate, etc., only
on Certain Terms Eight-1
Section 8.02 Successor Substituted Eight-2
Section 8.03 Limitation on Lease of Properties
as Entirety Eight-2
ARTICLE NINE
Supplemental Indentures
Section 9.01 Supplemental Indentures Without Consent
of Noteholders Nine-1
Section 9.02 Supplemental Indentures With Consent
of Noteholders Nine-1
Section 9.03 Execution of Supplemental Indentures Nine-2
Section 9.04 Effect of Supplemental Indentures Nine-3
Section 9.05 Conformity with Trust Indenture Act Nine-3
Section 9.06 Reference in Notes to Supplemental
Indentures Nine-3
ARTICLE TEN
Covenants
Section 10.01 Payment of Principal, Premium and Interest Ten-1
Section 10.02 Maintenance of Office or Agency Ten-1
Section 10.03 Money for Note Payments to be Held in Trust Ten-1
Section 10.04 Statements as to Compliance Ten-2
Section 10.05 Corporate Existence Ten-3
Section 10.06 Payment of Taxes and Other Claims Ten-3
Section 10.07 Maintenance of Properties Ten-3
Section 10.08 Advances by Trustee Ten-4
Section 10.09 Maintenance of Insurance Ten-4
Section 10.10 Maintenance of Records Ten-4
Section 10.11 Restriction on Dividends, Etc Ten-5
Section 10.12 Liens Ten-6
Section 10.13 Limitation on Certain Acquisitions Ten-8
Section 10.14 Limitation on Indebtedness Ten-8
Section 10.15 Maintenance of Consolidated Tangible
Net Worth Ten-9
Section 10.16 Ownership of Bank Ten-9
Section 10.17 Compliance with Law Ten-9
Section 10.18 Capital Expenditures Ten-9
Section 10.19 Limitation on Payment Restrictions
Affecting Subsidiaries Ten-9
Section 10.20 Investment in Leasing Subsidiaries Ten-9
ARTICLE ELEVEN
Redemption of Notes
Section 11.01 Right of Redemption Eleven-1
Section 11.02 Mandatory Redemption Fund Eleven-1
Section 11.03 Satisfaction of Redemption Fund
Payments with Notes Eleven-1
Section 11.04 Redemption of Notes from Mandatory
Redemption Fund Eleven-1
Section 11.05 Applicability of Article Eleven-2
Section 11.06 Election to Redeem; Notice to Trustee Eleven-2
Section 11.07 Selection by Trustee of Notes
to be Redeemed Eleven-2
Section 11.08 Notice of Redemption Eleven-3
Section 11.09 Deposit of Redemption Price Eleven-3
Section 11.10 Notes Payable on Redemption Date Eleven-3
Section 11.11 Notes Redeemed in Part Eleven-4
ARTICLE TWELVE
Noteholders' Meetings
Section 12.01 Purposes for Which Meetings May
Be Called Twelve-1
Section 12.02 Manner of Calling Meetings Twelve-1
Section 12.03 Call of Meeting by Company
or Noteholders Twelve-1
Section 12.04 Who May Attend and Vote at Meetings Twelve-2
Section 12.05 Regulations May Be Made By Trustee Twelve-2
Section 12.06 Manner of Voting at Meetings and
Record to be Kept Twelve-3
Section 12.07 Exercise of Rights of Trustee and
Noteholders Not to Be Hindered
or Delayed Twelve-3
THIS INDENTURE dated as of November 1, 1996, between FINANCIAL
SERVICES CORPORATION OF THE MIDWEST, a Delaware corporation (hereinafter called
the "Company") having its principal office in Rock Island, Illinois, and M&I
FIRST NATIONAL BANK, a national banking corporation (hereinafter called the
"Trustee").
RECITALS OF THE COMPANY
-----------------------
The Company has duly authorized the creation of an issue of its Notes
(hereinafter called the "Notes") of substantially the tenor and amount
hereinafter set forth, and to provide therefor the Company has duly authorized
the execution and delivery of this Indenture.
All things necessary to make the Notes, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid agreement
of the Company in accordance with their and its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
ARTICLE ONE
Definitions and Other Provisions of General Application
-------------------------------------------------------
Section 1.01 Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(2) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles and the term "generally accepted accounting principles" with
respect to any computation required or permitted hereunder shall mean such
accounting principles as are generally accepted as of the date of this
Indenture.
"Accountant" means a person qualified to pass upon accounting
questions, whether or not (unless herein required to be independent) such person
shall be an officer or employee of the Company or of an affiliate of the
Company.
"Act" when used with respect to any Noteholder has the meaning
specified in Section 1.04.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authorized Newspaper" means a newspaper of general circulation in the
relevant geographic area, printed in the English language and customarily
published on each business day, whether or not published on Saturdays, Sundays
or holidays. Whenever successive weekly publications in an Authorized Newspaper
are required hereunder they may be made (unless otherwise expressly provided
herein) on the same or different days of the week and in the same or in
different Authorized Newspapers.
"Bank" means THE Rock Island Bank, National Association, a national
banking association, with principal offices located at 230-18th Street, Rock
Island, Illinois 61201 and its official office located as 3120 Middle Road,
Bettendorf, Iowa 52722.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that 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, and delivered to the Trustee.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which commercial banking institutions in West Bend, Wisconsin or the city
in which the Trustee's Corporate Trust Office is located are authorized or
obligated by law or executive order to be closed.
"Capital Stock" means, as to shares of a particular corporation,
outstanding shares of stock of any class whether now or hereafter authorized,
irrespective of whether such class shall be limited to a fixed sum or percentage
in respect of the rights of the holders thereof to participate in dividends and
in the distribution of assets upon the voluntary liquidation, dissolution or
winding up of such corporation.
"Capitalized Lease Obligations" means, as to any person, the
obligation of such person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real or personal property which
obligation is required to be classified and accounted for as a capital lease
obligation or a liability on a balance sheet of such person under generally
accepted accounting principles and, for purposes of this Indenture, the amount
of such obligations at any date shall be the capitalized amount thereof at such
date, determined in accordance with generally accepted accounting principles.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, 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 on such date.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor corporation shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor corporation.
"Company Request", "Company Order" and "Company Consent" mean,
respectively, a written request, order or consent signed in the name of the
Company by its Chairman of the Board, President or a Vice President, and by its
Treasurer, an Assistant Treasurer, Controller, an Assistant Controller,
Secretary or an Assistant Secretary, and delivered to the Trustee.
"Consolidated Indebtedness" means the total indebtedness of any
corporation, its Subsidiaries and its Leasing Subsidiaries (as hereinafter
defined) determined on a consolidated basis in accordance with generally
accepted accounting principles, except that there is excluded therefrom any
Indebtedness of a corporation, partnership, limited liability company or other
entity of which the Company owns or has control over, directly or indirectly, of
at least a majority of the voting rights and which corporation, partnership,
limited liability company or other entity is involved solely in the leasing
business ("Leasing Subsidiary"), where such Indebtedness is not guaranteed by or
supported in any manner by the Company, any Subsidiary of the Company or by any
other entity in which the Company, directly or indirectly, owns or controls a
majority of the voting interest, or by any assets thereof, provided, however,
that such Leasing Subsidiary has a positive net worth at all times that any such
Indebtedness is outstanding.
"Consolidated Net Income" for any period shall mean the amount of
consolidated net income (or deficit) of the Company and its Subsidiaries and
that of its Leasing Subsidiaries for such period determined on a consolidated
basis in accordance with generally accepted accounting principles; provided,
however, that there shall not be included in consolidated net income (i) any net
income (or net loss) of a Subsidiary or Leasing Subsidiary for any period during
which it was not a Subsidiary or Leasing Subsidiary; or (ii) any net income (or
net loss) of any business, property or assets acquired (by way of merger,
consolidation, purchase or otherwise) by the Company, any Subsidiary or any
Leasing Subsidiary for any period prior to the acquisition thereof.
"Consolidated Tangible Net Worth" means the excess, after making
appropriate deductions for any minority interest in net worth of Subsidiaries
and Leasing Subsidiaries, of:
(a) the tangible assets of any corporation, its Subsidiaries and
Leasing Subsidiaries (excluding intercompany items) which, in accordance
with generally accepted accounting principles, are tangible assets,
excluding the unrealized gain or loss with respect to available-for-sale
securities, after deducting adequate reserves in each case where, in
accordance with generally accepted accounting principles, a reserve is
proper, over
(b) all Debt of such corporation, its Subsidiaries and Leasing
Subsidiaries (excluding intercompany items);
provided, however, that (i) in no event shall there be included as tangible
assets goodwill, core deposit intangibles, prepaid expenses (except for prepaid
insurance), deferred charges (except for deferred taxes) or treasury stock or
any securities or Debt of such corporation or a Subsidiary or Leasing
Subsidiary; (ii) the unamortized portion of the costs incurred in connection
with the public offering of $10,000,000 of the Notes and mortgage servicing
rights which are capitalized in accordance with Statement No. 122 of the
Financial Standards Accounting Board (regardless of whether such rights are
treated as intangible assets for regulatory or other purposes) shall be included
as tangible assets; and (iii) all assets and Debt of a Leasing Subsidiary whose
Indebtedness is excluded from the definition of "Consolidated Indebtedness"
shall be excluded in such computation, but the investment of Company from time
to time in any such Leasing Subsidiary shall be included as a tangible asset.
"Corporate Trust Office" means the principal corporate trust office of
the Trustee located at 321 North Main Street, West Bend, Wisconsin 53095, or at
such other address as the Trustee may designate from time to time by notice to
the Noteholders and the Company, as the principal corporate trust office of any
successor Trustee.
"Debt" of any corporation at any time shall include all obligations
which in accordance with generally accepted accounting principles would be
included in determining total liabilities as shown in the liabilities side of a
balance sheet of such corporation at such date.
"Depository" means with respect to the issuance of Notes, the person
in whose name the Notes are registered and to whom a certificate representing
such Notes is issued.
"Default" means any occurrence which is, or with notice or the lapse
of time, or both, would become an Event of Default.
"Event of Default" has the meaning specified in Article Five.
"Holder" when used with respect to any Note means a Noteholder.
"Indebtedness" of any person means, at any date, each of the following
(without duplication): (a) all obligations, unconditional or contingent, of
such person for borrowed money (whether or not recourse is to the whole of the
assets of such person or only to a portion thereof) or evidenced by bonds,
debentures, notes or other similar instruments (including, without limitation,
obligations with respect to letters of credit and bankers' acceptances); (b) all
obligations of such person to pay the deferred purchase price of property or
services (other than services rendered by employees, officers or directors of
such person or its Subsidiaries in their capacities as such at the time such
services were rendered and other than accrued expenses and trade payables
arising in the ordinary course); (c) Capitalized Lease Obligations of such
person; (d) all Indebtedness of another secured by a lien on any asset of such
person, whether or not such Indebtedness is assumed or guaranteed by such person
but only to the extent of the lesser of the Indebtedness so secured and the fair
market value of such asset; and (e) any guarantee of any item that would be
included within this definition; provided, however, that obligations described
in clauses (a) through (c) above shall constitute Indebtedness only if and to
the extent such obligation would appear as a liability upon a balance sheet of
such person prepared on a consolidated basis in accordance with generally
accepted accounting principles, and provided further, that there shall be
excluded from the definition of Indebtedness (i) the principal amount of the
Company's Mandatory Convertible Debentures but only to the extent and so long as
the payment of the principal amount thereof is subordinated to the prior payment
in full of the Notes and; (ii) bank deposits, advances from the Federal Home
Loan Bank, short-term obligations to repurchase securities sold under agreements
to repurchase, federal funds purchased, demand notes issued by the United States
Treasury and similar short-term banking obligations. The amount of Indebtedness
of any person at any date shall be the outstanding balance of any such
unconditional obligations as described in clauses (a) through (e) and the
maximum liability of any such contingent obligations at such date.
"Indenture" or "this 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 pursuant to the applicable
provisions hereof. All references in this instrument to designated "Articles",
"Sections" and other subdivisions are to the designated Articles, Sections and
other subdivisions of this instrument as originally executed. The words
"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.
"Independent" when used with respect to any specified Person means
such a Person who (1) is in fact independent, (2) does not have any direct
financial interest or any material indirect financial interest in the Company or
in any other obligor upon the Notes or in any Affiliate of the Company or of
such other obligor, and (3) is not connected with the Company or such other
obligor or any Affiliate of the Company or of such other obligor, as an officer,
employee, promoter, underwriter, trustee, partner, director or person performing
similar functions. Whenever it is herein provided that any Independent Person's
opinion or certificate shall be furnished to the Trustee, such Person shall be
appointed by a Company Order and approved by the Trustee in the exercise of
reasonable care, and such opinion or certificate shall state that the signer has
read this definition and that the signer is Independent within the meaning
hereof.
"Individual Note" means a Note of an original principal amount of
$1,000; a Note of an original principal amount in excess of $1,000 shall be
deemed to be a number of Individual Notes equal to the quotient obtained by
dividing such original principal amount by $1,000.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes.
"Maturity" when used with respect to any Note means the date on which
the principal of such Note becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"Noteholder" means a Person in whose name a Note is registered in the
Note Register.
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 3.05.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Controller, an Assistant Controller, the Secretary or an
Assistant Secretary of the Company, and delivered to the Trustee. Wherever this
Indenture requires that an Officers' Certificate be signed also by an engineer
or an accountant or other expert, such engineer, accountant or other expert
(except as otherwise expressly provided in this Indenture) may be in the employ
of the Company, and shall be acceptable to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may
(except as otherwise expressly provided in this Indenture) be counsel for the
Company, and shall be acceptable to the Trustee.
"Outstanding" when used with respect to Notes means, as of the date of
determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Notes for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
in trust for the Holders of such Notes, provided that, if such Notes are to
be redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made;
and
(iii)Notes in exchange for or in lieu of which other Notes have
been authenticated and delivered pursuant to this Indenture;
provided, however, that in determining whether the Holders of the requisite
principal amount of Notes Outstanding have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Notes which the Trustee knows to be so owned shall be so
disregarded. Notes 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 Notes and that the
pledgee is not the Company or any other obligor upon the Notes or any Affiliate
of the Company or such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or interest on any Notes on behalf of the Company.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Payment" means a city or any political subdivision thereof
designated as such in Article Three.
"Predecessor Notes" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 3.06 in lieu of a lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the lost, destroyed or
stolen Note.
"Redemption Date" when used with respect to any Note to be redeemed
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price" when used with respect to any Note to be redeemed
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the date specified in Article Three.
"Responsible Officer" when used with respect to the Trustee means the
chairman or vice-chairman of the board of directors, the chairman or vice-
chairman of the executive committee of the board of directors, the president,
any vice president, the secretary, any assistant secretary, the treasurer, any
assistant treasurer, the cashier, any assistant cashier, any trust officer or
assistant trust officer, the controller and any assistant controller or any
other officer of the 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 his knowledge of and familiarity with the particular
subject.
"Special Record Date" for the payment of any Defaulted Interest (as
defined in Section 3.07) means a date fixed by the Trustee pursuant to Section
3.07.
"Stated Maturity" when used with respect to any Note or any
installment of interest thereon means the date specified in such Note as the
fixed date on which the principal of such Note or such installment of interest
is due and payable.
"Subsidiary" means any corporation a majority of the Voting Shares of
which are at the time owned by any corporation or by other Subsidiaries or by
such corporation and other Subsidiaries.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
as in force at the date as of which this instrument was executed, unless
otherwise specifically provided.
"Vice President" when used with respect to the Company or the Trustee
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
"Voting Shares" means, as to shares of a particular corporation,
outstanding shares of stock of any class of such corporation entitled to vote in
the election of directors, excluding shares entitled so to vote only upon the
happening of some contingency.
Section 1.02 Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, 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, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 1.03 Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
in so far as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such Counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1.04 Act of Noteholders.
------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee, and, where it is hereby expressly required, to the
Company, together with any writing appointing an agent of Noteholder. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Noteholders
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 Indenture and (subject to Section 6.01) conclusive in favor of
the Trustee and the Company, if made in the manner provide in this Section.
(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 the certificate of any 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 an officer of a corporation or a member of a partnership,
on behalf of such corporation or partnership, 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 the Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Note shall bind the Holder of every
Note issued upon the transfer thereof or in exchange therefor or in lieu
thereof, in respect of anything done or suffered to be done by the Trustee or
the Company in reliance thereon, whether or not notation of such action is made
upon such Note.
Section 1.05 Notices, etc., to Trustee and Company.
-------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Noteholders or other document provided or permitted by this Indenture
to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Noteholder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its principal corporate
trust office, or
(2) the Company by the Trustee or by any Noteholder shall be
sufficient for every purpose hereunder if in writing and mailed,
first-class postage prepaid, to the Company addressed to it at 224 -
18th Street, Suite 202, Rock Island, Illinois 61201-8737, or at any
other address previously furnished in writing to the Trustee by the
Company.
Section 1.06 Notices to Noteholders; Waiver.
------------------------------
Where this Indenture provides for notice to Noteholders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to each
Noteholder affected by such event, at his address as it appears in the Note
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Noteholders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Noteholder shall affect the
sufficiency of such notice with respect to other Noteholders. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Noteholders shall be filed with the Trustee, but such filing shall not
be a condition precedent to the validity of any action taken in reliance upon
such waiver.
In case, by reason of the suspension of publication of any Authorized
Newspaper, or by reason of any other cause, it shall be impossible to make
publication of any notice in an Authorized Newspaper or Authorized Newspapers as
required by this Indenture, then such method of publication or notification as
shall be made with the approval of the Trustee shall constitute a sufficient
publication of such notice.
Section 1.07 Conflict with Trust Indenture Act.
---------------------------------
If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Indenture by any of
the provisions of TIA, such required provision shall control.
Section 1.08 Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Section 1.09 Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
Section 1.10 Separability Clause.
-------------------
In case any provision in this Indenture or in the Notes 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 1.11 Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, and the Noteholders, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
Section 1.12 Legal Holidays.
--------------
In any case where the date of any Interest Payment Date, Redemption
Date or the Stated Maturity of any Note, or any date on which any Defaulted
Interest is proposed to be paid shall not be a Business Day, then
(notwithstanding any other provision of the Notes or this Indenture) payment
need not be made on such date, but may be made on the next succeeding Business
Day with the same force and effect as if made on the nominal date of any such
Interest Payment Date, Redemption Date or Stated Maturity or date for the
payment of Defaulted Interest, as the case may be, and no interest shall accrue
for the period from and after any such nominal date.
Section 1.13 Governing Law.
-------------
This Indenture, each Supplement and each Note shall be construed in
accordance with and governed by the laws of the State of Illinois applicable to
agreements made and to be performed therein.
Section 1.14 Counterparts.
------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
Section 1.15 Corporate Obligation.
--------------------
No recourse may be taken against any incorporator, subscriber to the
capital stock, stockholder, officer or director of the Company or of any
predecessor or successor of the Company with respect to the Company's
obligations on the Notes or under this Indenture or any certificate or other
writing delivered in connection herewith or therewith.
Section 1.16 Inspection.
----------
The Company agrees that, on reasonable prior notice, it will permit
any representative of the Trustee, during the Company's normal business hours,
to examine all the books of account, records, reports and other papers of the
Company, to make copies and extracts therefrom, to cause such books to be
audited by independent certified public accountants selected by the Trustee, and
to discuss its affairs, finances and accounts with its officers, employees and
independent certified public accountants (and by this provision the Company
hereby authorizes its accountants to discuss with such representative such
affairs, finances and accounts), all at such reasonable times and as often as
may be reasonably requested. Any expenses incident to the exercise by the
Trustee of any right under this Section 1.16 shall be borne by the Trustee,
provided that if an audit is made during the continuance of an Event of Default,
the expense incident to such audit shall be borne by the Company.
ARTICLE TWO
Note Forms
----------
Section 2.01. Forms Generally.
---------------
The Notes and the certificates of authentication thereon shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon, as may be
required to comply with the rules of any securities exchange on which the Notes
may be listed, or as may, consistently herewith, be determined by the officers
executing such Notes, as evidenced by their execution of the Notes. Any portion
of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
The definitive Notes shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or may be
produced in any other manner permitted by the rules of any securities exchange,
on which the Notes may be listed, all as determined by the officers executing
such Notes, as evidenced by their execution of such Notes.
Section 2.02 Form of Note.
------------
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
-----% Note Due 2006
Stated First Interest Interest Payable Issue
Maturity Payment Date on the 1st Day of Date
-------- -------------- ----------------- ------
Financial Services Corporation of the Midwest, a Delaware corporation
(hereinafter called the "Company," which term includes any successor corporation
under the Indenture hereinafter referred to), for value received, hereby
promises to pay to ---------------- or registered assigns, the principal sum of
- ----------------------- Dollars on or prior to the date set forth above ("Stated
Maturity"), except as the provisions below with respect to any prepayment or
redemption of this Note may become applicable hereto, and to pay interest
thereon at the rate of -----% per annum on the unpaid portion of said principal
sum from the date hereof, or from the most recent interest payment date to which
interest has been paid or duly provided for, through the day immediately
preceding the date on which such principal sum becomes due and payable, on the
first day of the month set forth above in each year, and on any overdue
principal, and (to the extent that the payment of such interest shall be legally
enforceable) on any overdue installment of interest, at the aforesaid rate per
annum. The interest so payable, and punctually paid or duly provided for, on
any interest payment date will, as provided in said Indenture, be paid to the
person in whose name this Note (or one or more Predecessor Notes, as defined in
said Indenture) is registered at the close of business on the Regular Record
Date for such interest, which shall be the 15th day (whether or not a business
day) of the calendar month next preceding such interest payment date. At the
option of the Company interest so payable may be paid by check to the order of
said registered holder mailed to his or her address appearing on the Note
Register. Any such interest not so punctually paid or duly provided for shall
forthwith cease to be payable to the registered holder on such Regular Record
Date, and may be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such defaulted interest to be fixed by the Trustee,
notice whereof shall be given to Noteholders not less than 10 days prior to such
Special Record Date, or may be paid, at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the Notes
may be listed, and upon such notice as may be required by such exchange, all as
more fully provided in said Indenture. Payment of the principal of and interest
on this Note will be made at the office or agency of the Company maintained for
that purpose in West Bend, Wisconsin, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts.
This Note is one of a duly authorized issue of Notes of the Company
designated as its -----% Notes Due 2006 (herein called the "Notes"), limited in
aggregate principal amount to $10,000,000, issued under an Indenture dated as of
November 1, 1996 (herein called the "Indenture"), between the Company and M&I
First National Bank, as Trustee (herein called the "Trustee," which term
includes any successor Trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights thereunder of the Company, the Trustee and the holders of the
Notes, and the terms upon which the Notes are, and are to be, authenticated and
delivered.
All or any portion of the Notes are subject to redemption at any time,
upon notice as provided in the Indenture at the election of the Company, at 103%
of the principal amount thereof if the redemption occurs on or before
November 1, 1998 and at 100% of the principal amount thereof if the redemption
occurs after November 1, 1998, together in any case with interest accrued to the
date fixed for redemption, payable on surrender for redemption (the interest
installment payable on the date fixed for redemption, if such date is an
interest payment date, to be paid to the holder of record at the close of
business on the Regular Record Date therefor hereinabove stated).
The Notes are subject to mandatory redemption through the operation of
the Mandatory Redemption Fund which provides for the redemption by the Company
of $750,000 principal amount of Notes on each of November 1, 2000, 2001, 2002,
2003, 2004 and 2005.
Notes acquired or redeemed by the Company otherwise than through
Mandatory Redemption Fund payments may be credited at the election of the
Company against subsequent Mandatory Redemption Fund payments otherwise required
to be made.
It is provided in the Indenture that Notes of a denomination larger
than $1,000 may be redeemed in part ($1,000 or a multiple thereof) and that upon
any partial redemption of any such Note the same shall be surrendered in
exchange for one or more new Notes for the unredeemed portion of principal.
Notes (or portions thereof as aforesaid) for whose redemption and
payment provision is made in accordance with the Indenture shall cease to bear
interest from and after the date fixed for redemption.
If an Event of Default, as defined in the Indenture, shall occur, the
principal of all the Notes may be declared due and payable in the manner and
with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the holders of the Notes under the Indenture at any
time by the Company with the consent of the holders of a majority in aggregate
principal amount of the Notes at the time Outstanding, as defined in the
Indenture. The Indenture also contains provisions permitting the holders of a
majority in aggregate principal amount of the Notes at the time Outstanding, as
defined in the Indenture, on behalf of the holders of all Notes, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the holder of this Note shall be conclusive and binding upon such
holder and upon all future holders of this Note and of any Note issued upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not notation
of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place, and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, this Note is transferable on the Note Register of the
Company, upon surrender of this Note for transfer at the office or agency of the
Company in any place where the principal hereof and interest hereon are payable,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Note Registrar, duly executed by the
registered holder hereof or his attorney duly authorized in writing, a copy of
which authorization shall be delivered with any such instrument of transfer, and
thereupon one or more new Notes, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Notes are issuable only as registered Notes without coupons in
denominations of $1,000 or any multiple thereof. As provided in the Indenture
and subject to certain limitations therein set forth, Notes are exchangeable for
a like aggregate principal amount of Notes of a different authorized
denomination, as requested by the holder surrendering the same.
No service charge will be made for any such transfer or exchange, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company or the Trustee
may treat the person in whose name this Note is registered as the owner hereof
for the purpose of receiving the payment as herein provided and for all other
purposes whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used is this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
This Note, excluding the validity hereof, shall be construed in
accordance with and governed by the laws of the State of Illinois.
Unless the certificate of authentication hereon has been executed by
the Trustee by manual signature, this Note shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed and a facsimile of its corporate seal to be imprinted hereon.
FINANCIAL SERVICES CORPORATION
OF THE MIDWEST
Rock Island, Illinois
[SEAL]
By -------------------------------
Attest: (Authorized Officer)
- -------------------------------
Trustee's Certificate of Authentication
---------------------------------------
This is one of the Notes referred to in the within-mentioned
Indenture.
Authentication Date: M&I FIRST NATIONAL BANK
As Trustee
By -------------------------------
Authorized Signature
ARTICLE THREE
Notes
-----
Section 3.01 Title and Terms.
---------------
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $10,000,000, except for Notes
authenticated and delivered upon transfer of, or in exchange for, or in lieu of
other Notes as provided herein.
The Notes shall be known and designated as the "-----% NOTES DUE 2006"
of the Company.
The Stated Maturity of the Notes shall be November 1, 2006 and the
Notes shall bear interest at the rate of -----% per annum from November 1, 1996,
or from the most recent Interest Payment Date to which interest has been paid or
duly provided for, payable semiannually thereafter on May 1 and November 1 of
each year, commencing May 1, 1997. The final interest installment shall be paid
on the maturity, repayment or redemption date of each such Note and shall
include the interest accrued thereon from the last preceding semiannual Interest
Payment Date. Interest on overdue principal and, to the extent legally
enforceable, on overdue interest, on any Note shall be paid at such aforesaid
rate. The Notes shall be redeemable upon the terms and conditions more fully
set forth in Article Eleven hereof.
The Regular Record Date for the payment of the interest payable, and
punctually paid or duly provided for, on any Interest Payment Date shall be the
close of business on the 15th day (whether or not a Business Day) of the
calendar month next preceding such Interest Payment Date.
The person in whose name any Note is registered at the close of
business on the Regular Record Date with respect to an Interest Payment Date
shall be entitled to receive the interest payable on such Interest Payment Date
notwithstanding the cancellation of such Note upon any registration of transfer
or exchange thereof subsequent to such Regular Record Date and prior to such
Interest Payment Date; provided, however, that if and to the extent the Company
shall default in the payment of the interest due on any Interest Payment Date,
such Defaulted Interest shall be paid as provided in Section 3.07.
Any action required to be taken pursuant to this Section on any date
which is not a Business Day need not be taken on such date, but may be taken on
the next succeeding Business Day with the same force and effect as if made on
such day.
The principal of, and the redemption premium, if any, and interest on,
the Notes shall be payable at the corporate trust office of Trustee, in the City
of West Bend, State of Wisconsin, as Paying Agent for the Notes, or any
successor Paying Agent, said city being herein called "Place of Payment."
Interest on each Note shall be paid by check mailed to the Person entitled
thereto at the address last appearing on the Note Register.
Interest on the Notes shall be calculated on the basis of the number
of days elapsed in a year of 360 days.
Section 3.02 Denominations.
-------------
The Notes may be issued in denominations of $1,000 and any multiple of
$1,000.
Section 3.03 Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Notes shall be executed on behalf of the Company by its Chairman
of the Board, its President or one of its Vice Presidents under its corporate
seal reproduced thereon and attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Notes may be manual
or facsimile.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes executed by the Company to the
Trustee for authentication; and the Trustee shall authenticate and deliver such
Notes as in this Indenture provided and not otherwise.
Each Note shall be dated as of the most recent Interest Payment Date
on which interest on the Notes shall have been paid or provided for prior to the
authentication of such Note, provided that any Note authenticated prior to the
first such Interest Payment Date shall be dated as of November 1, 1996.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder.
Section 3.04 Temporary Notes.
----------------
Pending the preparation of definitive Notes, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Notes which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any denomination, substantially of the tenor of the definitive
Notes in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations as the officers executing such
Notes may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company in a
Place of Payment, without charge to the Holder. Upon surrender for cancellation
of any one or more temporary Notes, the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor a like principal amount of
definitive Notes of authorized denominations. Until so exchanged, the temporary
Notes shall in all respects be entitled to the same benefits under this
Indenture as definitive Notes.
Section 3.05 Registration, Transfer and Exchange.
-----------------------------------
The Company shall cause to be kept at the principal corporate trust
office of the Trustee a register (herein sometimes referred to as the "Note
Register") in which, subject to such reasonable regulations as it may prescribe,
the Company shall provide for the registration of Notes and of transfer of
Notes. The Trustee is hereby appointed "Note Registrar" for the purpose of
registering Notes and transfers of Notes as herein provided.
Upon surrender for transfer of any Note at the office or agency of the
Company in a Place of Payment, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes of any authorized denominations, of a like
aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denominations, of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Notes which the Noteholder making
the exchange is entitled to receive.
All Notes issued upon any transfer or exchange of Notes shall be the
valid obligations of the Company, evidencing the same debt, and entitled to the
same benefits under this Indenture, as the Notes surrendered upon such transfer
or exchange.
Every Note presented or surrendered for transfer or exchange shall (if
so required by the Company or the Trustee) be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to the Company and the
Note Registrar duly executed, by the Holder thereof or his attorney duly
authorized in writing, together with a copy of any such authorization.
No service charge shall be made for any transfer or exchange of Notes,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection with any transfer or
exchange of Notes, other than exchanges pursuant to Section 3.04 or 9.06 not
involving any transfer.
The Company shall not be required (I) to issue, transfer or exchange
any Note during a period beginning at the opening of business 15 days before the
day of the mailing of a notice of redemption of Notes selected for redemption
under Section 11.07 and ending at the close of business on the day of such
mailing, or (ii) to transfer or exchange any Note so selected for redemption in
whole or in part.
Section 3.06 Mutilated, Destroyed, Lost and Stolen Notes.
-------------------------------------------
If (I) any mutilated Note is surrendered to the Trustee, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, and (ii) there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Note has been acquired by a bona fide purchaser, the Company
shall execute and upon its request the Trustee shall authenticate and deliver,
in exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Note, a new Note of like tenor and principal amount, bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, or shall have been selected or called for
redemption, the Company in its discretion may, instead of issuing a new Note,
pay such Note.
Prior to the issuance of any new Note under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
Section 3.07 Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest specified in Section 3.01.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the registered Holder on the
relevant Regular Record Date by virtue of having been such Holder; and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Clause (1) or Clause (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be
paid on each Note and the date of the proposed payment, and at the
same time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in respect of
such Defaulted Interest or shall make arrangements satisfactory to the
Trustee for such deposit prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this Clause
provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15
nor less than 10 days prior to the date of the proposed payment and
not less than 10 days after the receipt by the Trustee of the notice
of the proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be
mailed, first class postage prepaid, to each Noteholder at his address
as it appears in the Note Register, not less than 10 days prior to
such Special Record Date. The Trustee may, in its discretion, in the
name and at the expense of the Company, cause a similar notice to be
published at least once in an Authorized Newspaper in each Place of
Payment, but such publication shall not be a condition precedent to
the establishment of such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date
therefor having been mailed as aforesaid, such Defaulted Interest
shall be paid to the Persons in whose names the Notes (or their
respective Predecessor Notes) are registered on such Special Record
Date and shall no longer be payable pursuant to the following Clause
(2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such
notice as may be required by such exchange, if, after notice given by
the Company to the Trustee of the proposed payment pursuant to this
Clause, such payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Note shall carry the rights to interest accrued and unpaid, and to
accrue, which were carried by such other Note.
Section 3.08 Persons Deemed Owners.
---------------------
The Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name any Note is registered as the owner of such
Note for the purpose of receiving payment of principal of and (subject to
Section 3.07) interest on, such Note and for all other purposes whatsoever,
whether or not such Note be overdue, and neither the Company, the Trustee nor
any agent of the Company or the Trustee shall be affected by notice to the
contrary.
Section 3.09 Cancellation.
------------
All Notes surrendered for payment, redemption, transfer, exchange or
conversion shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee and, if not already cancelled, shall be promptly
cancelled by it. The Company may at any time deliver to the Trustee for
cancellation any Notes previously authenticated and delivered hereunder which
the Company may have acquired in any manner whatsoever, and all Notes so
delivered shall be promptly cancelled by the Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
this Section, except as expressly permitted by this Indenture. All cancelled
Notes held by the Trustee shall be disposed of as directed by a Company Order.
Section 3.10 Authentication and Delivery of Notes.
------------------------------------
Forthwith upon the execution and delivery of this Indenture, or from
time to time thereafter, Notes up to the aggregate principal amount of
$10,000,000 may be executed by the Company and delivered to the Trustee for
authentication, and shall thereupon be authenticated and delivered by the
Trustee upon Company Order, without any further action by the Company.
ARTICLE FOUR
Satisfaction and Discharge
--------------------------
Section 4.01 Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion or transfer or exchange of Notes herein expressly
provided for), and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture, when
(1) either
(A) all Notes theretofore authenticated and delivered
(other than (i) Notes which have been destroyed, lost or
stolen and which have been replaced or paid as provided in
Section 3.06, and (ii) Notes for whose payment money has
theretofore been deposited in trust or segregated and held
in trust by the Company and thereafter repaid to the Company
or discharged from such trust, as provided in Section 10.03)
have been delivered to the Trustee canceled or for
cancellation, or
(B) all such Notes not theretofore delivered to the
Trustee canceled or for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their
Stated Maturity within one year, or
(iii) are to be called for redemption
within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense, of
the Company,
and the Company, in the case of (i), (ii) or (iii) above,
has deposited or caused to be deposited with the Trustee as
trust funds in trust for the purpose an amount sufficient to
pay and discharge the entire indebtedness on such Notes not
theretofore delivered to the Trustee canceled or for
cancellation, for principal and interest to the date of such
deposit (in the case of Notes which have become due and
payable), or to the Stated Maturity or Redemption Date, as
the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.07 shall survive.
Section 4.02 Application of Trust Money.
--------------------------
All money deposited with the Trustee pursuant to Section 4.01 shall be
held in trust and applied by it, in accordance with the provisions of the Notes
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and interest for
whose payment such money has been deposited with the Trustee; but such money
need not be segregated from other funds except to the extent required by law.
Section 4.03 Return of Moneys.
----------------
Upon the satisfaction and discharge of this Indenture, all moneys then
held by any paying agent other than the Trustee hereunder shall, upon demand of
the Company, be repaid to it and thereupon such Paying Agent shall be released
from all further liability with respect to such moneys.
ARTICLE FIVE
Remedies
--------
Section 5.01 Events of Default.
-----------------
"Event of Default" wherever used herein 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 pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest upon any Note when it
becomes due and payable, and continuance of such default for a period
of 30 days; or
(2) default in the payment of the principal of any Note when and
as the same becomes due and payable; or
(3) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or
warranty a default in whose performance or whose breach is elsewhere
in this Section specifically dealt with), and continuance of such
default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the Company by the Trustee or to
the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Notes, a written notice specifying
such default or breach and requiring it to be remedied and stating
that such notice is a "Notice of Default" hereunder; or
(4) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in
respect of the Company under the federal Bankruptcy Code or any other
applicable federal or state law, or appointing a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the
Company or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of any
such decree or order unstayed and in effect for a period of 90
consecutive days; or
(5) the institution by the Company of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization
or relief under the federal Bankruptcy Code or any other applicable
federal or state law, or the consent by it to the filing of any such
petition or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Company or of
any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in
writing of its inability to pay its debts generally as they become
due, or the taking of corporate action by the Company in furtherance
of any such action; or
(6) a default under any bond, debenture, note or other similar
instrument evidencing indebtedness of the Company or of the Bank
(other than Notes issued pursuant to Article Three of this Indenture)
or under any indenture or other instrument under which any such
evidence of indebtedness has been issued or by which it is governed
and the expiration of the applicable period of grace, if any, provided
in such evidence of indebtedness, indenture or other instrument;
provided, however, that, if such default under such evidence of
indebtedness, indenture or other instrument shall be cured by the
Company, or be waived by the requisite number of holders of such
indebtedness, in each case as may be permitted by such evidence of
indebtedness, indenture or other instrument, then the Event of Default
hereunder by reason of such default shall be deemed likewise to have
been thereupon cured or waived.
Section 5.02 Acceleration of Maturity: Rescission and Annulment.
--------------------------------------------------
If an Event of Default occurs and is continuing, then and in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Notes Outstanding may declare the principal of all the Notes to be due and
payable immediately, by a notice in writing to the Company (and to the Trustee
if given by Noteholders), and upon any such declaration such principal shall
become immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Notes Outstanding, by written notice to the Company
and the Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue installments of interest on all Notes,
(B) the principal of any Notes which have become due
otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Notes,
(C) to the extent that payment of such interest is
lawful, interest upon overdue installments of interest at
the rate borne by the Notes, and
(D) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel;
and
(2) all Events of Default, other than the nonpayment of the
principal of Notes which have become due solely by such acceleration,
have been cured or waived as provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
The Company may set a record date for purposes of determining the
identity of Holders entitled to vote or consent to any action by vote or consent
authorized or permitted under this Section 5.02.
Section 5.03 Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
-------
The Company covenants that if
(1) default is made in the payment of any installment of
interest on any Note when such interest becomes due and payable and
such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of any Note
when such principal becomes due and payable,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Notes, the whole amount then due and payable on such Notes for
principal and interest, with interest upon the overdue principal and, to the
extent that payment of such interest shall be legally enforceable, upon overdue
installments of interest, at the rate borne by the Notes; and, in addition
thereto, such further amount as shall be sufficient to cover the reasonable
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amount forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon the Notes and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company or any other obligor upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Noteholders by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
Section 5.04 Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes
or the property of the Company or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal of the Notes shall then be due
and payable as therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand on the Company for the payment
of overdue principal or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise.
(i) to file and prove a claim for the whole amount of principal
and interest owing and unpaid in respect of the Notes and to file such
other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and the advances of the Trustee,
its agents and counsel) and of the Noteholders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator (or other similar
official) in any such judicial proceeding is hereby authorized by each
Noteholder to make such payments to the Trustee, and in the event that the
Trustee shall consent to the making of such payments directly to the
Noteholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, it agents and
counsel, and any other amounts due the Trustee under Section 6.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder any plan
of reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Noteholder in any such proceeding.
Section 5.05 Trustee May Enforce Claims Without Possession of Notes.
------------------------------------------------------
All rights of action and claims under this Indenture or the Notes may
be prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
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 the
payment of the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, be for the ratable benefit of the Holders
of the Notes in respect of which such judgment has been recovered.
Section 5.06 Application of Money Collected.
------------------------------
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or interest,
upon presentation of the Notes and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 6.07;
SECOND: To the payment of the amounts then due and unpaid upon
the Notes for principal (and premium, if any) 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 Notes for principal (and premium, if
any) and interest, respectively; and
THIRD: To the payment of any surplus to any other Person legally
entitled thereto.
Section 5.07 Limitation on Suits.
-------------------
No Holder of any Note shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60 day period by the Holders of a
majority in principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes, or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided and for the equal and ratable benefit of all the Holders
of Notes.
Section 5.08 Unconditional Right of Noteholders to Receive Principal
-------------------------------------------------------
and Interest.
- ------------
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right which is absolute and unconditional to receive
payment of the principal of (and premium, if any) and interest on such Note on
the respective Stated Maturities expressed in such Note (or, in the case of
redemption, on the Redemption Date) and to institute suit for the enforcement of
any such payment, and such right shall not be impaired without the consent of
such Holder.
Section 5.09 Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Noteholder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Noteholder, then, and in every such case, the Company,
the Trustee and the Noteholders shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the
Noteholders shall continue as though no such proceeding had been instituted.
Section 5.10 Rights and Remedies Cumulative.
------------------------------
No right or remedy herein conferred upon or reserved to the Trustee or
to the Noteholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 5.11 Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Noteholders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Noteholders, as the
case may be.
Section 5.12 Noteholders May Demand Enforcement of Right by Trustee.
------------------------------------------------------
If an Event of Default shall have occurred and shall be continuing,
the Trustee shall, upon the written request of the Holders of a majority in
aggregate principal amount of the Notes then Outstanding and upon the offering
of indemnity as provided in Section 5.07, proceed to institute one or more
suits, actions or proceedings at law, in equity or otherwise, or take any other
appropriate remedy, to enforce payment of the principal or, or premium, if any,
or interest on the Notes, or to foreclose this Indenture or take such other
appropriate legal, equitable or other remedy, as the Trustee, being advised by
counsel, shall deem most effectual to protect and enforce any of the rights or
powers of the Trustee or the Noteholders, or, in case such Noteholders shall
have requested a specific method of enforcement permitted hereunder, in the
manner requested, provided that such action shall not be otherwise than in
accordance with law and the provisions of this Indenture, and the Trustee,
subject to such indemnity provisions, shall have the right to decline to follow
any such request if the Trustee in good faith shall determine that the suit,
proceeding or exercise of other remedy so requested would involve the Trustee in
personal liability or expense.
Section 5.13 Control by Noteholders.
----------------------
The Holders of a majority in principal amount of the Outstanding Notes
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 that
(1) such direction shall not be in conflict with any rule of law
or with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, provided,
however, that subject to Section 6.01, the Trustee need not take any
action which it determines might involve it in liability or be
unjustly prejudicial to the Noteholders not consenting.
Section 5.14 Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in principal amount of the
Outstanding Notes may on behalf of the Holders of all the Notes waive any past
default or Event of Default hereunder and its consequences, except a default
(1) in the payment of the principal of (and premium, if any) or
interest on any Note, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Note affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture, but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
Section 5.15 Undertaking for Costs.
---------------------
All parties to this Indenture agree, and each Holder of any Note by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Noteholder, or group of Noteholders,
holding in the aggregate more than 10% in principal amount of the Outstanding
Notes, or to any suit instituted by any Noteholder for the enforcement of the
payment of the principal of (or premium, if any) or interest on any Note on or
after the respective Stated Maturity expressed in such Note (or, in the case of
redemption, on or after the applicable Redemption Date).
Section 5.16 Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
The Trustee
-----------
Section 6.01 Certain Duties and Responsibilities.
-----------------------------------
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon 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 which 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.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that
(1) this Subsection shall not be construed to limit the effect
of Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of a majority in principal amount of the
Outstanding Notes 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;
and
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it 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, provided that the Trustee shall perform such duties as set forth
in this Indenture regardless of whether it has received or expects to
receive the compensation provided by Section 6.07.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
Section 6.02 Notice of Defaults.
------------------
Within 90 days after the occurrence of any default hereunder, the
Trustee shall transmit by mail to all Noteholders, as their names and addresses
appear in the Note Register, notice of such default hereunder known to the
Trustee, unless such default shall have been cured or waived; provided, however,
that, except in the case of a default in the payment of the principal of or
interest on any Note or in the payment of any redemption installment, 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 directors
and/or Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the interests of the Noteholders; and provided,
further, that in the case of any default of the character specified in Section
5.01(3), no such notice to Noteholders shall be given until at least 60 days
after the occurrence thereof. For the purpose of this Section, the term
"default" means any event which is, or after notice or lapse of time or both
would become, an Event of Default.
Section 6.03 Certain Rights of Trustee.
-------------------------
Except as otherwise provided in Section 6.01:
(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, direction, consent,
order, bond, debenture 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 or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior
to taking, suffering or omitting any action hereunder, the Trustee
(unless other evidence be herein specifically prescribed) may, in the
absence of bad faith on its part, rely upon an Officers' Certificate;
(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, suffered
or omitted by it 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 or
direction of any of the Noteholders pursuant to this Indenture, unless
such Noteholders shall have offered to the Trustee reasonable security
or indemnity against the costs, expenses and liabilities which might
be incurred by it in compliance with such request or direction;
(f) 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, direction,
consent, order, bond, debenture or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney; an
(g) 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 6.04 Not Responsible for Recitals or Issuance of Notes.
-------------------------------------------------
The recitals contained herein and in the Notes, except the certificate
of authentication, shall be taken as the statements of the Company, and the
Trustee assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Notes. The Trustee shall not be accountable for the use or application by the
Company of Notes or the proceeds thereof.
Section 6.05 May Hold Notes.
--------------
The Trustee, any Paying Agent, Note Registrar or any other agent of
the Company, in its individual or any other capacity, may become the owner or
pledgee of Notes and, subject to Sections 6.08 and 6.13, if operative, may
otherwise deal with the Company with the same rights it would have if it were
not Trustee, Paying Agent, Note Registrar or such other agent.
Section 6.06 Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder 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 money received by it hereunder except as
otherwise agreed with the Company.
Section 6.07 Compensation and Reimbursement.
------------------------------
The Company agrees
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse
the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it 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 this trust, 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.
As security for the performance of the obligations of the Company
under this Section, the Trustee shall have a lien prior to the Notes upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of or interest on the Notes.
Notwithstanding the foregoing, the Trustee, in connection with the
failure to make payments as required under this Section 6.07, shall not
institute bankruptcy proceedings against the Company under the federal
Bankruptcy Code or any similar applicable federal or state law, during the
period in which the Notes are outstanding or 91 days thereafter.
Section 6.08 Disqualification; Conflicting Interests.
---------------------------------------
(a) If the Trustee has or shall acquire any conflicting interest, as
defined in this Section, it shall, within 90 days after ascertaining that it has
such conflicting interest, either eliminate such conflicting interest or resign
in the manner and with the effect hereinafter specified in this Article.
(b) In the event that the Trustee shall fail to comply with the
provisions of Subsection (a) of this Section, the Trustee shall, within 10 days
after the expiration of such 90-day period, transmit by mail to all Noteholders,
as their names and addresses appear in the Note Register, notice of such
failure.
(c) For the purposes of this Section, the Trustee shall be deemed to
have a conflicting interest if the Notes are in Default (as such term is defined
in this Indenture, but exclusive of any period of grace or requirement of
notice) and
(1) the Trustee is trustee under another indenture under which
any other securities, or certificates of interest or participation in
any other securities, of the Company are outstanding, unless (A) such
other indenture securities are collateral trust notes under which the
only collateral consists of Notes issued under this Indenture (B) such
other indenture is a collateral trust indenture under which the only
collateral consists of Notes issued under this Indenture or (C) the
Company has no substantial unmortgaged assets and is engaged primarily
in the business of owning, or of owning and developing and/or
operating, real estate and this Indenture and such other indenture are
secured by wholly separate and distinct parcels of real estate;
provided that there shall be excluded from the operation of this
paragraph any indenture or indentures under which other securities, or
certificates of interest or participation in other securities, of the
Company are outstanding, if the Company shall have sustained the
burden of proving, on application to the Commission and after
opportunity for hearing thereon, that trusteeship under this Indenture
and such other indenture or indentures is not so likely to involve a
material conflict of interest as to make it necessary in the public
interest or for the protection of investors to disqualify the Trustee
from acting as such under this Indenture and/or one or more of such
other indentures;
(2) the Trustee or any of its directors or executive officers is
an obligor upon the Notes or an underwriter for the Company;
(3) the Trustee directly or indirectly controls or is directly
or indirectly controlled by or is under direct or indirect common
control with the Company or an underwriter for the Company;
(4) the Trustee or any of its directors or executive officers is
a director, officer, partner, employee, appointee or representative of
the Company, or of an underwriter (other than the Trustee itself) for
the Company who is currently engaged in the business of underwriting,
except that (i) one individual may be a director or an executive
officer, or both, of the Trustee and a director or an executive
officer, or both, of the Company but may not be at the same time an
executive officer of both the Trustee and the Company; (ii) if and so
long as the number of directors of the Trustee in office is more than
nine, one additional individual may be a director or an executive
officer, or both, of the Trustee and a director of the Company; and
(iii) the Trustee may be designated by the Company or by any
underwriter for the Company to act in the capacity of transfer agent,
registrar, custodian, paying agent, fiscal agent, escrow agent, or
depositary, or in any other similar capacity, or, subject to the
provisions of paragraph (1) of this Subsection, to act as trustee,
whether under an indenture or otherwise;
(5) 10% or more of the voting securities of the Trustee is
beneficially owned either by the Company or by any director, partner,
or executive officer thereof, or 20% or more of such voting securities
is beneficially owned, collectively, by any two or more of such
persons; or 10% of more of the voting securities of the Trustee is
beneficially owned either by an underwriter for the Company or by any
director, partner or executive officer thereof, or is beneficially
owned, collectively, by any two or more such persons;
(6) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default (as
hereinafter in this Subsection defined), (i) 5% or more of the voting
securities, or 10% or more of any other class of security, of the
Company, not including the Notes issued under this Indenture and
securities issued under any other indenture under which the Trustee is
also trustee, or (ii) 10% or more of any class of security of an
underwriter for the Company;
(7) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default (as
hereinafter in this Subsection defined), 5% or more of the voting
securities of any person who, to the knowledge of the Trustee, owns
10% or more of the voting securities of, or controls directly or
indirectly or is under direct or indirect common control with, the
Company;
(8) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default (as
hereinafter in this Subsection defined), 10% or more of any class of
security of any person who, to the knowledge of the Trustee, owns 50%
or more of the voting securities of the Company; or
(9) the Trustee owns, on the date of Default upon the Notes
(exclusive of any period of grace or requirement of notice) or any
anniversary of such Default while such Default upon the Notes remains,
in the capacity of executor, administrator, testamentary or inter
vivos trustee, guardian, committee or conservator, or in any other
similar capacity, an aggregate of 25% or more of the voting
securities, or of any class of security, of any person, the beneficial
ownership of a specified percentage of which would have constituted a
conflicting interest under paragraphs (6), (7) or (8) of this
Subsection. As to any such securities of which the Trustee acquired
ownership through becoming executor, administrator, or testamentary
trustee of an estate which included them, the provisions of the
preceding sentence shall not apply, for a period of two years from the
date of such acquisition, to the extent that such securities included
in such estate do not exceed 25% of such voting securities or 25% of
any such class of security. Promptly after the dates of any Default
upon the Notes and annually in each succeeding year that the Notes
remain in Default, the Trustee shall make a check of its holdings of
such securities in any of the above-mentioned capacities as of such
dates. If the Company fails to make payment in full of the principal
of, or interest on, any of the Notes when and as the same becomes due
and payable, and such failure continues for 30 days thereafter, the
Trustee shall make a prompt check of its holdings of such securities
in any of the above-mentioned capacities as of the date of the
expiration of such 30 day period, and after such date, notwithstanding
the foregoing provisions of this paragraph, all such securities so
held by the Trustee, with sole or joint control over such securities
vested in it, shall, but only so long as such failure shall continue,
be considered as though beneficially owned by the Trustee for the
purposes of paragraphs (6), (7) and (8) of this Subsection.
(10) Except under the circumstances described in paragraphs (1),
(3), (4), (5) and (6) of Section 311(b) of the TIA, the Trustee shall
be or shall become a creditor of the Company.
The specification of percentages in paragraphs (5) to (9) inclusive,
of this Subsection, shall not be construed as indicating that the
ownership of such percentages of the securities of a person is or is
not necessary or sufficient to constitute direct or indirect control
for the purposes of paragraph (3) or (7) of this Subsection.
For the purposes of paragraphs (6), (7), (8) and (9) of this
Subsection only, (i) the terms "security" and "securities" shall include
only such securities as are generally known as corporate securities, but
shall not include any note or other evidence of indebtedness issued to
evidence an obligation to repay moneys lent to a person by one or more
banks, trust companies or banking firms, or any certificate of interest or
participation in any such note or evidence of indebtedness; (ii) an
obligation shall be deemed to be "in default" when a default in payment of
principal shall have continued for 30 days or more and shall not have been
cured; and (iii) the Trustee shall not be deemed to be the owner or holder
of (A) any security which it holds as collateral security, as trustee or
otherwise, for an obligation which is not in default as defined in clause
(ii) above, or (B) any security which it holds as collateral security under
this Indenture, irrespective of any default hereunder, or (C) any security
which it holds as agent for collection, or as custodian, escrow agent, or
depositary, or in any similar representative capacity.
(d) For the purposes of this Section:
(1) The term "underwriter" when used with reference to the
Company means every person who, within one year prior to the time as
of which the determination is made, was an underwriter of any Security
of the Company outstanding at such time, or has participated or has
had a direct or indirect participation in any such undertaking, or has
participated or has had a participation in the direct or indirect
underwriting of any such undertaking, but such term shall not include
a person whose interest was limited to a commission from an
underwriter or dealer not in excess of the usual and customary
distributors' or sellers' commission.
(2) The term "director" means any director of a corporation, or
any individual performing similar functions with respect to any
organization whether incorporated or unincorporated.
(3) The term "person" means an individual, a corporation, a
partnership, an association, a joint-stock company, a trust, an
unincorporated organization, or a government or political subdivision
thereof. As used in this paragraph, the term "trust" shall include
only a trust where the interest or interests of the beneficiary or
beneficiaries are evidenced by a security.
(4) The term "voting security" means any security presently
entitling the owner or holder thereof to vote in the direction or
management of the affairs of a person, or any security issued under or
pursuant to any trust, agreement or arrangement whereby a trustee or
trustees or agent or agents for the owner or holder of such security
are presently entitled to vote in the direction or management of the
affairs of a person.
(5) The term "Company" means any obligor upon the Notes.
(6) The term "executive officer" means the chief executive
officer, president, every vice president, every trust officer, the
chief financial officer, the cashier, the controller, the secretary,
and the treasurer of a corporation, and any individual customarily
performing similar functions with respect to any organization whether
incorporated or unincorporated, but shall not include the chairman of
the board of directors.
(e) The percentages of voting securities and other securities
specified in this Section shall be calculated in accordance with the following
provisions:
(1) A specified percentage of the voting securities of the
Trustee, the Company or any other person referred to in this Section
(each of whom is referred to as a "person" in this paragraph) means
such amount of the outstanding voting securities of such person as
entitles the holder or holders thereof to cast such specified
percentage of the aggregate votes which the holders of all the
outstanding voting securities of such person are entitled to cast in
the direction or management of the affairs of such person.
(2) A specified percentage of a class of securities of a person
means such percentage of the aggregate amount of securities of the
class outstanding.
(3) The term "amount," when used in regard to securities, means
the principal amount if relating to evidences of indebtedness, the
number of shares if relating to capital shares, and the number of
units if relating to any other kind of security.
(4) The term "outstanding" means issued and not held by or for
the account of the issuer. The following securities shall not be
deemed outstanding within the meaning of this definition:
(i) securities of an issuer held in a sinking fund
relating to securities of the issuer of the same class;
(ii) securities of an issuer held in a sinking fund
relating to another class of securities of the issuer, if
the obligation evidenced by such other class of securities
is not in default as to principal or interest or otherwise;
(iii) securities pledged by the issuer thereof as
security for an obligation of the issuer not in default as
to principal or interest or otherwise; and
(iv) securities held in escrow if placed in escrow by
the issuer thereof;
provided, however, that any voting securities of an issuer shall be
deemed outstanding if any person other than the issuer is entitled to
exercise the voting rights thereof.
(5) A security shall be deemed to be of the same class as
another security if both securities confer upon the holder or holders
thereof substantially the same rights and privileges; provided,
however, that, in the case of secured evidences of indebtedness, all
of which are issued under a single indenture, differences in the
interest rates or maturity dates of various series thereof shall not
be deemed sufficient to constitute such series different classes and
provided, further, that, in the case of unsecured evidences of
indebtedness, differences in the interest rates or maturity dates
thereof shall not be deemed sufficient to constitute them securities
of different classes, whether or not they are issued under a single
indenture.
Except in the case of any Event of Default on the payment of any
sinking fund or purchase fund installment, the Trustee shall not be required to
resign as required by this subsection if Trustee shall have sustained the burden
of proving, on application to the Commission and after opportunity for hearing
thereon that: (i) the Event of Default may be cured or waived within a
reasonable period and under procedures described in such application, and (ii) a
stay of Trustee's duties to resign will not be inconsistent with the interests
of the holders of the Notes. The filing of such application shall automatically
stay the performance of the duty to resign until the Commission orders
otherwise. Any resignation of the Trustee shall become effective only upon the
appointment of a successor trustee and such successor's acceptance of such an
appointment.
Section 6.09 Corporate Trustee Required; Eligibility.
---------------------------------------
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any state thereof, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$2,000,000, subject to supervision or examination by federal or state authority,
and having an office within the United States of America. 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, 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. If at any time the Trustee shall cease
to be eligible in accordance with the provisions of this Section, it shall
resign immediately in the manner and with the effect hereinafter specified in
this Article.
Section 6.10 Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee. The Trustee
covenants and agrees that it will not institute proceedings to be adjudicated a
bankrupt or insolvent or take any of the other actions which are enumerated in
Section 5.01(5) with respect to itself unless prior thereto the Trustee shall
have resigned hereunder and a successor Trustee shall have accepted appointment
under Section 6.11.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Notes, delivered to the Trustee
and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.08(a) after
written request therefor by the Company or by any Noteholder who has
been a bona fide Holder of a Note for at least 6 months, or
(2) the Trustee shall cease to be eligible under Section 6.09
and shall fail to resign after written request therefor by the Company
or by any such Noteholder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed 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, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 5.15, any Noteholder who has been a bona
fide Holder of a Note for at least 6 months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within 1 year after such resignation, removal or incapability, or the occurrence
of such vacancy, a successor Trustee shall be appointed by Act of the Holders of
a majority in principal amount of the Outstanding Notes delivered to the Company
and the retiring Trustee, the successor Trustee so appointed shall, forthwith
upon its acceptance of such appointment, become the successor Trustee and
supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Noteholders and
accepted appointment in the manner hereinafter provided, any Noteholder who has
been a bona fide Holder of a Note for at least 6 months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Notes as their names and addresses appear in the Note Register. Each
notice shall include the name of the successor Trustee and the address of its
principal corporate trust office.
Section 6.11 Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder 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 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, subject nevertheless to its lien, if any,
provided for in Section 6.07. Upon request of any such 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.
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.
Section 6.12 Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business.
- --------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes 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 Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes.
Section 6.13 Preferential Collection of Claims Against Company.
-------------------------------------------------
(a) Subject to Subsection (b) of this Section, if the Trustee shall
be or shall become a creditor, directly or indirectly, secured or unsecured, of
the Company within three months prior to a default, as defined in Subsection (c)
of this Section, or subsequent to such a default, then, unless and until such
default shall be cured, the Trustee shall set apart and hold in a special
account for the benefit of the Trustee individually, the Holders of the Notes
and the holders of other indenture securities (as defined in Subsection (c) of
this Section):
(1) an amount equal to any and all reductions in the amount due
and owing upon any claim as such creditor in respect of principal or
interest, effected after the beginning of such three-month period and
valid as against the Company and its other creditors, except any such
reduction resulting from the receipt or disposition of any property
described in paragraph (2) of this Subsection, or from the exercise of
any right of setoff which the Trustee could have exercised if a
petition in bankruptcy had been filed by or against the Company upon
the date of such default; and
(2) all property received by the Trustee in respect of any claim
as such creditor, either as security therefor, or in satisfaction or
composition thereof, or otherwise, after the beginning of such three-
month period, or an amount equal to the proceeds of any such property,
if disposed of, subject, however, to the rights, if any, of the
Company and its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the
Trustee
(A) to retain for its own account (i) payments made on
account of any such claim by any Person (other than the
Company) who is liable thereon, and (ii) the proceeds of the
bona fide sale of any such claim by the Trustee to a third
person, and (iii) distributions made in cash, securities or
other property in respect of claims filed against the
Company in bankruptcy or receivership or in proceedings for
reorganization pursuant to the federal Bankruptcy Code or
applicable state law;
(B) to realize, for its own account, upon any property
held by it as security for any such claim, if such property
was so held prior to the beginning of such three-month
period;
(C) to realize, for its own account, but only to the
extent of the claim hereinafter mentioned, upon any property
held by it as security for any such claim, if such claim was
created after the beginning of such three-month period and
such property was received as security therefor
simultaneously with the creation thereof, and if the Trustee
shall sustain the burden of proving that at the time such
property was so received the Trustee had no reasonable cause
to believe that a default as defined in Subsection (c) of
this Section would occur within three months; or
(D) to receive payment on any claim referred to in
paragraph (B) or (C), against the release of any property
held as security for such claim as provided in paragraph (B)
or (C), as the case may be, to the extent of the fair value
of such property.
For purposes of paragraphs (B), (C) and (D), property substituted
after the beginning of such three-month period for property held as
security at the time of such substitution shall, to the extent of the
fair value of the property released, have the same status as the
property released, and, to the extent that any claim referred to in
any of such paragraphs is created in renewal of or in substitution for
or for the purpose of repaying or refunding any pre-existing claim of
the Trustee as such creditor, such claim shall have the same status as
such pre-existing claim.
If the Trustee shall be required to account, the funds and
property held in such special account and the proceeds thereof shall
be apportioned among the Trustee, the Noteholders and the holders of
other indenture securities in such manner that the Trustee, the
Noteholders and the holders of other indenture securities realize, as
a result of payments from such special account and payments of
dividends on claims filed against the Company in bankruptcy or
receivership or in proceedings for reorganization pursuant to the
federal Bankruptcy Code or applicable state law, the same percentage
of their respective claims, figured before crediting to the claim of
the Trustee anything on account of the receipt by it from the Company
of the funds and property in such special account and before crediting
to the respective claims of the Trustee and the Noteholders and the
holders of other indenture securities dividends on claims filed
against the Company in bankruptcy or receivership or in proceedings
for reorganization pursuant to the federal Bankruptcy Code or
applicable state law, but after crediting thereon receipts on account
of the indebtedness represented by their respective claims from all
sources other than from such dividends and from the funds and property
so held in such special account. As used in this paragraph, with
respect to any claim, the term "dividends" shall include any
distribution with respect to such claim, in bankruptcy or receivership
or proceedings for reorganization pursuant to the federal Bankruptcy
Code or applicable state law, whether such distribution is made in
cash, securities, or other property, but shall not include any such
distribution with respect to the secured portion, if any, of such
claim. The court in which such bankruptcy, receivership or
proceedings for reorganization is pending shall have jurisdiction (i)
to apportion between the Trustee and the Noteholders and the holders
of other indenture securities, in accordance with the provisions of
this paragraph, the funds and property held in such special account
and proceeds thereof, or (ii) in lieu of such apportionment, in whole
or in part, to give to the provisions of this paragraph due
consideration in determining the fairness of the distributions to be
made to the Trustee and the Noteholders and the holders of other
indenture securities with respect to their respective claims, in which
event it shall not be necessary to liquidate or to appraise the value
of any securities or other property held in such special account or as
security for any such claim, or to make a specific allocation of such
distributions as between the secured and unsecured portions of such
claims, or otherwise to apply the provisions of this paragraph as a
mathematical formula.
Any Trustee which has resigned or been removed after the
beginning of such three-month period shall be subject to the
provisions of this Subsection as though such resignation or removal
had not occurred. If any Trustee has resigned or been removed prior
to the beginning of such three-month period, it shall be subject to
the provisions of this Subsection if and only if the following
conditions exist:
(i) the receipt of property or reduction of claim,
which would have given rise to the obligation to account, if
such Trustee had continued as Trustee, occurred after the
beginning of such three-month period; and
(ii) such receipt of property or reduction of claim
occurred within three months after such resignation or
removal.
(b) There shall be excluded from the operation of Subsection (a) of
this Section a creditor relationship arising from
(1) the ownership or acquisition of securities issued under any
indenture, or any security or securities having the maturity of one
year or more at the time of acquisition by the Trustee;
(2) advances authorized by a receivership or bankruptcy court of
competent jurisdiction, or by this Indenture, for the purpose of
preserving any property which shall at any time be subject to the lien
of this Indenture or of discharging tax liens or other prior liens or
encumbrances thereon, if notice of such advances and of the
circumstances surrounding the making thereof is given to the
Noteholders at the time and in the manner provided in this Indenture;
(3) disbursements made in the ordinary course of business in the
capacity of trustee under an indenture, transfer agent, registrar,
custodian, paying agent, fiscal agent or depository, or other similar
capacity;
(4) an indebtedness created as a result of services rendered or
premises rented; or an indebtedness created as a result of goods or
securities sold in a cash transaction as defined in Subsection (c) of
this Section;
(5) the ownership of stock or of other securities of a
corporation organized under the provisions of Section 25(a) of the
Federal Reserve Act, as amended, which is directly or indirectly a
creditor of the Company; or
(6) the acquisition, ownership, acceptance or negotiation of any
drafts, bills of exchange, acceptances or obligations which fall
within the classification of self-liquidating paper as defined in
Subsection (c) of this Section.
(c) For the purposes of this Section only:
(1) The term "default" means any failure to make payment in full
of the principal of or interest on any of the Notes or upon the other
indenture securities when and as such principal or interest becomes
due and payable.
(2) The term "other indenture securities" means securities upon
which the Company is an obligor outstanding under any other indenture
(i) under which the Trustee is also trustee, (ii) which contains
provisions substantially similar to the provisions of this Section,
and (iii) under which a default exists at the time of the
apportionment of the funds and property held in such special account.
(3) The term "cash transaction" means any transaction in which
full payment for goods or securities sold is made within seven days
after delivery of the goods or securities in currency or in checks or
other orders drawn upon banks or bankers and payable upon demand.
(4) The term "self-liquidating paper" means any draft, bill of
exchange, acceptance or obligation which is made, drawn, negotiated or
incurred by the Company for the purpose of financing the purchase,
processing, manufacturing, shipment, storage or sale of goods, wares
or merchandise and which is secured by documents evidencing title to,
possession of, or a lien upon, the goods, wares or merchandise or the
receivables or proceeds arising from the sale of the goods, ware or
merchandise previously constituting the security, provided the
security is received by the Trustee simultaneously with the creation
of the creditor relationship with the Company arising from the making,
drawing, negotiating or incurring of the draft, bill of exchange,
acceptance or obligation.
(5) The term "Company" means any obligor upon the Notes.
ARTICLE SEVEN
Noteholders' Lists and Reports by Trustee and Company
-----------------------------------------------------
Section 7.01 Company to Furnish Trustee Names and Addresses of
-------------------------------------------------
Noteholders.
- -----------
The Company will furnish or cause to be furnished to the Trustee
(a) not more than five days after each Regular Record Date and
in no event less than semi-annually, a list, in such form as the
Trustee may reasonably require, of the names and addresses of the
Holders of Notes as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing,
within thirty 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
ten days prior to the time such list is furnished,
provided, however, that so long as the Trustee is the Note Registrar, no such
list shall be required to be furnished.
Section 7.02 Preservation of Information; Communications to
----------------------------------------------
Noteholders.
- -----------
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders of Notes contained in the most
recent list furnished to the Trustee as provided in Section 7.01 and the names
and addresses of Holders of Notes received by the Trustee in its capacity as
Note Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.01 upon receipt of a new list so furnished.
(b) If three or more Holders of Notes (hereinafter referred to as
"applicants") apply in writing to the Trustee, and furnish to the Trustee
reasonable proof that each such applicant has owned a Note for a period of at
least six months preceding the date of such application, and such application
states that the applicants desire to communicate with other Holders of Notes
with respect to their rights under this Indenture or under the Notes and is
accompanied by a copy of the form of proxy or other communication which such
applicants propose to transmit, then the Trustee shall, within five business
days after the receipt of such application, at its election, either
(i) afford such applicants access to the information preserved
at the time by the Trustee in accordance with Section 7.02(a), or
(ii) inform such applicants as to the approximate number of
Holders of Notes whose names and addresses appear in the information
preserved at the time by the Trustee in accordance with Section
7.02(a), and as to the approximate costs of mailing to such
Noteholders the form of proxy or other communication, if any,
specified in such application.
If the Trustee shall elect not to afford such applicants access to
such information, the Trustee shall, upon the written request of such
applicants, mail to each Noteholder whose name and address appear in the
information preserved at the time by the Trustee in accordance with
Section 7.02(a), a copy of the form of proxy or other communication which is
specified in such request, with reasonable promptness after a tender to the
Trustee of the material to be mailed and of payment, or provision for the
payment, of the reasonable expenses of mailing, unless within five days after
such tender, the Trustee shall mail to such applicants and file with the
Commission, together with a copy of the material to be mailed, a written
statement to the effect that, in the opinion of the Trustee, such mailing would
be contrary to the best interests of the Holders of Notes or would be in
violation of applicable law. Such written statement shall specify the basis of
such opinion. If the Commission, after opportunity for a hearing upon the
objections specified in the written statement so filed, shall enter an order
refusing to sustain any of such objections or if, after the entry of an order
sustaining one or more of such objections, the Commission shall find, after
notice and opportunity for hearing, that all the objections so sustained have
been met and shall enter an order so declaring, the Trustee shall mail copies of
such material to all such Noteholders with reasonable promptness after the entry
of such order and the renewal of such tender; otherwise the Trustee shall be
relieved of any obligation or duty to such applicants respecting their
application.
(c) Every Holder of Notes, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee shall
be held accountable by reason of the disclosure of any such information as to
the names and addresses of the Holders of Notes in accordance with Section
7.02(b), regardless of the source from which such information was derived, and
that the Trustee shall not be held accountable by reason of mailing any material
pursuant to a request made under Section 7.02(b).
Section 7.03 Reports by Trustee.
------------------
(a) Within 60 days after May 15 in each year, commencing with the
year 1997, the Trustee shall transmit by mail to all Noteholders, as their names
and addresses appear in the Note Register, a brief report dated as of May 15
("Reporting Date") with respect to any of the following events which may have
occurred within the previous 12 months (but if no such event has occurred within
such period, no report need be transmitted):
(1) any change to its eligibility under Section 6.09 and its
qualifications under Section 6.08;
(2) the creation of or any material change to a relationship
specified in paragraphs (1) through (10) of Section 310(b) of the TIA;
(3) the character and amount of any advances (and if the Trustee
elects so to state, the circumstances surrounding the making thereof)
made by the Trustee (as such) which remain unpaid on the Reporting
Date and for the reimbursement of which it claims or may claim a lien
or charge, prior to that of the Notes, on any property or funds held
or collected by it as Trustee, except that the Trustee shall not be
required (but may elect) to report such advances if such advances so
remaining unpaid aggregate not more than 1/2 of 1% of the principal
amount of the Notes Outstanding on the Reporting Date;
(4) the amount, interest rate and maturity date of all other
indebtedness owing by the Company (or by any other obligor on the
Notes) to the Trustee in its individual capacity, on the Reporting
Date, with a brief description of any property held as collateral
security therefor, except an indebtedness based upon a credit
relationship arising in any manner described in Section 6.13(b)(2),
(3), (4) or (6);
(5) any change to the property and funds, if any, physically in
the possession of the Trustee as such on the Reporting Date;
(6) any additional issue of Notes which the Trustee has not
previously reported; and
(7) any action taken by the Trustee in the performance of its
duties hereunder which it has not previously reported and which in its
opinion materially affects the Notes, except action in respect of a
default, notice of which has been or is to be withheld by the Trustee
in accordance with Section 6.02.
(b) The Trustee shall transmit by mail to all Noteholders, as their
names and addresses appear in the Note Register, a brief report with respect to
the character and amount of any advances (and if the Trustee elects so to state,
the circumstances surrounding the making thereof) made by the Trustee (as such)
since the date of the last report transmitted pursuant to Subsection (a) of this
Section (or if no such report has yet been so transmitted, since the date of
execution of this instrument) for the reimbursement of which it claims or may
claim a lien or charge, prior to that of the Notes, on property or funds held or
collected by it as Trustee, and which it has not previously reported pursuant to
this Subsection, except that the Trustee shall not be required (but may elect)
to report such advances if such advances remaining unpaid at any time aggregate
10% or less of the principal amount of the Notes Outstanding at such time, such
report to be transmitted within 90 days after such time.
(c) A copy of each such report shall, at the time of such
transmission to Noteholders, be filed by the Trustee with each stock exchange
upon which the Notes are listed, and also with the Commission. The Company will
notify the Trustee when the Notes are listed on any stock exchange.
Section 7.04 Reports by Company.
------------------
The Company will
(1) 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 portion of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Company may
be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934; or, if the
Company is not required to file information, documents or reports
pursuant to either of said Sections, then it will file with the
Trustee and the Commission, in accordance with rules and regulations
prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which
may be required pursuant to Section 13 of the Securities Exchange Act
of 1934 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;
(2) file with the Trustee and the Commission, in accordance with
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 of this
Indenture as may be required from time to time by such rules and
regulations; and
(3) transmit by mail to all Noteholders, as their names and
addresses appear in the Note 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 paragraphs
(1) and (2) of this Section as may be required by rules and
regulations prescribed from time to time by the Commission.
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
----------------------------------------------------
Section 8.01 Company May Consolidate, etc., only on Certain Terms.
----------------------------------------------------
The Company shall not permit the Bank (I) to consolidate with or merge
with or into any other corporation unless, immediately after giving effect to
such transaction, no Event of Default, and no event which, after notice or lapse
of time, or both, would become an Event of Default shall have happened and be
continuing, including, specifically, Section 10.16 hereof, or (ii) to convey or
transfer its properties and assets substantially as an entirety to any Person.
The Company shall not consolidate with or merge into any other Person
or convey or transfer its properties and assets substantially as an entirety to
any Person, unless:
(1) the Person (if other than the Company) formed by or
surviving such consolidation or merger or which acquires by conveyance
or transfer the properties and assets of the Company substantially as
an entirety shall be a Person organized and existing under the laws of
the United States of America or any State or the District of Columbia,
and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the
Trustee, the due and punctual payment of the principal and interest on
all the Notes and the performance of every covenant of this Indenture
on the part of the Company to be performed or observed;
(2) immediately prior to and immediately after giving effect to
such transaction, no Event of Default, and no event which, after
notice or lapse of time, or both, would become an Event of Default,
shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, the
Person formed by or surviving such consolidation or merger or which
acquires by conveyance or transfer the properties and assets of the
Company substantially as an entirety shall have Consolidated Tangible
Net Worth of at least $150,000,000; provided, that compliance with
this Section 8.01(3) shall not be required if shareholders of the
Company immediately prior to any such transaction own at least a
majority of the outstanding shares of the Person formed by or
surviving such consolidation or merger or which acquires by conveyance
or transfer the property and assets of the Company substantially as an
entirety having at least a majority of the votes entitled to be cast
in the election of directors; and
(4) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that such
consolidation, merger, conveyance or transfer and such supplemental
indenture comply with this Article and that all conditions precedent
herein provided for relating to such transaction have been complied
with.
Section 8.02 Successor Substituted.
---------------------
Upon any consolidation or merger, or any conveyance or transfer of the
properties and assets of the Company substantially as an entirety in accordance
with Section 8.01, the Person formed by or surviving such consolidation or
merger (if other than the Company) or the Person to whom such conveyance or
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Indenture with the same effect
as if such successor corporation had been named as the Company herein. In the
event of any such conveyance or transfer, the Person named as the "Company" in
the first paragraph of this instrument or any successor which shall theretofore
have become such in the manner prescribed in this Article may be dissolved,
wound up and liquidated at any time thereafter, and such Person thereafter shall
be released from its liabilities as obligor and maker on all the Notes and from
its obligations under this Indenture.
Section 8.03 Limitation on Lease of Properties as Entirety.
---------------------------------------------
Neither the Company nor the Bank shall lease its properties and assets
substantially as an entirety to any Person, excluding, however, assets leased in
the ordinary course of business.
ARTICLE NINE
Supplemental Indentures
-----------------------
Section 9.01 Supplemental Indentures Without Consent of Noteholders.
------------------------------------------------------
Without the consent of the Holders of any Notes, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company,
and the assumption by any such successor of the covenants of the
Company herein and in the Notes contained; or
(2) to add to the covenants of the Company, for the benefit of
the Holders of the Notes, or to surrender any right or power herein
conferred upon the Company; or
(3) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture, provided such action shall not
adversely affect the interests of the Holders of the Notes; or
(4) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under TIA, or under any similar
federal statute hereafter enacted, and to add to this Indenture such
other provisions as may be expressly permitted by TIA, excluding,
however, the provisions referred to in Section 316(a) (2) of TIA as in
effect at the date as of which this instrument was executed or any
corresponding provision in any similar federal statute hereafter
enacted.
Section 9.02 Supplemental Indentures With Consent of Noteholders.
----------------------------------------------------
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Notes, by Act of said Holders delivered to
the Company and the Trustee, the Company, when authorized by a Board Resolution,
and the Trustee may enter into an indenture or indentures supplemental hereto
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the Holders of the Notes under this Indenture; provided,
however, that no such supplemental indenture shall, without the consent of the
Holder of each Outstanding Note affected thereby:
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount
thereof or the interest thereon, or any premium payable on the
redemption thereof, or change any Place of Payment where, or the coin
or currency in which, any Note or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any such
payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the applicable Redemption Date) or change the
method for calculating the amount of interest thereon, or
(2) reduce the percentage in principal amount of the Outstanding
Notes, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required
for any waiver (of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences)
provided for in this Indenture, or
(3) modify any of the provisions of this Section or Section
5.13, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Note affected
thereby.
It shall not be necessary for any Act of Noteholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to this Section, the Company shall mail to the
Holders of the Notes to which such supplemental indenture relates, a notice
setting forth in general terms the substance of such supplemental indenture.
Any failure of the Company to mail such notice, or any defect therein, shall
not, however, in any way impair or affect the validity of any such supplemental
indenture.
Section 9.03 Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 6.01) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not
(except to the extent required in the case of a supplemental indenture entered
into under Section 9.01(4)) be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
Section 9.04 Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be and shall be deemed to be modified in accordance
therewith, and such supplemental indenture shall form a part of this Indenture
for all purposes; and every Holder of Notes theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.
Section 9.05 Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of TIA as then in effect.
Section 9.06 Reference in Notes to Supplemental Indentures.
---------------------------------------------
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
ARTICLE TEN
Covenants
---------
Section 10.01 Payment of Principal, Premium and Interest.
------------------------------------------
The Company will duly and punctually pay the principal of and interest
on the Notes in accordance with the terms of the Notes and this Indenture.
Section 10.02 Maintenance of Office or Agency.
-------------------------------
The Company will maintain an office or agency in each Place of Payment
where Notes may be presented or surrendered for payment, where Notes may be
surrendered for transfer or exchange and where notices and demands to or upon
the Company in respect of the Notes and this Indenture may be served. The
Company hereby initially appoints the Trustee such office or agency. The
Company will give prompt written notice to the Trustee of the location, and of
any change in the location, of such office or agency. If at any time the
Company shall fail to maintain such office or agency or shall fail to furnish
the Trustee with the address thereof, such presentations, surrenders, notices
and demands may be made or served at the principal corporate trust office of the
Trustee, and the Company hereby appoints the Trustee its agent to receive all
such presentations, surrenders, notices and demands.
Section 10.03 Money for Note Payments to be Held in Trust.
-------------------------------------------
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of or interest on, any of the Notes,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided, and
will promptly notify the Trustee of its action or failure to so act.
Whenever the Company shall have one or more Paying Agents, it will, on
or before the Business Day next preceding each due date of the principal of (and
premium, if any) or interest on, any Notes, deposit with a Paying Agent a sum
sufficient to pay the principal or interest so becoming due, such sums 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 will
promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will
(1) hold all sums held by it for the payment of principal of or
interest on Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or
any other obligor upon the Notes) in the making of any such payment of
principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee all
sums so held in trust by such Paying Agent.
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
by Company Order 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 trusts 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.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of or interest on any
Note and remaining unclaimed for three years after such principal or interest
has become due and payable shall be paid to the Company on Company Request, or
(if then held by the Company) shall be discharged from such trust; and the
Holder of such Note shall thereafter, as an unsecured general creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in an Authorized
Newspaper in each Place of Payment, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company. The Trustee may also adopt and employ, at the
expense of the Company, any other reasonable means of notification of such
repayment (including, but not limited to, mailing notice of such repayment to
Holders whose Notes have been called but have not been surrendered for
redemption or whose right to or interest in moneys due and payable but not
claimed is determinable from the records of any Paying Agent, at the last
address of record for each such Holder.)
Section 10.04 Statements as to Compliance.
---------------------------
The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year, a written statement signed by the President or a Vice
President and by the Treasurer or an Assistant Treasurer of the Company,
stating, as to each signer thereof, that
(1) a review of the activities of the Company during such year
and of performance under this Indenture has been made under his
supervision, and
(2) to the best of his knowledge, based on such review, the
Company has fulfilled all its obligations under this Indenture
throughout such year, or if there has been a default in the
fulfillment of any such obligations, specifying each such default
known to him and the nature and status thereof.
Section 10.05 Corporate Existence.
-------------------
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (charter and statutory) and franchises and the corporate
existence, rights (charter and statutory) and franchises of the Bank; provided,
however, that the Company shall not be required to preserve, or to cause the
Bank to preserve, any right or franchise if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company or of the Bank and that the loss thereof is not
disadvantageous in any material respect to the Noteholders.
Section 10.06 Payment of Taxes and Other Claims.
---------------------------------
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon it or upon its income, profits or
property; and (2) all lawful claims for labor, materials and supplies which, if
unpaid, might by law become a lien upon its property; provided, however, that
the Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings.
Section 10.07 Maintenance of Properties.
-------------------------
The Company will cause all its properties used or useful in the
conduct of its business or in the business of the Bank to be maintained and kept
in good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company or the Bank from
discontinuing the operation and maintenance of any of its properties, if such
discontinuance is, in the judgment of the Company, desirable in the conduct of
its business and not disadvantageous in any material respect to the Noteholders.
Section 10.08 Advances by Trustee.
-------------------
If the Company shall fail to perform any of its covenants contained in
this Indenture, the Trustee may (but shall not be obliged to) make advances to
perform the same in behalf of the Company, and the Company will repay upon
demand all sums to advanced, with interest after demand at the highest stated
interest rate borne by any Note then Outstanding. All sums so advanced, with
interest as aforesaid, shall be secured by this Indenture and have priority to
the indebtedness evidenced by the Notes. No such advance shall be deemed to
relieve the Company from any default or Event of Default hereunder.
Section 10.09 Maintenance of Insurance.
------------------------
(a) The Company will, at all times hereafter and until the principal
of and interest on all Notes that may be issued hereunder shall be fully paid,
keep or cause to be kept all of its properties and properties of its
Subsidiaries, of a character usually insured by corporations similarly situated,
insured in responsible insurance companies against loss by fire with extended
coverage to the extent of at least 80% of their full insurable value.
(b) The Company will carry and will cause each of its Subsidiaries to
carry such insurance as is available in responsible companies against such other
risks, including, without limitation, public liability insurance, in such
reasonable amounts as are usually carried by corporations of the same or similar
character and magnitude.
(c) So long as any of the Notes are issued and outstanding hereunder,
the Company will deposit and keep on deposit with the Trustee evidence
satisfactory to the Trustee with respect to the insurance coverage referred to
in paragraphs (a) and (b) of this Section; the Company will at any time upon
request by the Trustee furnish such information as the Trustee may request
regarding any insurance carried by it and its Subsidiaries, and if requested by
the Trustee, will furnish a certificate signed by an officer of the Company
stating that the Company and its subsidiaries are complying with the
requirements of this Section, and the Trustee may accept such statement as
sufficient evidence of compliance by the Company with its covenants set forth in
this Section.
Section 10.10 Maintenance of Records.
----------------------
The Company will at all times keep or cause to be kept proper books of
record and account in which full, true and correct entries will be made of all
dealings or transactions of or in relation to its properties, business and
affairs; the Company will at any and all times during normal business hours upon
the written request of the Trustee permit it or its agents or auditors for that
purpose duly authorized to inspect the books, accounts, papers, documents and
memoranda of the Company and its Subsidiaries, as well as its properties and
equipment, and to take from its books, accounts, papers, documents and memoranda
such extracts as may be deemed expedient.
Section 10.11 Restriction on Dividends, Etc.
-----------------------------
The Company will not (a) authorize or make any distribution on Capital
Stock (as hereinafter defined) of the Company; or (b) purchase, redeem or
otherwise acquire or retire any shares of any class of Capital Stock of the
Company, except that the Company may purchase or redeem shares of its Capital
Stock at any time up to a maximum purchase or redemption price in all such
transactions equal to the following: $6,000,000 plus (i) 65% of the net
increase in consolidated retained earnings of the Company from June 30, 1996
through the end of the calendar month preceding any such purchase or redemption,
plus (ii) the net proceeds from the issuance of any Capital Stock by the Company
after June 30, 1996, minus (iii) the total amount previously expended for all
purchases or redemptions of shares pursuant to this Section 10.11.
The term "distribution on Capital Stock", as used in this Section
(a) shall include:
(i) all cash dividends, except as set forth in clauses
(ii) and (iii) of subdivision (b) of this Section 10.11;
(ii) all other distributions (other than those referred to
in Clause (iii) of this subdivision (a)) by the Company to
its stockholders of securities (other than common stock of
the Company) or other assets owned by the Company; (iii) in
any case of the sale by the Company to its stockholders, or
to underwriters following an offering to its stockholders,
of securities (other than Capital Stock of the Company), or
other assets owned by the Company, the amount, if any, by
which their carrying value on the books of the Company
exceeds the net proceeds of such sale, after deducting any
discounts or underwriting commissions; and (iv) all amounts
expended by the Company or any Subsidiary for the purchase,
redemption or other acquisition of Capital Stock of any
class of the Company (except as permitted in the first
paragraph of this Section 10.11).
(b) shall exclude:
(i) dividends paid in common stock of the Company;
(ii) cash dividends paid on preferred stock of the Company;
and (iii) cash dividends paid on common stock of the Company
up to an amount in any fiscal year of the Company not in
excess of thirty percent (30%) of the Consolidated Net
Income of the Company for the preceding fiscal year of the
Company.
In the case of any consolidation or merger of the Company with or into
any other corporation or the transfer of all or substantially all the assets of
the Company as an entirety to another corporation, as permitted by Article
Eight, the foregoing covenant shall apply, from and after the date upon which
such consolidation, merger or transfer shall become effective to the corporation
(hereinafter in this Section referred to as the "Successor Corporation")
resulting from such consolidation or merger or acquisition of the assets of the
Company, so that, except as otherwise provided herein, the Successor Corporation
will not (i) authorize or make any distribution on Capital Stock; or (ii)
purchase, redeem or otherwise acquire or retire any shares of any class of
Capital Stock; provided, however, this Section 10.11 shall not apply in the
event the Successor Corporation has total Consolidated Tangible Net Worth of
$200,000,000 on the date such consolidation, merger or transfer shall become
effective.
Section 10.12 Liens.
-----
The Company will not, and will not permit any Subsidiary to, pledge,
mortgage or hypothecate, or permit to exist, any pledge, mortgage or
hypothecation or other lien upon, any property or assets at any time owned by
the Company or any Subsidiary to secure any indebtedness; provided, however,
that this restriction shall not apply to or prevent:
(a) the Company or any Subsidiary permitting to exist mortgages,
pledges, hypothecations or other liens relating to indebtedness in
existence on September 30, 1996, upon any property of the Company or
any Subsidiary, or the extension, renewal or refunding of any such
mortgage, pledge, hypothecation or other lien on substantially the
same property theretofore subject thereto or any part thereof, or on
property having substantially the same value which may be substituted
for all or any part thereof;
(b) the mortgaging, pledging, hypothecating or establishing of a
lien on any property to secure indebtedness of the Company or any
Subsidiary as part of the purchase price of such property, or the
extension, renewal or refunding of any such mortgage, pledge,
hypothecation or other lien on substantially the same property
theretofore subject thereto or on any part thereof or on property
having substantially the same value which may be substituted for all
or any part thereof; provided that the debt secured by any such
mortgage, pledge, hypothecation or other lien does not exceed the fair
market value of such property at the time of acquisition of such
property by the Company as determined in good faith by the board of
directors of the Company;
(c) the acquisition by the Company or any Subsidiary of any
property subject to mortgages, pledges, hypothecations or other liens
existing thereon at the time of acquisition (whether or not the
obligations secured thereby are assumed by the Company or any
Subsidiary), and the extension, renewal or refunding of any such
mortgage, pledge, hypothecation or other lien, on substantially the
same property theretofore subject thereto or any part thereof,
provided that the debt secured by any such mortgage, pledge,
hypothecation or other lien does not exceed the fair market value of
such property at the time of acquisition of such property by the
Company as determined in good faith by the board of directors of the
Company; and provided further that any such mortgage, pledge,
hypothecation or other lien does not extend to property other than the
property so acquired;
(d) the assumption by the Company or any Subsidiary of
obligations secured by mortgages on, pledges or hypothecations of, or
other liens on, any property existing at the time of the acquisition
by the Company or any Subsidiary of such property, or the extension,
renewal or refunding of any such mortgage, pledge, hypothecation or
other liens, on substantially the same property theretofore subject
thereto or on any part hereof, provided that the debt secured by any
such mortgage, pledge, hypothecation or other lien does not exceed the
fair market value of such property at the time of acquisition of such
property by the Company as determined in good faith by the board of
directors of the Company; and provided further that any such mortgage,
pledge, hypothecation or other lien does not extend to property other
than the property so acquired;
(e) the repossession by the Company or any Subsidiary in the
ordinary course of business of property comprising collateral security
for defaulted indebtedness subject to the prior lien of other
creditors;
(f) the mortgaging, pledging, hypothecating or establishing of a
lien on any property or assets of the Company or any Subsidiary as
security for the payment of any tax, assessment or other similar
charge demanded of the Company or any Subsidiary by any governmental
authority or public body, or as security required by law or
governmental regulation as a condition to the transaction of any
business or the exercise of any privilege, license or right or the
extension, renewal or refunding of any such mortgage, pledge,
hypothecation or other lien;
(g) the mortgaging, pledging, hypothecating or establishing of a
lien on any property or assets of the Company or any Subsidiary to any
governmental agency or other body created or approved by law or
governmental regulation in order to enable the Company or any
Subsidiary to maintain self-insurance or to participate in any fund in
connection with workers' compensation, unemployment insurance, old-age
pensions or other social security program, or to share in any
privileges or other benefits available to corporations participating
in any such arrangements, or in any other plans at any time required
by law or regulations promulgated by any governmental agency or office
as a condition to the transaction of any business or of any privilege
or license, or from deposited assets of the Company or any Subsidiary
with any surety company or clerk of any court, or in escrow, as
collateral in connection with, or in lieu of, any bond or appeal by
the Company or any Subsidiary from any judgment or decree against it,
or in connection with any other proceedings in action at law or in
equity by or against the Company or any Subsidiary or the extension,
renewal or refunding of any such mortgage, pledge, hypothecation or
other lien;
(h) the mortgaging, pledging, hypothecating or establishing of a
lien on any property or assets of the Company or any Subsidiary which
is a state or national bank to secure advances from the Federal Home
Loan Bank or to secure public or statutory obligations or transactions
for federal funds, inter-bank credit facilities, bank deposits,
repurchase agreements or other obligations to customers or depositors,
as such, or any transaction by a Subsidiary which is a state or
national bank or trust company acting in a fiduciary capacity or the
extension, renewal or refunding of any such mortgage, pledge,
hypothecation or other lien;
(i) the mortgaging, pledging, hypothecating or establishing of a
lien on the Capital Stock of the Bank or any other Subsidiary,
directly or indirectly, to secure debt permitted under Section 10.14
hereof; or
(j) any lien relating to Indebtedness of any Subsidiary of the
Company or the Bank acquired after the date hereof which is in
existence on the date such corporation became a Subsidiary and which
is outstanding for a period of not less than twelve months prior to
such date.
Section 10.13 Limitation on Certain Acquisitions.
----------------------------------
The Company will not, and will not permit any Subsidiary, to (a)
acquire the Voting Shares of any company; (b) acquire substantially all the
assets and liabilities of any company; or (c) merge or consolidate into itself
any company if, immediately upon giving effect to such acquisition, merger or
consolidation, as the case may be, (I) the Company would not then be in full
compliance with all the terms, conditions and covenants contained in this
Indenture; or (ii) the Consolidated Tangible Net Worth of the Company would be
decreased in an amount greater than the sum of the following: $6,000,000 plus
(x) 65% of the net increase in consolidated retained earnings from June 30, 1996
through the end of the calendar month preceding any such acquisition, merger or
consolidation, plus (y) the net proceeds from the issuance of any Capital Stock
by the Company after June 30, 1996, and minus (z) the sum expended for all
purchases or redemptions of Capital Stock permitted pursuant to Section 10.11
hereof.
Section 10.14 Limitation on Indebtedness.
--------------------------
The Company will not, and will not permit any Subsidiary, or any
Leasing Subsidiary whose Indebtedness is included in the computation of
"Consolidated Indebtedness," to issue, assume, incur or create any Indebtedness
unless, immediately after incurring any such Indebtedness the ratio of
Consolidated Indebtedness to Consolidated Tangible Net Worth shall not be more
than sixty percent (60%).
Section 10.15 Maintenance of Consolidated Tangible Net Worth.
----------------------------------------------
The Company shall at all times maintain its Consolidated Tangible Net
Worth at not less than $19,000,000 and shall cause the Bank to maintain the
Bank's Consolidated Tangible Net Worth at not less than $23,000,000.
Section 10.16 Ownership of Bank.
-----------------
The Company shall at all times own directly not less than the greater
of the following percentages of Voting Shares and Capital Stock of the Bank:
(a) eighty percent (80%); or
(b) such percentage as will permit the consolidation of income
and expenses of the Bank and the Company for federal income tax
purposes.
Section 10.17 Compliance with Law.
-------------------
The Company and the Bank shall at all times be in compliance in all
material respects with, and conduct their respective business in all material
respects in conformity with, all applicable laws and governmental regulations to
which they are subject.
Section 10.18 Capital Expenditures.
--------------------
The Company will not and will not permit any Subsidiary, to expend
sums for the acquisition (including acquisition under capitalized leases) of
real property, buildings, leasehold improvements, machinery or equipment, such
that at any time the consolidated book value of the Company's premises,
furniture and equipment (representing the net sum of land, plus buildings and
improvements plus furniture and equipment minus accumulated depreciation) shall
exceed three percent (3%) of the Company's consolidated total assets on the
Company's consolidated balance sheet at the end of the quarter immediately
preceding the expenditure(s) of such sums.
Section 10.19 Limitation on Payment Restrictions Affecting
--------------------------------------------
Subsidiaries.
- ------------
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create or cause to suffer to exist or become
effective any encumbrance or restriction or the ability of any Subsidiary to (a)
pay dividends or make distributions on its Capital Stock or any other interest
or participation in, or measured by, its profits, or pay any Indebtedness owned
to, the Company or its Subsidiaries, (b) make loans or advances to the Company
or its Subsidiaries, (c) transfer any of its property or assets to the Company,
or (d) guarantee any Indebtedness of the Company, except for such encumbrances
or restrictions existing under or by reason of (I) applicable law, regulations,
or order of or agreement with, regulatory authorities, or (ii) any instrument
governing Indebtedness of an entity acquired by the Company or any of its
Subsidiaries and existing at the time of such acquisition (but not in connection
with such acquisition), which encumbrance or restriction is not applicable to
any entity, or the property or assets of any entity, other than the entity, or
the property or assets of the entity, so acquired or its Subsidiaries.
Section 10.20 Investment in Leasing Subsidiaries.
----------------------------------
The investment of the Company, any Subsidiary and any other entity in
which the Company, directly or indirectly, owns or controls at least a majority
of the voting interest in a Leasing Subsidiary or Subsidiaries shall not exceed
(I) twenty-five percent (25%) of the consolidated stockholders' equity of the
Company, as determined from time to time in accordance with generally accepted
accounting principles, excluding, however, the unrealized gain or loss with
respect to available-for-sale securities; plus (ii) the principal amount
outstanding of the Company's Mandatory Convertible Debentures.
ARTICLE ELEVEN
Redemption of Notes
-------------------
Section 11.01 Right of Redemption.
-------------------
The Company, while not in default in the payment of any of the Notes
or interest thereon, or in the payment of taxes or other governmental charges,
may, upon the notice and in the manner and with the effect as hereinafter
provided, redeem as a whole, if of $1,000 denomination, or as a whole or in
part, in multiples of $1,000, if of a larger denomination, any or all of the
Notes outstanding hereunder at any time in advance of their maturity by the
payment of the principal amount of each Note to be redeemed and accrued interest
thereon to the date of redemption, plus a premium of 3% of the principal amount
redeemed on or before November 1, 1998. There shall be no prepayment premium
with respect to any redemption after November 1, 1998.
Section 11.02 Mandatory Redemption Fund.
-------------------------
The Company covenants and agrees that as a Mandatory Redemption Fund
for redemption of Notes, it will pay over and deposit with the Trustee prior to
each of November 1, 2000, 2001, 2002, 2003, 2004 and 2005 an amount in cash
sufficient to redeem $750,000 aggregate principal amount of Notes on each of
such dates.
The cash amount of any redemption fund payment is subject to reduction
as provided in Section 11.03 hereof. Each redemption fund payment shall be
applied to the redemption of Notes on each such October 1 as herein provided.
Section 11.03 Satisfaction of Redemption Fund Payments with Notes.
---------------------------------------------------
The Company (1) may deliver Outstanding Notes (other than any
previously called for redemption); and (2) may apply as a credit Notes which
have been redeemed at the election of the Company pursuant to Section 11.01
hereof, in satisfaction of all or any part of any Mandatory Redemption Fund
payment required to be made pursuant to Section 11.02 hereof, provided that such
Notes have not been previously so credited. Each such Note shall be received
and credited for such purpose by the Trustee at 100% of the principal amount
thereof through operation of the redemption fund and the amount of such
Mandatory Redemption Fund payment shall be reduced accordingly.
Section 11.04 Redemption of Notes from Mandatory Redemption Fund.
--------------------------------------------------
On or before September 16 in each year commencing with the year 2000
and ending on September 16, 2005, the Company will deliver to the Trustee an
Officers' Certificate specifying the amount of the next ensuing redemption fund
payment pursuant to Section 11.02, the portion thereof, if any, which is to be
satisfied by payment of cash and the portion, if any, which is to be satisfied
by delivering and crediting Notes pursuant to Section 11.03 and will also
deliver to the Trustee any Notes to be so delivered. Before October 1 in each
such year the Trustee shall select the Notes to be redeemed upon the next
ensuing November 1 in the manner specified in this Article Eleven and cause
notice of the redemption thereof to be given in the name of and at the expense
of the Company in the manner provided in this Article Eleven. Such notice
having been duly given, the redemption of such Notes shall be made upon the
terms and in the manner stated in this Article Eleven.
Section 11.05 Applicability of Article.
------------------------
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
Section 11.06 Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Notes shall be evidenced by
a Board Resolution. In case of any redemption at the election of the Company of
less than all of the Notes, the Company shall, at least 30 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee) notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed.
Section 11.07 Selection by Trustee of Notes to be Redeemed.
--------------------------------------------
If less than all the Notes are to be redeemed, the particular Notes to
be redeemed shall be selected not more than 30 days prior to the Redemption Date
by the Trustee, from the Outstanding Notes not previously called for redemption,
by such method as the Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of portions of the principal of Notes
of a denomination larger than $1,000. The portions of the principal of Notes so
selected for partial redemption shall be equal to $1,000 or the smallest
authorized denomination of the Notes, whichever is greater, or a multiple
thereof.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Notes shall relate, in
the case of any Note redeemed or to be redeemed only in part, to the portion of
the principal of such Note which has been or is to be redeemed.
Section 11.08 Notice of Redemption.
--------------------
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 15 days prior to the Redemption Date, to each
Holder of Notes to be redeemed, at his address appearing in the Note Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) that on the Redemption Date the Redemption Price will become
due and payable upon each such Note, and that interest thereon shall
cease to accrue as of the date immediately preceding the Redemption
Date,
(4) the place where such Notes are to be surrendered for payment
of the Redemption Price, which shall be the office or agency of the
Company in each Place of Payment.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. Failure to give notice
of redemption, or any defect therein, to any Holder of any Note selected for
redemption shall not affect or impair the validity of the redemption of any
other Note.
Section 11.09 Deposit of Redemption Price.
---------------------------
On or before the Business Day next preceding any Redemption Date, the
Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 10.03) an amount of money sufficient to pay the Redemption
Price of, and accrued interest on, all the Notes which are to be redeemed on
that date.
Section 11.10 Notes Payable on Redemption Date.
--------------------------------
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified plus interest accrued thereon to, but not
including the Redemption Date, and from and after such date (unless the Company
shall default in the payment of the Redemption Price) such Notes shall cease to
bear interest. Upon surrender of such Notes for redemption in accordance with
said notice, such Notes shall be paid by the Company at the Redemption Price
plus interest accrued thereon to but not including the Redemption Date.
Installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Notes registered as such on the
relevant Regular Record Dates according to their terms and the provisions of
Section 3.07.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal shall, until paid, bear interest from the
Redemption Date at the rate borne by the Note.
Section 11.11 Notes Redeemed in Part.
----------------------
Any Note which is to be redeemed only in part shall be surrendered at
a Place of Payment (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing) and the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of such Note without service charge a new
Note or Notes, of any authorized denomination as requested by such Holder in
aggregate principal amount equal to and in exchange for the unredeemed portion
of the principal of the Note so surrendered.
ARTICLE TWELVE
Noteholders' Meetings
---------------------
Section 12.01 Purposes for Which Meetings May Be Called.
-----------------------------------------
A meeting of Noteholders may be called at any time and from time to
time pursuant to the provisions of this Article Twelve for any of the following
purposes:
(a) to give any notice to the Company or to the Trustee, or to
give any directions to the Trustee,or to consent to the waiving of any
default hereunder and its consequences, or to take any other action
authorized to be taken by Noteholders pursuant to any of the
provisions of Article Five;
(b) to remove the Trustee and appoint a successor trustee
pursuant to the provisions of Article Six;
(c) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Article Nine; or
(d) to take any other action authorized to be taken by or on
behalf of the Holders of any specified aggregate principal amount of
the Notes under any other provision of this Indenture or under
applicable law.
Section 12.02 Manner of Calling Meetings.
--------------------------
The Trustee may at any time call a meeting of Noteholders to take any
action specified in Section 12.01, to be held at such time and at such place in
the United States of America as the Trustee shall determine. Notice of every
meeting of the Noteholders setting forth the time and the place of such meeting
and in general terms the action proposed to be taken at such meeting shall be
mailed not less than 20 nor more than 60 days prior to the date fixed for the
meeting to such Noteholders as provided in Section 1.06. The Trustee may fix,
in advance, a date as the record date for determining the Noteholders entitled
to notice of or to vote at any such meeting not less than 35 nor more than 75
days prior to the date fixed for such meeting.
Section 12.03 Call of Meeting by Company or Noteholders.
-----------------------------------------
In case at any time the Company, pursuant to a Board Resolution, or
the Holders of at lest ten percent in aggregate principal amount of the Notes
then outstanding, shall have requested the Trustee to call a meeting of
Noteholders to take any action authorized in Section 12.01 by written request
setting forth in reasonable detail the action proposed to be taken at the
meeting, and the Trustee shall not have mailed notice of such meeting within 20
days after receipt of such request, then the Company or the Holders of Notes in
the amount above specified may determine the time and the place for such
meeting, the record date for determining the Noteholders entitled to notice of
or to vote at such meeting, and may call such meeting to take any action
authorized in Section 12.01, by mailing notice thereof as provided in Section
12.02.
Section 12.04 Who May Attend and Vote at Meetings.
-----------------------------------
To be entitled to vote at any meeting of Noteholders a Person shall
(a) be a Noteholder or (b) be a Person appointed by an instrument in writing as
proxy by a Noteholder. The only persons who shall be entitled to be present or
to speak at any meeting of Noteholders shall be the persons entitled to vote at
such meeting and their counsel, any representatives of the Trustee and its
counsel and any representatives of the Company and its counsel.
Section 12.05 Regulations May Be Made By Trustee.
----------------------------------
Notwithstanding any other provisions of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any meeting of
Noteholders, in regard to proof of the holding of Notes and of the appointment
of proxies, and in regard to the appointment and duties of inspectors of votes,
the submission and examination of proxies, certificates and other evidence of
the right to vote, and such other matters concerning the conduct of the meeting
as it shall think fit. Except as otherwise permitted or required by any such
regulations, the holding of Notes shall be proven in the manner specified in
Section 1.04 and the appointment of any proxy shall be proved in the manner
specified in said Section 1.04; provided, however, that such regulations may
provide that written instruments appointing proxies regular on their face may be
presumed valid and genuine without the proof hereinabove or in said Section 1.04
specified.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Noteholders as provided in Section 12.03, in which case the
Company or the Noteholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the Holders of a majority
in principal amount of the Notes represented at the meeting and entitled to
vote.
At any meeting each Holder or proxy shall be entitled to one vote for
each Outstanding Individual Note held or represented by him; provided, however,
that no vote shall be cast or counted at any meeting in respect to any Notes
challenged as not Outstanding and ruled by the chairman of the meeting to be not
Outstanding. The chairman of the meeting shall have no right to vote other than
by virtue of Notes held by him or instruments in writing as aforesaid duly
designating him as the person to vote on behalf of other Noteholders. Any
meeting of Noteholders duly called pursuant to the provisions of Section 12.02
or 12.03 may be adjourned from time to time, and the meeting may be held as so
adjourned without further notice.
At any meeting of Noteholders, the presence of persons holding or
representing Notes in an aggregate principal amount sufficient to take action on
the business for the transaction of which such meeting was called shall
constitute a quorum, but, if less than a quorum is present, the persons holding
or representing a majority in aggregate principal amount of the Notes
represented at the meeting may adjourn such meeting with the same effect, for
all intents and purposes, as though a quorum had been present, and the meeting
may be held as so adjourned without further notice.
Section 12.06 Manner of Voting at Meetings and Record to be Kept.
--------------------------------------------------
The vote upon any matter submitted to any meeting of Noteholders shall
be by written ballots on which shall be subscribed the signatures of the Holders
of Notes or of their representatives by proxy and the serial number or numbers
of the Notes held or represented by them. The permanent chairman of the meeting
shall appoint two inspectors of votes who shall count all votes cast at the
meeting for or against any resolutions and who shall make and file with the
secretary of the meeting their verified written reports in duplicate of all
votes cast at the meeting. A record in duplicate of the proceedings of each
meeting of Noteholders shall be prepared by the secretary of the meeting and
there shall be attached to said record the original reports of the inspectors of
votes on any vote by ballot taken thereat and affidavits by one or more persons
having knowledge of the facts setting forth a copy of the notice of the meeting
and showing that said notice was mailed as provided in Section 12.02. The
record shall show the serial numbers of the Notes voting in favor of and against
any resolution. The record shall be signed and verified by the affidavits of
the permanent chairman and secretary of the meeting and one of the duplicates
shall be delivered to the Company and the other to the Trustee to be preserved
by the Trustee.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
Section 12.07 Exercise of Rights of Trustee and Noteholders Not to Be
-------------------------------------------------------
Hindered or Delayed.
- -------------------
Nothing in this Article Twelve contained shall be deemed or construed
to authorize or permit, by reason of any call of a meeting of Noteholders or any
rights expressly or impliedly conferred hereunder to make such call, any
hindrance or delay in the exercise of any right or rights conferred upon or
reserved to the Trustee or to the Noteholders under any of the provisions of
this Indenture or of the Notes.
* * * * *
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective seals to be hereunto affixed and
attested, all as of the day and year first above written.
FINANCIAL SERVICES CORPORATION
OF THE MIDWEST
[Seal]
By: --------------------------------
Title: President
Attest:
- -------------------------------
Assistant Secretary
M&I FIRST NATIONAL BANK
[Seal]
By: ------------------------------
Title: Vice President
Attest:
- --------------------------------
Title: Trust Officer
ACKNOWLEDGEMENT OF FINANCIAL SERVICES CORPORATION OF THE MIDWEST
----------------------------------------------------------------
STATE OF ILLINOIS )
) SS.
COUNTY OF ROCK ISLAND )
On this ----- day of ------------, 1996, before me, a Notary Public in
and for said County, the undersigned officer, personally appeared Douglas M.
Kratz and Patricia A. Hays, severally acknowledged themselves to be the
President and Assistant Secretary, respectively, of FINANCIAL SERVICES
CORPORATION OF THE MIDWEST, a Delaware corporation, and that they, as such
officers, being authorized so do to, executed the foregoing instrument for the
purposes therein contained, by signing the name of the corporation by themselves
as such President and Assistant Secretary, respectively.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
-------------------------------------------
Notary Public, Rock Island County, Illinois
My Commission expires:---------------------
ACKNOWLEDGEMENT OF M&I FIRST NATIONAL BANK
------------------------------------------
STATE OF WISCONSIN )
) SS.
COUNTY OF WASHINGTON )
On this ----- day of ---------------, 1996, before me, a Notary Public
in and for said County, appeared R.T. Stephenson and -------------------------,
of M&I FIRST NATIONAL BANK, West Bend, Wisconsin, Trustee, to me personally
known, who being by me duly sworn, did say that they are the Senior Vice
President and Trust Officer, respectively, of M&I FIRST NATIONAL BANK, West
Bend, Wisconsin, and that the seal affixed to said instrument is the corporate
seal of the said Association and that said instrument was signed and sealed on
behalf of the said Association by authority of its Board of Directors, and that
the said R.T. Stephenson and ----------------------- acknowledged said
instrument to be the free act and deed of said Association.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
-------------------------------------------
[NOTARIAL SEAL] Notary Public, Washington County, Wisconsin
My Commission expires:---------------------
Exhibit 5
WINTHROP & WEINSTINE, P.A.
3000 Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402
(612) 347-0700
September 27, 1996
Securities and Exchange Commission
450 - 5th Street N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: Financial Services Corporation of the Midwest
Registration Statement on Form S-2
Ladies and Gentlemen:
We have acted as counsel for Financial Services Corporation of the Midwest, a
Delaware corporation ("FSCM"), in connection with the registration on a Form S-2
Registration Statement of the offer and sale ("Offering") of $10,000,000 of
FSCM's Notes Due 2006 ("Notes") under an Indenture ("Indenture") to be entered
into by and between FSCM and M & I First National Bank, as trustee thereunder
("Trustee").
In rendering the opinions set forth herein, we have reviewed the Registration
Statement on Form S-2 ("Registration Statement") filed by FSCM with the
Securities and Exchange Commission ("SEC") with respect to the offer and sale of
the Notes; FSCM's Certificate of Incorporation as certified by the Delaware
Secretary of State on September 18, 1996; FSCM's Bylaws; a Certificate of Good
Standing for FSCM issued by the Delaware Secretary of State dated September 18,
1996; the form of Indenture filed as an exhibit to the Registration Statement;
and resolutions of FSCM's Board of Directors regarding the authorization of the
Offering. With respect to all documents expressly described herein, we have
assumed the genuineness of all signatures, the authenticity of all documents
purporting to be originals, and the conformity to the originals of all copies.
Based on the forgoing, we are of the opinion that:
1. FSCM is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware.
2. Upon the sale of the Notes as described in the Registration Statement and
execution of the Indenture by FSCM and the Trustee, the Notes will be
legally issued, fully paid, and nonassessable and will be binding
obligations of FSCM in accordance with their terms and the terms of the
Indenture.
We hereby consent to the inclusion in the Registration of this opinion letter as
an exhibit and to the reference to this law firm under the "Legal Matters"
portion of the Prospectus filed as a part of the Registration Statement.
Very truly yours,
WINTHROP & WEINSTINE, P.A.
By - /s/ Michele D. Vaillancourt
Michele D. Vaillancourt
Exhibit 10.1
DEBT SUBORDINATION AGREEMENT
This Subordination Agreement, dated as of --------------, 1996, by and among
Financial Services Corporation of the Midwest, a Delaware corporation
("Borrower"), Douglas M. Kratz, Perry B. Hansen and Benjamin D. Farrar, Jr.
(collectively and separately referred to as the "Subordinated Creditors"), and
M&I First National Bank, as trustee ("Trustee") for the holders (collectively,
"Senior Holders") of Borrower's -----% Notes due 2006 in the original principal
amount of $10,000,000 (collectively, "Notes").
WHEREAS, Subordinated Creditors are financially interested in Borrower;
WHEREAS, Borrower is about to become indebted to Senior Holders as a result of
their purchase and acquisition of the Notes in a public offering of the Notes to
be made pursuant to a Registration Statement on Form S-2 filed by Borrower with
the Securities and Exchange Commission on -------------------, 1996;
WHEREAS, as a condition to the offer and sale of such Notes, the Subordinated
Creditors are being required to subordinate payment of certain obligations owed
by Borrower to the Subordinated Creditors to the prior payment of the Notes; and
WHEREAS, the Subordinated Creditors acknowledge that the public offering and
sale of the Notes and purchase of the Notes by Senior Holders are of value to
the Subordinated Creditors.
NOW, THEREFORE, in consideration of these premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Definitions. As used herein, the following capitalized terms shall have
------------
the following meanings:
"Senior Claim" shall mean and be limited to all of Borrower's indebtedness
-------------
and liabilities to the Senior Holders as represented by the Notes, together
with any renewals or extensions of the Notes.
"Subordinated Claim" shall mean and be limited to all of the Borrower's
--------------------
indebtedness and liabilities to Subordinated Creditors evidenced by the
Promissory Notes specifically described on attached Exhibit A and the
---------
Borrower's indebtedness and liabilities to Subordinated Creditors that may
arise upon the acquisition by the Subordinated Creditors of the Promissory
Notes specifically described on attached Exhibit B and any other Promissory
---------
Notes substantially similar to those on Exhibits A and B which are acquired
---------- -
in the future by any of the Subordinated Creditors (such Promissory Notes
on Exhibit B and such other Promissory Notes acquired by any of the
---------
Subordinated Creditors being herein called the "Acquired Promissory
Notes"); provided, however, that the indebtedness and liabilities evidenced
by the Acquired Promissory Notes shall not be a Subordinated Claim until
such Acquired Promissory Notes are acquired by any of the Subordinated
Creditors; and provided further, that nothing contained in this Agreement
shall be construed or interpreted to prohibit or in any way limit the
rights of any Subordinated Creditor to convert part or all of the
obligations underlying the Subordinated Claim into shares of the common
stock or Class D Preferred Stock of the Borrower as authorized by the
documentation executed and delivered in connection with the original
issuance and creation of the Subordinated Claim or to extend the term of
any or all of the Subordinated Claim after its maturity date.
Capitalized terms used herein and not otherwise defined shall have the meaning
ascribed to them in the Notes and the Indenture relating thereto.
2. Limitations on Payment. The Subordinated Creditors will not receive, or
----------------------
take action to collect or enforce payment from the Borrower, and the Borrower
will not make any payment to the Subordinated Creditors of the Subordinated
Claim or any part thereof, except that the Borrower may pay interest as it
accrues on the Subordinated Claim so long as no Event of Default has occurred
and is continuing on the Senior Claim. Upon the cure of any such Event of
Default, Subordinated Creditors shall be entitled to receive any past due
interest which may be paid without again creating an Event of Default.
3. Senior Holders' Priority. In the event of the bankruptcy of the Borrower,
------------------------
or the appointment of a trustee, receiver or other representative or liquidator
for any of the property of the Borrower, or if the Borrower shall become the
subject of any proceeding of any character under any federal or state bankruptcy
or insolvency act or law, all moneys and other property allocated or allocable
to the Subordinated Claim and which would be payable or deliverable to the
Subordinated Creditors in the absence of the provisions of this Agreement shall
be paid and delivered directly to the Trustee for the benefit of the Senior
Holders for application by the Senior Holders to the Senior Claim until full
payment of the Senior Claim with the excess, if any, to be paid to the
Subordinated Creditors.
4. Pay Over of Moneys. If the Subordinated Creditors receive any payment or
------------------
property on the Subordinated Claim in violation of the terms of this Agreement,
such payments shall be held in trust by the Subordinated Creditors, and the
Subordinated Creditors will forthwith pay over or deliver the same to the
Trustee for the benefit of the Senior Holders to be held by the Trustee as cash
collateral securing the Senior Claim. Such cash collateral may be distributed
by the Trustee to the Senior Holders in accordance with the terms of the Notes
and the Indenture relating thereto.
5. Limitation on Transfer. Subordinated Creditors will not assign, pledge or
----------------------
otherwise transfer, or permit or suffer to be assigned, pledged or otherwise
transferred, or execute any power of attorney with respect to, the Subordinated
Claim or any part thereof unless such assignee, pledgee or transferee agrees in
writing to be bound by the terms and conditions of this Agreement. The
Subordinated Creditors agree to promptly place a notice regarding the
subordination provided by this Agreement on the face of each instrument
representing a Subordinated Claim.
6. Continuation of Agreement. This Agreement shall continue until the Senior
-------------------------
Claim shall have been paid in full and shall then automatically terminate and be
of no further force or effect.
7. Successors and Assigns. This Agreement is binding not only upon the
----------------------
Subordinated Creditors and the Borrower, but also upon the heirs,
representatives, successors and assigns of each of them, and is enforceable not
only by the Trustee and the Senior Holders but also by each of their successors
and assigns, but shall not inure to the benefit of or be enforceable by any
other party or subordinate the Subordinated Claim to any claim other than the
Senior Claim.
8. GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED, AND THE RIGHTS AND
-------------
LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ILLINOIS.
9. Section Titles; Gender. The section titles contained in this Agreement are
----------------------
and shall be without substantive meaning or content of any kind whatsoever and
are not a part of the agreement between the parties hereto. The masculine form
of any word used in this Agreement shall include the feminine form, and vice
versa.
10. Notices. Except as otherwise expressly provided herein, any notice
-------
required or desired to be served, given or delivered hereunder shall be in
writing and shall be deemed to have been validly served, given or delivered
three (3) business days after deposit in the United States mail, first class,
certified or registered mail, with proper postage prepaid, addressed to the
party to be notified as follows:
If to the Borrower:
Financial Services Corporation of the Midwest
224 - 18th Street
P. O. Box 4870
Rock Island, Illinois 61204-4870
Attention: Douglas M. Kratz, President
If to the Subordinated Creditors:
Douglas M. Kratz
224 - 18th Street
P. O. Box 4870
Rock Island, Illinois 61204-4870
If to the Senior Holders:
M&I First National Bank
Trustee
321 North Main Street
West Bend, Wisconsin 53095
Attention: Roger Stephenson
11. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original with the same effect as if the
signatures thereto and hereto were upon the same document.
IN WITNESS WHEREOF, the parties have executed this Agreement this ------ day of
- ------------------, 1996.
FINANCIAL SERVICES CORPORATION
OF THE MIDWEST
By ---------------------------
Its:--------------------------
/s/ Benjamin D. Farrar, Jr.
-------------------------------
Benjamin D. Farrar, Jr.
/s/ Perry B. Hansen
-------------------------------
Perry B. Hansen
/s/ Douglas M. Kratz
-------------------------------
Douglas M. Kratz
M&I FIRST NATIONAL BANK
Trustee
By-----------------------------
Its:---------------------------
EXHIBIT A
LIST OF EXISTING SUBORDINATED CLAIMS
------------------------------------
1. Promissory Note executed by Borrower in favor of Benjamin D. Farrar, Jr. in
the original principal amount of $85,000, dated March 31, 1989.
2. Promissory Note executed by Borrower in favor of Perry B. Hansen in the
original principal amount of $85,000, dated March 31, 1989.
3. Promissory Note executed by Borrower in favor of Sandra J. Kratz in the
original principal amount of $85,000, dated March 31, 1989, as transferred
and assigned by Sandra J. Kratz to Douglas M. Kratz effective February 1,
1991.
4. Promissory Note executed by Borrower in favor of Benjamin D. Farrar, Jr. in
the original principal amount of $165,000, dated April 17, 1989.
5. Promissory Note executed by Borrower in favor of Perry B. Hansen in the
original principal amount of $165,000, dated April 17, 1989.
6. Promissory Note executed by Borrower in favor of Sandra J. Kratz in the
original principal amount of $165,000, dated April 17, 1989, as transferred
and assigned by Sandra J. Kratz to Douglas M. Kratz effective February 1,
1991.
EXHIBIT B
LIST OF FUTURE SUBORDINATED CLAIMS
----------------------------------
1. Promissory Note executed by Borrower in favor of Bernard F. Weindruch in
the original principal amount of $165,000, dated April 17, 1989, as
transferred and assigned by Bernard F. Weindruch to Ira J. Weindruch.
2. Promissory Note executed by Borrower in favor of Ira J. Weindruch in the
original principal amount of $165,000, dated April 17, 1989, as transferred
and assigned by Ira J. Weindruch to Donna F. Weindruch.
Exhibit 10.2
REVOLVING BUSINESS NOTE
M&I Bank
M&I MARSHALL & ILSLEY BANK
FINANCIAL SERVICES CORP OF THE MIDWEST July 31, 1996 $10,000,000.00
- -------------------------------------- ------------- --------------
Customer Date Amount
The undersigned ("Customer", whether one or more) promises to pay to the order
of
M&I MARSHALL & ILSLEY BANK
- --------------------------
at 770 N WATER STREET MILWAUKEE, WI 53202
----------------------------------------
the principal sum of $10,000,000.00 or, if less, the aggregate unpaid
--------------
principal amount of all loans made under this Note, plus interest as set forth
below.
Lender will disburse loan proceeds to Customer's deposit account number --------
- --------------------- or by other means acceptable to Lender.
Interest is payable on October 31, 1996, and on the last day of each THIRD month
---------------- -----
thereafter and at maturity.
Principal is payable July 31, 1997.
-------------
This Note bears interest on the unpaid principal balance before maturity at a
rate equal to [Complete (a) or (b); only one shall apply]:
(a) N/A% per year.
----
(b) -0- percentage points in excess of the prime rate of interest adopted by
----
Lender as its base rate for interest rate determinations from time to time
which may or may not be the lowest rate charged by Lender (with the rate
changing as and when that prim rate changes). The initial rate is 8.250%
------
per year.
Interest is computed on the basis of a 360-day year on the actual number of days
principal is unpaid. Unpaid principal and interest bear interest after maturity
(whether by acceleration or lapse of time) until paid at the rate otherwise
applicable plus 2 percentage points computed on the same basis.
If any payment is not paid when due, if a default occurs under any other
obligation of any Customer to Lender or if Lender deems itself insecure, the
unpaid balance shall, at the option of Lender, and without notice mature and
become immediately payable. The unpaid balance shall automatically mature and
become immediately payable in the event any Customer, surety, or guarantor
becomes the subject of bankruptcy or other insolvency proceedings. Lender's
receipt of any payment on this Note after the occurrence of an event of default
shall not constitute a waiver of the default or Lender's rights and remedies
upon such default.
The acceptance of this Note, the making of any loan, or any other action of
Lender does not constitute an obligation or commitment of Lender to make loans;
and any loans may be made solely in the discretion of Lender. This Note may be
prepaid in full or in part without penalty.
Lender is authorized to automatically charge payments due under this Note to
account number N/A at N/A (See reverse side regarding
--- ------------- ---
Notice of Transfers Varying in Amount.)
- ------- Check here only if this Note is to be secured by a first lien mortgage
or equivalent security interest on a one-to-four family dwelling used as
Customer's principal place of residence.
This note includes additional provisions on reverse side.
FINANCIAL SERVICES CORPORATION OF THE MIDWEST (SEAL) 224-18TH ST STE 202
- --------------------------------------------- -------------------
BY: /s/ Douglas M. Kratz (SEAL) ROCK ISLAND IL 61204-4870
- --------------------------------------------- -------------------------
President (SEAL) ACCT # 214396 Note #12028
- --------------------------------------------- J LEONARD / 00312
(SEAL) SLW
- ---------------------------------------------
ADDITIONAL PROVISIONS
This Note is secured by all existing and future security agreements, assignments
and mortgages between Lender and Customer, between Lender and any guarantor of
this Note, and between Lender and any other person providing collateral security
for Customer's obligations, and payment may be accelerated according to any of
them. Unless a lien would be prohibited by law or would render a nontaxable
account taxable, Customer grants to Lender a security interest and lien in any
deposit account Customer may at any time have with Lender. Lender may, at any
time after an occurrence of an event of default, without notice or demand,
setoff against any deposit balances or other money now or hereafter owed any
Customer by Lender any amount unpaid under this Note.
Lender is authorized to make book entries evidencing loans and payments and the
aggregate of all loans as evidenced by those entries is presumptive evidence
that those amounts are outstanding and unpaid to Lender. Customer covenants
that all loans shall be used solely for business and not personal purposes.
Customer agrees to pay all costs of administration and collection before and
after judgment, including reasonable attorneys' fees (including those incurred
in successful defense or settlement of any counterclaim brought by Customer or
incident to any action or proceeding involving Customer brought pursuant to the
United States Bankruptcy Code) and waives presentment, protest, demand and
notice of dishonor. Customer agrees to indemnify and hold harmless Lender, its
directors, officers, employees and agents, from and against any and all claims,
damages, judgments, penalties, and expenses, including reasonable attorneys'
fees, arising directly or indirectly from credit extended under this Note or the
activities of Customer. This indemnity shall survive payment of this Note.
Customer acknowledges that Lender has not made any representations or warranties
with respect to, and that Lender does not assume any responsibility to Customer
for, the collectability or enforceability of this Note or the financial
condition of any Customer. Customer authorizes Lender to disclose financial and
other information about Customer to others. Each Customer has independently
determined the collectability and enforceability of this Note.
Without affecting the liability of any Customer, surety, or guarantor, Lender
may, without notice, accept partial payments, release or impair any collateral
security for the payment of this Note or agree not to sue any party liable on
it. Without affecting the liability of any surety or guarantor, Lender may from
time to time, without notice, renew or extend the time for payment. The
obligations of all Customers under this Note are joint and several.
To the extent not prohibited by law, Customer consents that venue for any legal
proceeding relating to collection of this Note shall be, at Lender's option, the
county in which Lender has its principal office in this state, the county in
which any Customer resides or the county in which this Note was executed. This
Note shall be construed and enforced in accordance with the internal laws of
Wisconsin.
This Note is intended by Customer and Lender as a final expression of this Note
and as a complete and exclusive statement of its terms, there being no
conditions to the enforceability of this Note. This Note may not be
supplemented or modified except in writing.
PREAUTHORIZED TRANSFER DISCLOSURE
When Customer authorizes Lender to obtain payment of amounts becoming due Lender
by initiating charges to Customer's account, Customer also requests and
authorizes remitting financial institution to alert and honor same and to charge
same to Customer's account. This authorization will remain in effect until
Customer notifies Lender and the remitting financial institution in writing to
terminate this authorization and Lender and remitting financial institution have
a reasonable time to act on the termination. NOTICE OF TRANSFERS VARYING IN
AMOUNT: If Lender and remitting financial institution are not the same,
Customer is an individual, the account was established primarily for personal,
family or household purposes and the regular payments may vary in amount,
Customer has the right to receive a notice from Lender 10 days before each
payment of how much the payment will be; however, by signing this Note, Customer
elects to receive notice only when current payment would differ by more than
100% from previous payment.
Exhibit 10.3
THE ROCK ISLAND BANK, NATIONAL ASSOCIATION
CONTINUITY/SEVERANCE AGREEMENT
------------------------------
This Continuity/Severance Agreement (the "Agreement") is made and entered
into this day of December, 1995 by and between THE Rock Island Bank,
------
National Association, a bank organized under the laws of the United States
("Employer"), and Richard J. Carlson ("Employee").
W I T N E S S E T H:
WHEREAS, the Employee is currently employed by Employer; and
WHEREAS, Employer desires to provide security to the Employee in connection
with the Employee's employment.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. For purposes of this Agreement:
------------
(a) "Change in Control" shall mean a sale of greater than fifty percent
(50%) of the outstanding stock of either (1) the Financial Services
Corporation of the Midwest or (2) the Employer.
(b) "Good Cause" shall be deemed to exist with respect to an Employee if,
and only if:
(1) The Employee engages in acts or omissions constituting
dishonesty, intentional breach of fiduciary obligation or
intentional wrongdoing, in each case that results in substantial
harm to the business or property of Employer; or
(2) The Employee is convicted of a criminal violation involving fraud
or dishonesty.
(c) "Good Reason" shall exist with respect to an Employee if and only if,
without the Employee's express written consent:
(1) there is a significant change in the nature or the scope of the
Employee's authority or in the Employee's overall working
environment;
(2) there is a Material Reduction, as hereinafter defined, in the
Employee's Salary, as hereinafter defined;
(3) the Employee is assigned duties materially inconsistent with
Employee's present duties, responsibilities and status;
(4) the Employer requires the Employee to relocate to any office or
location which is greater than one hundred (100) miles from the
location where the Employee is located on the date of the Change
in Control.
(d) "Salary" shall mean the Employee's base monthly salary on (1) the date
of the Change in Control, or (2) the date the Employee's employment
with the Employer terminates, whichever is greater.
(e) "Material Reduction" shall mean a reduction in Salary equal to at
least ten percent (10%).
(f) "Severance Pay Period" shall mean the number of months of severance
pay that the Employee receives from the Employer pursuant to the terms
of Sections 2. or 3. of this Agreement.
2. Benefits Upon Involuntary Termination Of Employment.
----------------------------------------------------
(a) Termination On Or Before December 31, 1998.
-------------------------------------------
The Employee shall only be entitled to payment under this Subsection
2.(a) if a Change in Control occurs. Upon the occurrence of a Change
in Control, in the event that the Employee is terminated by the
Employer within a ninety (90) day period immediately before a public
announcement of a Change in Control or after the date of the Change in
Control but on or before December 31, 1998, for any reason other than
Good Cause, Employer shall make a severance payment to the Employee
equal to twenty-four (24) months of Salary. Such payment shall be
made in equal payments during the twenty-four (24) month period in
accordance with the Employer's customary wage payment policies and
practices. The payment shall be subject to federal and state
withholding taxes and FICA.
For example, but not by way of limitation, assume that (1) a Change in
Control occurs on January 1, 1997, (2) the Employee's Salary is
$8,000, and (3) the Employer terminates the Employee for any reason
other than Good Cause on June 30, 1997, the Employer will pay the
Employee a severance payment of $192,000 which is equal to twenty-four
(24) months of Salary.
(b) Termination Between January 1, 1999 And December 31, 2000.
----------------------------------------------------------
The Employee shall only be entitled to payment under this Subsection
2.(b) if a Change in Control occurs. Upon the occurrence of a Change
in Control, in the event that the Employee is terminated by the
Employee during the period starting January 1, 1999 and ending on
December 31, 2000, for any reason other than Good Cause, Employer
shall make a severance payment to the Employee of Salary for a certain
number of months calculated by subtracting from twenty-four (24)
months the number of months that have elapsed during the period from
January 1, 1999 to the date the Employee is terminated; provided,
however, that the severance paid to the Employee, pursuant to this
Section 2.(b), shall be no less than twelve (12) months of Salary.
For purposes of this Agreement, if the Employee is terminated on or
before the fifteenth (15th) day of a given month, that month shall not
count as a month elapsed. Conversely, if the Employee is terminated
on or after the sixteenth (16th) day of a given month, that month
shall count as a month elapsed. Payments made pursuant to this
Subsection 2.(b) shall be made in equal payments over a number of
months which is equal to the number of months of severance pay
received, in accordance with the Employer's customary wage payment
policies and practices. The payment shall be subject to federal and
state withholding taxes and FICA.
For example, but not by way of limitation, assume that (1) a Change in
Control occurs on February 1, 1999, (2) the Employee's Salary is
$8,000, and (3) the Employer terminates the Employee for any reason
other than Good Cause on July 10, 1999. Because the Employee was
terminated on or before the fifteenth (15th) of July, July would not
count as a month elapsed. Accordingly, the Employee would receive a
severance payment of $144,000 which is equal to eighteen (18) months
of Salary, calculated by subtracting the six (6) months that have
elapsed from January, 1999 through June, 1999 from twenty-four (24)
months.
As an additional example, without limitation, assume that (1) a Change
in Control occurs on February 1, 1999, (2) the Employee's Salary is
$8,000, and (3) the Employer terminates the Employee for any reason
other than Good Cause on July 10, 2000. Accordingly, the Employee
would receive a severance payment of $96,000 which is equal to twelve
(12) months of Salary. Although eighteen (18) months have elapsed
from January, 1999 through June, 2000, this Section 2.(b) provides
that the severance paid to Employee in the event Employee is
terminated pursuant to the terms of this Section 2.(b) shall be no
less than twelve (12) months of salary.
(c) Termination after December 31, 2000.
------------------------------------
The Employee shall only be entitled to payment under this Subsection
2.(a) if a Change in Control occurs. Upon the occurrence of a Change
in Control, in the event that the Employee is terminated by the
Employer within two (2) years after the date of the Change in Control,
which Change in Control occurs at any time after December 31, 2000,
for any reason other than Good Cause, Employer shall make a severance
payment to the Employee equal to twelve (12) months of Salary. Such
payment shall be made in equal payments during the twelve (12) month
period in accordance with the Employer's customary wage payment
policies and practices. The payment shall be subject to federal and
state withholding taxes and FICA.
For example, but not by way of limitation, assume that (1) a Change in
Control occurs on January 1, 2001, (2) the Employee's Salary is $8000,
and (3) the Employer terminates the Employee for any reason other than
Good Cause on June 30, 2002, the Employer will pay the Employee a
severance payment of $96,000 which is equal to twelve (12) months of
Salary.
3. Benefits Upon Voluntary Termination Of Employment.
--------------------------------------------------
(a) Voluntary Termination On Or Before December 31, 1999.
-----------------------------------------------------
The Employee shall only be entitled to payment under this Subsection
3.(a) if a Change in Control occurs. Upon the occurrence of a Change
in Control, in the event that the Employee voluntarily terminates his
employment for Good Reason, after the Change in Control but on or
before December 31, 1999, the Employer shall make a severance payment
to the Employee of twelve (12) months of Salary. Such payment shall
be made in equal payments during the twelve (12) month period in
accordance with the Employer's customary wage payment policies and
practices. The payment shall be subject to federal and state
withholding taxes and FICA.
For example, but not by way of limitation, assume that (1) a Change in
Control occurs on March 15, 1998, (2) the Employee's Salary is $8,000,
and (3) the Employee voluntarily terminates his employment for Good
Reason on October 20, 1998, the Employer will pay the Employee a
severance payment of $96,000 which is equal to twelve (12) months of
Salary.
(b) Voluntary Termination Between January 1, 2000 And December 31, 2000.
--------------------------------------------------------------------
The Employee shall only be entitled to payment under this Subsection
3.(b) if a Change in Control occurs. Upon the occurrence of a Change
in Control, in the event that the Employee voluntarily terminates his
employment for Good Reason, after the Change in Control, and after
December 31, 1999 but on or before December 31, 2000, the Employer
shall make a severance payment to the Employee of Salary for a certain
number of months calculated by subtracting from twelve (12) months the
number of months that have elapsed from January 1, 2000 to the date
the Employee voluntarily terminates his employment.
For purposes of this Agreement, if the Employee voluntarily terminates
his employment on or before the fifteenth (15th) day of a given month,
that month shall not count as a month elapsed. Conversely, if the
Employee voluntarily terminates his employment on or after the
sixteenth (16th) day of a given month, that month shall count as a
month elapsed. Payments made pursuant to this Subsection 3.(b) shall
be made in equal payments over a number of months which is equal to
the number of months of severance pay received in accordance with the
Employer's customary wage payment policies and practices. The payment
shall be subject to federal and state withholding taxes and FICA. The
Employer and Employee agree that in the event Employee voluntarily
terminates his employment with the Employer for Good Reason at any
time after December 31, 2000, the Employee shall not be entitled to
any severance pay pursuant to the terms of this Agreement.
For example, but not by way of limitation, assume that (1) a Change in
Control occurs on March 10, 2000, (2) the Employee's Salary is $8,000,
and (3) the Employee voluntarily terminates his employment for Good
Reason on March 25, 2000. Because the Employee voluntarily terminated
his employment on or after the sixteenth (16th) of March, March would
count as a month elapsed. Accordingly, the Employee would receive a
severance payment of $72,000 which is equal to nine (9) months of
Salary, calculated by subtracting the three (3) months that have
elapsed from January, 2000 through March, 2000 from twelve (12)
months.
4. Termination For Other Reasons.
------------------------------
If the services of Employee for Employer are terminated other than under
circumstances set forth in Sections 2. or 3., Employer shall have no
obligation with respect to the Employee under this Agreement. Such
termination shall have no effect upon an Employee's other rights, including
but not limited to rights under any retirement plan, any welfare plan or
any other Employer plan or program.
5. Employee Release.
-----------------
In consideration for the payments provided in Sections 2. and 3. of this
Agreement, Employee agrees to execute a release of any and all claims
against the Employer, at the time of the termination of the Employee's
employment with the Employer, said release to be in such reasonable form as
prepared by the Employer.
6. Employee Assignment.
-------------------
No interest of the Employee under this Agreement, or any right to receive
any payment or distribution hereunder, shall be subject in any manner to
sale, transfer, assignment, pledge, attachment, garnishment, or other
alienation or encumbrance of any kind, nor may such interest or right to
receive a payment or distribution be taken, voluntarily or involuntarily,
for the satisfaction of the obligations or debts of, or other claims
against, the Employee or his spouse or beneficiary, including claims for
alimony, support, separate maintenance, and claims in bankruptcy
proceedings.
7. Benefits Unfunded.
------------------
Employer shall be under no obligation(s) to Employee or his spouse or
beneficiaries to fund in advance Employer's obligations under Sections 2.
or 3. or to segregate any assets of Employer for payment of any amounts due
thereunder. The Employee, his spouse and beneficiaries shall have only the
rights of general unsecured creditors of Employer.
8. Review of Employee's Claims.
----------------------------
(a) If Employee believes that he is entitled to receive benefits under
this Agreement, he may make a written request for such benefits to the
Employer.
(b) Once a request for benefits has been made, the Employer shall review
the claim for benefits. If the claim is wholly or partially denied,
notice of the decision shall be furnished to the Employee within
thirty (30) days after receipt of the claim, unless special
circumstances require an extension of up to an additional thirty (30)
days for processing the claim. If such an extension of time for
processing is required, written notice of the extension shall be
furnished to the Employee prior to the termination of the initial
thirty (30)-day period. This notice shall indicate the circumstances
requiring the extension of time and the date by which the Employer
expects to render the final decision. In the event that no notice of
the denial of a claim is furnished to the Employee under this
Subsection, the claim shall be deemed denied and the Employee may
request review under Subsection (d).
(c) If a claim is denied in whole or in part, notice of the decision
provided to the Employee shall contain (i) the specific reason or
reasons for the denial; (ii) specific reference to relevant provisions
of this Agreement on which the denial is based; (iii) a description of
any additional material or information necessary for the Employee to
perfect the claim together with an explanation of why such material or
information is necessary; and (iv) appropriate information as to the
steps to be taken if the Employee wishes to submit his claim for
review.
(d) If the Employee has had a claim denied under this Section 8., he shall
be entitled to request the Employer to give further consideration to
his claim by filing with the Employer a written request for review.
This request must contain a written statement of the reasons why the
Employee believes his claim should be allowed. Any request for review
must be filed with the Employer no later than sixty (60) days after
receipt of the notice of denial of the claim.
(1) The request for review shall be in writing and shall include
specific reasons for the decision, as well as specific references
to the pertinent Agreement provisions on which the decision is
based.
(2) Once a request for review has been made under this subsection,
the Employer shall conduct a hearing to review the claim within
the next thirty (30) days, unless special circumstances require
an extension of the time for processing, in which case a decision
shall be rendered no later than sixty (60) days after receipt of
a request for review. If an extension of time for review is
required because of special circumstances, written notice of the
extension shall be furnished to the Employee prior to the
commencement of the extension. If the decision on review is not
furnished to the Employee within the thirty (30) day period (or
the sixty (60)-day period if an extension of time is required
because of special circumstances), the claim shall be deemed
denied on review.
9. Covenant Not to Compete. In the event (1) Employee is terminated by the
------------------------
Employer and receives severance pay pursuant to Section 2. of this
Agreement, or (2) Employee voluntarily resigns and receives severance pay
pursuant to Section 3. of this Agreement, and in consideration for the
severance pay received by the Employee pursuant to Sections 2. and 3. of
this Agreement, Employee agrees, represents to and covenants with the
Employer that for a period equal to the Severance Pay Period thereafter,
Employee shall not, either directly or indirectly:
(a) Within the cities of Bettendorf, Iowa; Davenport, Iowa; Moline,
Illinois; and Rock Island, Illinois (collectively, the "Quad Cities
Metropolitan Area") or within a radius of fifty (50) miles of the Quad
Cities Metropolitan Area, own, manage, operate or control or
participate in the ownership, management, operation or control of, or
be employed by, act as consultant or adviser to, or be connected in
any manner with, any corporation, partnership, person, firm or other
business that is engaged in the business of commercial banking.
(b) Call upon, solicit, divert or attempt to take away any of the
customers or business of the Employer.
(c) Induce or attempt to induce any employee of the Employer to do any of
the foregoing or to discontinue such employee's employment with the
Employer.
10. Nondisclosure of Confidential Information. In the event the Employee's
------------------------------------------
employment with the Employer is terminated, the Employee agrees that he
will not disclose, make available or divulge to any corporation,
partnership, individual, firm, other business or person any trade secrets,
customer lists, business policies, financial information or other
confidential or secret information concerning the business and affairs of
the Employer or other information concerning the business and affairs of
the Employer and/or its directors, officers or employees.
11. Remedies. Employee agrees and understands that any breach of any of the
---------
covenants or agreements set forth in Sections 9. and 10. of this Agreement
will cause the Employer irreparable harm for which there is no adequate
remedy at law, and, without limiting whatever other rights and remedies
Employer may have under this paragraph, Employee consents to the issuance
of an injunction in favor of the Employer enjoining the breach of any of
the aforesaid covenants or agreements by any court of competent
jurisdiction. If any or all of the aforesaid covenants or agreements are
held to be unenforceable because of the scope or duration of such covenant
or agreement or the area covered thereby, the parties agree that the court
making such determination shall have the power to reduce or modify the
scope, duration and/or area of such covenant to the extent that allows the
maximum scope, duration and/or area permitted by applicable law.
12. Applicable Law.
---------------
This Agreement shall be construed and interpreted pursuant to the laws of
Iowa.
13. No Employment Contract.
-----------------------
Nothing contained in this Agreement shall be construed to be an employment
contract between the Employee and Employer.
14. Severability.
-------------
In the event any provision of this Agreement is held illegal or invalid,
the remaining provisions of this Agreement shall not be affected thereby.
15. Successors.
-----------
The Agreement shall be binding upon and inure to the benefit of Employer,
the Employee and his respective heirs, representatives and successors.
16. Notice.
-------
Notices under this Agreement shall be in writing and sent by registered
mail, return receipt requested, to the following addresses or to such other
address as the party being notified may have previously furnished to the
other party by written notice:
If to Employer: THE Rock Island Bank, National Association
230 18th Street
Rock Island, Illinois 61201-8766
Attention: Perry B. Hansen
If to Employee: Richard J. Carlson
c/o THE Rock Island Bank, National Association
230 18th Street
Rock Island, Illinois 61201-8766
17. Excise Tax.
-----------
If the payments and benefits provided under the Agreement to or with
respect to the Employee, either alone or with other payments and benefits,
would constitute "parachute payments" within the meaning of Section 280G of
the Internal Revenue Code (the "Code"), then the payments and/or benefits
under the Agreement shall be reduced to the extent necessary so that no
portion thereof shall be subject to the excise tax imposed by Section 4999
of the Code.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
THE Rock Island Bank, National
Association
By: /s/ Perry B. Hansen
--------------------------
Its: President
-----------------------
Employee:
/s/ Richard J. Carlson
--------------------------
Richard J. Carlson
Exhibit 10.4
Dated as of July 27, 1996
Mr. Douglas M. Kratz, President
Financial Services Corporation of the Midwest
P. O. Box 4870
Rock Island, IL 61204-4870
RE: Amendment to Letter Agreement dated as of December 15, 1992
Dear Mr. Kratz:
M&I Marshall & Ilsley Bank ("M&I") has agreed to delete the following from
section 11. of the agreement:
"lesser of $500,00 or"
whereby the non-conforming investments retain the 4.95% of tangible net equity
limit.
All other terms and conditions of the Agreement dated as of December 15, 1992
("Agreement") together with the First Amendment dated as of March 14, 1996 shall
remain in force.
Please acknowledge acceptance of, and agreement to, the terms by signing in the
appropriate place indicated.
Sincerely yours,
By:/s/ John A. Leonard
-------------------------------------
John A. Leonard, Vice President
Attest:/s/ A. R. Ragatz
---------------------------------
Andrew R. Ragatz, Vice President
Dated as of July 27, 1996
Mr. Douglas M. Kratz, President
Financial Services Corporation of the Midwest
The above terms are accepted and agreed as of this date:
FINANCIAL SERVICES CORPORATION OF
THE MIDWEST
By:/s/ Douglas M. Kratz
-------------------------------
Its: President
-------------------------------
Attest:/s/ Patricia A. Hays
---------------------------
Its: Assistant Secretary
-----------------------------
The above terms are acknowledged and agreed to as of this date:
THE Rock Island Bank, N.A.
By:/s/ Perry B. Hansen
-------------------------------
Its: President
------------------------------
Attest:/s/ John T. Kustes
---------------------------
Its: Assistant Secretary
------------------------------
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Financial Services Corporation of the Midwest
We consent to the use of our reports included herein and incorporated herein by
reference and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ McGladrey & Pullen, LLP
Davenport, Iowa
September 27, 1996
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Financial Services
Corporation of the Midwest and subsidiaries on Form S-2 of our report dated June
23, 1994, included and incorporated by reference in the Annual Report on Form
10-K of Financial Services Corporation of the Midwest and subsidiaries for the
year ended March 31, 1996, and to the use of our report dated June 23, 1994,
appearing in the Prospectus, which is part of this Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
Davenport, Iowa
September 27, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20545
---------------------------- EXHIBIT 25
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 TRUSTEE PURSUANT TO SECTION 305(B)(2)
----------------------------
M&I FIRST NATIONAL BANK
(Exact name of trustee as specified in its charter)
WISCONSIN 39-0698093
(Jurisdiction of incorporation (I.R.S. Employer
of organization if not a U.S. Identification Number)
national bank)
321 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
(Address of principal executive offices) (Zip Code)
----------------------------
R.T. STEPHENSON
321 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
(414) 335-3030
(Name, address and telephone number of agent for service)
----------------------------
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
(Exact Name of obligor as specified in its charter)
DELAWARE 36-2301786
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
224 - 18TH STREET, SUITE 202
ROCK ISLAND, ILLINOIS 61201-8719
(Address of principal executive offices) (Zip Code)
NOTES DUE 2006
(Title of indenture securities)
Item 1. General information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency, Washington, D.C.
Federal Deposit Insurance Corporation, Washington, D.C.
The Board of Governors of the Federal Reserve System, Washington,
D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The corporate trustee is authorized to exercise corporate trust
powers.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
1. Articles of Association of M&I First National Bank.
2. Comptroller of the Currency authorization to commence business
(incorporated by reference to Exhibit 1 to Statement of
Eligibility of Trustee Exhibit to Registration Statement on Form
S-3 of Ziegler Collateralized Securities, Inc. West Bend,
Wisconsin, Registration Number 33-42723).
3. Federal Reserve Board grant of Fiduciary powers (incorporated by
reference to Exhibit 1 to Statement of Eligibility of Trustee
Exhibit to Registration Statement on Form S-3 of Ziegler
Collateralized Securities, Inc. West Bend, Wisconsin,
Registration Number 33-42723).
4. By-Laws of M&I First National Bank.
6. Consent of the Trustee required by Section 321(b) of the Trust
Indenture Act of 1939.
7. Latest report of condition of the Trustee published pursuant to
law or the requirement of its supervising or examining authority.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, M&I First National Bank, a national banking association organized and
existing under the laws of the United States of America, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunder duly authorized, all in the City of West Bend and State of Wisconsin,
on the 26th day of September, 1996.
By: /s/ R. T. Stephenson
------------------------------------------
R. T. Stephenson, Executive Vice President
EXHIBIT 6
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of
1939, M&I First National Bank hereby consents, in connection with the
qualification of the Indenture of Sundstrand Corporation governing debt
securities, that reports of examination of M&I First National Bank by Federal
and State authorities may be furnished by such authorities to the Securities
and Exchange Commission upon request therefore.
M&I FIRST NATIONAL BANK
By: /s/ R. T. Stephenson
------------------------------------------
R. T. Stephenson, Executive Vice President
Dated: September 26, 1996
ARTICLES OF ASSOCIATION
-----------------------
FIRST. The title of this Association shall be M&I First National Bank.
-----
SECOND. The Main Office of the Association shall be in West Bend, County
------
of Washington, State of Wisconsin. The general business of the Association
shall be conducted at its main office and its branches.
THIRD. The Board of Directors of this Association shall consist of not
-----
less than five nor more than twenty-five Shareholders. At any meeting of the
Shareholders held for the purpose of electing Directors, or changing the number
thereof, the number of Directors may be determined by a majority of the votes
cast by the Shareholders in person or by proxy. Each director, during the full
term of his or her directorship, shall own a minimum of $1,000 aggregate par
value of stock of this Association or a minimum market value or equity interest
of $1,000 of stock in the bank holding company controlling this Association.
A majority of the Board of Directors shall be necessary to constitute a quorum
for the transaction of business at any Directors' meeting. The Board of
Directors, by the vote of a majority of the full board, may, between annual
meetings of Shareholders, increase the membership of the board by not more than
two members and by like vote appoint qualified persons to fill the vacancies
created thereby.
FOURTH. The regular annual meeting of the Shareholders of this
------
Association shall be held at its main banking house, or other convenient place
duly authorized by the Board of Directors on such day of each year as is
specified therefor in the bylaws.
FIFTH. The authorized amount of capital stock of this Association shall
-----
be 262,500 shares of common stock of the par value of twenty dollars ($20.00)
each; but said capital stock may be increased or decreased from time to time, in
accordance with the provisions of the laws of the United States.
If the capital stock is increased by the sale of additional shares thereof, each
Shareholder shall be entitled to subscribe for such additional shares in
proportion to the number of shares of said capital stock owned by him at the
time the increase is authorized by the Shareholders, unless another time
subsequent to the date of the Shareholders' meeting is specified in a resolution
by the Shareholders at the time the increase is authorized. The Board of
Directors shall have the power to prescribe a reasonable period of time within
which the preemptive rights to subscribe to the new shares of capital stock must
be exercised.
The Association, at any time and from time to time, may authorize and issue debt
obligations, whether or not Subordinated, without the approval of the
Shareholders.
SIXTH. The Board of Directors shall appoint one of its members President
-----
of this Association, who shall be Chairperson of the Board, unless the Board
appoints another director to be the Chairperson. The Board of Directors shall
have the power to appoint one or more Vice Presidents; and to appoint a Cashier
and such other officers and employees as may be required to transact the
business of this Association.
The Board of Directors shall have the power to define the duties of the officers
and employees of the Association; to fix the salaries to be paid to them; to
dismiss them; to require bonds from them and to fix the penalty thereof; to
regulate the manner in which any increase of the capital of the Association
shall be made; to management and administer the business and affairs of the
Association; to make all Bylaws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
SEVENTH. The Board of Directors shall have the power to change the
-------
location of the main office to any other place within the limits of West Bend,
without the approval of the Shareholders but subject to the approval of the
Comptroller of the Currency; and shall have the power to establish or change the
location of any branch or branches of the Association to any other location,
without the approval of the Shareholders but subject to the approval of the
Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue until
------
terminated in accordance with the laws of the United States.
NINTH. The Board of Directors of this Association, or any Shareholder(s)
-----
owning, in the aggregate, not less than 10 percent of the stock of this
Association, may call a special meeting of Shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of the time,
place, and purpose of every annual and special meeting of the Shareholders shall
be given by first-class mail, postage prepaid, mailed at least 10 days prior to
the date of such meeting to each Shareholder of record at his address as shown
upon the books of this Association.
TENTH. Section 1. Right of Directors and Officers to
----- ----------------------------------
Indemnification. Every person shall be indemnified to the fullest extent
- ---------------
permitted by law, as the same may exist or may hereafter be amended (but, in the
case of any such amendment, only to the extent such amendment permits the Bank
to provide broader indemnification rights than the law permitted the Bank to
provide prior to such amendment), for all reasonable expenses (including fees,
costs, charges, disbursements, attorneys fees and any other expenses) and
against all liability (including the obligation to pay a judgement, settlement,
penalty, assessment, forfeiture or fine, including an excise tax with respect to
an employee benefit plan) asserted against, incurred by or imposed on him or her
in connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative ("Proceeding") to which he or she is made or
threatened to be made a party by reason of his or her being or having been a
Director, Officer, employee or agent of the Bank (or by reason of, while serving
as a Director, Officer, employee or agent of the Bank, having served at the
Bank's request as a Director, Officer, partner, trustee, member of any governing
or decision-making committee, employee or agent of another corporation or
foreign corporation, partnership, joint venture, trust or other enterprise,
including service to an employee benefit plan); provided, however, in situations
-----------------
other than a successful defense of a Proceeding, the Director, Officer, employee
or agent shall not be indemnified where he or she breached or failed to perform
a duty to the Bank or such other corporation, partnership, joint venture, trust,
or other enterprise and the breach or failure to perform constitutes (a) a
willful failure to deal fairly with the Bank or such other corporation,
partnership, joint venture, trust, or other enterprise or its Shareholders in
connection with the matter in which the Director, Officer, employee or agent has
a material conflict of interest, (b) a violation of criminal law, unless the
Director, Officer, employee or agent had reasonable cause to believe his or her
conduct was lawful, or no reasonable cause to believe his or her conduct was
unlawful, (c) a transaction from which the Director, Officer, employee or agent
derived an improper personal benefit, or (d) willful misconduct; and further
-------
provided, notwithstanding anything to the contrary stated in this Article, no
- --------
Director, Officer, employee or agent shall be indemnified hereunder against
expenses, penalties or other payments incurred in an administrative proceeding
or action instituted by the Bank's regulatory agency, which proceeding or action
r ARTICLES OF ASSOCIATION
-----------------------
FIRST. The title of this Association shall be M&I First National Bank.
-----
SECOND. The Main Office of the Association shall be in West Bend, County
------
of Washington, State of Wisconsin. The general business of the Association
shall be conducted at its main office and its branches.
THIRD. The Board of Directors of this Association shall consist of not
-----
less than five nor more than twenty-five Shareholders. At any meeting of the
Shareholders held for the purpose of electing Directors, or changing the number
thereof, the number of Directors may be determined by a majority of the votes
cast by the Shareholders in person or by proxy. Each director, during the full
term of his or her directorship, shall own a minimum of $1,000 aggregate par
value of stock of this Association or a minimum market value or equity interest
of $1,000 of stock in the bank holding company controlling this Association.
A majority of the Board of Directors shall be necessary to constitute a quorum
for the transaction of business at any Directors' meeting. The Board of
Directors, by the vote of a majority of the full board, may, between annual
meetings of Shareholders, increase the membership of the board by not more than
two members and by like vote appoint qualified persons to fill the vacancies
created thereby.
FOURTH. The regular annual meeting of the Shareholders of this
------
Association shall be held at its main banking house, or other convenient place
duly authorized by the Board of Directors on such day of each year as is
specified therefor in the bylaws.
FIFTH. The authorized amount of capital stock of this Association shall
-----
be 262,500 shares of common stock of the par value of twenty dollars ($20.00)
each; but said capital stock may be increased or decreased from time to time, in
accordance with the provisions of the laws of the United States.
If the capital stock is increased by the sale of additional shares thereof, each
Shareholder shall be entitled to subscribe for such additional shares in
proportion to the number of shares of said capital stock owned by him at the
time the increase is authorized by the Shareholders, unless another time
subsequent to the date of the Shareholders' meeting is specified in a resolution
by the Shareholders at the time the increase is authorized. The Board of
Directors shall have the power to prescribe a reasonable period of time within
which the preemptive rights to subscribe to the new shares of capital stock must
be exercised.
The Association, at any time and from time to time, may authorize and issue debt
obligations, whether or not Subordinated, without the approval of the
Shareholders.
SIXTH. The Board of Directors shall appoint one of its members President
-----
of this Association, who shall be Chairperson of the Board, unless the Board
appoints another director to be the Chairperson. The Board of Directors shall
have the power to appoint one or more Vice Presidents; and to appoint a Cashier
and such other officers and employees as may be required to transact the
business of this Association.
The Board of Directors shall have the power to define the duties of the officers
and employees of the Association; to fix the salaries to be paid to them; to
dismiss them; to require bonds from them and to fix the penalty thereof; to
regulate the manner in which any increase of the capital of the Association
shall be made; to management and administer the business and affairs of the
Association; to make all Bylaws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
SEVENTH. The Board of Directors shall have the power to change the
-------
location of the main office to any other place within the limits of West Bend,
without the approval of the Shareholders but subject to the approval of the
Comptroller of the Currency; and shall have the power to establish or change the
location of any branch or branches of the Association to any other location,
without the approval of the Shareholders but subject to the approval of the
Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue until
------
terminated in accordance with the laws of the United States.
NINTH. The Board of Directors of this Association, or any Shareholder(s)
-----
owning, in the aggregate, not less than 10 percent of the stock of this
Association, may call a special meeting of Shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of the time,
place, and purpose of every annual and special meeting of the Shareholders shall
be given by first-class mail, postage prepaid, mailed at least 10 days prior to
the date of such meeting to each Shareholder of record at his address as shown
upon the books of this Association.
TENTH. Section 1. Right of Directors and Officers to
----- ----------------------------------
Indemnification. Every person shall be indemnified to the fullest extent
- ---------------
permitted by law, as the same may exist or may hereafter be amended (but, in the
case of any such amendment, only to the extent such amendment permits the Bank
to provide broader indemnification rights than the law permitted the Bank to
provide prior to such amendment), for all reasonable expenses (including fees,
costs, charges, disbursements, attorneys fees and any other expenses) and
against all liability (including the obligation to pay a judgement, settlement,
penalty, assessment, forfeiture or fine, including an excise tax with respect to
an employee benefit plan) asserted against, incurred by or imposed on him or her
in connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative ("Proceeding") to which he or she is made or
threatened to be made a party by reason of his or her being or having been a
Director, Officer, employee or agent of the Bank (or by reason of, while serving
as a Director, Officer, employee or agent of the Bank, having served at the
Bank's request as a Director, Officer, partner, trustee, member of any governing
or decision-making committee, employee or agent of another corporation or
foreign corporation, partnership, joint venture, trust or other enterprise,
including service to an employee benefit plan); provided, however, in situations
-----------------
other than a successful defense of a Proceeding, the Director, Officer, employee
or agent shall not be indemnified where he or she breached or failed to perform
a duty to the Bank or such other corporation, partnership, joint venture, trust,
or other enterprise and the breach or failure to perform constitutes (a) a
willful failure to deal fairly with the Bank or such other corporation,
partnership, joint venture, trust, or other enterprise or its Shareholders in
connection with the matter in which the Director, Officer, employee or agent has
a material conflict of interest, (b) a violation of criminal law, unless the
Director, Officer, employee or agent had reasonable cause to believe his or her
conduct was lawful, or no reasonable cause to believe his or her conduct was
unlawful, (c) a transaction from which the Director, Officer, employee or agent
derived an improper personal benefit, or (d) willful misconduct; and further
-------
provided, notwithstanding anything to the contrary stated in this Article, no
- --------
Director, Officer, employee or agent shall be indemnified hereunder against
expenses, penalties or other payments incurred in an administrative proceeding
or action instituted by the Bank's regulatory agency, which proceeding or action
results in a final order assessing civil money penalties or requiring
affirmative action by an individual or individuals in the form of payments to
the Bank. Such rights to indemnification shall include the right to be paid by
the Bank reasonable expenses as incurred in defending such Proceeding; provided,
--------
however, that payment of such expenses as incurred shall be made only upon such
- -------
person delivering to the Bank (a) a written affirmation of his or her good faith
belief that he or she is entitled to indemnification hereunder, and (b) a
written undertaking, executed personally or on his or her behalf, to repay the
allowance to the extent it is ultimately determined that such person is not
entitled to indemnification under this Article. The Bank may require that the
undertaking be secured and may require payment of reasonable interest on the
allowance to the extent that it is ultimately determined that such person is not
entitled to indemnification. A Director, Officer, employee or agent seeking
indemnification under this Article shall select one of the means for determining
his or her right to indemnification set forth in Section 180.0855 of Wisconsin
Statutes, or any successor thereto.
SECTION 2. Right of Director or Officer to Bring Suit. If a claim
------------------------------------------
under this Article is not paid in full by the Bank within 30 days after a
written claim has been received by the Bank, the claimant may at any time
thereafter bring suit against the Bank to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall be entitled to be
paid also the reasonable expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any Proceeding in advance of its final
disposition where the required undertaking has been tendered to the Bank) that
the claimant has not met the standards of conduct under this Article which make
it permissible for the Bank to indemnify the claimant for the amount claimed,
but the burden of proving such defense shall be on the Bank.
SECTION 3. Contract Rights; Amendment or Repeal. All rights under this
------------------------------------
Article shall be deemed a contract between the Bank and the Director, Officer,
employee or agent pursuant to which the Bank and the Director, Officer, employee
or agent intend to be legally bound. Any repeal, amendment or modification of
this Article shall be prospective only as to conduct of a Director, Officer,
employee or agent occurring thereafter, and shall not affect any rights or
obligations then existing.
SECTION 4. Scope of Article. The rights granted by this Article shall
----------------
not be deemed exclusive of any other rights to which a Director, Officer,
employee or agent may be entitled under any statute, agreement, vote of
Shareholders or disinterested Directors or otherwise. The indemnification and
advancement of expenses provided by or granted pursuant to this Article shall
continue as to a person who has ceased to be a Director, Officer, employee or
agent in respect to matters arising prior to such time, and shall inure to the
benefit of the heirs, executors, administrators and personal representatives of
such a person.
SECTION 5. Insurance. The Bank may purchase and maintain insurance, at
---------
its expense, to protect itself and any person who is or was a Director, Officer,
employee or agent of the Bank or is or was serving at the request of the Bank as
a Director, Officer, partner, trustee, member of any governing or decision-
making committee, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including service to an employee benefit
plan, against any liability asserted against that person or incurred by that
person in any such capacity, or arising out of that person's status as such,
whether or not the Bank would have the power to indemnify such person against
such expense, liability or loss under this Article; provided, however, that any
such policy of insurance purchased by the Bank shall exclude coverage for a
formal order assessing civil money penalties against a Director, Officer or
employee of the Bank.
SECTION 6. Interpretation of Provisions. In order for the Bank to
----------------------------
obtain and retain qualified Directors, Officers, employees and agents, the
foregoing provisions shall be liberally administered in order to afford maximum
indemnification of Directors, Officers, employees and agents and, accordingly,
the indemnification above provided for shall be granted in all cases unless to
do so would clearly contravene applicable law, controlling precedent or public
policy.
ELEVENTH. These Articles of Association may be amended at any regular or
--------
special meeting of the Shareholders by the affirmative vote of the holders of a
majority of the stock of this Association unless the vote of the holders of a
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount.
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
REPORT OF CONDITION
Consolidating domestic subsidiaries of the
M&I FIRST NATIONAL BANK OF WEST BEND
in the state of Wisconsin, at the close of business on December 31, 1995
published in response to call made by Comptroller of the Currency, under Title
12, United States Code, Section 161.
Charter Number 11060, Comptroller of the Currency, 9 District.
Statement of Resources and Liabilities
Dollar Amounts in Thousands
---------------------------
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin 8,762
Interest-Bearing balances 0
Securities (from Schedule RC-B):
Held to maturity securities 16,592
Available for sale securities 77,451
Federal funds sold 1,916
Securities purchased under agreements to resell 0
Loans and lease financing receivables:
Loans and Leases, net of unearned income 144,547
LESS: Allowance for loan and lease losses 2,556
LESS: Allocated transfer risk reserve 0
Loans and leases, net of unearned income, allowance,
and reserve 141,991
Assets held in trading accounts 0
Premises and fixed assets (including capitalized leases) 3,677
Other real estate owned 0
Investments in unconsolidated subsidiaries and associated companies 0
Customers' liability to this bank on acceptances outstanding 0
Intangible assets 151
Other assets 3,338
Total assets 253,878
LIABILITIES
Deposits:
In domestic offices 228,496
Noninterest-bearing 48,255
Interest-bearing 180,241
Federal funds purchased 0
Securities sold under agreements to repurchase 5,350
Demand notes issued to the U.S. Treasury 0
Trading Liabilities 0
Other borrowed money:
With original maturity of one year or less 0
With original maturity of more than one year 0
Mortgage indebtedness and obligations under capitalized leases 0
Bank's liability on acceptances executed and outstanding 0
Subordinated notes and debentures 0
Other liabilities 3,084
Total liabilities 236,930
Limited-Life preferred stock and related surplus 0
EQUITY CAPITAL
Perpetual preferred stock and related surplus 0
Common stock 5,250
Surplus 5,194
Undivided profits and capital reserves 6,489
Net unrealized holding gains (losses) on available
for sale securities 15
Total equity capital 16,948
Total liabilities, limited-life preferred stock,
and equity capital 253,878
I, OSCAR W. STEELE
SR. VICE PRESIDENT & CASHIER
of the above-named bank do hereby declare that this Report
of Condition is true and correct to the best of my knowledge
and belief.
/s/ Oscar W. Steele
- -----------------------------------
Signature
- -----------------------------------
Date
AMENDED AND RESTATED BYLAWS
OF THE
M&I FIRST NATIONAL BANK
WEST BEND, WISCONSIN
ORGANIZED UNDER THE NATIONAL BANKING
LAWS OF THE UNITED STATES
----------------------
ARTICLE I
SHAREHOLDERS
SECTION 1. Annual Meeting. The annual meeting of the Shareholders of
--------------
the Association for the purpose of electing Directors, and for the transaction
of such other business as may properly come before the meeting, shall be held on
the fourth Tuesday of January of each year, or if that date falls on a legal
holiday in Wisconsin, on the next following banking day, at such time as shall
be fixed by the Secretary of the Association or the Board of Directors.
SECTION 2. Special Meetings. Special meetings of the Shareholders may
----------------
be called by the Chairman of the Board or President, and special meetings shall
be called by either the Chairman of the Board or the President on the written
request of a majority of Directors or Shareholders owning ten percent of the
outstanding stock.
SECTION 3. Place of Meetings. All meetings of the Shareholders shall
-----------------
be held at the main office of the Association, unless some other place shall be
designated and so specified in the notice of the meeting.
SECTION 4. Notice of Meetings. Except as otherwise provided by law,
------------------
the Association shall notify Shareholders of the date, time and place of each
annual and special meeting not less than ten (10) nor more than sixty (60) days
before the date of the meeting by first class mail, postage prepaid, addressed
to each Shareholder at the address of such Shareholder appearing on the books of
the Association. Notice of a special meeting shall include a description of
each purpose for which the meeting is called. Notice of the meeting shall be
given only to those Shareholders entitled to vote at the meeting, unless
otherwise required by law.
SECTION 5. Quorum. A majority of the outstanding shares of stock
------
represented in person or by proxy shall constitute a quorum at any meeting of
the Shareholders, except at a meeting to act upon amendments to the Articles of
Association or Bylaws, for which a quorum shall constitute shares of stock
represented in person or by proxy consisting of at least two-thirds of the
outstanding shares. In the absence of a quorum a meeting may be adjourned from
time to time and the meeting may be held as adjourned without further notice.
Unless otherwise provided by law, or these Bylaws, a majority of the votes cast
shall decide every matter submitted to the Shareholders at any meeting.
SECTION 6. Proxies. Shareholders may vote at any meeting of the
-------
Shareholders by proxies duly authorized in writing, except that no officer or
employee of the Association may be designated to act as proxy. Proxies shall be
valid only for one meeting, to be specified therein, unless otherwise provided
in the proxy, and any adjournments of such meeting. Proxies shall be dated and
shall be filed with the records of the meeting.
SECTION 7. Shares in Name of Another Corporation. Shares outstanding
-------------------------------------
in the name of another corporation may be voted by the president of such
corporation, or any other officer or proxy appointed by such president in the
absence of express notice of the designation of some other person by the board
of directors or bylaws of such other corporation.
SECTION 8. Waiver of Notice. A Shareholder may waive any notice or
----------------
defects in the notice required by these Bylaws, the Articles of Association or
any provision of law, before or after the date and time stated in the notice,
provided that such waiver is in writing and signed by the Shareholder entitled
to the notice, and contains the same information that would have been required
in the notice under any applicable provisions under any statute, except that the
time and place of meeting need not by stated. Such waiver must be delivered to
the Association for inclusion in the corporate records. A Shareholder's
attendance at a meeting in person or by proxy, waives objection to (i) lack of
notice or defective notice of the meeting, unless the Shareholder at the
beginning of the meeting or promptly upon arrival objects to the holding of the
meeting or transacting business at the meeting, and (ii) consideration of a
particular matter at the meeting that is not within the purpose described in the
meeting notice, unless the Shareholder objects to considering the matter when it
is presented.
SECTION 9. Unanimous Consent Without Meeting. Any action required or
---------------------------------
permitted by the Articles of Association or Bylaws or any provision of law to be
taken at a meeting of the Shareholders, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all
of the shareholders entitled to vote with respect to the subject matter thereof
and delivered to the Association for inclusion in the Association's records.
ARTICLE II
DIRECTORS
SECTION 1. Management. The business and affairs of the Association
----------
shall be managed by a Board of not more than fifteen (15) Directors nor less
than five (5) Directors, at the discretion of the Shareholders. The number of
directors shall by designated annually within these limits by the Shareholders
at the annual meeting. those persons elected as Directors must be qualified to
act as Directors in accordance with 12 U.S.C. Section72. Except as expressly
limited by law, all corporate powers of the Association shall be vested in and
may be exercised by said Board.
SECTION 2. Election and Tenure. The Directors shall be elected by the
-------------------
Shareholders at the regular annual meeting of shareholders, and a majority of
the stock represented shall be necessary for election. Each Director shall hold
office for one (1) year and until his or her successor has been elected and
qualified, or until his or her death, or until he or she shall resign or until
he or she has been removed in the manner hereinafter provided. A Director may
be removed from office by affirmative vote of a majority of the outstanding
shares entitled to vote for the election of such Director, taken at a special
meeting of Shareholders called for that purpose. A Director may resign at any
time by filing his written resignation with the President of the Association.
SECTION 3. Director Emeritus. No person shall be eligible to be
-----------------
elected a Director at any meeting of Shareholders held on or after the date he
or she attains age seventy (70); provided that this provision shall not apply to
-------------
Directors who have already attained the aforesaid age prior to the date of
adoption of these Bylaws. The Board of Directors, at its discretion, may
designate such a person who has served as a Director of the Association as a
Director Emeritus. Any Director who has attained age sixty-five (65) upon
declining to stand for reelection shall likewise be eligible to be designated a
Director Emeritus by the Board. A Director Emeritus shall be entitled to
receive all notices of meetings and communications to Directors, attend all
meetings of the Board of Directors and to participate in discussions of the
Board. However, a Director Emeritus shall not vote or be counted in determining
a quorum at any meeting of Directors.
SECTION 4. Regular Meetings. The regular meetings of the Board of
----------------
Directors shall be held once each month at such day and hour as the Board may
fix. Nor formal notice of such meetings need be given to any Director.
SECTION 5. Special Meetings. Special meetings of the Board of
----------------
Directors may, and at the written request of any three Directors shall, be
called at any time by the Chairman of the Board or the President, or in the
absence of the Chairman of the Board and the President, by any Vice President
who is then a member of the board of Directors. Notice of any special meeting
shall be given at least forty-eight (48) hours previous thereto, except in the
case of an emergency as provided under the Wisconsin Business Corporation Law,
by written or oral notice, by telephone, telegraph, teletype, facsimile or by
mail or private carrier. Notice to Directors of any meeting shall be deemed to
be effective as provided in Section180.0141 of Wisconsin Statutes, or any
successor thereto.
SECTION 6. Quorum. A majority of the whole number of directors shall
------
constitute a quorum at any meeting. In the absence of a quorum, a lesser number
may adjourn any meeting from time to time and the meeting may be held as
adjourned, without further notice, if a quorum is obtained.
SECTION 7. Notice, Waiver, Participation. Whenever any notice is
-----------------------------
required to be given to any director of the Association under the provisions of
these Bylaws or under the provisions of the Articles of Association or under the
provisions of any law, a waiver thereof in writing, signed at any time, whether
before or after the time of meeting, by the Director entitled to such notice,
shall be deemed equivalent to the giving of such notice. The attendance of a
Director at a meeting shall constitute a waiver of notice of such meeting,
except where a Director attends a meeting and objects thereat to the transaction
of any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of any regular or special
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting. Any or all of the Directors may participate in a
regular or special meeting of the Board of Directors, or such meeting may be
conducted through the use of, any means of communication by which either (a) all
participating Directors may simultaneously hear each other during the meeting,
or (b) all communication during the meeting is immediately transmitted to each
participating Director, and each participating Director is able to immediately
send messages to all other participating Directors; provided that, all
participating Directors must be informed that a meeting is taking place at which
official business may be transacted.
SECTION 8. Vacancies. When any vacancy occurs among the Directors, a
---------
majority of the remaining members of the Board shall appoint a Director to fill
such vacancy at any regular meeting of the Board, or at a special meeting called
for that purpose.
SECTION 9. Unanimous Consent Without Meeting. Any action required or
---------------------------------
permitted by the Articles of Association or Bylaws or any provision of law to be
taken by the Board of Directors at a meeting or by resolution may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the Directors then in office.
SECTION 10. Presumption of Assent. A director of the Association who is
---------------------
then present at a meeting of the Board of Directors or a committee thereof of
which he is a member at which action on any corporate matter is taken shall be
presumed to have assented to the action taken unless (i) the Director objects at
the beginning of the meeting or promptly upon his or her arrival to holding the
meeting or transacting business at the meeting, or (ii) the Director's
abstention or dissent to the action taken shall be entered in the minutes of the
meeting, or (iii) the Director shall file his or her written dissent to such
action with the person acting as the Secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the Association immediately after the adjournment of the meeting,
or (iv) the Director dissents or abstains from an action taken, minutes of the
meeting are prepared that fail to show the Director's dissent or abstention from
the action taken and the Director delivers to the Association by registered
mail a written notice of that failure promptly after receiving the minutes. A
Director who votes in favor of action taken may not dissent or abstain from that
action.
SECTION 11. Compensation. The compensation of Directors shall be
------------
determined by the Board of Directors.
ARTICLE III
COMMITTEES OF THE BOARD
The Board of directors must formally ratify written policies authorized by
committees of the Board of Directors before such policies become effective.
Each committee must have one or more *member(s), who serve at the pleasure of
the Board of Directors. Provisions of the Articles of Association and Bylaws
governing place of meetings, notice of meeting, quorum and voting requirements
of the Board of Directors, apply to committees and their members as well. The
creation of a committee and appointment of members to it must be approved by the
Board of Directors.
SECTION 1. Loan Committee. There shall be a Loan Committee composed of
--------------
three (3) or more Directors, appointed by the board annually or more often. The
Loan Committee shall have power to discount and purchase bills, notes and other
evidences of debt, to buy and sell bills of exchange, to examine and approve
loans and discounts, to exercise authority regarding loans and discounts, and to
exercise, when the Board of Directors is not session, all other powers of the
Board of Directors that may lawfully be delegated. The Loan Committee shall
keep minutes of its meetings, and such minutes shall be submitted at the regular
meeting of the Board of Directors at which a quorum is present, and any action
taken by the Board of Directors with respect thereto shall be entered in the
minutes of the Board of Directors.
SECTION 2. Investment Committee. There shall be an Investment
--------------------
Committee composed of three (3) or more Directors, appointed by the Board of
Directors annually or more often. The Investment Committee shall have the power
to ensure adherence to the investment policy, to recommend amendments thereto,
to purchase and sell securities, to exercise authority regarding investments and
to exercise, when the Board of Directors is not in session, all other powers of
the Board of Directors regarding investment securities that may be lawfully
delegated. The Investment Committee shall keep minutes of its meetings, and
such minutes shall be submitted at the next regular meeting of the Board of
Directors at which a quorum is present, and any action taken by the Board of
Directors with respect thereto shall be entered in the minutes of the Board of
Directors.
SECTION 3. Examining Committee. There shall be an Examining Committee
-------------------
composed of not less than three (3) Directors, exclusive of any active officers,
appointed by the Board annually or more often. The duty of that Committee shall
be to make, or cause to be made, by either the internal audit staff of Marshall
& Ilsley Corporation or a qualified firm of Certified Public Accountants
approved by the Board of Directors, suitable examinations of the affairs of the
Association at least annually. The results of examinations conducted by the
internal audit staff of Marshall & Ilsley Corporation or a firm of Certified
Public Accountants, together with any recommendations for revisions in
accounting or operating procedures and controls which are deemed advisable,
shall be reported periodically in writing to the Examining Committee. At least
annually, the Examining Committee shall report in writing to the Board of
Directors the result of examinations conducted since the previous report to the
Board of Directors. Such report shall state whether the Association is in a
sound condition, and whether adequate internal accounting controls and
procedures are being maintained and shall recommend to the Board of Directors
such changes in the manner of conducting the affairs of the Association as shall
be deemed advisable.
SECTION 4. Other Committees. The Board of Directors may appoint, from
----------------
time to time, from its own members, compensation, special litigation and other
committees of one or more persons for such purposes and with such powers as the
Board of directors may determine.
However, a committee may not:
(1) Authorize distributions of assets or dividends.
(2) Approve action required to be approved by Shareholders.
(3) Fill vacancies on the Board of Directors or any of its
committees.
(4) Amend Articles of Association.
(5) Adopt, amend or repeal Bylaws.
(6) Authorize or approve issuance or sale or contract for sale of
shares, or determine the designation and relative rights,
preferences and limitations of a class or series of shares.
ARTICLE IV
OFFICERS
SECTION 1. Number and Election. The Officers of the Association shall
-------------------
be a Chairman of the Board of Directors, if the Board of Directors elects to
fill such office, and a President, one or more Vice Presidents, a Secretary, and
such other Officers and Assistant Officers as may be required or desirable for
the prompt and orderly transaction of the business of the Association. One or
more of the vice Presidents may be designated as Executive Vice President,
Senior Vice President, or First Vice President, or have such other designation
as may be determined by the board of Directors. Such Officers shall be elected
by the Directors at the regular meeting of the board of Directors after the
adjournment of each regular annual meeting of the Shareholders or at any regular
meeting of the Board of Directors or at any special meeting of the Board of
Directors called for said purpose. A Vice President may serve as Secretary, in
which event there shall be at least one other Vice President. The Board of
Directors shall fix the compensation for each Officer.
SECTION 2. Officers to be Members of the Board of Directors. The
------------------------------------------------
Chairman of the Board of Directors and the President shall be members of the
Board of Directors.
SECTION 3. Chairman of the Board. The duties of the Chairman of the
---------------------
Board of Directors, if one be elected, shall be to preside at all meetings,
regular and special, of the Shareholders of the Association and of its Board of
Directors, and such other, further, and additional duties as may be conferred
upon said Chairman by the Board of Directors. The Board of Directors may from
time to time, by resolution, reapportion the duties and responsibilities for the
general overall management of the Association between the Chairman of the Board
and the President.
SECTION 4. President. The President shall preside at all meetings of
---------
the Shareholders and at all meetings of the Board of Directors, unless a
Chairman of the Board of Directors shall have been elected in which case the
Chairman shall preside. The President shall perform all the usual duties and
have such powers as are incident to the office and shall have such other powers
and duties as may from time to time be prescribed by the Bylaws or by resolution
of the Board of Directors.
SECTION 5. Vice Presidents. In the absence of the President or in the
---------------
event of the death, inability or refusal to act, or in the event for any reason
which shall be impracticable for him to act personally, the Vice President (or
if there be more than one then according to the designations made or in the
order designated by the Board of Directors, or in the absence of any
designation, in the order of their election) shall perform the duties of the
President, and when so acting, shall have all of the powers of and be subject to
all of the restrictions upon the President. Any Vice President shall perform
such other duties and have such powers as are incident to the office of Vice
President, or incident to the office of Executive Vice President, Senior Vice
President, First Vice President, or other such designated office if any such
designations have been made by the Board of Directors, or as may be prescribed
from time to time by the Board of Directors or the President.
SECTION 6. Secretary. The Board of Directors shall appoint a
---------
secretary, cashier or other designated officer who shall be secretary of the
Board of Directors and of the Association and shall keep accurate minutes of all
meetings. The Secretary shall attend to the giving of all notices required by
these Bylaws; shall be the custodian of the corporate seal, records, documents
and papers of the Association; shall provide for the keeping of proper records
of all transactions of the Association; shall have and may exercise any and all
of the powers and duties pertaining by law, regulation or practice, to the
office of cashier, as defined by the Comptroller of the Currency or imposed by
these Bylaws; and shall also perform such other duties as may be assigned from
time to time by the Board of Directors.
SECTION 7. Other Officers and Assistant Officers. There shall be such
-------------------------------------
number of other officers and assistant officers as the Board of Directors may
from time to time authorize and elect. They shall perform such duties and have
such authority as shall from time to time be delegated or assigned to them by
the President or the Board of Directors. Other officers and assistant officers
below the level of Assistant Vice President shall bear functional titles
descriptive of their area of responsibility, but shall be deemed to be Assistant
Cashiers for purposes prescribed by statute, supervisory regulations, and
appropriate resolutions of the Board of Directors.
SECTION 8. Term of Office. Each Officer shall hold office for the term
--------------
of one year, and until his or her successor shall have been duly elected, or
until his or her death, or until he or she shall resign, or shall have been
removed by the Board of Directors.
SECTION 9. Removal. Any officer or agent elected or appointed by the
-------
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the Association will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment shall not of itself create contract rights.
SECTION 10. Vacancies. A Vacancy in any office because of death,
---------
resignation, removal, disqualification or otherwise, shall be filled by the
Board of Directors for the unexpired portion of the term or left vacant.
ARTICLE V
FIDUCIARY ACTIVITIES
SECTION 1. Trust Officer. There shall be a trust officer of this
-------------
Association whose duties shall be to manage, supervise, and direct all fiduciary
activities. Such person shall do or cause to be done all things necessary or
proper in carrying on the fiduciary business of the Association according to
provisions of law and applicable regulations; and shall act pursuant to opinion
of counsel where such opinion is deemed necessary. Opinions of counsel shall be
retained on file in connection with all important matters pertaining to
fiduciary activities. The trust officer shall be responsible for all assets and
documents held by the Association in connection with fiduciary matters.
The Board of Directors may appoint other trust officers as it may deem
necessary, with such duties as may be assigned.
SECTION 2. Trust Investment Committee. There shall be a Trust
--------------------------
Investment Committee of this Association composed of three (3) or more members,
who shall be capable and experienced officers or Directors of the Association.
All investments of funds held in a fiduciary capacity shall be made, retained or
disposed of only with the approval of the Trust Investment Committee, and the
Committee shall keep minutes of all its meetings, showing the disposition of all
matters considered and passed upon by it. The committee shall, promptly after
the acceptance of an account for which the Association has investment
responsibilities, review the assets thereof, to determine the advisability of
retaining or disposing of such assets. The committee shall conduct a similar
review at least once during each calendar year thereafter and within fifteen
months of the last such review. A report of all such reviews, together with the
action taken as a result thereof, shall be noted in the minutes of the
committee.
SECTION 3. Trust Audit Committee. The Board of Directors shall appoint
---------------------
a committee of Directors, exclusive of any active officer of the Association,
which shall, at least once during each calendar year and within fifteen (15)
months of the last such audit make suitable audits of the Association's
fiduciary activities or cause suitable audits to be made by auditors responsible
only to the Board of Directors, and at such time shall ascertain whether
fiduciary powers have been administered according to law, Part 9 of the
Regulations of the Comptroller of the Currency, and sound fiduciary principles.
SECTION 4. Fiduciary Files. There shall be maintained by the
---------------
Association all fiduciary records necessary to assure that its fiduciary
responsibilities have been properly undertaken and discharged.
SECTION 5. Trust Investments. Funds held in a fiduciary capacity shall
-----------------
be invested according to the instrument establishing the fiduciary relationship
and local law. Where such instrument does not specify the character and class
of investments to be made and does not vest in the Association a discretion in
the matter, funds held pursuant to such instrument shall be invested in
investments in which corporate fiduciaries may invest under local law.
ARTICLE VI
S E A L
The Board of Directors is empowered and instructed to adopt and procure for
the Association an official seal. An impression of the seal shall be placed in
the space immediately following this section. The Secretary of the Association
Shall have custody of the seal.
SEAL
ARTICLE VII
AMENDMENTS
These Bylaws may be added to, amended, altered or repealed at any regular
meeting or special meeting called for that purpose of the Board of Directors, by
a vote of a majority of the total number of the directors. The Shareholders may
amend or repeal the Bylaws even though the Bylaws may also be amended or
repealed by the Board of Directors.
ARTICLE VIII
EMERGENCY OPERATIONS
SECTION 1. General. In the event of an emergency declared by the
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President of the United States, the Governor of this State or an official in
authority of this City or the persons performing their functions, and/or the
area in which the Association is situated is declared to be a disaster area
and/or, by reason of the occurrence of a disaster whereby the operations of the
Association cannot be immediately continued at its banking quarters or by its
duly elected Officers and other personnel, then the Officers and employees of
the Association will continue to conduct the affairs of the Association under
such guidance from the Directors as may be available except as to matters which
by statute require specific approval of the Board of Directors and subject to
conformance with any law, including 12 U.S.C. Section95, and governmental
directives during the emergency, and the following sections of these Bylaws
shall be in full force and effect and shall prevail over other sections of these
Bylaws to the contrary.
SECTION 2. Meetings and Quorums. A valid Special Shareholders' Meeting
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may be held on call by the President, the Acting President, any Director of this
Association or by an officer of Marshall & Ilsley Corporation on three (3) hours
notice of the time and place of such meeting to each Shareholder by telegraph or
telephone to the last known address of such Shareholder or in person and any
Corporation action may be taken at such meeting at which the majority of the
issued and outstanding shares of the Association, represented in person or by
proxy, shall be present. In the event of failure of communications a valid
Special Shareholders' meeting may be held without call or notice by a
Shareholder or Shareholders owning a majority of the issued and outstanding
shares of the Association represented in person or by proxy at a time and place
to be determined by agreement of such Shareholders.
A valid Special Directors' Meeting may be held on call by the President, the
Acting President, or any Director of this Association or by an officer of
Marshall & Ilsley Corporation on three (3) hours notice of the time and place of
such meeting to each Director by telegraph or telephone to the last known
address of such Director or in person and three (3) or more duly elected and
qualified Directors and/or "temporary" Directors shall constitute a quorum for
such meeting. In the event of failure of communications a valid Special
Directors' Meeting may be held without call or notice by three (3) or more duly
elected and qualified Directors and/or "temporary" Directors at a time and place
to be determined by agreement among them.
SECTION 3. Executive Committee. In the event of a state of disaster of
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sufficient severity to prevent the conduct and management of the affairs and
business of the Association by its Directors and Officers as contemplated by
these Bylaws, any two or more available members of the Executive committee, if
any, shall constitute a quorum of that committee for the full conduct and
management of the affairs and business of the Association. If there is no
Executive Committee or if a minimum of two members of the Executive Committee
are not available, any three or more Directors shall constitute an executive
committee for the full conduct and management of the affairs and business of the
Association during the period of the emergency. Normal functions of the Board
of Directors and Officers of the Association as provided in the Bylaws shall be
resumed when the emergency period has ceased.
SECTION 4. Disability of Officers. The Board of Directors shall have
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the power, in the absence or disability of any Officer, or upon refusal of any
officer to act, to delegate and prescribe such Officer's powers and duties to
any other Officer, or to any Director, for the time being. This Section may be
implemented by an advance resolution adopted by the Board of Directors
designating order of succession among the Officers to be effective automatically
in the period of emergency when one or more Officers may be unable to perform
normal executive duties.
SECTION 5. Offices. The offices of the Association at which its
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business shall be conducted shall be the main office or any other legally
authorized location which may be leased or acquired by the Association to carry
on its business. During an emergency resulting in any authorized place of
business of the Association being unable to function, the business ordinarily
conducted at such location shall be relocated elsewhere in suitable quarters, in
lieu of the locations heretofore mentioned, as may be designated by the Board of
Directors or by the Executive Committee, by virtue of the authority as may be
granted or by approval of the Comptroller of the Currency, for the purpose of
facilitating continuance of the business of banking during the period of the
emergency. Any temporarily relocated place of business of the Association shall
be returned to its legally authorized location as soon as practicable and such
temporary place of business shall then be discontinued.
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. Certificates representing shares
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of the Association shall be in such form, consistent with law, as shall be
determined by the Board of Directors. Such certificates shall be signed by the
President or a Vice President, and the Secretary.
The name and address of the person to whom the shares represented thereby
are issued with the number of shares and date of issue, shall be entered on the
stock transfer books of the Association. All certificates surrendered to the
Association for transfer shall be cancelled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and cancelled except as provided in Section 3 of this Article IX.
SECTION 2. Transfer of Shares. Prior to due presentment of a
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certificate for shares for registration of transfer, the Association may treat
the registered owner of such shares as the person exclusively entitled to vote,
to receive notifications and otherwise to exercise all the rights and power of
an owner. Where a certificate for shares is presented to the Association with a
request to register for transfer, the Association shall not be liable to the
owner or any other person suffering loss as a result of such registration of
transfer if (a) there were on or with the certificate the necessary
endorsements, and (b) the Association had no duty to inquire into adverse
claims or has discharged any such duty. The Association may require reasonable
assurance that said endorsements are genuine and effective and compliance with
such other regulations as may be prescribed under the authority of the Board of
Directors.
SECTION 3. Lost, Destroyed or Stolen Certificates. Where the owner
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claims that a certificate for shares has been lost, destroyed or wrongfully
taken, a new certificate shall be issued in place thereof if the owner (a) so
requests before the Association has notice that such shares have been acquired
by a bona fide purchaser, and (b) satisfies such reasonable requirements as the
Board of Directors may prescribe which may include furnishing an indemnification
agreement or an indemnity bond.
SECTION 4. Stock Regulations. The Board of Directors shall have the
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power and authority to make all such further rules and regulations not
inconsistent with the law or regulations and rulings of the comptroller of the
Currency as it may deem expedient concerning the issue, transfer, and
registration of certificates representing shares of the Association.
I, Roger T. Stephenson, Certify that: (1) I am the duly constituted
Secretary of M&I First National Bank, West Bend, and of its Board of Directors,
and as such officer, am the official custodian of its records; and (2) the
foregoing Bylaws, as amended, are the Bylaws of the Association, and all of them
are now lawfully in force and effect.
I have hereunto affixed my official signature and the Seal of the
Association, in the City of West Bend, on this 26th day of September, 1996.
S E A L /s/ Roger T. Stephenson
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Roger T. Stephenson, Secretary
