<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1998
REGISTRATION NO. 333-49889
REGISTRATION NO. 333-49889-01
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
<TABLE>
<S> <C>
SOUTHSIDE BANCSHARES, INC. SOUTHSIDE CAPITAL TRUST I
(EXACT NAME OF REGISTRANT AS SPECIFIED (EXACT NAME OF CO-REGISTRANT AS SPECIFIED
IN ITS CHARTER) IN ITS CHARTER)
TEXAS DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION (STATE OR OTHER JURISDICTION OF INCORPORATION
OR ORGANIZATION) OR ORGANIZATION)
6021 6199
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION
CODE NUMBER) CODE NUMBER)
75-1848732 APPLIED FOR
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1201 S. BECKHAM C/O SOUTHSIDE BANCSHARES, INC.
TYLER, TEXAS 75701 1201 S. BECKHAM
(903) 531-7111 TYLER, TEXAS 75701
(ADDRESS, INCLUDING ZIP CODE, (903) 531-7111
AND TELEPHONE NUMBER, (ADDRESS, INCLUDING ZIP CODE,
INCLUDING AREA CODE, OF REGISTRANT'S AND TELEPHONE NUMBER,
PRINCIPAL EXECUTIVE OFFICE) INCLUDING AREA CODE, OF CO-REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICE)
</TABLE>
---------------
SAM DAWSON
PRESIDENT
SOUTHSIDE BANCSHARES, INC.
1201 S. BECKHAM
TYLER, TEXAS 75701
(903) 531-7111
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C>
RONALD J. FRAPPIER, ESQ. ROBERT J. MINKUS, ESQ.
JENKENS & GILCHRIST, A PROFESSIONAL CORPORATION SCHIFF HARDIN & WAITE
1445 ROSS AVENUE, SUITE 3200 7300 SEARS TOWER
DALLAS, TEXAS 75202 CHICAGO, ILLINOIS 60606
(214) 855-4743 (312) 258-5500
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
<PAGE> 2
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 this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.[X]
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 3
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 jurisdiction in which such offer, solicitation or sale would be unlawful
prior to the registration or qualification under the securities laws of any such
jurisdiction.
SUBJECT TO COMPLETION, DATED MAY 12, 1998
$20,000,000
SOUTHSIDE CAPITAL TRUST I
% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
2,000,000 PREFERRED SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
[SOUTHSIDE LOGO]
The % Cumulative Trust Preferred Securities (the "Preferred
Securities") offered hereby represent preferred beneficial interests in
Southside Capital Trust I, a statutory business trust created under the laws of
the State of Delaware (the "Trust Issuer"). Southside Bancshares, Inc., a Texas
corporation (the "Company"), will be the owner of all of the beneficial
interests represented by common securities of the Trust Issuer (the "Common
Securities" and, collectively with the Preferred Securities, the "Trust
Securities"). U.S. Trust Company of Texas, N.A. is the Property Trustee of the
Trust Issuer and is the Guarantee Trustee under the guarantee of the Trust
Issuer's obligations by the Company (the "Guarantee"). The Trust Issuer exists
for the sole purpose of issuing the Trust Securities and investing the proceeds
from the sale thereof in % Junior Subordinated Deferrable Interest
Debentures (the "Junior Subordinated Debentures") to be issued by the Company.
The Junior Subordinated Debentures will mature on June 30, 2028 (the "Stated
Maturity"). The Preferred Securities will have a preference over the Common
Securities under certain circumstances with respect to cash distributions and
amounts payable on liquidation, redemption or otherwise. See "Description of the
Preferred Securities--Subordination of the Common Securities."
The Company has applied to list the Preferred Securities on the Nasdaq
National Market under the symbol "SBSIP." See "Risk Factors--Absence of Prior
Public Market for the Preferred Securities; Trading Price and Tax
Considerations."
(continued on following page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT
INSURED BY THE SAVINGS ASSOCIATION INSURANCE FUND OR THE BANK INSURANCE FUND OF
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
============================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC COMMISSIONS(1) ISSUER(2)(3)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Preferred Security.......... $10.00 (2) $10.00
- ------------------------------------------------------------------------------------------------------------
Total(4)........................ $20,000,000 (2) $20,000,000
============================================================================================================
</TABLE>
(1) The Trust Issuer and the Company have agreed to indemnify Ryan, Beck & Co.
(the "Underwriter") against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(2) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in the Junior Subordinated Debentures of the
Company, the Company has agreed to pay the Underwriter, as compensation for
its arranging the investment of such proceeds in the Junior Subordinated
Debentures, $ in the aggregate ($ in the aggregate if the
over-allotment option is exercised in full). See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated to be
approximately $400,000.
(4) The Trust Issuer and the Company have granted the Underwriter a 30-day
option to purchase up to 300,000 additional Preferred Securities on the same
terms and conditions set forth above solely to cover over-allotments, if
any. If this option is exercised in full, the total Price to Public and
Proceeds to Issuer will be $23,000,000. See "Underwriting."
The Preferred Securities are offered by the Underwriter subject to receipt
and acceptance by it, prior sale and the Underwriter's right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Preferred Securities will be made in
book-entry form through the book-entry facilities of The Depository Trust
Company on or about May 18, 1998 against payment therefor in immediately
available funds.
[RYAN, BECK & CO. LOGO]
The Date of this Prospectus is , 1998.
<PAGE> 4
(continued from the previous page)
The Preferred Securities will be represented by one or more global
securities registered in the name of a nominee of The Depository Trust Company,
as depositary ("DTC"). Beneficial interests in the global securities will be
shown on, and transfer thereof will be effected only through, records
maintained by DTC and its participants. Except as described under "Description
of the Preferred Securities," Preferred Securities in definitive form will not
be issued and owners of beneficial interests in the global securities will not
be considered holders of the Preferred Securities. Settlement for the
Preferred Securities will be made in immediately available funds. The
Preferred Securities will trade in DTC's Same-Day Funds Settlement System, and
secondary market trading activity for the Preferred Securities will therefore
settle in immediately available funds.
Holders of the Preferred Securities will be entitled to receive
preferential cumulative cash distributions accumulating from the date of
original issuance and payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, commencing June 30, 1998, at the
annual rate of ____% of the Liquidation Amount (as defined herein) of $10 per
Preferred Security ("Distributions"). Subject to certain exceptions, the
Company has the right to defer payment of interest on the Junior Subordinated
Debentures at any time or from time to time for a period not exceeding 20
consecutive quarters with respect to each deferral period (each, an "Extension
Period"), provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. Upon the termination of any
such Extension Period and the payment of all interest then accrued and unpaid
(together with interest thereon at the rate of ____%, compounded quarterly, to
the extent permitted by applicable law), the Company may elect to begin a new
Extension Period subject to the requirements set forth herein. If interest
payments on the Junior Subordinated Debentures are so deferred, Distributions
on the Preferred Securities will also be deferred, and the Company will not be
permitted, subject to certain exceptions described herein, to declare or pay
any cash distributions with respect to the capital stock of the Company or debt
securities of the Company that rank pari passu with or junior to the Junior
Subordinated Debentures.
During any Extension Period, interest on the Junior Subordinated
Debentures will continue to accrue (and the amount of Distributions to which
holders of the Preferred Securities are entitled will accumulate) at the rate
of ____% per annum, compounded quarterly, to the extent permitted by applicable
law, and holders of the Preferred Securities will be required to include
interest income in their gross income for United States federal income tax
purposes in advance of receipt of the cash distributions with respect to such
deferred Distributions. The Company believes that the mere existence of its
right to defer interest payments will not cause the Preferred Securities to be
issued with original issue discount for federal income tax purposes. However,
it is possible that the Internal Revenue Service could take the position that
the likelihood of deferral is not a remote contingency within the meaning of
applicable Treasury Regulations, and therefore require that the holders of the
Preferred Securities recognize a portion of the Liquidation Amount as income.
See "Description of the Junior Subordinated Debentures--Right to Defer Interest
Payment Obligation" and "Certain Federal Income Tax Consequences--Interest
Income and Original Issue Discount."
The obligations of the Company under the Junior Subordinated
Debentures, the Indenture between the Company and U.S. Trust Company of Texas,
N.A., as Trustee (the "Indenture"), the Trust Agreement (as defined herein) and
the Guarantee, in the aggregate, constitute a full and unconditional guarantee
by the Company of the Trust Issuer's obligations under the Preferred
Securities. See "Relationship Among the Preferred Securities, Junior
Subordinated Debentures and Guarantee--Full and Unconditional Guarantee." The
Guarantee of the Company guarantees the payment of Distributions and payments
on liquidation or redemption of the Preferred Securities, but only in each case
to the extent of funds held by the Trust Issuer, as described herein. See
"Description of the Guarantee." If the Company does not make interest payments
on the Junior Subordinated Debentures held by the Trust Issuer, the Trust
Issuer will have insufficient funds to pay Distributions on the Preferred
Securities. In such event, a holder of the Preferred Securities may institute
a legal proceeding directly against the Company to enforce payment of amounts
under the Junior Subordinated Debentures equal to such Distributions to such
holder. See "Description of the Junior Subordinated Debentures--Enforcement of
Certain Rights by Holders of the Preferred Securities."
The Preferred Securities are subject to mandatory redemption, in whole
or in part, upon repayment of the Junior Subordinated Debentures at their
Stated Maturity or their earlier redemption. Subject to regulatory approval, if
then required under applicable capital guidelines or regulatory policies, the
Junior Subordinated Debentures are redeemable prior to their Stated Maturity at
the option of the Company (i) on or after June 30, 2003, in whole at any time
or in part from time to time, or (ii) at any time, in whole (but not in part),
within 180 days following the occurrence and continuation of a Tax Event, an
Investment Company Event or a Capital Treatment Event (each as defined herein)
at a redemption price (the "Redemption Price") equal to 100% of the principal
amount of the Junior Subordinated Debentures plus the accrued and unpaid
interest thereon as of the date fixed for redemption. See "Description of the
Junior Subordinated Debentures--Redemption or Exchange."
The obligations of the Company under the Guarantee and the Junior
Subordinated Debentures will be unsecured and will be subordinate and junior in
right of payment to all Senior Indebtedness (as defined herein) of the Company.
There is no limitation on the amount of Senior Indebtedness which the Company
may issue. At December 31, 1997, the
<PAGE> 5
Company had no outstanding Senior Indebtedness. The Company may from time to
time incur indebtedness constituting Senior Indebtedness. See "Description of
the Junior Subordinated Debentures--Subordination."
The Company will have the right at any time to dissolve the Trust
Issuer and, after satisfaction of creditors of the Trust Issuer, if any, as
provided by applicable law, cause the Junior Subordinated Debentures to be
distributed to the holders of the Preferred Securities and the Common
Securities in exchange therefor upon liquidation of the Trust Issuer. The
ability of the Company to do so may be subject to the Company's receipt of
regulatory approval. See "Description of the Preferred Securities--Liquidation
Distribution upon Dissolution."
-----------------------------------------
The Company will provide to the holders of the Preferred Securities
annual reports containing financial statements audited by the Company's
independent auditors. The Company will also furnish annual reports on Form
10-K free of charge to holders of the Preferred Securities who so request in
writing addressed to the Secretary of the Company.
-----------------------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
PREFERRED SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING
TRANSACTIONS, SHORT COVERING TRANSACTIONS AND PENALTY BIDS. ANY OF THE
FOREGOING TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME WITHOUT
NOTICE. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 6
[MAP OF SOUTHSIDE BANK BRANCH LOCATIONS IN TEXAS]
<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements and notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus assumes that the Underwriter's over-allotment option will not
be exercised.
THE COMPANY
GENERAL
The Company is a Texas corporation organized in 1982 that serves as a
bank holding company for Southside Bank (the "Bank"), a Texas-chartered bank
organized in 1960. The Company owns all of the capital stock of Southside
Delaware Financial Corporation, a Delaware corporation ("Southside Delaware"),
that in turn owns all of the capital stock of the Bank. The Company and the Bank
are headquartered in Tyler, Texas, which is located approximately 90 miles east
of Dallas, Texas and 90 miles west of Shreveport, Louisiana. The Bank has the
largest deposit base in the Tyler metropolitan area, which has a population of
approximately 166,000, and is the largest independent bank headquartered in East
Texas. At December 31, 1997, the Company had total assets of $571 million,
deposits of $463 million, loans of $293 million and shareholders' equity of $40
million.
The Bank is a community-focused financial institution that offers a
full range of financial services to individuals, businesses and nonprofit
organizations in its primary market area. These services include consumer and
commercial loans, deposit accounts, trust services, safe deposit services and
brokerage services.
The Bank's consumer loan services include 1-4 family residential
mortgage loans and home improvement loans, automobile loans and other
installment loans. The Bank also offers its own credit card and began offering
home equity loans in January 1998 when a new Texas law first permitting such
loans took effect. Commercial loan services include short-term working capital
loans for inventory and accounts receivable, short and medium-term loans for
equipment or other business capital expansion, and commercial real estate
loans. The Bank also offers construction loans primarily for owner-occupied
1-4 family residential and commercial real estate.
The Bank offers a variety of deposit accounts having a wide range of
interest rates and terms, including savings, money market, interest and
noninterest bearing checking accounts and certificate accounts. The Bank's
trust services include investment, management, administration and advisory
services, primarily for individuals and to a lesser extent partnerships and
corporations. At December 31, 1997 the Bank's trust department managed
approximately $105 million of trust assets. Through its 20%-owned securities
brokerage affiliate, BSC Securities, L.C., the Bank offers full retail
investment services to its customers. In early 1997, the Company formed a
consumer finance subsidiary, Countywide Loans, Inc. ("Countywide"), to provide
basic financial services such as small loans, check cashing and money orders to
individuals.
The Bank considers its primary market area to be all of Smith County,
Texas, and to a lesser extent portions of adjoining counties. The principal
economic activities in the Bank's market area include the retail, distribution,
manufacturing, medical services, education and oil and gas industries. The
Bank serves this market through eight full service branch locations, including
four branches located in grocery stores. The branches are located in and
around Tyler, and the Company plans to open two branches in 1998 in Longview,
Texas, a city located approximately 35 miles east of Tyler in adjoining Gregg
County. A native Longview banking veteran has joined the Bank to lead the
Company in its expansion into the Longview market area. The Company's
television and radio advertising has extended into this market area for several
years, providing the Bank name recognition in the Greater Longview area. The
Bank also maintains three drive up facilities, and Countywide maintains one
sales location. The Bank's customers may also access various banking services
through 14 automated teller machines ("ATMs") owned by the Bank and ATMs owned
by others, through debit cards, and through the Bank's automated telephone and
electronic banking products that allow the Bank's customers to apply for loans,
access account information and conduct various transactions from their
telephones and computers.
The Company reported net income of $5.0 million and $4.2 million and
diluted earnings per share of $1.43 and $1.21 for the years ended December 31,
1997 and 1996, respectively. The Company instituted a cash dividend in 1970
and has paid dividends each year since that time.
<PAGE> 8
The Company and the Bank are subject to comprehensive regulation,
examination and supervision by the Board of Governors of the Federal Reserve
System (the "FRB"), the Texas Department of Banking (the "TDB") and the Federal
Depository Insurance Corporation ("FDIC"), and are subject to numerous laws and
regulations relating to the extension of credit and making of loans to
individuals.
The administrative offices of the Company are located at 1201 S.
Beckman, Tyler, Texas 75701, and the telephone number is 903-531-7111. The
Company's website can be found at www.southside.com.
BUSINESS STRATEGY
The Company's goal is to be the premier financial institution in East
Texas, recognized for quality customer service and financial soundness. The
Bank weathered the Texas economic downturn in the 1980's, which contributed in
part to the customer loyalty that the Bank enjoys today.
The Company's business strategy is to operate the Bank as a well
capitalized, profitable, independent, community-oriented financial institution.
With that focus, the Bank has developed a niche in small business and consumer
lending and other small business and consumer financial services, including the
recent addition of Countywide, a consumer finance subsidiary of the Bank.
Key aspects of the Company's business strategy include (i) originating
residential real estate, commercial real estate, commercial business and
consumer loans, (ii) providing a high level of customer service, (iii)
maintaining asset quality, (iv) increasing the revenue of financial service
subsidiaries and adding products and services to attract customers and
contribute to noninterest income, (v) increasing market share within the Bank's
existing market and expanding into new markets and (vi) controlling expenses.
Management also is committed to managing interest rate risk, enhancing
profitability and maintaining a well capitalized financial position.
Asset Quality. The Company seeks to maintain asset quality by
managing credit risk. Approximately 74.2% of the net loan portfolio at
December 31, 1997 was comprised of commercial real estate, construction,
commercial business and consumer loans. The other 25.8% of the loan portfolio
at December 31, 1997 was comprised of residential mortgage loans, which
generally pose less credit risk than other types of loans. The Bank's
nonperforming assets at that date represented .54% of total assets. At
December 31, 1994, 1995 and 1996, this ratio was .67%, .61% and .61%,
respectively. The Company has maintained a conservative investment portfolio.
Approximately 75.2% of the portfolio consists of U.S. Treasury and agency
securities and mortgage-backed securities collateralized by U.S. agency
guaranteed mortgages which are directly or indirectly backed by the full faith
and credit of the U.S. government.
Noninterest Income. With a focus on reducing the dependence of
earnings on net interest income, the Company has expanded its sources and
amounts of fee income. During 1996 and 1997, the number of ATMs was increased
from nine to 14. In 1997, the Company expanded its fee-generating services
beyond retail brokerage and trust services to also include consumer finance
services. The Bank also offered new fee-based products such as proprietary
credit and debit cards and checking overdraft privileges. For 1997,
noninterest income represented 13.9% of total revenue, compared to 11.5% for
1996.
Enhanced Delivery System and Controlled Growth. The Bank has recently
launched technological enhancements, including an automated telephone system,
computer-based home banking, corporate cash management software and an Internet
information site.
The Company enhanced its infrastructure in Smith County in order to
improve customer service and attract new customers. In 1996 and 1997, the Bank
added three full service grocery store branches, a seven lane "motor bank"
drive-in facility and five ATMs. Certain branch locations were expanded or
remodeled. Through branch openings and acquisitions, the Company intends to
expand into desirable market areas adjoining the Tyler metropolitan area, which
includes Smith County. A grocery store branch and a free-standing branch are
expected to open in 1998 in Longview.
2
<PAGE> 9
Noninterest Expenses. Noninterest expenses are subject to ongoing
reviews of staffing levels, facilities and operations. The 1996 branch
openings and 1997 branch remodelings contributed to increased operating costs
in those years. The Company's efficiency ratio was 69.4% for 1997, slightly
lower than the ratios for the preceding four years. The Company seeks to
reduce the efficiency ratio through additional revenue contribution from its
new branches and through continued monitoring of costs.
Experienced Management. The Company's executive officers each have
broad experience in the Bank's operations. The Bank has enjoyed continuity of
management, with the Chief Executive Officer serving in that capacity since the
Bank opened in 1960 and the other executive officers each having served for
over ten years.
THE TRUST ISSUER
The Trust Issuer is a statutory business trust created under Delaware
law pursuant to a Certificate of Trust filed with the Delaware Secretary of
State on April 9, 1998 and a trust agreement dated April 9, 1998. The trust
agreement will be amended and restated in its entirety prior to the issuance of
the Trust Securities by the Amended and Restated Trust Agreement to be executed
by the Company, as depositor, U.S. Trust Company of Texas, N.A., as Property
Trustee, Wilmington Trust Company, as Delaware Trustee, the Administrative
Trustees named therein (collectively, the "Trust Issuer Trustees"), and the
several Holders (as defined therein) (as so amended, the "Trust Agreement").
All of the Common Securities will be owned by the Company. The Company will
acquire Common Securities in an aggregate Liquidation Amount equal to 3% of the
total capital of the Trust Issuer. The Trust Issuer exists for the exclusive
purposes of (i) issuing and selling the Trust Securities, (ii) using the
proceeds from the sale of the Trust Securities to acquire Junior Subordinated
Debentures issued by the Company and (iii) engaging in only those other
activities necessary, advisable or incidental thereto (such as registering the
transfer of the Trust Securities). Accordingly, the Junior Subordinated
Debentures will be the sole assets of the Trust Issuer and payments under the
Junior Subordinated Debentures will be the sole revenue of the Trust Issuer.
The address of the principal executive office of the Trust Issuer is 1201 S.
Beckham, Tyler, Texas 75701 and its telephone number is (903) 531-7111.
THE OFFERING
<TABLE>
<S> <C>
THE TRUST ISSUER . . . . . . . . . . . . . Southside Capital Trust I, a Delaware statutory business trust. The
sole assets of the Trust Issuer will be the Junior Subordinated
Debentures.
SECURITIES OFFERED . . . . . . . . . . . . 2,000,000 shares of ____% Cumulative Trust Preferred Securities,
evidencing preferred undivided beneficial interests in the assets of the
Trust Issuer.
OFFERING PRICE . . . . . . . . . . . . . . $10 per Preferred Security (Liquidation Amount $10).
DISTRIBUTIONS . . . . . . . . . . . . . . . Holders of the Preferred Securities will be entitled to receive
cumulative cash Distributions at an annual rate of ____% of the
Liquidation Amount of $10 per Preferred Security, accumulating from the
date of original issuance and payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year, commencing on June
30, 1998. The distribution rate and the distribution and other payment
dates for the Preferred Securities will correspond to the interest rate
and interest and other payment dates on the Junior Subordinated
Debentures. See "Description of the Preferred Securities."
JUNIOR SUBORDINATED DEBENTURES . . . . . . The Trust Issuer will invest the proceeds from the issuance of the Trust
Securities in an equivalent amount of the Junior Subordinated
Debentures. The Junior Subordinated Debentures will mature on June 30,
2028. The Junior Subordinated Debentures will rank subordinate and
junior in right of payment to all Senior Indebtedness
</TABLE>
3
<PAGE> 10
<TABLE>
<S> <C>
of the Company. There is no limitation on the amount of Senior
Indebtedness or other indebtedness which is pari passu with the Junior
Subordinated Debentures, which the Company may issue. At December 31,
1997, the Company had no outstanding Senior Indebtedness. The Company
may from time to time incur indebtedness constituting Senior
Indebtedness. In addition, because the Company is a holding company,
the Company's obligations under the Junior Subordinated Debentures will
effectively be subordinated to all existing and future liabilities and
obligations of its subsidiaries, including the Bank. See "Risk
Factors-- Subordination of the Guarantee and the Junior Subordinated
Debentures," "Risk Factors--Source of Payments to Holders of Preferred
Securities" and "Description of the Junior Subordinated
Debentures--Subordination."
GUARANTEE . . . . . . . . . . . . . . . . . Payments of Distributions out of funds held by the Trust Issuer, and
payments on liquidation of the Trust Issuer or the redemption of the
Preferred Securities, are guaranteed by the Company to the extent the
Trust Issuer has funds available therefor. The obligations of the
Company under the Junior Subordinated Debentures, the Indenture, the
Trust Agreement and the Guarantee, in the aggregate, constitute a full
and unconditional guarantee by the Company of the Trust Issuer's
obligations under the Preferred Securities. See "Description of the
Guarantee" and "Relationship Among the Preferred Securities, Junior
Subordinated Debentures and Guarantee." The obligations of the Company
under the Guarantee are subordinate and junior in right of payment to
all Senior Indebtedness of the Company. See "Risk
Factors--Subordination of the Guarantee and the Junior Subordinated
Debentures" and "Description of the Guarantee."
RIGHT TO DEFER INTEREST PAYMENTS . . . . . So long as no Debenture Event of Default (as defined in "Description of
the Junior Subordinated Debentures--Debenture Event of Default") has
occurred and is continuing, the Company has the right under the
Indenture to defer the payment of interest on the Junior Subordinated
Debentures at any time or from time to time for a period not exceeding
20 consecutive quarters with respect to each Extension Period, provided
that no Extension Period may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. At the end of an Extension Period, the
Company must pay all interest then accrued and unpaid (together with
interest thereon at the annual rate of ____%, compounded quarterly, to
the extent permitted by applicable law). During an Extension Period,
interest will continue to accrue and holders of the Junior Subordinated
Debentures (or holders of the Preferred Securities, while outstanding)
will be required to accrue interest income for United States federal
income tax purposes in advance of receipt of payment of such deferred
interest. See "Certain Federal Income Tax Consequences--Interest Income
and Original Issue Discount."
During any Extension Period, the Company may not, and may not permit any
subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation
payment with respect to, any of the Company's capital stock (other than
(a) the reclassification of any class of the
</TABLE>
4
<PAGE> 11
<TABLE>
<S> <C>
Company's capital stock into another class of capital stock, (b)
dividends or distributions payable in common stock of the Company, (c)
any declaration of a dividend in connection with the implementation of a
shareholder rights plan, the issuance of stock under any such plan in
the future or the redemption or repurchase of any rights pursuant
thereto, (d) payments under the Guarantee and (e) purchases of common
stock related to the issuance of common stock or rights under any of the
Company's benefit plans for its or its subsidiaries' directors, officers
or employees), (ii) make any payment of principal of, or premium, if
any, or interest on, or repay, repurchase or redeem, any debt securities
of the Company that rank pari passu with or junior in right of payment
to the Junior Subordinated Debentures, (iii) make any guarantee payments
with respect to any guarantee by the Company of the debt securities of
any subsidiary of the Company if such guarantee ranks pari passu with or
junior in right of payment to the Junior Subordinated Debentures other
than payments pursuant to the Guarantee, or (iv) redeem, purchase or
acquire less than all of the outstanding Junior Subordinated Debentures
or any of the Preferred Securities. There is no limitation on the
number of times that the Company may elect to begin an Extension Period.
See "Description of the Junior Subordinated Debentures--Right to Defer
Interest Payment Obligation" and "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Junior Subordinated Debentures. However, if the Company elects to
exercise such right in the future, the market price of the Preferred
Securities will likely be adversely affected. As a result of the
existence of the Company's right to defer interest payments, the market
price of the Preferred Securities may be more volatile than the market
prices of other similar securities that do not provide for such optional
deferrals.
REDEMPTION . . . . . . . . . . . . . . . . The Junior Subordinated Debentures are subject to redemption prior to
their Stated Maturity at the option of the Company (i) on or after June
30, 2003, in whole at any time or in part from time to time, or (ii) at
any time, in whole (but not in part), within 180 days following the
occurrence and continuation of a Tax Event, an Investment Company Event
or a Capital Treatment Event (each as defined herein), in each case at a
redemption price equal to 100% of the principal amount of the Junior
Subordinated Debentures so redeemed, together with any accrued and
unpaid interest to the date fixed for redemption.
If the Junior Subordinated Debentures are redeemed prior to their Stated
Maturity, the Trust Issuer must apply the proceeds of such redemption to
redeem a Like Amount (as defined herein) of the Preferred Securities and
the Common Securities. The Preferred Securities will be redeemed upon
repayment of the Junior Subordinated Debentures at their Stated
Maturity. See "Description of the Preferred Securities--Redemption."
</TABLE>
5
<PAGE> 12
<TABLE>
<S> <C>
DISTRIBUTION OF THE JUNIOR
SUBORDINATED DEBENTURES UPON
DISSOLUTION OF THE TRUST ISSUER . . . . . The Company will have the right at any time to dissolve the Trust Issuer
and, after satisfaction of creditors of the Trust Issuer, if any, as
provided by applicable law, cause the Junior Subordinated Debentures to
be distributed to the holders of the Preferred Securities and the Common
Securities in exchange therefor upon liquidation of the Trust Issuer.
The ability of the Company to do so may be subject to the Company's
prior receipt of regulatory approval. See "Description of the Preferred
Securities-- Liquidation Distribution upon Dissolution."
VOTING RIGHTS . . . . . . . . . . . . . . . Except in limited circumstances, the holders of the Preferred Securities
will have no voting rights. See "Description of the Preferred
Securities--Voting Rights; Amendment of Trust Agreement."
USE OF PROCEEDS . . . . . . . . . . . . . . All of the proceeds from the sale of the Preferred Securities will be
used by the Trust Issuer to purchase Junior Subordinated Debentures.
The Company intends to use the net proceeds from the sale of the Junior
Subordinated Debentures for general corporate purposes, including, but
not limited to, capital contributions to the Bank to support growth and
for working capital, the possible repurchase of shares of the Company's
common stock, subject to acceptable market conditions, and acquisitions
by either the Company or the Bank (although there presently exist no
agreements or understandings with respect to any such acquisition).
RISK FACTORS . . . . . . . . . . . . . . . An investment in the Preferred Securities involves substantial risks
that should be considered by prospective purchasers. In addition,
because holders of the Preferred Securities may receive Junior
Subordinated Debentures on termination of the Trust Issuer, and because
payments on the Junior Subordinated Debentures are the sole source of
funds for Distributions on and redemptions of the Preferred Securities,
prospective purchasers of the Preferred Securities are also making an
investment decision with regard to the Junior Subordinated Debentures
and should carefully review all of the information regarding the Junior
Subordinated Debentures contained herein. See "Risk Factors" and
"Description of the Junior Subordinated Debentures."
LISTING . . . . . . . . . . . . . . . . . . The Company has applied to list the Preferred Securities on the Nasdaq
National Market under the symbol "SBSIP."
ERISA CONSIDERATIONS . . . . . . . . . . . For a discussion of certain restrictions on purchases of the Preferred
Securities by employee benefit plans, see "ERISA Considerations."
</TABLE>
6
<PAGE> 13
SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
The Summary Consolidated Financial Data presented below have been
derived from the audited Consolidated Financial Statements of the Company and
are qualified in their entirety by reference to the more detailed Consolidated
Financial Statements and notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets .......................... $571,145 $482,694 $448,673 $426,221 $404,216
Loans, net of reserve for loan loss ... 292,665 254,918 225,461 197,853 180,763
Mortgage-backed and related securities 141,413 114,356 99,407 88,080 116,451
Investment securities ................. 71,835 57,825 76,919 82,720 69,220
Deposits .............................. 462,674 425,950 388,308 385,102 352,355
Long-term obligations ................. 28,547 9,096 13,686 7,997 8,850
Shareholders' equity .................. 40,031 36,604 33,352 27,524 27,241
Book value per common share ........... 11.84 10.71 9.77 8.05 7.97
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Total interest income ....................... $ 35,167 $ 31,772 $ 29,590 $ 26,172 $ 24,097
Total interest expense ...................... 16,205 14,397 12,837 10,544 9,364
-------- -------- -------- -------- --------
Net interest income ......................... 18,962 17,375 16,753 15,628 14,733
Provision for loan losses ................... 1,005 500 (300) 250 600
-------- -------- -------- -------- --------
Net interest income after provision for loan
losses .................................... 17,957 16,875 17,053 15,378 14,133
-------- -------- -------- -------- --------
Service charges ............................. 4,001 2,821 2,752 2,650 2,715
Net gain on sales of securities ............. 233 132 221 25 487
Other ....................................... 1,432 1,180 901 921 991
-------- -------- -------- -------- --------
Total noninterest income .................... 5,666 4,133 3,874 3,596 4,193
-------- -------- -------- -------- --------
Total noninterest expenses .................. 16,928 15,366 14,682 14,253 12,955
-------- -------- -------- -------- --------
Income before taxes and cumulative effect of
change in accounting principle ............ 6,695 5,642 6,245 4,721 5,371
Income tax expense .......................... 1,689 1,437 1,713 1,202 1,442
Cumulative effect of change in accounting
principle ................................. 86
-------- -------- -------- -------- --------
Net income .................................. $ 5,006 $ 4,205 $ 4,532 $ 3,519 $ 4,015
======== ======== ======== ======== ========
Net income per common share (1):
Basic ....................................... $ 1.47 $ 1.23 $ 1.33 $ 1.03 $ 1.18
======== ======== ======== ======== ========
Diluted ..................................... $ 1.43 $ 1.21 $ 1.31 $ 1.02 $ 1.17
======== ======== ======== ======== ========
Cash dividends declared per common share .... $ .40 $ .40 $ .35 $ .25 $ .25
======== ======== ======== ======== ========
</TABLE>
- ----------------------
(1) Restated for adoption of SFAS 128, "Earnings Per Share," for the years
ended December 31, 1993 through 1996.
<TABLE>
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS:
Return on average assets (ratio of net income
to average total assets) .................. .99% .92% 1.07% .86% 1.05%
Return on average shareholders' equity (ratio
of net income to average shareholders'
equity) ................................... 13.20 12.20 15.01 12.96 16.28
Net interest rate spread during the year ..... 3.41 3.48 3.70 3.68 3.78
Net interest margin (net interest and dividend
income to average interest earning assets). 4.32 4.37 4.53 4.33 4.39
Ratio of average interest earning assets to
average interest bearing liabilities ....... 125.81 125.99 124.87 123.12 122.69
</TABLE>
7
<PAGE> 14
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS (CONT.)
Ratio of noninterest expense to average
total assets .............................. 3.35% 3.37% 3.48% 3.48% 3.40%
Efficiency ratio (noninterest expense to net
interest income and noninterest income) ... 69.39 71.88 71.95 74.24 70.26
Ratio of earnings to fixed charges:
Excluding interest on deposits (1) ........ 5.33 7.79 12.09 10.28 25.87
Including interest on deposits (2) ........ 1.41 1.39 1.49 1.45 1.57
ASSET QUALITY RATIOS:
Nonaccruing loans to total loans at end
of year ................................... .45% .59% .55% .31% .60%
Reserve for loan losses to nonaccruing
loans at end of year ...................... 250.74 211.94 264.09 500.32 258.96
Reserve for loan losses to total loans at
end of year ............................... 1.14 1.26 1.45 1.56 1.55
Nonperforming assets to total assets at end
of year ................................... .54 .61 .61 .67 1.31
Ratio of net charge-offs during the year to
average loans outstanding during the year . .32 .23 (.23) (.02) .27
CAPITAL RATIOS:
Shareholders' equity to total assets at end
of year ................................... 7.01% 7.58% 7.43% 6.46% 6.74%
Average shareholders' equity to average
total assets .............................. 7.50 7.55 7.16 6.63 6.48
Total risk-based capital ratio ............... 12.89 13.74 13.79 13.47 13.35
Tier 1 risk-based capital ratio .............. 11.86 12.59 12.54 12.22 12.10
Tier 1 leverage capital ratio ................ 7.25 7.63 7.52 7.02 6.85
OTHER DATA:
Number of Bank branch offices at end of year . 8 8 5 5 5
Number of deposit accounts at end of year .... 39,221 35,997 34,542 33,785 33,036
</TABLE>
- ----------------------
(1) The ratio of earnings to fixed charges excluding interest on deposits is
calculated by dividing income before taxes and cumulative effect of
change in accounting principle plus interest on borrowings plus 33% of
rental expense.
(2) The ratio of earnings to fixed charges including interest on deposits is
calculated by dividing income before taxes and cumulative effect of
change in accounting principle plus total interest expense plus 33% of
rental expense.
8
<PAGE> 15
SUMMARY OF RECENT DEVELOPMENTS
The following tables present selected financial and other data of the
Company at the dates and for the periods indicated. The historical operations
and balance sheet data at and for the three months ended March 31, 1998 and
1997 have been derived from unaudited consolidated financial statements and
include all adjustments, consisting only of normal recurring accruals, which
the Company considers necessary for a fair presentation of the Company's
results of operations for these periods. Operating results for the three
months ended March 31, 1998 are not necessarily indicative of the results that
may be expected for any other interim period or the entire year ending December
31, 1998. The selected consolidated financial and other data should be read in
conjunction with, and are qualified in their entirety by reference to, the
information in the Consolidated Financial Statements and notes thereto,
included elsewhere herein.
<TABLE>
<CAPTION>
AT AT
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
SELECTED FINANCIAL DATA:
Total assets ............................................................ $582,049 $571,145
Loans, net of reserve for loan loss ..................................... 293,159 292,665
Mortgage-backed and related securities .................................. 151,015 141,413
Investment securities ................................................... 72,772 71,835
Deposits ................................................................ 463,695 462,674
FHLB advances ........................................................... 63,205 57,547
Shareholders' equity .................................................... 41,226 40,031
Nonperforming assets .................................................... 2,372 3,091
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
SELECTED OPERATING DATA:
Total interest income ................................................... $9,553 $8,267
Total interest expense .................................................. 4,704 3,731
------ ------
Net interest income ..................................................... 4,849 4,536
Provision for loan losses ............................................... 300 175
------ ------
Net interest income after provision for loan losses ..................... 4,549 4,361
------ ------
Total noninterest income ................................................ 1,643 1,191
Total noninterest expenses .............................................. 4,631 4,077
------ ------
Income before taxes ..................................................... 1,561 1,475
Income tax expense ...................................................... 375 371
------ ------
Net income .............................................................. $1,186 $1,104
====== ======
PER COMMON SHARE:
Basic earnings .......................................................... $ .35 $ .32
Diluted earnings ........................................................ $ .34 $ .31
Cash dividend declared .................................................. $ .10 $ .10
Book value .............................................................. $12.24 $10.67
</TABLE>
9
<PAGE> 16
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
------- -------
<S> <C> <C>
SELECTED FINANCIAL RATIOS(1):
Return on average assets ............................................... .84% .94%
Return on average shareholders' equity ................................. 11.67 12.14
Net interest rate spread during the quarter ............................ 3.03 3.52
Net interest margin .................................................... 3.97 4.41
Ratio of average interest earning assets to average interest bearing
liabilities ......................................................... 125.81 125.84
Ratio of noninterest expense to average total assets ................... 3.30 3.45
Efficiency ratio ....................................................... 72.29% 72.61%
ASSET QUALITY RATIOS:
Nonaccruing loans to total loans at end of quarter ..................... .19% .53%
Reserve for loan losses to nonaccruing loans at end of quarter ......... 598.24 236.91
Reserve for loan losses to total loans at end of quarter ............... 1.15 1.26
Nonperforming assets to total assets at end of quarter ................. .41 .56
Ratio of net charge-offs during the quarter to average loans outstanding
during the quarter .................................................. .09% .04%
CAPITAL RATIOS:
Shareholders' equity to total assets at end of quarter ................. 7.08% 7.34%
Average shareholders' equity to average total assets ................... 7.24 7.70
Total risk-based capital ratio ......................................... 12.87 13.74
Tier 1 risk-based capital ratio ........................................ 11.84 12.59
Tier 1 leverage capital ratio .......................................... 6.92% 7.56%
</TABLE>
- -------------------------
(1) Ratios are annualized where appropriate.
The Company reported net income for the quarter ended March 31, 1998 of
$1.2 million as compared to $1.1 million for the same quarter in 1997. The
increase in net income was primarily attributable to an increase in net
interest income before provision for loan losses of $.3 million or 6.9% and an
increase in noninterest income of $452,000 or 38.0%. The increase in net
interest income was primarily due to the increase in average earning assets
during the quarter. The increase in noninterest income was primarily a result
of the introduction of a new overdraft privilege program in mid-1997, increased
numbers of deposit accounts and increased deposit activity. These increases
were partially offset by an increase in the provision for loan losses of
$125,000 or 71.4%, as well as an increase in noninterest expense of $554,000 or
13.6%.
Basic and diluted earnings per share were $.35 and $.34, respectively,
for the quarter ended March 31, 1998, compared to $.32 and $.31 per share,
respectively, for the same quarter of 1997.
At March 31, 1998, the Company's assets totaled $582.0 million compared
to $571.1 million at December 31, 1997, an increase of $10.9 million or 1.9%.
The Company's net loans increased $.5 million or .2% from $292.7 million at
December 31, 1997 to $293.2 million at March 31, 1998. Investments and
mortgage-backed securities increased $10.5 million or 4.9% from $213.2 million
at December 31, 1997 to $223.8 million at March 31, 1998. Deposits and
advances from the Federal Home Loan Bank of Dallas increased from $462.7
million and $57.5 million, respectively, at December 31, 1997 to $463.7 million
and $63.2 million, respectively, at March 31, 1998. Shareholders' equity
totaled $41.2 million or 7.1% of assets at March 31, 1998 as compared to $40.0
million or 7.0% of assets at December 31, 1997, an increase of $1.2 million or
3.0%. The decrease in the capital ratios from the quarter ended March 31,
1997, compared to the quarter ended March 31, 1998, was a result of additional
balance sheet leverage during the quarter ended March 31, 1998, which has
positively impacted net interest income.
10
<PAGE> 17
RISK FACTORS
An investment in the Preferred Securities involves a high degree of
risk. Prospective investors should carefully consider, together with the other
information contained and incorporated by reference in this Prospectus, the
following factors in evaluating this offering and the Company, its business and
the Trust Issuer before purchasing the Preferred Securities offered hereby.
Prospective investors should note, in particular, that this Prospectus contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that involve
substantial risks and uncertainties. When used in this Prospectus, or in the
documents incorporated by reference herein, the words "anticipate," "believe,"
"estimate," "intend," "expect" and similar expressions identify certain of such
forward-looking statements. Actual results, performance or achievements could
differ materially from those contemplated, expressed or implied by the
forward-looking statements contained herein. The considerations listed below
represent certain important factors the Company believes could cause such
results to differ. These considerations are not intended to represent a
complete list of the general or specific risks that may affect the Company and
the Trust Issuer. It should be recognized that other risks, including general
economic factors and expansion strategies, may be significant, presently or in
the future, and the risks set forth below may affect the Company and the Trust
Issuer to a greater extent than indicated.
RISK FACTORS RELATING TO THE OFFERING
SUBORDINATION OF THE GUARANTEE AND THE JUNIOR SUBORDINATED DEBENTURES
The obligations of the Company under the Guarantee and under the
Junior Subordinated Debentures will be unsecured and will rank subordinate and
junior in right of payment to all Senior Indebtedness of the Company. Holders
of the Junior Subordinated Debentures will be able to look only to the assets
of the Company (excluding the assets of the Bank and its other subsidiaries)
for payments on the Junior Subordinated Debentures. Although at December 31,
1997, the Company had no outstanding Senior Indebtedness, the Company may, from
time to time, incur Senior Indebtedness, and there is no limitation on the
amount of Senior Indebtedness, or subordinated debt which is pari passu with
the Junior Subordinated Debentures, which the Company may issue. At the
current time, only the capital stock of the Company is junior in right of
payment to the Junior Subordinated Debentures.
Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of any subsidiary, including the
Bank, upon such subsidiary's liquidation or reorganization or otherwise (and
thus the ability of holders of the Preferred Securities to benefit indirectly
from such distribution) is subject to the prior claims of creditors of that
subsidiary (including depositors of the Bank), except to the extent that the
Company may itself be recognized as a creditor of that subsidiary. If the
Company is a creditor of a subsidiary, the claims of the Company would be
subject to any prior security interest in the assets of the subsidiary and any
indebtedness of the subsidiary senior to that of the Company. Accordingly, the
Junior Subordinated Debentures and the Guarantee will be effectively
subordinated to all existing and future liabilities of the Company's
subsidiaries, including the Bank. At December 31, 1997 the Bank had
liabilities of approximately $531.1 million (including approximately $462.7
million in deposits). See "Description of the Guarantee--Status of the
Guarantee" and "Description of the Junior Subordinated
Debentures--Subordination."
SOURCE OF PAYMENTS TO HOLDERS OF PREFERRED SECURITIES
As a bank holding company, the Company conducts its operations
principally through the Bank and its other subsidiaries and affiliates and,
therefore, its principal source of cash is the receipt of dividends from the
Bank. Since the Company is without significant assets other than the capital
stock of the Bank, the ability of the Company to pay the principal of and
interest on the Junior Subordinated Debentures to the Trust Issuer (and
consequently, the Trust Issuer's ability to pay the Liquidation Amount of and
Distributions on the Preferred Securities and the Company's ability to pay its
obligations under the Guarantee) will be dependent on the ability of the Bank
to pay dividends to the Company in amounts sufficient to service the Company's
obligations. There is no restriction on the ability of the Bank to issue
additional capital stock or incur additional indebtedness. In addition, there
are legal limitations on the source and amount of dividends that a bank such as
the Bank is permitted to pay.
RIGHT TO DEFER INTEREST PAYMENT OBLIGATION; TAX CONSEQUENCES; MARKET PRICE
CONSEQUENCES
So long as no Debenture Event of Default has occurred and is
continuing, the Company has the right under the Indenture to defer the payment
of interest on the Junior Subordinated Debentures, at any time or from time to
time, for a period not exceeding 20 consecutive quarters with respect to each
Extension Period, provided that no Extension Period may extend
11
<PAGE> 18
beyond the Stated Maturity of the Junior Subordinated Debentures. As a
consequence of any such deferral, quarterly Distributions on the Preferred
Securities by the Trust Issuer will also be deferred (and the amount of
Distributions to which holders of the Preferred Securities are entitled will
accumulate additional Distributions thereon at the rate and on the dates that
interest accrues on the Junior Subordinated Debentures) during any such
Extension Period. During any such Extension Period, the Company may not, and
may not permit any of its subsidiaries to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock (other than (a) the
reclassification of the Company's capital stock into another class of capital
stock, (b) dividends or distributions in common stock of the Company, (c) any
declaration of a dividend in connection with the implementation of a
shareholders' rights plan, or the issuance of stock under any such plan in the
future or the redemption or repurchase of any rights pursuant thereto, (d)
payments under the Guarantee and (e) purchases of common stock related to the
issuance of common stock or rights under any of the Company's benefit plans for
its or its subsidiaries' directors, officers or employees), (ii) make any
payment of principal, interest or premium, if any, on or repay, repurchase or
redeem any debt securities of the Company that rank pari passu with or junior
to the Junior Subordinated Debentures, (iii) make any guarantee payments with
respect to any guarantee by the Company of the debt securities of any
subsidiary of the Company if such guarantee ranks pari passu with or junior to
the Junior Subordinated Debentures other than payments pursuant to the
Guarantee, or (iv) redeem, purchase or acquire less than all of the outstanding
Junior Subordinated Debentures or any of the Preferred Securities. Upon the
termination of any Extension Period and the payment of all interest then
accrued and unpaid on the Junior Subordinated Debentures (together with
interest thereon at the annual rate of ____%, compounded quarterly from the
relevant payment date for such interest, to the extent permitted by applicable
law), the Company may elect to begin a new Extension Period subject to the
above requirements. There is no limitation on the number of times that the
Company may elect to begin an Extension Period so long as no Debenture Event of
Default has occurred and is continuing. See "Description of the Preferred
Securities--Distributions" and "Description of the Junior Subordinated
Debentures--Right to Defer Interest Payment Obligation."
If an Extension Period occurs, a holder of the Preferred Securities
will continue to accrue income (in the form of original issue discount) for
United States federal income tax purposes in respect of its pro rata share of
the interest accruing on the Junior Subordinated Debentures held by the Trust
Issuer. As a result, a holder of the Preferred Securities will be required to
include such income in gross income for United States federal income tax
purposes in advance of the receipt of cash. In addition, a holder of Preferred
Securities that disposes of its Preferred Securities between record dates for
payments of Distributions (and consequently does not receive a Distribution
from the Trust Issuer for the period prior to such disposition) will
nevertheless be required to include accrued but unpaid interest on the Junior
Subordinated Debentures through the date of disposition as ordinary income and
to add such amount to the adjusted tax basis of the Preferred Securities
disposed of. Upon disposition of the Preferred Securities, such holder will
recognize a capital loss to the extent the selling price (which might not fully
reflect the value of accrued but unpaid interest) is less than its adjusted tax
basis (which will include all accrued but unpaid interest). Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes. See "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount" and "--Sales or
Redemption of the Preferred Securities."
The Company has no current intention of exercising its right to defer
payments of interest on the Junior Subordinated Debentures. However, if the
Company elects to exercise such right in the future, the market price of the
Preferred Securities will likely be adversely affected. A holder that disposes
of its Preferred Securities during an Extension Period, therefore, might not
receive the same return on its investment as a holder that continues to hold
its Preferred Securities. In addition, as a result of the existence of the
Company's right to defer interest payments, the market price of the Preferred
Securities may be more volatile than the market prices of other similar
securities that are not subject to such deferrals.
OPTIONAL REDEMPTION AFTER JUNE 30, 2003
The Company has the right to redeem the Junior Subordinated Debentures
prior to their Stated Maturity on or after June 30, 2003 in whole or in part
from time to time. If the Junior Subordinated Debentures are redeemed prior to
their Stated Maturity, the Trust Issuer must apply the proceeds of such
redemption to redeem a Like Amount of the Preferred Securities and the Common
Securities. The exercise of such right may be subject to the Company having
received prior regulatory approval. See "Description of the Junior Subordinated
Debentures--General."
REDEMPTION DUE TO TAX EVENT, INVESTMENT COMPANY EVENT OR CAPITAL TREATMENT
EVENT
The Company has the right, but not the obligation, to redeem the
Junior Subordinated Debentures in whole (but not in part) within 180 days
following the occurrence of a Tax Event, an Investment Company Event or a
Capital Treatment Event (whether occurring before or after June 30, 2003) and,
therefore, cause a mandatory redemption of the Preferred Securities. The
exercise of such right may be subject to the Company having received prior
regulatory approval. See "Description of the Junior Subordinated
Debentures--Redemption or Exchange."
12
<PAGE> 19
A "Tax Event" means the receipt by the Trust Issuer of an Opinion of
Counsel (as defined below) to the effect that, as a result of any amendment to,
or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or such
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Trust Issuer is, or will be within 90 days of
the date of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures,
(ii) interest payable by the Company on the Junior Subordinated Debentures is
not, or within 90 days of the date of such opinion will not be, deductible by
the Company, in whole or in part, for United States federal income tax purposes
or (iii) the Trust Issuer is, or will be within 90 days of the date of such
opinion, subject to more than a de minimis amount of other taxes, duties or
other governmental charges. The Trust Issuer or the Company must request and
receive an opinion with regard to such matters within a reasonable period of
time after it becomes aware of the possible occurrence of any of the events
described in clauses (i) through (iii) above.
Certain legislative proposals made in 1996 and 1997, if enacted, would
have adversely affected the ability of the Company to deduct interest paid on
the Junior Subordinated Debentures. While these proposals were not enacted into
legislation, there can be no assurance that legislation enacted after the date
hereof will not adversely affect the ability of the Company to deduct the
interest payable on the Junior Subordinated Debentures. Recently, the Internal
Revenue Service ("IRS") asserted that the interest payable on a security with
terms that are similar to the terms of the Junior Subordinated Debentures (but
with a longer maturity than the Junior Subordinated Debentures was not
deductible for United States federal income tax purposes. The taxpayer in that
case has filed a petition in the United States Tax Court challenging the IRS's
position on this matter. If this matter is in fact litigated and the Tax Court
were to sustain the IRS's position on this matter, such judicial decision could
constitute a Tax Event which could result in an early mandatory redemption of
the Preferred Securities. Consequently, there can be no assurance that a Tax
Event will not occur.
"Investment Company Event" means the receipt by the Trust Issuer of an
Opinion of Counsel to the effect that, as a result of the occurrence of a
change in law or regulation or a change in interpretation or application of law
or regulation by any legislative body, court, governmental agency or regulatory
authority, the Trust Issuer is or will be considered an "investment company"
that is required to be registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), which change occurs or becomes
effective on or after the date of original issuance of the Preferred
Securities.
"Capital Treatment Event" means the receipt by the Trust Issuer of an
Opinion of Counsel to the effect that as a result of any amendment to, or
change (including any proposed change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision thereof or
therein, or as a result of any official or administrative pronouncement or
action or judicial decision interpreting or applying such laws or regulations,
which amendment or change is effective or which proposed change, pronouncement,
action or decision is announced on or after the date of original issuance of
the Preferred Securities, there is more than an insubstantial risk that the
Preferred Securities will not constitute Tier 1 Capital (or the then equivalent
thereof) applied as if the Company (or its successor) were a bank holding
company for purposes of applicable capital adequacy guidelines of the FRB (or
any successor regulatory authority with jurisdiction over bank holding
companies), or any capital adequacy guidelines as then in effect and applicable
to the Company.
"Opinion of Counsel" means an opinion in writing of independent legal
counsel experienced in such matters as are being opined upon.
EXCHANGE OF PREFERRED SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES; REDEMPTION
AND TAX CONSEQUENCES
The Company will have the right at any time to dissolve the Trust
Issuer and, after the satisfaction of liabilities to creditors of the Trust
Issuer as required by applicable law, cause the Junior Subordinated Debentures
to be distributed to the holders of the Preferred Securities in exchange
therefor in liquidation of the Trust Issuer. The exercise of such right may be
subject to prior regulatory approval. The Company will also have the right, in
certain circumstances, to redeem the Junior Subordinated Debentures in whole or
in part, in lieu of a distribution of the Junior Subordinated Debentures by the
Trust Issuer, in which event the Trust Issuer will redeem the Preferred
Securities to the same extent as the Junior Subordinated Debentures are
redeemed by the Company. Any such distribution or redemption prior to the
Stated Maturity will be subject to prior regulatory approval if then required
under applicable capital guidelines or regulatory policies. See "Description
of the Preferred Securities--Liquidation of the Trust Issuer and Distribution
of the Junior Subordinated Debentures to Holders" and "Description of the
Junior Subordinated Debentures--Redemption or Exchange."
Under current United States federal income tax law, a distribution of
Junior Subordinated Debentures upon the dissolution of the Trust Issuer would
not be a taxable event to holders of the Preferred Securities. If, however,
the Trust Issuer were characterized as an association taxable as a corporation
at the time of the dissolution of the Trust Issuer, the distribution of the
Junior Subordinated Debentures would constitute a taxable event to holders of
Preferred Securities. Moreover, any redemption of the Preferred Securities for
cash would be a taxable event to such holders. See "Certain Federal Income Tax
Consequences--Distribution of the Junior Subordinated Debentures to Holders of
the Preferred Securities" and "--Sales or Redemption of the Preferred
Securities."
13
<PAGE> 20
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities upon a dissolution or liquidation of the
Trust Issuer. The Preferred Securities or the Junior Subordinated Debentures
may trade at a discount to the price that the investor paid to purchase the
Preferred Securities offered hereby.
Because holders of Preferred Securities may receive Junior
Subordinated Debentures as a result of the liquidation of the Trust, and
because payments on the Junior Subordinated Debentures are the sole source of
funds for Distributions and redemptions of the Preferred Securities,
prospective purchasers of Preferred Securities are also making an investment
decision with regard to the Junior Subordinated Debentures and should carefully
review all the information regarding the Junior Subordinated Debentures
contained herein. If the Junior Subordinated Debentures are distributed to the
holders of Preferred Securities upon the liquidation of the Trust Issuer, the
Company will use its reasonable efforts to list the Junior Subordinated
Debentures on the Nasdaq National Market or such stock exchanges, if any, on
which the Preferred Securities are then listed. See "Description of the Junior
Subordinated Debentures."
RIGHTS UNDER THE GUARANTEE
The Guarantee guarantees to the holders of the Preferred Securities
the following payments, to the extent not paid by the Trust Issuer: (i) any
accumulated and unpaid Distributions required to be paid on the Preferred
Securities, to the extent that the Trust Issuer has funds on hand available
therefor at such time, (ii) the redemption price with respect to any Preferred
Securities called for redemption, to the extent that the Trust Issuer has funds
on hand available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution, winding-up or liquidation of the Trust Issuer (unless
the Junior Subordinated Debentures are distributed to holders of the Preferred
Securities in exchange therefor), the lesser of (a) the aggregate of the
Liquidation Amount (as defined herein) and all accumulated and unpaid
Distributions to the date of payment, to the extent that the Trust Issuer has
funds on hand available therefor at such time, and (b) the amount of assets of
the Trust Issuer remaining available for distribution to holders of the
Preferred Securities after payment of creditors of the Trust Issuer as required
by applicable law.
If the Company were to default on its obligation to pay amounts
payable under the Junior Subordinated Debentures, the Trust Issuer would lack
funds for the payment of Distributions or amounts payable on redemption of the
Preferred Securities or otherwise, and, in such event, holders of the Preferred
Securities would not be able to rely upon the Guarantee for payment of such
amounts. Any holder of the Preferred Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Trust
Issuer, the Guarantee Trustee or any other person or entity. The holders of
not less than a majority in aggregate Liquidation Amount of the Preferred
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Guarantee Trustee in respect of
the Guarantee or to direct the exercise of any trust power conferred upon the
Guarantee Trustee under the Guarantee. In the event a Debenture Event of
Default shall have occurred and be continuing and such event is attributable to
the failure of the Company to pay interest on or principal of the Junior
Subordinated Debentures on the applicable payment date, a holder of the
Preferred Securities may institute a legal proceeding directly against the
Company for enforcement of payment to such holder of the principal of or
interest on such Junior Subordinated Debentures having a principal amount equal
to the aggregate Liquidation Amount of the Preferred Securities of such holder
(a "Direct Action"). The exercise by the Company of its right, as described
herein, to defer the payment of interest on the Junior Subordinated Debentures
does not constitute a Debenture Event of Default. In connection with any
Direct Action, the Company will have a right of set-off under the Indenture to
the extent of any payment made by the Company to such holder of the Preferred
Securities in the Direct Action. Except as described herein, holders of the
Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Junior Subordinated Debentures or assert
directly any other rights in respect of the Junior Subordinated Debentures.
See "Description of the Junior Subordinated Debentures--Enforcement of Certain
Rights by Holders of the Preferred Securities," "Description of the Junior
Subordinated Debentures--Debenture Events of Default" and "Description of the
Guarantee." The Trust Agreement provides that each holder of the Preferred
Securities by acceptance thereof agrees to the provisions of the Guarantee and
the Indenture.
LIMITED COVENANTS
The covenants in the Indenture are limited and there are no covenants
in the Trust Agreement. As a result, neither the Indenture nor the Trust
Agreement protects holders of Junior Subordinated Debentures or Preferred
Securities, respectively, in the event of a material adverse change in the
Company's financial condition or results of operations or limits the ability of
the Company or any subsidiary to incur or assume additional indebtedness or
other obligations. Additionally, neither the Indenture nor the Trust Agreement
contains any financial ratios or specified levels of liquidity to which the
Company must adhere. Therefore, the provisions of these governing instruments
should not be considered a significant factor in evaluating
14
<PAGE> 21
whether the Company will be able to or will comply with its obligations under
the Junior Subordinated Debentures or the Guarantee.
LIMITED VOTING RIGHTS
Holders of the Preferred Securities will generally have limited voting
rights relating only to the modification of the Preferred Securities and the
exercise of the Trust Issuer's rights as holder of the Junior Subordinated
Debentures and the Guarantee. Holders of the Preferred Securities will not be
entitled to vote to appoint, remove or replace the Property Trustee, the
Delaware Trustee or the Administrative Trustees, as such voting rights are
vested exclusively in the Company as the holder of the Common Securities
(except, with respect to the Property Trustee and the Delaware Trustee, upon
the occurrence of certain events described herein). The Property Trustee, the
Administrative Trustees and the Company may amend the Trust Agreement without
the consent of holders of the Preferred Securities to ensure that the Trust
Issuer will be classified for United States federal income tax purposes as a
grantor trust even if such action adversely affects the interests of such
holders. See "Description of the Preferred Securities--Voting Rights;
Amendment of the Trust Agreement" and "--Removal of the Trust Issuer Trustees."
ABSENCE OF PRIOR PUBLIC MARKET FOR THE PREFERRED SECURITIES; TRADING PRICE AND
TAX CONSIDERATIONS
The Preferred Securities are a new issue of securities with no
established trading market. The Company has applied to list the Preferred
Securities on the Nasdaq National Market under the symbol "SBSIP." However,
the Preferred Securities must have three market makers to qualify for an
initial listing on the Nasdaq National Market and two market makers to qualify
for continued listing. The Company and the Trust Issuer have been advised by
the Underwriter that it intends to make a market in the Preferred Securities.
However, the Underwriter is not obligated to do so and such market making may
be interrupted or discontinued at any time without notice at the sole
discretion of the Underwriter. Furthermore, the Company and the Trust Issuer
have not been advised by any firm other than the Underwriter that it intends to
make a market in the Preferred Securities, and even if they are so advised, any
such firm will not be obligated to make a market in the Preferred Securities
and may interrupt or discontinue its market making in the Preferred Securities
at any time without notice at its sole discretion. Therefore, there is no
assurance that an active trading market will develop for the Preferred
Securities or, if such market develops, that it will be maintained or that the
market price will equal or exceed the public offering price set forth on the
cover page of this Prospectus. If an active market for the Preferred Securities
fails to develop or be sustained, the trading price of the Preferred Securities
could be adversely affected. The public offering price for the Preferred
Securities has been determined through negotiations between the Company and the
Underwriter. Prices for the Preferred Securities will be determined in the
marketplace and may be influenced by many factors, including prevailing
interest rates, the liquidity of the market for the Preferred Securities,
investor perceptions of the Company and general industry and economic
conditions.
Further, should the Company exercise its option to defer any payment
of interest on the Junior Subordinated Debentures, the Preferred Securities
would be likely to trade at prices that do not fully reflect the value of
accrued but unpaid interest with respect to the underlying Junior Subordinated
Debentures. In the event of such a deferral, a holder of Preferred Securities
that disposes of its Preferred Securities between record dates for payments of
Distributions (and consequently does not receive a Distribution from the Trust
Issuer for the period prior to such disposition) will nevertheless be required
to include accrued but unpaid interest on the Junior Subordinated Debentures
through the date of disposition as ordinary income and to add such amount to
the adjusted tax basis of the Preferred Securities disposed of. Upon
disposition of the Preferred Securities, such holder will recognize a capital
loss to the extent the selling price (which might not fully reflect the value
of accrued but unpaid interest) is less than its adjusted tax basis (which will
include all accrued but unpaid interest). Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes. See "Certain Federal Income Tax
Consequences--Sales or Redemption of the Preferred Securities."
RISK FACTORS RELATING TO THE COMPANY AND THE BANK
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The Bank's profitability is dependent to a large extent on its net
interest income, which is the difference between its income on interest-earning
assets and its expense on interest-bearing liabilities. The Bank, like most
financial institutions, is affected by changes in general interest rate levels
and by other economic factors beyond its control. Interest rate risk arises in
part from mismatches (i.e., the interest rate sensitivity gap) between the
dollar amount of repricing or maturing assets and liabilities, and is measured
in terms of the ratio of the interest rate sensitivity gap to total assets.
More assets than liabilities repricing or maturing over a given time frame is
considered asset-sensitive and is reflected as a positive gap, and more
liabilities than assets repricing or maturing over a given time frame is
considered liability-sensitive and is reflected as a negative gap. A
liability-sensitive position (i.e., a negative gap) will generally enhance
earnings in a falling interest rate environment and
15
<PAGE> 22
reduce earnings in a rising interest rate environment, while an asset-sensitive
position (i.e., a positive gap) will generally enhance earnings in a rising
interest rate environment and will reduce earnings in a falling interest rate
environment. Fluctuations in interest rates are not predictable or
controllable and, therefore, there can be no assurances of the Company's
ability to continue to achieve positive net interest income. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Interest Rate Sensitivity."
RESERVE FOR LOAN LOSSES
Industry experience indicates that a portion of the Bank's loans will
become delinquent and a portion of the loans will require partial or entire
charge-off. Regardless of the underwriting criteria utilized by the Bank,
losses may be experienced as a result of various factors beyond the Bank's
control, including, among other things, changes in market conditions affecting
the value of properties and problems affecting the credit of the borrower. The
Bank's determination of the adequacy of its reserve for loan losses is based on
various considerations, including an analysis of the risk characteristics of
various classifications of loans, previous loan loss experience, specific loans
which would have loan loss potential, delinquency trends, estimated fair value
of the underlying collateral, current economic conditions, the views of the
Bank's regulators (who have the authority to require additional reserves), and
geographic and industry loan concentration. There can be no assurance that the
reserve for loan losses will be adequate to cover loan losses or that the Bank
will not experience significant losses in its loan portfolios which may require
significant increases to the reserve for loan losses in the future. See
"Business--Loan Loss Experience and Reserve for Loan Losses."
REGULATORY OVERSIGHT
The Bank is subject to extensive regulation, supervision and
examination by the TDB as its chartering authority and by the FDIC as its
primary federal regulator and the insurer of certain of its deposits. The Bank
is a member of the Federal Home Loan Bank ("FHLB") of Dallas and is subject to
certain limited regulation by the FRB. As the holding company of the Bank, the
Company is also subject to regulation and oversight by the FRB. Such
regulation and supervision governs the activities in which an institution may
engage and is intended primarily for the protection of the FDIC insurance funds
and depositors. Regulatory authorities have been granted extensive discretion
in connection with their supervisory and enforcement activities and regulations
have been implemented which have increased capital requirements, increased
insurance premiums and resulted in increased administrative, professional and
compensation expenses. Any change in the regulatory structure or the
applicable statutes or regulations could have a material adverse impact on the
Company and the Bank and their operations. Additional legislation and
regulations may be enacted or adopted in the future which could significantly
affect the powers, authority and operations of the Company, the Bank and the
Bank's competitors, which in turn could have a material adverse effect on the
Bank and its operations. See "Regulation and Supervision."
COMPETITION
The banking business in the Bank's trade area, which includes Smith
County and surrounding areas in East Texas, has become increasingly competitive
over the past several years, and the level of competition facing the Company
and the Bank may increase further. The Company and the Bank experience
competition in both lending and attracting funds. Competitors include other
banks and nonbank financial institutions located in their market area. Nonbank
competitors with respect to deposits and deposit-type accounts include savings
associations, credit unions, securities firms, money market funds, life
insurance companies and the mutual funds industry. With respect to loans, the
Bank encounters competition from other banks, savings associations, finance
companies, mortgage bankers and brokers, insurance companies, small loan and
credit card companies, credit unions, pension trusts and securities firms.
Recent legislation, court decisions and administrative actions have
expanded the areas of business activities in which bank and nonbank financial
institutions may engage. To the extent that such activities are engaged in by
others, the level of competition for the Company and the Bank is expected to
increase. Some competitors are not subject to the same degree of regulation
and supervision as the Company and the Bank.
Some of the banks and other financial institutions with which the
Company and the Bank compete have capital resources and legal loan limits
substantially in excess of those available to the Company and Bank. Such
institutions can perform certain functions for their customers which the
Company and Bank presently do not offer directly. Although the Company may
offer these services through correspondent banks, the inability to provide such
services directly may be a competitive disadvantage.
16
<PAGE> 23
YEAR 2000 ("Y2K") COMPLIANCE
The Company continues to address the Y2K issue as it effects all
software, hardware and other systems associated with ensuring the Company is
Y2K compliant. The Y2K issue could impact any computer or other date sensitive
systems that store dates using a two-digit year format. These systems may
recognize the year "00" as 1900, not 2000. This could produce miscalculations,
generate erroneous data or even cause a system to fail. The Company presently
believes that with modifications to existing software and conversion to new
software, the Y2K issue will not pose significant operational problems for the
Company's computer systems or business operations. However, if such
modifications and conversions are not made, or are not completed timely, the
Y2K issue could have a material adverse impact on the operations of the
Company. In addition, there can be no assurance that unforeseen problems in
the Company's computer systems, or the systems of third parties on which the
Company's computers rely, will not have an adverse effect on the Company's
systems or operations. Additionally, the failure of a commercial bank customer
to prepare for Y2K compatibility could have a significant adverse effect on
such customer's operations and profitability, in turn inhibiting its ability to
repay loans in accordance with their terms. Until sufficient information is
accumulated from customers of the Bank to enable the Company to assess the
degree to which customers' operations are susceptible to potential problems
relating to the Y2K issue, the Company will be unable to quantify the potential
for losses from loans to its commercial customers arising from the Y2K issue.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."
GEOGRAPHIC CONCENTRATION
The operations of the Company and the Bank are conducted primarily in
Smith County and surrounding counties in East Texas. Moreover, the vast
majority of the Bank's real estate loans are secured by properties located
primarily in East Texas, and substantially all of the Bank's loans are made to
borrowers who live in and conduct business in East Texas. A weakening of the
East Texas real estate market or the local or national economy could result in
an increase in the number of borrowers who default on their loans and a
reduction in the value of the collateral securing the loans, which in turn
could have a material adverse effect on the Bank and its results of operations.
GROWTH OF THE BANK
The Bank has recently opened several branch facilities and expects to
further expand its branch network by opening two additional branch facilities
in a new market in 1998. See "Business--Business Strategy." There can be no
assurance that the Bank will be able to adequately and profitably manage such
growth or entrance into a new market. The costs incurred to start up the new
branch facilities, as well as the additional costs associated with operating
these facilities, will increase the Bank's noninterest expense and may decrease
the Company's earnings in the short term, and may therefore adversely impact
the Bank's ability to pay dividends to the Company, the Company's ability to
pay interest on the Junior Subordinated Debentures and the Trust Issuer's
ability to make Distributions on the Preferred Securities.
17
<PAGE> 24
USE OF PROCEEDS
All of the proceeds from the sale of the Preferred Securities will be
invested by the Trust Issuer in Junior Subordinated Debentures. The net
proceeds to the Company from the sale of the Junior Subordinated Debentures are
estimated to be approximately $___ million ($____ million if the Underwriter's
over-allotment option is exercised in full, after deduction of estimated
expenses). The Company intends to use the net proceeds from the sale of the
Junior Subordinated Debentures for general corporate purposes, including, but
not limited to, capital contributions to the Bank to support growth and for
working capital, the possible repurchase of shares of the Company's common
stock, subject to acceptable market conditions, and acquisitions by either the
Company or the Bank (although there presently exist no agreements or
understandings with respect to any such acquisition).
On October 21, 1996, the FRB approved the use of certain cumulative
preferred stock instruments such as the Preferred Securities as Tier 1 capital
for bank holding companies such as the Company. The Company has elected to issue
the Preferred Securities in part because the Company expects a portion of the
Preferred Securities to qualify as Tier 1 capital and the interest payable on
the Junior Subordinated Debentures to be a tax deductible expense of the
Company.
MARKET FOR THE PREFERRED SECURITIES
The Preferred Securities are a new issue of securities with no
established trading market. The Company has applied to list the Preferred
Securities on the Nasdaq National Market under the symbol "SBSIP." However,
the Preferred Securities must have three market makers to qualify for an
initial listing on the Nasdaq National Market and two market makers to qualify
for continued listing. The Company and the Trust Issuer have been advised by
the Underwriter that it intends to make a market in the Preferred Securities.
However, the Underwriter is not obligated to do so and such market making may
be interrupted or discontinued at any time without notice at the sole
discretion of the Underwriter. Furthermore, the Company and the Trust Issuer
have not been advised by any firm other than the Underwriter that it intends to
make a market in the Preferred Securities, and even if they are so advised, any
such firm will not be obligated to make a market in the Preferred Securities
and may interrupt or discontinue its market making in the Preferred Securities
at any time without notice at its sole discretion. Accordingly, there is no
assurance that an active and liquid trading market will develop or, if
developed, that such a market will be sustained. The offering price and
distribution rate have been determined by negotiations among representatives of
the Company and the Underwriter, and the offering price of the Preferred
Securities may not be indicative of the market price following the offering.
See "Underwriting" and "Risk Factors--Absence of Prior Public Market for the
Preferred Securities; Trading Price and Tax Considerations."
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust Issuer will be treated as
a subsidiary of the Company, and accordingly the Trust Issuer's financial
statements will be included in the consolidated financial statements of the
Company. For financial reporting purposes, the Company will record
distributions payable on the Preferred Securities as an interest expense in the
consolidated statements of income. In its future financial reports, the
Company will: (i) present the Preferred Securities on the Company's statements
of financial condition as a separate line item entitled "Guaranteed Preferred
Beneficial Interests in the Company's Junior Subordinated Debentures;" (ii)
include in a footnote to the financial statements disclosure that the sole
assets of the Trust Issuer are the Junior Subordinated Debentures specifying
the principal amount, interest rate and maturity date of Junior Subordinated
Debentures held; and (iii) if Staff Accounting Bulletin No. 53 treatment is
sought, include, in a footnote to the financial statements, disclosure that (a)
the Trust Issuer is wholly owned, (b) the sole assets of the Trust Issuer are
the Junior Subordinated Debentures, and (c) the obligations of the Company
under the Junior Subordinated Debentures, the Indenture, the Trust Agreement
and the Guarantee, in the aggregate, constitute a full and unconditional
guarantee by the Company of the Trust Issuer's obligations under the Preferred
Securities.
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<PAGE> 25
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 31, 1997, and as adjusted to give effect to the
consummation of the offering of the Preferred Securities. The following data
should be read in conjunction with the consolidated financial statements and
notes thereto of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
AS
ACTUAL ADJUSTED
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Deposits ........................................................................ $ 462,674 $ 462,674
Borrowings:
FHLB Dallas advances ......................................................... $ 57,547 $ 57,547
Federal funds purchased ...................................................... 3,884 3,884
Other obligations ............................................................ 1,647 1,647
--------- ---------
Total deposits and borrowed funds ............................................ 525,752 525,752
--------- ---------
Guaranteed Preferred Beneficial Interests in the Company's
Junior Subordinated Debentures (1) ........................................ $ -- $ 20,000
--------- ---------
Shareholders' equity:
Common stock, $2.50 par, 6,000,000 shares authorized,
3,496,269 issued and 3,379,519 shares outstanding (excluding
shares held in treasury of 116,750) ....................................... $ 8,740 $ 8,740
Additional paid-in capital ................................................... 21,290 21,290
Retained earnings, partially restricted ...................................... 10,414 10,414
Net unrealized gains on securities available for sale, net of tax ............ 1,407 1,407
Treasury stock, at cost ...................................................... (1,820) (1,820)
--------- ---------
Total shareholders' equity ................................................ $ 40,031 $ 40,031
--------- ---------
</TABLE>
- ---------------------
(1) Preferred Securities of the Trust Issuer representing beneficial
interests in $20,000,000 aggregate principal amount of the Junior
Subordinated Debentures issued by the Company to the Trust Issuer. The
Junior Subordinated Debentures will bear interest at the annual rate of
____% on the principal amount thereof, payable quarterly and will mature
on June 30, 2028. The Company will own all of the Common Securities of
the Trust Issuer.
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<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides a comparison of the
Company's financial condition as of December 31, 1997 and 1996 and results of
operations for the years ended December 31, 1997, 1996 and 1995. This
discussion should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this Prospectus. All share
data has been adjusted to give retroactive recognition to stock dividends.
FINANCIAL CONDITION
Total assets increased $88.5 million or 18.3% to $571.1 million at
December 31, 1997 from $482.7 million at December 31, 1996. The increase was
primarily attributable to a $37.8 million increase in net loans and a $42.1
million increase in the securities portfolio. At December 31, 1997, net loans
were $292.7 million compared to $254.9 million at December 31, 1996. The
securities portfolio totaled $216.5 million at December 31, 1997 compared to
$174.4 million at December 31, 1996. The increase in loans and securities was
funded primarily by retail deposit growth and FHLB Dallas advances.
Nonperforming assets at December 31, 1997 totaled $3.1 million,
representing .5% of total assets, compared to $2.9 million or .6% of total
assets at December 31, 1996. Nonaccruing loans decreased to $1.3 million and
the ratio of nonaccruing loans to total loans decreased to .5% at December 31,
1997 as compared to $1.5 million or .6% at December 31, 1996. Real estate
owned increased to $364,000 at December 31, 1997 from $273,000 at December 31,
1996.
Deposits increased $36.7 million to $462.7 million at December 31,
1997 from $426.0 million at December 31, 1996. FHLB Dallas advances were $57.6
million at December 31, 1997, a $48.5 million increase from $9.1 million at
December 31, 1996. Other borrowings at December 31, 1997 and 1996 totaled $5.5
million and $6.8 million, respectively, and consisted of short-term and
overnight borrowings.
Shareholders' equity at December 31, 1997 totaled $40.0 million
compared to $36.6 million at December 31, 1996. The increase primarily
reflects the net income recorded for the year ended December 31, 1997,
partially offset by the repurchase of 65,464 shares of the Company's
outstanding Common Stock at an average price of $17.62 per share and the
declaration of cash dividends.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
OVERVIEW. During the year ended December 31, 1997, the Company's net
income increased $.8 million or 19.0% to $5.0 million, from $4.2 million for
the same period in 1996. The increase in net income was primarily attributable
to an increase in net interest income and noninterest income which was
partially offset by an increase in noninterest expense and provision for loan
losses. The results of operations of the Company are primarily those of the
Bank.
NET INTEREST INCOME. Net interest income is the principal source of
the Company's earnings stream and represents the difference or spread between
interest and fee income generated from interest earning assets and the interest
expense paid on deposits and borrowed funds. Fluctuations in interest rates as
well as volume and mix changes in interest earning assets and interest bearing
liabilities materially impact net interest income.
Net interest income increased for the year ended December 31, 1997
$1.6 million or 9.1% compared to the same period in 1996. Interest income for
the year ended December 31, 1997 increased $3.4 million or 10.7% to $35.2
million compared to the same period in 1996. The increased interest income in
1997 was attributable to the increase in average interest earning assets during
the year. Average interest earning assets, totaling $461.5 million for the
year ended December 31, 1997, increased $43.4 million or 10.4% over the same
period in 1996, primarily as a result of increases in average loans. During
the year ended December 31, 1997 the mix of the Company's interest earning
assets reflected an increase in loans compared to the prior year end as loans
averaged 59.5% of total average interest earning assets compared to 58.3%
during 1996. Securities averaged 39.9% of the total and other interest earning
asset categories averaged .6% for the year ended December 31, 1997. During
1996 the comparable mix was 40.7% in securities and 1.0% in the other interest
earning asset categories. The average yield on the average interest earning
assets increased one basis point during the year ended December 31, 1997 as
compared to 1996. The increase in interest income on loans of $2.5 million or
11.9% was the result of the increase in average loans during 1997. Interest
income on securities increased $.9 million in 1997 or 8.9% compared to 1996
primarily due to the increase in the average securities during 1997.
20
<PAGE> 27
The increase in interest expense for the year ended December 31, 1997 of
$1.8 million or 12.6% was attributable to an increase in average interest
bearing liabilities of $35.0 million or 10.5% along with the increase in the
average rate paid on interest bearing liabilities of eight basis points.
Average time deposits increased $16.7 million or 8.8% while the average rate
paid increased two basis points along with an increase in average interest
bearing demand deposits of $5.5 million or 5.0% and an increase in average
savings deposits of $1.1 million or 7.1%. Average noninterest bearing demand
deposits increased during 1997 $8.6 million or 10.1%. The latter three
categories, which are considered the lowest cost deposits, comprised 52.4% of
total average deposits during the year ended December 31, 1997 compared to
52.8% during 1996 and 54.3% during 1995. The increase in average total deposits
is reflective of overall bank growth and branch expansion and was the primary
source of funding the increase in average loans. Average long-term and
short-term interest bearing liabilities other than deposits increased $11.7
million or 79.6% which contributed to the higher interest expense in 1997.
The following table sets forth the Company's deposit averages by category
for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
COMPOSITION OF DEPOSITS
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1997 1996 1995
--------------------- -------------------- -------------------
AVG. AVG. AVG. AVG. AVG. AVG.
BALANCE RATE BALANCE RATE BALANCE RATE
------- ---- ------- ---- ------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Noninterest Bearing Demand Deposits... $ 94,102 N/A $ 85,453 N/A $ 78,338 N/A
Interest Bearing Demand Deposits ..... 117,496 2.78% 111,950 2.76% 111,063 2.78%
Savings Deposits ..................... 16,173 2.76 15,105 2.76 14,931 2.76
Time Deposits ........................ 206,776 5.32 190,094 5.30 172,228 5.11
-------- -------- --------
Total Deposits .................. $434,547 3.39% $402,602 3.38% $376,560 3.26%
======== ======== ========
</TABLE>
PROVISION FOR LOAN LOSSES. The provision for loan losses for the year
ended December 31, 1997 was $1.0 million compared to $.5 million for the year
ended December 31, 1996. For the year ended December 31, 1997, the Bank had
net charge-offs of loans of $.9 million, an increase of 55.6% compared to the
same period in 1996. For the year ended 1996, net charge-offs on loans were
$.6 million.
The increase in net charge-offs during 1997 occurred primarily as a
result of the increase in loans over the past four years which have grown $112
million, consumer bankruptcies which caused the charge-offs for loans to
individuals to remain consistent with the prior year's increased level and
three commercial loans which comprised the majority of the increase in
charge-offs for commercial loans.
As of December 31, 1997, the Company's review of the loan portfolio
indicated that a loan loss reserve of $3.4 million was adequate.
NONINTEREST INCOME. Noninterest income is an important source of
earnings. The Company intends to maximize noninterest income in the future by
looking for new fee income services to provide customers, by continuing to
review service charge schedules and by competitively and profitably pricing
those services. The following schedule lists the accounts from which
noninterest income was derived, gives totals for these accounts for the year
ended December 31, 1997 and the comparable year ended December 31, 1996 and
indicates the percentage changes:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
PERCENT
1997 1996 CHANGE
------ ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Deposit services ............................ $4,001 $2,821 41.8%
Gains on sales of securities ................ 233 132 76.5
Other ....................................... 1,432 1,180 21.4
------ ------
Total noninterest income .................... $5,666 $4,133 37.1%
====== ======
</TABLE>
Noninterest income consists of revenues generated from a broad range of
financial services and activities including fee based services. Total
noninterest income for the year ended December 31, 1997 increased 37.1% or $1.5
million compared
21
<PAGE> 28
to 1996. Securities gains increased $.1 million or 76.5% from 1996. Of the
$233,000 in net securities gains from the available for sale ("AFS") portfolio
during 1997, there were $376,000 in realized gains and $143,000 in realized
losses. The Company sold securities out of its AFS portfolio to accomplish
Asset Liability Management Committee ("ALCO") and investment portfolio
objectives aimed at maximizing the total return of the securities portfolio.
The increase in deposit services income of $1.2 million or 41.8% was a result of
the introduction of a new overdraft privilege program, increased numbers of
deposit accounts and increased deposit activity. Other noninterest income
increased $.3 million or 21.4% primarily as a result of increases in trust
income and mortgage servicing release fees.
NONINTEREST EXPENSE. The following schedule lists the accounts which
comprise noninterest expense, gives totals for these accounts for the year
ended December 31, 1997 and the comparable year ended December 31, 1996 and
indicates the percentage changes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------- PERCENT
1997 1996 CHANGE
------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Salaries and employee benefits .................... $ 9,889 $ 9,382 5.4%
Net occupancy expense ............................. 2,089 1,749 19.4
Equipment expense ................................. 414 321 29.0
Advertising, travel and entertainment ............. 1,006 956 5.2
Supplies .......................................... 440 436 .9
FDIC insurance .................................... 52 2 2500.0
Postage ........................................... 331 301 10.0
Other ............................................. 2,707 2,219 22.0
------- -------
Total noninterest expense ......................... $16,928 $15,366 10.2%
======= =======
</TABLE>
Noninterest expense for the year ended December 31, 1997 increased $1.6
million or 10.2% when compared to the year ended December 31, 1996. Salaries
and employee benefits increased $.5 million or 5.4% due to several factors.
Higher direct salary expense including payroll taxes of $.8 million was
partially offset by lower retirement expense. The net increase is reflective of
personnel additions to staff the three new branches opened in the second half of
1996, overall bank growth and pay increases. Health insurance expense increased
$28,000 or 3.2% in 1997 compared to the same period in 1996. Retirement expense
decreased $.3 million or 34.1% for the year ended December 31, 1997.
Net occupancy expense increased $.3 million or 19.4% for the year ended
December 31, 1997 compared to the same period in 1996, largely due to higher
real estate taxes, depreciation expense and associated operating costs as a
result of the three new branches opened in 1996 and the expansion of the Bank's
headquarters completed during 1997.
Equipment expense increased $.1 million or 29.0% for the year ended
December 31, 1997 when compared to 1996 due to increased equipment usage at the
three new branch locations opened in 1996 and increased equipment costs
associated with equipment maintenance.
Advertising expense increased $.1 million or 5.2% for the year ended
December 31, 1997 compared to the same period in 1996. The increase occurred
due to increases in direct advertising during 1997 as a result of the opening
of the three new branches in 1996 and new products introduced in 1997.
Donations also increased during the year ended December 31, 1997 and are
included in this total.
FDIC insurance expense increased $50,000 or 2,500% for the year ended
December 31, 1997 compared to the year ended December 31, 1996. The Company
anticipates the percentage of change will decrease in 1998. During the year
ended December 31, 1996, the insurance expense was reduced to $500 per quarter
as a result of the Bank Insurance Fund of the FDIC ("BIF") being fully funded.
Congress passed legislation which increased FDIC insurance expense to $1.26 per
hundred dollars of deposits in 1997 to pay for a portion of the recapitalization
of the Savings Association Insurance Fund.
Other expense increased $.5 million or 22.0% during the year ended
December 31, 1997 compared to 1996. The increase was due primarily to
increased professional fees paid during 1997 for additional internal auditing,
data processing programming, compliance reviews, loan loss reviews and
consulting fees paid in relation to the introduction of the overdraft privilege
product.
22
<PAGE> 29
INCOME TAXES. Income tax expense was $1.7 million for the year ended
December 31, 1997 and represented a $.3 million or 17.5% increase from the year
ended December 31, 1996. The increased income tax expense was primarily a
result of higher pre-tax income.
Management believes that the Company will generate sufficient future
taxable income to realize the entire deferred tax asset and that realization of
net deferred tax asset is more likely than not.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
OVERVIEW.
During the year ended December 31, 1996, the Company's net income decreased
$.3 million or 7.2% to $4.2 million, compared to $4.5 million for the same
period in 1995. The decrease in net income was primarily attributable to an
increase in the provision for loan losses, expenses associated with the opening
of three new branches and a decrease in gains realized on the sale of
securities, which were partially offset by an increase in net interest income
and noninterest income.
NET INTEREST INCOME. Net interest income increased for the year ended
December 31, 1996 $.6 million or 3.7% compared to the same period in 1995.
Interest income for the year ended December 31, 1996 increased $2.2 million or
7.4% to $31.8 million compared to the same period in 1995. The increased
interest income in 1996 was attributable to the increase in average interest
earning assets during the year. The average yield on average interest earning
assets decreased 4 basis points during the year ended December 31, 1996 as
compared to 1995. The increase in interest income on loans of $2.5 million or
13.0% was the result of the increase in average loans during 1996. Interest
income on securities increased $.1 million in 1996 or 1.1% compared to 1995
primarily due to the increase in the average securities during 1996.
The increase in interest expense for the year ended December 31, 1996 of
$1.6 million or 12.2% was attributable to an increase in average interest
bearing liabilities of $22.9 million or 7.4% along with the increase in the
average rate paid on interest bearing liabilities of 18 basis points. Average
time deposits increased $17.9 million or 10.4% while the average rate paid
increased 19 basis points along with the increase in average interest bearing
demand deposits of $.9 million. Average long-term interest bearing liabilities
increased $3.1 million which contributed to the higher interest expense in
1996.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the years
ended December 31, 1996 and 1995 was $500,000 and ($300,000), respectively.
For the year ended December 31, 1996, the Bank had net charge-offs of loans of
$568,000 an increase of 218.3% compared to December 31, 1995. For the year
ended December 31, 1995, net recoveries on loans were $480,000. The increase
in net charge-offs for 1996 occurred primarily as a result of significant
recoveries realized during 1995. Also contributing to the increase was an
increase in charged-off loans. In 1995, due to the significant recoveries
realized, the Company recorded a negative provision for loan loss of $300,000.
The $500,000 provision for loan loss in 1996 is reflective of increased
charge-offs and smaller recoveries in 1996 compared to 1995 and an increase in
the loan portfolio of $29.4 million.
NONINTEREST INCOME. Total noninterest income for the year ended December
31, 1996 increased 6.7% or $.3 million compared to 1995. Securities gains
decreased $.1 million or 40.3% from 1995. Of the $132,000 in net securities
gains from the AFS portfolio in 1996, there were $199,000 in realized gains and
$67,000 in realized losses. The Company sold securities out of its AFS
portfolio to accomplish ALCO and investment portfolio objectives aimed at
maximizing the total return of the securities portfolio. The increase in
deposit services income of $69,000 or 2.5% was a result of increased deposit
activity. Other noninterest income increased $279,000 or 31% primarily as a
result of increases in trust income, credit life commissions and mortgage
servicing release fees.
NONINTEREST EXPENSE. Noninterest expense for the year ended December 31,
1996 increased $.7 million or 4.7% when compared to the year ended December 31,
1995. Salaries and employee benefits increased $.8 million or 9.8% due to
several factors. Higher direct salary expense including payroll taxes
represented $.7 million of the increase. The increase is reflective of
personnel additions to staff the three new branches opened during 1996 along
with overall bank growth, pay increases and an increased commitment to
residential mortgage lending. Health insurance expense increased $.2 million
or 27.2% in 1996 compared to the same period in 1995. Retirement expense
decreased $10,000 or 1.2% for the year ended December 31, 1996.
Net occupancy expense increased $.1 million or 6.9% for the year ended
December 31, 1996 compared to the same period in 1995, largely due to higher
real estate taxes, depreciation expense and associated operating costs as a
result of three new branches opened in 1996 and the opening of the new motor
bank facility at Gentry Parkway.
23
<PAGE> 30
Advertising expense increased $.1 million or 7.7% for the year ended
December 31, 1996 compared to the same period in 1995. The increase occurred
due to increases in direct advertising during 1996 as a result of the opening
of three new branches in 1996 and the new motor bank facility. Donations also
increased during the year ended December 31, 1996 and are included in this
total.
FDIC insurance decreased $.4 million or 99.5% for the year ended December
31, 1996 compared to the year ended December 31, 1995. During August 1995, the
FDIC announced a decrease in the insurance premiums from $.23 per hundred
dollars of deposits insured to $.04 per hundred dollars insured effective June
1, 1995. As a result, the Bank received a refund of $230,000 in September 1995
and the monthly expense for the remainder of the year decreased significantly.
During the year ended December 31, 1996, the insurance expense was reduced to
$500 per quarter as a result of BIF being fully funded.
INCOME TAXES. Income tax expense was $1,437,000 for the year ended
December 31, 1996 and represented a $276,000 or 16.1% decrease from the year
ended December 31, 1995. The decreased income tax expense primarily is a
result of lower pre-tax income and an increase in tax free income in 1996.
24
<PAGE> 31
AVERAGE BALANCE SHEET
The following table presents average balance sheet amounts and average
yields for the years ended December 31, 1997, 1996 and 1995. Two major
components affecting the Company's earnings are the interest earning assets and
interest bearing liabilities. A summary of average interest earning assets and
interest bearing liabilities is set forth below, together with the average
yield on the interest earning assets and the average cost of the interest
bearing liabilities.
AVERAGE BALANCES AND INTEREST RATES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1997 1996
-------------------------------------- ----------------------------------
AVG. AVG. AVG. AVG.
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- ---------- ---------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans(1) .......................... $ 274,577 $ 23,847 8.68% $ 243,925 $ 21,314 8.74%
Investment Securities (Taxable) ... 20,242 1,238 6.12 24,398 1,476 6.05
Investment Securities
(Tax-Exempt)(2) ................ 39,819 3,049 7.66 37,721 2,805 7.44
Mortgage-backed Securities ........ 121,546 7,729 6.36 105,923 6,756 6.38
Marketable Equity Securities ...... 2,415 129 5.34 2,179 119 5.46
Interest Earning Deposits ......... 602 34 5.65 381 21 5.51
Federal Funds Sold ................ 2,285 129 5.65 3,547 188 5.30
---------- ---------- ---------- ----------
Total Interest Earning Assets ..... 461,486 36,155 7.83% 418,074 32,679 7.82%
---------- ----------
NONINTEREST EARNING ASSETS:
Cash and Due From Banks ........... 23,945 22,160
Bank Premises and Equipment ....... 14,693 12,325
Other Assets ...................... 8,950 7,257
Less: Reserve for Loan Loss ...... (3,355) (3,282)
---------- ----------
Total Assets ...................... $ 505,719 $ 456,534
========== ==========
INTEREST BEARING LIABILITIES:
Savings Deposits ................. $ 16,173 446 2.76% $ 15,105 417 2.76%
Time Deposits .................... 206,776 11,000 5.32 190,094 10,083 5.30
Interest Bearing
Demand Deposits ................. 117,496 3,265 2.78 111,950 3,093 2.76
Short-term Interest
Bearing Liabilities ............. 14,222 773 5.44 2,671 132 4.94
Long-term Interest Bearing
Liabilities-FHLB Dallas ......... 12,151 721 5.93 12,010 672 5.60
---------- ---------- ---------- ----------
Total Interest Bearing Liabilities 366,818 16,205 4.42% 331,830 14,397 4.34%
---------- ----------
NONINTEREST BEARING
LIABILITIES:
Demand Deposits ................... 94,102 85,453
Other Liabilities ................. 6,873 4,788
---------- ----------
Total Liabilities ................. 467,793 422,071
SHAREHOLDERS' EQUITY .............. 37,926 34,463
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ............. $ 505,719 $ 456,534
========== ==========
NET INTEREST INCOME ............... $ 19,950 $ 18,282
========== ==========
NET YIELD ON AVERAGE
EARNING ASSETS ................... 4.32% 4.37%
========== =========
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995
----------------------------------
AVG. AVG.
BALANCE INTEREST RATE
---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans(1) .......................... $ 209,141 $ 18,861 9.02%
Investment Securities (Taxable) ... 45,452 2,839 6.25
Investment Securities
(Tax-Exempt)(2) ................ 29,965 2,221 7.41
Mortgage-backed Securities ........ 89,151 5,673 6.36
Marketable Equity Securities ...... 2,068 121 5.85
Interest Earning Deposits ......... 411 25 6.08
Federal Funds Sold ................ 9,576 567 5.92
---------- ----------
Total Interest Earning Assets ..... 385,764 30,307 7.86%
----------
NONINTEREST EARNING ASSETS:
Cash and Due From Banks ........... 20,899
Bank Premises and Equipment ....... 10,717
Other Assets ...................... 7,574
Less: Reserve for Loan Loss ...... (3,323)
----------
Total Assets ...................... $ 421,631
==========
INTEREST BEARING LIABILITIES:
Savings Deposits ................. $ 14,931 412 2.76%
Time Deposits .................... 172,228 8,793 5.11
Interest Bearing
Demand Deposits ................. 111,063 3,085 2.78
Short-term Interest
Bearing Liabilities ............. 1,790 94 5.25
Long-term Interest Bearing
Liabilities-FHLB Dallas ......... 8,912 453 5.08
---------- ----------
Total Interest Bearing Liabilities 308,924 12,837 4.16%
----------
NONINTEREST BEARING
LIABILITIES:
Demand Deposits ................... 78,338
Other Liabilities ................. 4,184
---------
Total Liabilities ................. 391,446
SHAREHOLDERS' EQUITY .............. 30,185
---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ............. $ 421,631
=========
NET INTEREST INCOME ............... $ 17,470
==========
NET YIELD ON AVERAGE
EARNING ASSETS ................... 4.53%
========
</TABLE>
- ------------------
(1) Loans are shown net of unearned discount. Interest on loans includes
fees on loans which are not material in amount.
(2) Interest income includes taxable-equivalent adjustments of $988, $907
and $717 as of December 31, 1997, 1996 and 1995, respectively.
Note: For the years ended December 31, 1997, 1996 and 1995, loans totaling
$1,344,000, $1,533,000, and $1,256,000, respectively, were on nonaccrual
status. The Company's policy is to reverse previously accrued but unpaid
interest on nonaccrual loans; thereafter, interest income is recorded to
the extent received when appropriate.
25
<PAGE> 32
ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
The following tables set forth the dollar amount of increase (decrease)
in interest income and interest expense resulting from changes in the volume of
interest earning assets and interest bearing liabilities and from changes in
yields and rates (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 COMPARED TO 1996
---------------------------------
AVERAGE AVERAGE
VOLUME RATE TOTAL
------- -------- --------
<S> <C> <C> <C>
INTEREST INCOME:
Loans ......................................................... $ 2,663 $ (130) $ 2,533
Investment Securities (Taxable) ............................... (254) 16 (238)
Investment Securities (Tax-Exempt) (1) ........................ 166 78 244
Mortgage-backed Securities .................................... 994 (21) 973
Marketable Equity Securities .................................. 13 (3) 10
Federal Funds Sold ............................................ (72) 13 (59)
Interest Earning Deposits ..................................... 12 1 13
------- -------- --------
Total Interest Income ....................................... 3,522 (46) 3,476
------- -------- --------
INTEREST EXPENSE:
Savings Deposits .............................................. 29 29
Time Deposits ................................................. 887 30 917
Interest Bearing Demand Deposits .............................. 154 18 172
Federal Funds Purchased and Other
Interest Bearing Liabilities ................................ 627 14 641
FHLB Dallas Advances .......................................... 8 41 49
------- -------- --------
Total Interest Expense ...................................... 1,705 103 1,808
------- -------- --------
Net Interest Earnings ......................................... $ 1,817 $ (149) $ 1,668
======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 COMPARED TO 1995
---------------------------------
AVERAGE AVERAGE
VOLUME RATE TOTAL
------- -------- ---------
<S> <C> <C> <C>
INTEREST INCOME:
Loans ......................................................... $ 3,055 $ (602) $ 2,453
Investment Securities (Taxable) ............................... (1,276) (87) (1,363)
Investment Securities (Tax-Exempt) (1) ........................ 577 7 584
Mortgage-backed Securities .................................... 1,070 13 1,083
Marketable Equity Securities .................................. 8 (10) (2)
Federal Funds Sold ............................................ (325) (54) (379)
Interest Earning Deposits ..................................... (2) (2) (4)
------- -------- ---------
Total Interest Income ....................................... 3,107 (735) 2,372
------- -------- ---------
INTEREST EXPENSE:
Savings Deposits .............................................. 5 5
Time Deposits ................................................. 938 352 1,290
Interest Bearing Demand Deposits .............................. 25 (17) 8
Federal Funds Purchased and Other
Interest Bearing Liabilities ................................ 43 (5) 38
FHLB Dallas Advances .......................................... 170 49 219
------- -------- ---------
Total Interest Expense ...................................... 1,181 379 1,560
------- -------- ---------
Net Interest Earnings ......................................... $ 1,926 $ (1,114) $ 812
======= ======== =========
</TABLE>
- ---------------------
(1) Interest rates on securities which are nontaxable for federal income
tax purposes are presented on a taxable equivalent basis.
NOTE: Volume/Rate variances (change in volume times change in rate) have
been allocated to amounts attributable to changes in volumes and to
changes in rates in proportion to the amounts directly attributable
to those changes.
The Company's results of operations are dependent primarily on net
interest income, which is the difference between the income earned on its loan,
securities and investment portfolios and its cost of funds, consisting of the
interest paid on deposits and borrowings. Results of operations are also
affected by the Company's noninterest income, provision for loan losses and
noninterest expenses. General economic and competitive conditions,
particularly changes in interest rates, government policies
26
<PAGE> 33
and actions of regulatory authorities, also significantly affect the Company's
results of operations. Future changes in applicable law, regulations or
government policies may also have a material impact on the Company.
ASSET AND LIABILITY MANAGEMENT
The primary objective of monitoring the Company's interest rate
sensitivity, or risk, is to provide management the tools necessary to manage
the balance sheet to minimize adverse changes in net interest income as a
result of changes in the direction and level of interest rates. FRB monetary
control efforts, the effects of deregulation and legislative changes have been
significant factors affecting the task of managing interest rate sensitivity
positions in recent years.
The interest rate risk inherent in assets and liabilities may be
determined by analyzing the extent to which such assets and liabilities are
"interest rate sensitive" and by measuring an institution's interest rate
sensitivity "gap." An asset or liability is said to be interest rate sensitive
within a defined time period if it matures or reprices within that period. The
difference or mismatch between the amount of interest-earning assets maturing
or repricing within a defined period and the amount of interest-bearing
liabilities maturing or repricing within the same period is defined as the
interest rate sensitivity gap. An institution is considered to have a negative
gap if the amount of interest-bearing liabilities maturing or repricing within
a specified time period exceeds the amount of interest-earning assets maturing
or repricing within the same period. If more interest earning assets than
interest bearing liabilities mature or reprice within a specified period, then
the institution is considered to have a positive gap. Accordingly, for an
institution with a negative gap, the cost of its rate sensitive liabilities in
a rising interest rate environment would theoretically rise at a faster pace
than the yield on its rate sensitive assets, thereby diminishing future net
interest income. In a falling interest rate environment, a negative gap would
indicate that the cost of rate sensitive liabilities would decline at a faster
pace than the yield on rate sensitive assets, thereby improving future net
interest income. For an institution with a positive gap, the reverse would be
expected.
The following table sets forth certain information as of December 31,
1997 with respect to rate sensitive assets and liabilities which mature or
reprice in each of the periods shown and interest rate sensitivity gap (dollars
in thousands):
<TABLE>
<CAPTION>
3 MOS. OVER 3 MOS. OVER 1 YR.
Rate Sensitive Assets (RSA) OR LESS TO ONE YEAR TO 5 YRS. OVER 5 YRS. TOTAL
-------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Loans (1) ...................... $ 81,113 $ 55,330 $ 118,400 $ 39,848 $ 294,691
Securities ..................... 19,861 50,298 96,810 49,537 216,506
Other Interest
Earning Assets ............... 3,085 3,085
--------- --------- --------- --------- ---------
Total RSA ...................... $ 104,059 $ 105,628 $ 215,210 $ 89,385 $ 514,282
========= ========= ========= ========= =========
Rate Sensitive Liabilities (RSL)
Interest Bearing Deposits (2) .. $ 58,216 $ 114,886 $ 65,642 $ 110,431 $ 349,175
Other Interest
Bearing Liabilities .......... 9,879 25,972 15,920 11,307 63,078
--------- --------- --------- --------- ---------
Total RSL ...................... $ 68,095 $ 140,858 $ 81,562 $ 121,738 $ 412,253
========= ========= ========= ========= =========
Gap (3) ........................ 35,964 (35,230) 133,648 (32,353) 102,029
Cumulative Gap ................. 35,964 734 134,382 102,029
Cumulative Ratio of RSA
to RSL ....................... 1.53 1.00 1.46 1.25 1.25
Gap/Total Earning Assets ....... 6.99% (6.85%) 25.99% (6.29%) 19.84%
Cumulative Gap/Total
Earning Assets .............. 6.99% .14% 26.13% 19.84% 19.84%
</TABLE>
- ------------------
(1) Amount is equal to total loans net of unearned discount less nonaccrual
loans at December 31, 1997.
(2) The Company assumes 80% of savings accounts, NOW accounts and money market
accounts at December 31, 1997, are core deposits and are, therefore,
expected to roll-off after five years. The remaining 20% of these accounts
are assumed to roll-off over the first eighteen months. No roll-off rate
is applied to certificates of deposit. Fixed maturity deposits reprice at
maturity.
(3) Gap equals Total RSA minus Total RSL.
27
<PAGE> 34
In addition to interest rate sensitivity gap analysis, the Company also
uses an industry standard computer program to analyze its interest rate risk
exposure. The program attempts to simulate the Company's asset and liability
base and project future operating results under a variety of interest rate and
spread assumptions. Through this management tool, management can also, among
other things, project the effects of changing its asset and liability mix and
modifying its balance sheet, and identify appropriate investment opportunities.
The result of these simulations are evaluated within the context of the
Company's interest rate risk policy.
The Company closely monitors its interest rate risk exposure. The Asset
Liability Management Committee meets regularly to review the Company's interest
rate risk position and make recommendations for adjusting this position. In
addition, the Company's Board of Directors reviews the Company's interest rate
risk position on a monthly basis. Regulatory authorities also monitor the
Company's interest rate risk position through quarterly reports filed by the
Company with such authorities.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. Except for the
effects of prepayments and scheduled principal amortization on mortgage related
assets, the table presents principal cash flows and related weighted average
interest rates by the contractual term to maturity. Nonaccrual loans are not
included in the loan totals. All instruments are classified as other than held
for trading.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
YEAR ENDING DECEMBER 31,
---------------------------------------------------------------------------------------- FAIR
1998 1999 2000 2001 2002 THEREAFTER TOTAL VALUE
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Loans .......... $ 80,763 $ 49,788 $ 31,377 $ 21,740 $ 12,446 $ 42,897 $ 239,011 $ 238,073
9.11% 9.04% 9.01% 8.86% 8.64% 8.36% 8.90%
Adjustable Rate Loans ..... 32,780 2,378 3,340 1,512 1,715 13,955 55,680 55,680
9.84% 10.00% 10.05% 9.75% 10.06% 9.77% 9.85%
Mortgage-backed
Securities ................ 40,397 33,827 24,405 16,730 9,131 16,923 141,413 141,439
6.49% 6.51% 6.49% 6.45% 6.57% 6.45% 6.49%
Investments and Other
Interest Earning Assets ... 30,023 4,549 5,794 1,691 683 35,438 78,178 78,173
5.85% 7.55% 7.46% 7.39% 7.87% 7.72% 6.97%
Total Interest
Earning Assets ............ $ 183,963 $ 90,542 $ 64,916 $ 41,673 $ 23,975 $ 109,213 $ 514,282 $ 513,365
8.13% 8.05% 7.98% 7.87% 7.93% 8.04% 8.05%
Savings Deposits .......... $ 2,154 $ 1,077 $ 12,924 $ 16,155 $ 16,155
2.76% 2.76% 2.76% 2.76%
NOW Deposits .............. 8,583 4,291 51,494 64,368 64,321
2.15% 2.15% 2.15% 2.15%
Money Market Deposits ..... 7,666 3,833 45,994 57,493 57,493
3.38% 3.38% 3.38% 3.38%
Certificates of Deposit ... 154,699 36,146 9,972 2,887 7,437 18 211,159 211,658
5.25% 5.78% 6.28% 5.90% 6.00% 5.35% 5.42%
FHLB Dallas Advances ...... 30,320 1,201 4,069 4,363 6,287 11,307 57,547 54,753
4.96% 5.68% 5.94% 6.06% 6.11% 6.06% 5.47%
Other Borrowings .......... 5,531 5,531 5,530
7.06% 7.06%
Total Interest
Bearing Liabilities ....... $ 208,953 $ 46,548 $ 14,041 $ 7,250 $ 13,724 $ 121,737 $ 412,253 $ 409,910
5.03% 5.18% 6.18% 6.00% 6.05% 3.04% 4.55%
</TABLE>
Residential fixed rate loans are assumed to have annual prepayment rates
between 4% and 15% of the portfolio. Commercial and multi-family real estate
loans are assumed to prepay at an annualized rate between 4% and 15%. Consumer
loans are assumed to prepay at an annualized rate between 8% and 15%. Fixed
and adjustable rate mortgage-backed securities, including Collateralized
Mortgage Obligations ("CMOs") and Real Estate Mortgage Investment Conduits
("REMICs"), have annual payment assumptions ranging from 20% to 40%.
The Company assumes 80% of savings accounts, NOW accounts and money
market accounts at December 31, 1997, are core deposits and are, therefore,
expected to roll-off after five years. The remaining 20% of these accounts are
assumed to roll-off over the first eighteen months. No roll-off rate is
applied to certificates of deposit. Fixed maturity deposits reprice at
maturity.
28
<PAGE> 35
In evaluating the Company's exposure to interest rate risk, certain
limitations inherent in the method of analysis presented in the foregoing table
must be considered. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other types may lag behind
changes in market rates. Additionally, certain assets, such as adjustable rate
mortgages, have features which restrict changes in interest rates and
prepayment and early withdrawal levels may deviate significantly from those
assumed in calculating the table. Finally, the ability of many borrowers to
service their debt may decrease in the event of an interest rate increase. The
Company considers all of these factors in monitoring its exposure to interest
rate risk.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management involves the ability to convert assets to cash
with a minimum of loss. The Company must be capable of meeting its obligations
to its customers at any time. This means addressing (1) the immediate cash
withdrawal requirements of depositors and other funds providers; (2) the
funding requirements of all lines and letters of credit; and (3) the short-term
credit needs of customers. Liquidity is provided by short-term investments
that can be readily liquidated with a minimum risk of loss. Cash, interest
earning deposits, federal funds sold and short-term investments with maturities
or repricing characteristics of one year or less continue to be a substantial
percentage of total assets. At December 31, 1997 these investments represented
18.7% of total assets, as compared with 18.2% at December 31, 1996, and 22.7%
at December 31, 1995. Liquidity is further provided through the matching, by
time period, of rate sensitive interest earning assets with rate sensitive
interest bearing liabilities. The Company has two lines of credit to fund the
purchase of federal funds. A $15.0 million and $10.0 million unsecured line of
credit have been established with NationsBank and Texas Independent Bank,
respectively.
Total shareholders' equity at December 31, 1997, of $40.0 million
increased 9.4% or $3.4 million from December 31, 1996 and represented 7.0% of
total assets at December 31, 1997 compared to 7.6% at December 31, 1996.
Net income for 1997 of $5.0 million was the major contributor to the
increase in shareholders' equity at December 31, 1997 along with a net increase
in unrealized gains of $445,000 on securities available for sale. In addition,
the Company issued $326,000 in common stock (18,430 shares) through the
Company's dividend reinvestment plan and sold $77,000 of treasury stock (11,700
shares). Decreases to shareholders' equity consisted of $1.3 million in
dividends paid and the purchase of $1.2 million in treasury stock (65,464
shares). The Company purchased treasury stock pursuant to a common stock
repurchase plan instituted in late 1994. Under the repurchase plan, the Board
of Directors of the Company establishes, on a quarterly basis, total dollar
limitations and price per share for stock to be repurchased. The Board of
Directors reviews this plan in conjunction with the capital needs of the
Company and may, at its discretion, modify or discontinue the plan. During the
third quarter of 1997, the Company issued a 5% stock dividend, which had no net
effect on shareholders' equity. The Company's dividend policy requires that
any cash dividend payments made by the Company not exceed consolidated earnings
for that year. Shareholders should not anticipate a continuation of the cash
dividend simply because of the implementation of a dividend reinvestment
program. The payment of dividends will depend upon future earnings, the
financial condition of the Company, and other related factors.
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can trigger certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative
measures of the Company's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors. See
"Regulation and Supervision."
Quantitative measures established by regulation to ensure capital
adequacy require the Company to maintain minimum amounts and ratios (set forth
in the table below) of Total and Tier 1 capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1997,
that the Company meets all capital adequacy requirements to which it is
subject.
29
<PAGE> 36
To be categorized as well capitalized, the Company must maintain minimum
Total risk-based Tier 1 risk-based, and Tier 1 leverage ratios as set forth in
the following table. Both the Company and the Bank are in compliance with
minimum capital requirements.
<TABLE>
<CAPTION>
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
--------------------- -------------------------
AMOUNT RATIO AMOUNT RATIO
--------- ------- ---------- --------
<S> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997:
Total Capital
(to Risk Weighted Assets) ....... $ 41,965 12.89% > OR = $ 26,038 > OR = 8.0%
Tier 1 Capital
(to Risk Weighted Assets) ....... $ 38,595 11.86% > OR = $ 13,019 > OR = 4.0%
Tier 1 Capital
(to Average Assets) (1) ......... $ 38,595 7.25% > OR = $ 21, 283 > OR = 4.0%
AS OF DECEMBER 31, 1996:
Total Capital
(to Risk Weighted Assets) ....... $ 38,891 13.74% > OR = $ 22,640 > OR = 8.0%
Tier 1 Capital
(to Risk Weighted Assets) ....... $ 35,642 12.59% > OR = $ 11,320 > OR = 4.0%
Tier 1 Capital
(to Average Assets) (1) ......... $ 35,642 7.63% > OR = $ 14,015 > OR = 3.0%
</TABLE>
(1) Refers to quarterly average assets as calculated by regulatory
agencies.
The table below summarizes key equity ratios for the Company for the
years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Percentage of Net Income to:
Average Total Assets .............................. .99% .92% 1.07%
Average Shareholders' Equity ...................... 13.20% 12.20% 15.01%
Percentage of Dividends Declared Per Common
Share to Net Income Per Common Share-Basic ........ 27.21% 32.52% 26.32%
Percentage of Dividends Declared Per Common
Share to Net Income Per Common Share-Diluted ...... 27.97% 33.06% 26.72%
Percentage of Average Shareholders'
Equity to Average Total Assets .................... 7.50% 7.55% 7.16%
</TABLE>
YEAR 2000 COMPLIANCE
The Company continues to address the Y2K issue as it effects all
software, hardware and other systems associated with ensuring the Company is
Y2K compliant. The Y2K issue could impact any computer or other date sensitive
systems that store dates using a two digit year format. These systems may
recognize the year "00" as 1900, not 2000. This could produce miscalculations,
generate erroneous data or even cause a system to fail. All software, hardware
and other systems have been identified and categorized as to their business
significance and critical nature. Third parties on which the Company is
dependent for Y2K compliance have been notified. The Company is initiating
communication with large customers to determine what steps they are undertaking
to ensure they will be Y2K compliant before January 1, 2000. Future credit
decisions when appropriate will include a detailed assessment of customers' Y2K
plans for achieving timely compliance. Management believes the Company's
critical software, hardware and other systems are expected to be thoroughly
tested and Y2K compliant before the end of 1998. Contingency plans have been
made as necessary for appropriate software, hardware and other systems. It is
30
<PAGE> 37
anticipated the cost associated with the Company becoming fully Y2K compliant
will be approximately $750,000. Approximately 80% of this cost will be new
equipment and new software which will be depreciated over a three to five year
period.
The Company presently believes that with modifications to existing
software and conversion to new software, the Y2K issue will not pose
significant operational problems for the Company's computer systems or business
operations. However, if such modifications and conversions are not made, or
are not completed in a timely manner, the Y2K issue could have a material
impact on the operations of the Company. In addition, there can be no
assurance that unforeseen problems with the Company's computer systems, or the
systems of third parties on which the Company's computers rely, would not have
a material adverse effect on the Company's systems or operations.
EFFECTS OF INFLATION
The consolidated financial statements of the Company, and their
related notes, 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 the change
in the relative purchasing power of money over time and due to inflation. The
impact of inflation is reflected in the increased cost of the Company's
operations. Unlike many industrial companies, nearly all of the assets and
liabilities of the Company are monetary. As a result, interest rates have a
greater impact on the Company's performance than do the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.
OTHER ACCOUNTING ISSUES
In 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"). This statement
supersedes APB 15, "Earnings Per Share" and simplifies the computation of
earnings per share ("EPS") by replacing the "primary" EPS requirements of APB
15 with a "basic" EPS computation based upon weighted-average shares
outstanding. The new standard requires a dual presentation of basic and
diluted EPS. Diluted EPS is similar to fully diluted EPS required under APB 15
for entities with complex capital structures. The adoption of FAS 128 did not
have a material impact on the Company.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("FAS 130"). This statement establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. The standard requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required. The Company adopted FAS 130 effective for the 1998 fiscal year.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131"). This statement supersedes FAS
14, Financial Reporting for Segments of a Business Enterprise, but retains the
requirement to report information about major customers. The new standard
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. In the initial year of
application, comparative information for earlier years is to be restated. The
Company adopted FAS 131 effective for the 1998 fiscal year.
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" ("FAS 132"). This statement
amends FAS 87, Employers' Accounting for Pension, FAS 88, Employers' Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits and FAS 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. The standard revises employers' disclosures
about pension and other postretirement benefit plans without changing the
measurement or recognition of those plans. It standardizes the disclosure
requirements for pension and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures. The Company adopted FAS 132
effective for the 1998 fiscal year.
31
<PAGE> 38
BUSINESS
GENERAL
The Company is a Texas corporation organized in 1982 that serves as a
bank holding company for the Bank, a Texas-chartered bank organized in 1960.
The Company and the Bank are headquartered in Tyler, Texas, which is located
approximately 90 miles east of Dallas, Texas and 90 miles west of Shreveport,
Louisiana. The Bank has the largest deposit base in the Tyler metropolitan
area, which has a population of approximately 166,000, and is the largest
independent bank headquartered in East Texas. At December 31, 1997, the
Company had total assets of $571 million, deposits of $463 million, loans of
$293 million and shareholders' equity of $40 million.
The Bank is a community-focused financial institution that offers a full
range of financial services to individuals, businesses and nonprofit
organizations in its primary market area. These services include consumer and
commercial loans, deposit accounts, trust services, safe deposit services and
brokerage services.
The Bank's consumer loan services include 1-4 family residential mortgage
loans and home improvement loans, automobile loans and other installment loans.
The Bank also offers its own credit card and began offering home equity loans
in January 1998 when a new Texas law first permitting such loans took effect.
Commercial loan services include short-term working capital loans for inventory
and accounts receivable, short and medium-term loans for equipment or other
business capital expansion, and commercial real estate loans. The Bank also
offers construction loans primarily for owner-occupied 1-4 family residential
and commercial real estate.
The Bank offers a variety of deposit accounts having a wide range of
interest rates and terms, including savings, money market, interest and
noninterest bearing checking accounts and certificate accounts. The Bank's
trust services include investment, management, administration and advisory
services, primarily for individuals and to a lesser extent partnerships and
corporations. At December 31, 1997 the Bank's trust department managed
approximately $105 million of trust assets. Through its 20%-owned securities
brokerage affiliate, BSC Securities, L.C., the Bank offers full retail
investment services to its customers. In early 1997, the Company formed
Countywide, a consumer finance subsidiary, to provide basic financial services
such as small loans, check cashing and money orders to individuals.
The Bank considers its primary market area to be all of Smith County,
Texas, and to a lesser extent portions of adjoining counties. The principal
economic activities in the Bank's market area include the retail, distribution,
manufacturing, medical services, education and oil and gas industries. The
Bank serves this market through eight full service branch locations, including
four branches located in grocery stores. The branches are located in and
around Tyler, and the Company plans to open two branches in 1998 in Longview,
Texas, a city located approximately 35 miles east of Tyler in adjoining Gregg
County. A native Longview banking veteran has joined the Bank to lead the
Company in its expansion into the Longview market area. The Company's
television and radio advertising has extended into this market area for several
years, providing the Bank name recognition in the Greater Longview area. The
Bank also maintains three drive up facilities and Countywide maintains one
sales location. The Bank's customers may also access various banking services
through 14 ATMs owned by the Bank and ATMs owned by others, through debit
cards, and through the Bank's automated telephone and electronic banking
products that allow the Bank's customers to apply for loans, access account
information and conduct various transactions from their telephones and
computers.
The Company reported net income of $5.0 million and $4.2 million and
diluted earnings per share of $1.43 and $1.21 for the years ended December 31,
1997 and 1996, respectively. The Company instituted a cash dividend in 1970
and has paid dividends each year since that time.
The Company and the Bank are subject to comprehensive regulation,
examination and supervision by the FRB, the TDB and the FDIC, and are subject
to numerous laws and regulations relating to the extension of credit and making
of loans to individuals.
The administrative offices of the Company are located at 1201 S. Beckham,
Tyler, Texas 75701, and the telephone number is 903-531-7111. The Company's
website can be found at www.southside.com.
32
<PAGE> 39
BUSINESS STRATEGY
The Company's goal is to be the premier financial institution in East
Texas, recognized for quality customer service and financial soundness. The
Bank weathered the Texas economic downturn in the 1980's, which contributed in
part to the customer loyalty that the Bank enjoys today.
The Company's business strategy is to operate the Bank as a well
capitalized, profitable, independent, community- oriented financial
institution. With that focus, the Bank has developed a niche in small business
and consumer lending and other small business and consumer financial services,
including the recent addition of Countywide, a consumer finance subsidiary of
the Bank.
Key aspects of the Company's business strategy include (i) originating
residential real estate, commercial real estate, commercial business and
consumer loans, (ii) providing a high level of customer service, (iii)
maintaining asset quality, (iv) increasing the revenue of financial service
subsidiaries and adding products and services to attract customers and
contribute to noninterest income, (v) increasing market share within the Bank's
existing market and expanding into new markets and (vi) controlling expenses.
Management also is committed to managing interest rate risk, enhancing
profitability and maintaining a well capitalized financial position.
Asset Quality. The Company seeks to maintain asset quality by managing
credit risk. Approximately 74.2% of the net loan portfolio at December 31,
1997 was comprised of commercial real estate, construction, commercial business
and consumer loans. The other 25.8% of the loan portfolio at December 31, 1997
was comprised of residential mortgage loans, which generally pose less credit
risk than other types of loans. The Bank's nonperforming assets at that date
represented .54% of total assets. At December 31, 1994, 1995 and 1996, this
ratio was .67%, .61% and .61%, respectively. The Company has maintained a
conservative investment portfolio. Approximately 75.2% of the portfolio
consists of U.S. Treasury and agency securities and mortgage-backed securities
collateralized by U.S. agency guaranteed mortgages which are directly or
indirectly backed by the full faith and credit of the U.S. government.
Noninterest Income. With a focus on reducing the dependence of earnings
on net interest income, the Company has expanded its sources and amounts of fee
income. During 1996 and 1997, the number of ATMs was increased from nine to
14. In 1997, the Company expanded its fee-generating services beyond retail
brokerage and trust services to also include consumer finance services. The
Bank also offered new fee-based products such as proprietary credit and debit
cards and checking overdraft privileges. For 1997, noninterest income
represented 13.9% of total revenue, compared to 11.5% for 1996.
Enhanced Delivery System and Controlled Growth. The Bank has recently
launched technological enhancements, including an automated telephone system,
computer-based home banking, corporate cash management software and an Internet
information site.
The Company enhanced its infrastructure in Smith County in order to
improve customer service and attract new customers. In 1996 and 1997, the Bank
added three full service grocery store branches, a seven lane "motor bank"
drive- in facility and five ATMs. Certain branch locations were expanded or
remodeled. Through branch openings and acquisitions, the Company intends to
expand into desirable market areas adjoining the Tyler metropolitan area, which
includes Smith County. A grocery store branch and a free-standing branch are
expected to open in 1998 in Longview.
Noninterest Expenses. Noninterest expenses are subject to ongoing
reviews of staffing levels, facilities and operations. The 1996 branch
openings and 1997 branch remodelings contributed to increased operating costs
in those years. The Company's efficiency ratio was 69.4% for 1997, slightly
lower than the ratios for the preceding four years. The Company seeks to
reduce the efficiency ratio through additional revenue contribution from its
new branches and through continued monitoring of costs.
Experienced Management. The Company's executive officers each have broad
experience in the Bank's operations. The Bank has enjoyed continuity of
management, with the Chief Executive Officer serving in that capacity since the
Bank opened in 1960 and the other executive officers each having served for
over ten years.
MARKET AREA
Tyler's economic base is a diverse mix that includes oil and gas,
manufacturing, distribution, conventions and tourism, as well as retirement
relocation. All of these industries support a growing regional system of
medical service, retail and education centers. Tyler is home to several
nationally recognized health care systems. Five Tyler hospitals represent all
major specialties and employ over 6,500 individuals. In 1996, Target Stores,
Inc. chose a location in the greater Tyler area along
33
<PAGE> 40
Interstate 20 for its $80 million distribution center that will employ
approximately 900 workers. This facility is expected to begin operations in
mid-1998.
LENDING ACTIVITIES
The Company's main objective is to seek attractive lending opportunities
in Smith County, Texas and adjoining counties. Substantially all of the
Bank's loans are made to borrowers who live in and conduct business in East
Texas. Total loans as of December 31, 1997 increased $37.9 million or 14.7%
while the average balance was up $30.7 million or 12.6% when compared to 1996.
Real estate loans as of December 31, 1997, which reflected an increase of
$15.0 million or 11.8% from December 31, 1996. Loans to individuals increased
$12.2 million or 15.4% from December 31, 1996 and commercial loans increased
$10.7 million or 20.8%. The increase in real estate loans is due to a stronger
real estate market, lower interest rates and increased commitment by the
Company to residential mortgage lending. Commercial loans increased as a
result of commercial growth in the Company's market area. Loans to individuals
increased due to an increase in indirect automobile dealer loans and additional
penetration achieved through the Bank's branch locations. Effective January 2,
1998, the Company exited its indirect dealer loan line of business to
concentrate more on direct automobile loans. In the portfolio, loans dependent
upon private household income represent a significant concentration. Due to
the number of customers involved who work in all sectors of the local economy,
the Company believes the risk in this portion of the portfolio is adequately
spread throughout the economic community.
The aggregate amount of loans that the Bank is permitted to make under
applicable bank regulations to any one borrower, including related entities, is
25% of unimpaired capital and surplus. The Bank's legal lending limit at
December 31, 1997 was $7.5 million. The Bank's largest loan relationship at
December 31, 1997 was approximately $5.0 million.
LOANS TO AFFILIATED PARTIES
In the normal course of business, the Bank makes loans to certain of the
Company's, as well as its own, officers, directors, employees and their related
interests. As of December 31, 1997 and 1996, these loans totaled $8.6 million
and $9.9 million or 21.6% and 27.0% of shareholders' equity, respectively.
Such loans are made in the normal course of business at normal credit terms,
including interest rate and collateral requirements, and do not represent more
than normal credit risks contained in the rest of the loan portfolio for loans
of similar types.
LOAN PORTFOLIO COMPOSITION AND ASSOCIATED RISK
For purposes of this discussion, the Company's loans are divided into
three categories: real estate loans, commercial loans and loans to individuals.
REAL ESTATE LOANS
Real estate loans are divided into three categories: 1-4 Family
Residential Mortgage Lending, Construction Loans and Commercial Real Estate
Loans.
Real estate loans represent the Company's greatest concentration of
loans. However, the amount of risk associated with this group of loans is
mitigated in part due to the type of loans involved. At December 31, 1997, the
vast majority of the Company's real estate loans were collateralized by
properties located in Smith County. Of the $142.3 million in real estate
loans, $76.2 million or 53.6% represent loans collateralized by residential
dwellings that are primarily owner occupied. Historically, the amount of
losses suffered on this type of loan has been significantly less than those on
other properties. A significant portion of the remaining real estate loans are
collateralized primarily with owner occupied commercial real estate. The
Company's loan policy requires appraisal prior to funding any real estate loans
and also outlines the requirements for appraisals on renewals.
The real estate market in the late 1980s in Texas, and more specifically
in East Texas, experienced a significant decline in market value. During the
1990s, new appraisals of real estate in the Company's market area indicate
improved overall real estate values for residential and commercial properties.
Due to the volume of real estate loans contained in the Company's
portfolio which are collateralized by owner occupied properties, and the
appraisal and other real estate lending policies in place that indicate the
value of the collateral for these loans, management does not consider the
potential impact of these loans on the loan loss reserve to be excessive, even
though real estate loans constitute the largest percentage of loans
outstanding. Management also pursues an aggressive policy of reappraisal on
any real estate loan that becomes troubled and potential exposures are
recognized and reserved for as soon as they are
34
<PAGE> 41
identified. However, the slow pace of absorption for certain types of
properties could adversely affect the volume of nonperforming real estate loans
held by the Company.
1-4 Family Residential Mortgage Lending. Residential loan originations
are generated by the Company's in-house originations staff, marketing efforts,
present customers, walk-in customers and referrals from real estate agents,
mortgage brokers and builders. The Company focuses its lending efforts
primarily on the origination of loans secured by first mortgages on
owner-occupied, 1-4 family residences. Substantially all of the Company's 1-4
family residential mortgage originations are secured by properties located in
Smith County, Texas. Historically, the Company has sold a portion of its loan
originations to secondary market investors pursuant to ongoing purchase
commitments.
The Company's fixed rate 1-4 family residential mortgage loans generally
have maturities ranging from seven to 30 years. These loans are typically
fully amortizing with monthly payments sufficient to repay the total amount of
the loan. The Company also makes seven to 30 year amortizing loans with a
balloon feature, typically due in seven years or less.
The Company reviews information concerning the income, financial
condition, employment and credit history when evaluating the creditworthiness
of the applicant.
In November 1997, Texas voters approved a change to the Texas
Constitution allowing home equity loans. The Company began offering this newly
available form of real estate lending beginning January 1, 1998 when the law
became effective. The Company has established underwriting and pricing
guidelines for this new lending area.
Construction Loans. The Company's construction loans are secured by
property located primarily in the Company's market area. The Company's
emphasis for construction loans is directed toward properties that will be
owner occupied. Occasionally, construction loans for projects built on
speculation are financed, but these typically have substantial secondary
sources of repayment. The Company's construction loans to individuals
generally have fixed interest rates during the construction period.
Construction loans to individuals are typically made in connection with the
granting of the permanent loan on the property.
Commercial Real Estate Loans. In determining whether to originate
commercial real estate loans, the Company generally considers such factors as
the financial condition of the borrower and the debt service coverage of the
property. Commercial real estate loans are made at both fixed and adjustable
interest rates for terms generally up to 20 years.
Commercial real estate loans primarily include commercial office
buildings, retail, medical and warehouse facilities, hotels and churches. The
majority of these loans, with the exception of those for hotels and churches,
are collateralized by owner occupied properties.
COMMERCIAL LOANS
The Company's commercial loans are diversified to meet most business
needs. Loan types include short-term working capital loans for inventory and
accounts receivable and short and medium-term loans for equipment or other
business capital expansion. Management does not consider there to be any
material concentration of risk in any one industry type in this loan category
since no industry classification represents over 10% of loans. Commercial
loans traditionally generate the largest volume of loan losses in the
portfolio.
In its commercial business loan underwriting, the Company assesses the
creditworthiness, ability to repay, and the value and liquidity of the
collateral being offered. Terms are generally granted commensurate with the
useful life of the collateral offered.
LOANS TO INDIVIDUALS
The Bank is a major consumer lender in its trade territory and has been
for many years. The majority of consumer loans outstanding are those secured
by vehicles, including the "indirect" vehicle loan portfolio, which at December
31, 1997 was approximately $40.0 million. The indirect vehicle loans on the
Company's books were originated through automobile dealers but underwritten
directly by the Company using the same underwriting guidelines used for its
direct vehicle loans. However, due to market forces that were contributing to
declining profit margins on indirect vehicle loans, the Company exited the
indirect vehicle loan program effective January 2, 1998 to concentrate on
direct vehicle loans. Direct vehicle loans accounted for approximately $40.0
million at December 31, 1997. Additionally, the Company makes loans for a full
range of other consumer purposes, which may be secured or unsecured depending
on the credit quality and purpose of the loan. Other major categories for the
remainder of the portfolio include loans secured by boats and cash or
equivalently secured loans.
35
<PAGE> 42
At this point, the economy in the Bank's trade territory appears stable.
One area of concern is the nationwide increase in the personal bankruptcy rate.
Management expects this trend to have some adverse effect on the Company's net
charge-offs. Most of the Company's loans to individuals are collateralized,
which management believes will limit the exposure in this area should current
bankruptcy trends continue.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. The underwriting
standards employed by the Company for consumer loans include an application, a
determination of the applicant's payment history on other debts, with greatest
weight being given to payment history with the Company, and an assessment of
the borrower's ability to meet existing obligations and payments on the
proposed loan. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the collateral, if any, in relation to the proposed loan amount.
LOAN PORTFOLIO COMPOSITION
The following table sets forth loan totals by category for the years
presented:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Real Estate Loans:
Construction ........................... $ 10,299 $ 7,821 $ 4,558 $ 6,118 $ 4,739
1-4 Family Residential ................. 76,243 62,356 49,909 38,563 34,982
Commercial Real Estate ................. 55,802 57,198 54,436 53,881 46,457
Commercial Loans ........................ 61,972 51,307 44,217 39,707 40,860
Loans to Individuals .................... 91,719 79,485 75,658 62,721 56,571
-------- -------- -------- -------- --------
Total Loans ............................. $296,035 $258,167 $228,778 $200,990 $183,609
======== ======== ======== ======== ========
</TABLE>
The following table represents loan maturities and sensitivity to changes
in interest rates. The amounts of total loans outstanding at December 31,
1997, which, based on remaining scheduled repayments of principal, are due in
(1) one year or less, (2) more than one year but less than five years, and (3)
more than five years, are shown in the following table. The amounts due after
one year are classified according to the sensitivity to changes in interest
rates.
<TABLE>
<CAPTION>
AFTER ONE
DUE IN ONE BUT WITHIN AFTER FIVE
YEAR OR LESS(1) FIVE YEARS(1) YEARS(1)
--------------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Construction Loans . . . . . . . . . . . . . . . . . . $ 9,696 $ 603 $
Real Estate Loans-Other . . . . . . . . . . . . . . . . 40,587 54,917 36,541
Commercial Loans . . . . . . . . . . . . . . . . . . . 44,788 12,956 4,228
All Other Loans . . . . . . . . . . . . . . . . . . . . 41,372 49,924 423
----------- ------------- ------------
Total Loans . . . . . . . . . . . . . . . . . . . $ 136,443 $ 118,400 $ 41,192
=========== ============= ============
Loans with maturities after
one year for which:
Interest Rates are Fixed or Predetermined $ 158,248
Interest Rates are Floating or Adjustable $ 22,900
</TABLE>
- ---------------------
(1) The volume of commercial loans due within one year reflects the Company's
general policy of limiting such loans to a short-term maturity. Loans are
shown net of unearned discount. Nonaccrual loans are reflected in the due
after five years column.
LOAN LOSS EXPERIENCE AND RESERVE FOR LOAN LOSSES
The loan loss reserve in place at the end of each year is based on the
most current review of the loan portfolio at that time. Several methods are
used to maintain the review in the most current manner. First, the servicing
officer has the primary responsibility for updating significant changes in a
customer's financial position. Accordingly, each officer prepares status
updates on any credit deemed to be experiencing repayment difficulties which,
in the officer's opinion, would place the collection of principal or interest
in doubt. Second, an internal review officer from the Company is responsible
for an ongoing review
36
<PAGE> 43
of the Company's entire loan portfolio with specific goals set for the volume
of loans to be reviewed on an annual basis. Third, the Bank is regulated and
examined by both the FDIC and/or the TDB on an annual basis.
At each review of a credit, a subjective analysis methodology is used
to grade the respective loan. Categories of grading vary in severity to
include loans that do not appear to have a significant probability of loss at
the time of review to grades that indicate a probability that the entire
balance of the loan will be uncollectible. If full collection of the loan
balance appears unlikely at the time of review, estimates or appraisals of the
collateral securing the debt are used to allocate the necessary reserves. A
list of loans that are graded as having more than the normal degree of risk
associated with them are maintained by the internal review officer. This list
is updated on a periodic basis, but no less than quarterly by the servicing
officer in order to properly allocate necessary reserves and keep management
informed on the status of attempts to correct the deficiencies noted in the
credit.
In addition to maintaining an ongoing review of the loan portfolio,
the internal review officer maintains a history of the loans that have been
charged-off without first being identified as problems. This history is used
to determine the amount of nonspecifically allocated reserve necessary, in
addition to the portion that is specifically allocated by loan.
The following table summarizes the average amount of net loans
outstanding; changes in the reserve for loan losses arising from loans
charged-off and recoveries on loans previously charged-off; additions to the
reserve that have been charged to operating expense; the ratio of net loans
charged-off to average loans outstanding; and an allocation of the reserve for
loan loss.
LOAN LOSS EXPERIENCE AND RESERVE FOR LOAN LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average Net Loans Outstanding .......................... $ 274,577 $ 243,925 $ 209,141 $ 196,436 $ 170,409
========= ========= ========= ========= =========
Balance of Reserve for Loan Loss at
Beginning of Period .................................. $ 3,249 $ 3,317 $ 3,137 $ 2,846 $ 2,711
--------- --------- --------- --------- ---------
Loan Charge-Offs:
Real Estate-Construction
Real Estate-Other ...................................... (36) (6) (494)
Commercial Loans ....................................... (525)(1) (70)(1) (61) (129) (95)
Loans to Individuals ................................... (704) (768) (502) (395) (284)
--------- --------- --------- --------- ---------
Total Loan Charge-Offs ................................. (1,229) (838) (599) (530) (873)
--------- --------- --------- --------- ---------
Recovery on Loans Previously Charged off:
Real Estate-Construction ............................... 10
Real Estate-Other ...................................... 14 7 272 93 4
Commercial Loans ....................................... 133 78 546 326 287
Loans to Individuals ................................... 188 185 261 152 117
--------- --------- --------- --------- ---------
Total Recovery of Loans Previously Charged-Off ......... 345 270 1,079 571 408
--------- --------- --------- --------- ---------
Net Loan (Charge-Offs) Recoveries ...................... (884) (568) 480 41 (465)
Additions (Reductions) to Reserve
Charged (Credited) to Operating Expense .............. 1,005 500 (300) 250 600
--------- --------- --------- --------- ---------
Balance at End of Period ............................... $ 3,370 $ 3,249 $ 3,317 $ 3,137 $ 2,846
========= ========= ========= ========= =========
Ratio of Net Charge-Offs (Recoveries)
to Average Loans Outstanding ......................... .32% .23% (.23%) (.02%) .27%
========= ========= ========= ========= =========
</TABLE>
- ---------------------
(1) See "Consolidated Financial Statements--Note 4. Loans and Reserve for
Possible Loan Losses."
37
<PAGE> 44
Allocation of Reserve for Loan Loss:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------ ----------------- ---------------- ----------------- ----------------
% OF % OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate-Construction $ 52 1.5% $ 39 1.2% $ 23 .7% $ 31 1.0% $ 7 .2%
Real Estate-Other 1,087 32.3 1,059 32.6 1,209 36.4 1,127 35.9 1,172 41.2
Commercial Loans 1,181 35.0 1,129 34.7 1,059 31.9 1,059 33.8 1,018 35.8
Loans to Individuals 1,040 30.9 948 29.2 934 28.2 835 26.6 642 22.6
Unallocated 10 .3 74 2.3 92 2.8 85 2.7 7 .2
------- ------ ------- ------- ------- ------- ------- ------ ------- -------
Balance at End of Period $ 3,370 100% $ 3,249 100% $ 3,317 100% $ 3,137 100% $ 2,846 100%
======= ====== ======= ======= ======= ======= ======= ====== ======= =======
</TABLE>
NONPERFORMING ASSETS
Nonperforming assets consist of delinquent loans over 90 days past due,
nonaccrual loans, other real estate owned and restructured loans. Nonaccrual
loans are those loans that are more than 90 days delinquent and that with
respect to which collection in full of both the principal and interest is in
doubt. Additionally, some loans that are not delinquent may be placed on
nonaccrual status due to doubts about full collection of principal or interest.
When a loan is categorized as nonaccrual, the accrual of interest is
discontinued and the accrued balance is reversed for financial statement
purposes. Other Real Estate Owned ("OREO") represents real estate taken in
full or partial satisfaction of debts previously contracted. Previously
included in the appropriate categories of nonperforming assets were loans
meeting the in-substance foreclosure criteria. As a result of the adoption of
Statement of Financial Accounting Standard No. 114, "Accounting by Creditors
for Impairment of a Loan" ("FAS 114"), effective January 1, 1995, the Company
reclassified in-substance foreclosed assets in these categories to loans.
These loans had balances of $807,000 for December 31, 1994 and $1.8 million for
December 31, 1993. OREO consists primarily of raw land and oil and gas
interests. The Company is actively marketing all properties and none are being
held for investment purposes. Restructured loans represent loans that have
been renegotiated to provide a reduction or deferral of interest or principal
because of deterioration in the financial position of the borrowers.
Categorization of a loan as nonperforming is not in itself a reliable indicator
of potential loan loss. Other factors, such as the value of collateral
securing the loan and the financial condition of the borrower must be
considered in judgments as to potential loan loss.
38
<PAGE> 45
The following table of nonperforming assets is classified according to
bank regulatory call report guidelines:
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans 90 Days Past Due:
Real Estate .................... $ 454 $ 214 $ 266 $ 51 $ 342
Loans to Individuals ........... 232 170 203 52 90
Commercial ..................... 56 88 183 59 70
---------- ---------- --------- -------- ---------
742 472 652 162 502
---------- ---------- --------- -------- ---------
Loans on Nonaccrual:
Real Estate .................... 108 646 486 424 711
Loans to Individuals ........... 177 113 116 179 175
Commercial ..................... 1,059 774 654 24 213
---------- ---------- --------- -------- ---------
1,344 1,533 1,256 627 1,099
---------- ---------- --------- -------- ---------
Restructured Loans:
Real Estate .................... 214 230 243 563 590
Loans to Individuals ........... 189 108 49 51 52
Commercial ..................... 32 62 44 43 115
---------- ---------- --------- -------- ---------
435 400 336 657 757
---------- ---------- --------- -------- ---------
Total Nonperforming Loans ......... 2,521 2,405 2,244 1,446 2,358
Other Real Estate Owned ........... 364 273 273 1,134 2,745
Repossessed Assets ................ 206 262 240 256 203
---------- ---------- --------- -------- ---------
Total Nonperforming Assets ........ $ 3,091 $ 2,940 $ 2,757 $ 2,83 $ 5,306
========== ========== ========= ======== =========
Percentage of Total Assets ........ .5% .6% .6% .7% 1.3%
Percentage of Loans,
Net of Unearned Income ......... 1.0% 1.1% 1.2% 1.4% 2.9%
</TABLE>
Total nonperforming assets increased $151,000 between December 31, 1996
and December 31, 1997. Nonperforming assets as a percentage of assets
decreased .1% from the previous year and as a percentage of loans decreased
.1%. Nonperforming assets represent a drain on the earning ability of the
Company. Earnings losses are due both to the loss of interest income and the
costs associated with maintaining OREO, for taxes, insurance and other
operating expenses. In addition to the nonperforming assets, at December 31,
1997, in the opinion of management, the Company had $96,000 of loans identified
as potential problem loans. A potential problem loan is a loan where
information about possible credit problems of the borrower is known, causing
management to have serious doubts about the ability of the borrower to comply
with the present loan repayment terms which may result in a future
classification of the loan in one of the nonperforming asset categories.
39
<PAGE> 46
The following is a summary of the Company's recorded investment in loans
(primarily nonaccrual loans) for which impairment has been recognized in
accordance with FAS 114:
<TABLE>
<CAPTION>
VALUATION CARRYING
TOTAL ALLOWANCE VALUE
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Real Estate Loans ............................................... $ 108 $ 27 $ 81
Commercial Loans ................................................ 1,059 185 874
Loans to Individuals ............................................ 177 12 165
------------ ------------ ------------
Balance at December 31, 1997 .................................... $ 1,344 $ 224 $ 1,120
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
VALUATION CARRYING
TOTAL ALLOWANCE VALUE
------------ ------------ ------------
<S> <C> <C> <C>
Real Estate Loans ............................................... $ 646 $ 128 $ 518
Commercial Loans ................................................ 774 199 575
Loans to Individuals ............................................ 113 18 95
------------ ------------ ------------
Balance at December 31, 1996 .................................... $ 1,533 $ 345 $ 1,188
============ ============ ============
</TABLE>
For the years ended December 31, 1997 and 1996, the average recorded
investment in impaired loans was approximately $1.5 million for each year.
During the year ended December 31, 1997, the amount of interest income reversed
on impaired loans placed on nonaccrual and the amount of interest income
subsequently recognized on the cash basis was not material.
The net amount of interest recognized on loans that were nonaccruing or
restructured during the year was $110,000, $97,000 and $78,000 for the years
ended December 31, 1997, 1996 and 1995. If these loans had been accruing
interest at their original contracted rates, related income would have been
$336,000, $216,000 and $273,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
The following is a summary of the allowance for losses on OREO for the
years presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year .................................... $ 946 $ 946
Provision for Losses
Losses on sales
Gains on sales
Disposition of OREO ......................................... (274) --
---------- ----------
Balance at end of year .......................................... $ 672 $ 946
========== ==========
</TABLE>
SECURITIES ACTIVITY
The securities portfolio of the Company plays a primary role in
management of the interest rate sensitivity of the Company and, therefore, is
managed in the context of the overall balance sheet. The securities portfolio
generates a substantial percentage of the Company's interest income and serves
as a necessary source of liquidity.
The Company accounts for debt and equity securities as follows:
Held to Maturity ("HTM"). Debt securities that management has the
positive intent and ability to hold until maturity are classified as held
to maturity and are carried at their remaining unpaid principal balance,
net of unamortized premiums or unaccreted discounts. Premiums are
amortized and discounts are accreted using the level interest yield
method over the estimated remaining term of the underlying security.
Available for Sale ("AFS"). Debt and equity securities that will be held
for indefinite periods of time, including securities that may be sold in
response to changes in market interest or prepayment rates, needs for
liquidity and changes in the availability
40
<PAGE> 47
of and the yield of alternative investments are classified as available
for sale. These assets are carried at market value. Market value is
determined using published quotes as of the close of business.
Unrealized gains and losses are excluded from earnings and reported net
of tax as a separate component of shareholders' equity until realized.
Prudent management of the investment securities portfolio serves to
optimize portfolio yields. Management attempts to deploy investable funds into
instruments that are expected to increase the overall return of the portfolio
given the current assessment of economic and financial conditions.
Average securities increased $13.8 million or 8.1% during the year ended
December 31, 1997 compared to 1996. The mix of average securities between
taxable and tax-exempt securities changed to 78.4% taxable and 21.6% tax-exempt
for the year ended 1997 from 77.8% taxable and 22.2% tax-exempt for the year
ended 1996. Average other interest earning assets, consisting primarily of
federal funds sold, decreased $1.0 million or 26.5% during the year ended
December 31, 1997 compared to 1996. The slight decrease in federal funds
balances is attributable to the increase in average loans and average
securities.
The mix of taxable securities reflected an increase in mortgage-backed
securities. Average mortgage-backed securities represented 66.0% of the total
securities portfolio for 1997 compared to 62.2% for 1996.
The combined investment securities, mortgage-backed securities, and
marketable equity securities portfolio increased to $216.5 million at December
31, 1997, compared to $174.4 million on December 31, 1996, an increase of $42.1
million or 24.1%. Mortgage-backed securities collateralized by agency
guaranteed mortgages increased $27.1 million or 23.7% during 1997 when compared
to 1996. State and political subdivisions increased $7.4 million or 18.4%
during 1997. U.S. Treasury securities increased during 1997 compared to 1996
by $14.9 million or 294.9%, U.S. Government Agency securities decreased $8.1
million or 85.0% and other stocks and bonds increased $.9 million or 16.9% in
1997 compared to 1996. During 1995 a barbell approach was adopted by the
Company with respect to securities purchased, i.e., the majority of the
securities purchased included short duration premium mortgage-backed securities
balanced with longer duration municipal securities. This approach paralleled
the same duration as would have been obtained by purchasing intermediate
duration securities. During the second half of 1997 rates decreased and the
yield curve flattened as the spread between the two year treasury yield and
thirty year treasury yield narrowed. The Company continued to use the barbell
approach adopted in 1995 during most of 1996 and 1997, however some
intermediate term securities were purchased during 1997. In order to maintain
the barbell strategy, a continued change in the securities portfolio mix was
required and resulted in the changes discussed above during 1996 and 1997. The
increase in U.S. Treasury securities occurred primarily in December 1997 as
short-term treasuries were purchased to pledge as collateral for a new public
funds account obtained during 1997, which accumulates large balances during the
time period December through February each year.
The market value of the securities portfolio at December 31, 1997 was
$216.5 million, which represents a net unrealized gain on that date of $2.3
million. The net unrealized gain is comprised of $2.6 million in unrealized
gains and $.3 million of unrealized losses. Net unrealized gains and losses on
securities available for sale, which is a component of shareholders' equity on
the consolidated balance sheet, can fluctuate significantly as a result of
changes in interest rates. Because management cannot predict the future
direction of interest rates, the effect on shareholders' equity in the future
cannot be determined; however, this risk is monitored closely through the use
of shock tests on the available for sale securities portfolio using an array of
interest rate assumptions.
In October 1995, the Financial Accounting Standards Board ("FASB") issued
an implementation guide to FAS 115 which allowed entities to reclassify their
securities among the three categories provided in FAS 115. Transfers were
permitted after October 1995, but no later than December 31, 1995. As a
result, on November 16, 1995 the Company transferred a total of $57,584,000
from HTM to AFS at the amortized cost at date of transfer. Of this total,
$37,308,000 were investment securities. The remaining $20,276,000 transferred
were mortgage-backed securities. The unrealized loss on the securities
transferred from HTM to AFS was $419,000, net of tax, at date of transfer. The
transfer was done according to the guidelines set forth in the implementation
guide to FAS 115. There were no securities transferred from AFS to HTM or
sales from the HTM portfolio during the year ended December 31, 1997 or 1996.
41
<PAGE> 48
The following table sets forth the carrying amount of investment
securities, mortgage-backed securities and marketable equity securities at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Available for Sale:
U. S. Treasury ....................................................... $ 19,956 $ 5,054
U. S. Government Agencies ............................................ 631 8,457
Mortgage-backed Securities:
Direct Government Agency Issues ................................... 93,981 74,442
Other Private Issues .............................................. 33,770 16,132
State and Political Subdivisions ..................................... 47,658 39,629
Other Stocks and Bonds ............................................... 6,044 5,171
------------ ------------
Total .......................................................... $ 202,040 $ 148,885
============ ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Held to Maturity:
U. S. Government Agencies ....................................... $ 804 $ 1,124
Mortgage-backed Securities:
Direct Government Agency Issues .............................. 13,662 23,782
State and Political Subdivisions ................................ 610
------------ ------------
Total ..................................................... $ 14,466 $ 25,516
============ ============
</TABLE>
The maturities classified according to the sensitivity to changes in
interest rates of the December 31,1997 securities portfolio and the weighted
yields are presented below. Tax-exempt obligations are shown on a taxable
equivalent basis. Mortgage-backed securities are classified according to
repricing frequency and cash flows from street estimates of principal
prepayments.
<TABLE>
<CAPTION>
MATURING OR REPRICING
--------------------------------------------------------------------
WITHIN 1 YR. WITHIN 5 YRS. WITHIN 10 YRS. AFTER 10 YRS.
--------------- --------------- -------------- --------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available For Sale:
U.S. Treasury . . . . . . . . . . . $ 19,956 5.60% $ $ $
U.S. Government Agencies . . . . . 514 6.88% 117 9.12%
Mortgage-backed Securities . . . . 37,716 6.67% 75,936 6.55% 13,205 6.27% 894 6.57%
State and Political Subdivisions . 2,988 7.81% 9,982 7.86% 8,771 7.67% 25,917 7.82%
Other Stocks and Bonds . . . . . . 3,480 5.86% 1,814 6.38% 401 6.26% 349 3.05%
-------- ------- -------- ---------
Total . . . . . . . . . . . . $ 64,654 6.35% $87,849 6.70% $ 22,377 6.82% $ 27,160 7.72%
======== ======= ======== =========
</TABLE>
<TABLE>
<CAPTION>
MATURING OR REPRICING
--------------------------------------------------------------------
WITHIN 1 YR. WITHIN 5 YRS. WITHIN 10 YRS. AFTER 10 YRS.
--------------- --------------- -------------- --------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Held to Maturity:
U.S. Government Agencies . . . . . $ $ 804 5.42% $ $
Mortgage-backed Securities . . . . 5,505 5.54% 8,157 6.08%
-------- ------- -------- ---------
Total . . . . . . . . . . . . . . . $ 5,505 5.54% $ 8,961 6.02% $ $
======== ======= ======== =========
</TABLE>
42
<PAGE> 49
DEPOSITS AND BORROWED FUNDS
Deposits provide the Company with its primary source of funds. The
increase of $36.7 million or 8.6% in total deposits during 1997 provided the
Company with funds for the growth in loans and securities. Time deposits
increased $12.3 million or 6.2% during 1997 compared to 1996. Noninterest
bearing demand deposits increased during 1997 $14.6 million or 14.8%. interest
bearing demand deposits increased during 1997 $8.9 million or 7.9% and savings
deposits increased $.9 million or 6.2%. The latter three categories, which are
considered the lowest cost deposits, comprised 54.4% of total deposits at
December 31, 1997 compared to 53.3% at December 31, 1996. The increase in total
deposits is reflective of overall bank growth and branch expansion and was the
primary source of funding the increase in loans.
The following table sets forth the Company's deposits by category for the
years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996
---------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Noninterest Bearing Demand Deposits . . . . . . . . . . $ 113,499 $ 98,901
Interest Bearing Demand Deposits . . . . . . . . . . . 121,861 112,957
Savings Deposits . . . . . . . . . . . . . . . . . . . 16,155 15,213
Time Deposits . . . . . . . . . . . . . . . . . . . . . 211,159 198,879
---------------- ---------------
Total Deposits . . . . . . . . . . . . . . $ 462,674 $ 425,950
================ ===============
</TABLE>
Short-term obligations, consisting primarily of FHLB Dallas advances and
federal funds purchased, increased $27.7 million or 405.2% to $34.5 million
during 1997 when compared to 1996. This increase reflects a strategically
planned increase in balance sheet leverage to achieve certain ALCO objectives.
Long-term obligations consisting of FHLB Dallas advances increased in
1997 to $28.5 million or 213.8% compared to $9.1 million in 1996. The advances
were obtained from FHLB Dallas to partially fund long-term loans. FHLB Dallas
advances are collateralized by FHLB Dallas stock, nonspecified real estate
loans and securities.
During the year ended December 31, 1997 total time deposits of $100,000
or more increased $6.4 million or 11.5% from December 31, 1996. This increase
was due to overall bank growth and an increase in public funds, which are funds
from public entities.
The table below sets forth the maturity distribution of time deposits of
$100,000 or more issued by the Company at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------------------- -------------------------------
TIME OTHER TIME OTHER
CERTIFICATES TIME CERTIFICATES TIME
OF DEPOSIT DEPOSITS TOTAL OF DEPOSIT DEPOSITS TOTAL
---------- -------- ----- ---------- -------- -----
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Three months or less .............. $ 14,971 $ 6,140 $ 21,111 $ 15,767 $ 4,482 $ 20,249
Over three to six months .......... 9,810 6,000 15,810 9,170 4,000 13,170
Over six to twelve months ......... 11,038 11,038 9,270 9,270
Over twelve months ................ 14,193 14,193 13,069 13,069
---------- ---------- ---------- ---------- ---------- ----------
Total ................... $ 50,012 $ 12,140 $ 62,152 $ 47,276 $ 8,482 $ 55,758
========== ========== ========== ========== ========== ==========
</TABLE>
43
<PAGE> 50
THE BANKING INDUSTRY IN TEXAS
The banking industry is affected by general economic conditions such as
interest rates, inflation, recession, unemployment and other factors beyond the
Company's control. During the mid to late 1980s, declining oil prices had an
indirect effect on the Company's business, and the deteriorating real estate
market caused a significant portion of the increase in the Company's
nonperforming assets during that period. During the early 1990s a mild
recovery took place in East Texas and much of the nation. This recovery
continued into 1996 and 1997 and at this time the economic activity in the
State and East Texas appears to be stable to improving with some growth areas
resulting. One area of concern continues to be the nationwide increase in the
personal bankruptcy rate. Management expects this trend to have some adverse
effect on the Company's net charge-offs. Management of the Company, however,
cannot predict whether current economic conditions will improve, remain the
same or decline.
COMPETITION
The activities engaged in by the Company are highly competitive.
Financial institutions such as savings and loan associations, credit unions,
consumer finance companies, insurance companies, brokerage companies and other
financial institutions with varying degrees of regulatory restrictions compete
vigorously for a share of the financial services market. Brokerage companies
continue to become more competitive in the financial services arena and pose an
ever increasing challenge to banks. Legislative changes also greatly affect
the level of competition the Company faces. Currently, the Company must
compete against some institutions located in Tyler, Texas and elsewhere which
have capital resources and legal loan limits substantially in excess of those
available to the Company. The Company expects the competition it faces to
continue to increase.
EMPLOYEES
At December 31, 1997, the Company employed approximately 275 full time
equivalent persons. None of the employees are represented by any unions or
similar groups, and the Company has not experienced any type of strike or labor
dispute. The Company considers its relationship with its employees to be good.
LITIGATION
The Company is party to legal proceedings arising in the normal conduct
of business. Management of the Company believes that such litigation is not
material to the financial position or results of the operations of the Company.
PROPERTIES
The Company completed expansion and remodeling of the Bank headquarters
at Beckham Avenue during the second half of 1997. Remodeling of the annex
building, to accommodate the Company's new centralized phone center,
immediately across the parking lot from the bank headquarters, is expected to
be completed during 1998.
Due to growth, in 1997 the Company acquired the Gentry Parkway branch
facility which was previously being leased and added a second ATM. After
remodeling is complete, this branch will provide expanded facilities adequate
to service this growing market area.
The Bank owns the following properties:
o A two story building in Tyler, Texas, at 1201 South Beckham
Avenue, a parking lot across the street and the property
adjacent to the main bank building, known as the Southside
Bank Annex. These properties house the executive offices of
the Company.
o Property and a building directly adjacent to the building
housing the Southside Bank Annex. The building is referred to
as the Operations Annex, where various back office lending and
accounts payable operations are located.
o Land and building located at 1010 East First Street in Tyler
where Motor Bank facilities are located.
o 4.05 acres of land located at the intersection of South
Broadway and Grande Boulevard in Tyler. The entire tract is
occupied by the Bank's South Broadway branch, which currently
provides a full line of banking services.
44
<PAGE> 51
o Property on South Broadway near the South Broadway branch
where Motor Bank facilities are located.
o Thirteen ATM facilities located throughout Tyler and Smith
County.
o Building located in the downtown square of Tyler which houses
the Bank's Downtown branch, providing a full line of banking
services.
o Gentry Parkway branch and motor bank facility.
In addition, the Bank leases space for its four grocery store branches.
Management believes its facilities are adequate for its current needs.
SUPERVISION AND REGULATION
Banking is a complex, highly regulated industry. The primary goals of
the bank regulatory scheme are to maintain a safe and sound banking system and
to facilitate the conduct of sound monetary policy. In furtherance of these
goals, Congress has created several largely autonomous regulatory agencies and
enacted numerous laws that govern banks, bank holding companies and the banking
industry. The descriptions of and references to the statutes and regulations
below are brief summaries and do not purport to be complete. The descriptions
are qualified in their entirety by reference to the specific statutes and
regulations discussed.
THE COMPANY
As bank holding companies under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"), the Company and Southside Delaware are registered with
and subject to regulation by the FRB. The Company and Southside Delaware are
required to file annual and other reports with, and furnish information to, the
FRB, which makes periodic inspections of the Company and Southside Delaware.
The BHC Act provides that a bank holding company must obtain the prior
approval of the FRB for the acquisition of more than 5% of the voting stock or
substantially all the assets of any bank or bank holding company. In addition,
the BHC Act restricts the extension of credit to any bank holding company by
its subsidiary bank. The BHC Act also provides that, with certain exceptions,
a bank holding company may not (i) engage in any activities other than those of
banking or managing or controlling banks and other authorized subsidiaries or
(ii) own or control more than 5% of the voting shares of any company that is
not a bank. The FRB has deemed certain limited activities to be closely
related to banking and therefore permissible for a bank holding company to
engage in.
In approving acquisitions by bank holding companies of banks and
companies engaged in banking-related activities, the FRB considers whether the
performance of any 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, that outweigh such
possible adverse effects as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices. The
FRB has cease-and-desist powers over bank holding companies and their
nonbanking subsidiaries where their actions would constitute a serious threat
to the safety, soundness or stability of a subsidiary bank. Federal regulatory
agencies also have authority to regulate debt obligations (other than
commercial paper) issued by bank holding companies. This authority includes
the power to impose interest ceilings and reserve requirements on such debt
obligations. A bank holding company and its subsidiaries are also prohibited
from engaging in certain tie-in arrangements in connection with any extension
of credit, lease or sale of property or furnishing of services.
Federal banking law generally provides that a bank holding company may
acquire or establish banks in any state of the United States, subject to
certain aging and deposit concentration limits. In addition, Texas banking
laws permit a bank holding company which owns stock of a bank located outside
the State of Texas (an "Out-of-State Bank Holding Company") to acquire a bank
or bank holding company located in Texas. Such acquisition may occur only if
the Texas bank to be directly or indirectly controlled by the Out-of-State Bank
Holding Company has existed and continuously operated as a bank for a period of
at least five years. In any event, however, a bank holding company may not own
or control banks in Texas the deposits of which would exceed 20% of the total
deposits of all federally-insured deposits in Texas.
The FRB has promulgated capital adequacy regulations to which all bank
holding companies that have assets in excess of $150 million are subject. The
FRB's capital adequacy regulations are based upon a risk based capital
determination, whereby a bank holding company's capital adequacy is determined
in light of the risk, both on- and off-balance sheet, contained in the
45
<PAGE> 52
company's assets. Different categories of assets are assigned risk weightings
and, based thereon, are counted at a percentage (from 0% to 100%) of their book
value. The regulations divide capital between Tier 1 capital (core capital)
and Tier 2 capital. For a bank holding company, Tier 1 capital consists
primarily of common stock, noncumulative perpetual preferred stock, related
surplus, minority interests in consolidated subsidiaries and a limited amount
of qualifying cumulative preferred securities such as the Preferred Securities.
Goodwill and certain other intangibles are excluded from Tier 1 capital. Tier
2 capital consists of varying percentages of the reserve for loan losses, all
other types of preferred stock not included in Tier 1 capital, hybrid capital
instruments and term subordinated debt. Investments in and loans to
unconsolidated banking and finance subsidiaries that constitute capital of
those subsidiaries are excluded from capital. The sum of Tier 1 and Tier 2
capital constitutes qualifying total capital. The Tier 1 component must
comprise at least 50% of qualifying total capital.
The FRB risk-based capital standards contemplate that evaluation of
capital adequacy will take account of a wide range of other factors, including
overall interest rate exposure; liquidity, funding and market risks; the
quality and level of earnings; investment, loan portfolio, and other
concentrations of credit; certain risks arising from nontraditional activities;
the quality of loans and investments; the effectiveness of loan and investment
policies; and management's overall ability to monitor and control financial and
operating risks including the risks presented by concentrations of credit and
nontraditional activities.
In addition, the FRB has established minimum Leverage Ratio (Tier 1
capital to quarterly average total assets) guidelines for bank holding
companies and banks. These guidelines provide for a minimum Leverage Ratio of
3% for bank holding companies and banks that meet certain specified criteria,
including having the highest regulatory rating. All other banking organizations
are required to maintain a Leverage Ratio of at least 3% plus and additional
cushion of 100 to 200 basis points. The guidelines also provide that banking
organizations experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory level, without significant reliance on intangible assets.
Furthermore, the guidelines indicate that the FRB will continue to consider a
"Tangible Tier 1 Leverage Ratio" in evaluating proposals for expansion or new
activities. The Tangible Tier 1 Leverage Ratio is the ratio of Tier 1 capital,
less intangibles not deducted from Tier 1 capital, to quarterly average total
assets. As of December 31, 1997, the FRB had not advised the Company of any
specific minimum Tangible Tier 1 Leverage Ratio applicable to it.
As a bank holding company that does not, as an entity, currently engage
in separate business activities of a material nature, the Company's ability to
pay cash dividends depends upon the cash dividends it receives from the Bank
through Southside Delaware. The Company's only sources of income are (i)
dividends paid by the Bank and (ii) the tax savings, if any, that result from
the filing of consolidated income tax returns for the Company, Southside
Delaware and the Bank. The Company must pay all of its operating expenses from
funds received by it from the Bank. Therefore, shareholders may receive
dividends from the Company only to the extent that funds are available after
payment of the Company's operating expenses. Consistent with its policy
regarding bank holding companies serving as a source of financial strength for
their subsidiary banks, the FRB has stated that, as a matter of prudent
banking, a bank holding company generally should not maintain a rate of cash
dividends unless its net income available to common stockholders has been
sufficient to fully fund the dividends, and the prospective rate of earnings
retention appears consistent with the bank holding company's capital needs,
asset quality and overall financial condition. In addition, the Company is
subject to certain restrictions on the payment of dividends as a result of the
requirement that it maintain an adequate level of capital as described above.
THE BANK
The Bank is subject to various requirements and restrictions under the
laws of the United States and the State of Texas, and to regulation,
supervision and regular examination by the TDB and the FDIC. The TDB and the
FDIC have the power to enforce compliance with applicable banking statutes and
regulations. Such requirements and restrictions include requirements to
maintain reserves against deposits, restrictions on the nature and amount of
loans that may be made and the interest that may be charged thereon and
restrictions relating to investments and other activities of the Bank.
TRANSACTIONS WITH AFFILIATES. With respect to the federal legislation
applicable to the Bank, the Federal Reserve Act, as amended by the Competitive
Equality Banking Act of 1987, prohibits the Bank from engaging in specified
transactions (including, for example, loans) with certain affiliates unless the
terms and conditions of such transactions are substantially the same or at
least as favorable to the Bank as those prevailing at the time for comparable
transactions with or involving other nonaffiliated entities. In the absence of
such comparable transactions, any transaction between the Bank and its
affiliates must be on terms and under circumstances, including credit
standards, that in good faith would be offered or would apply to nonaffiliated
companies. In addition, certain transactions, referred to as "covered
transactions," between the Bank and its affiliates may not exceed 10% of the
Bank's capital and surplus per affiliate and an aggregate of 20% of its capital
and surplus for covered transactions with all affiliates. Certain transactions
with affiliates, such as loans, also must be secured by collateral of specific
types and amounts. Finally, the Bank is prohibited from purchasing low quality
assets from an affiliate. Every company under common control with the Bank,
including the Company and Southside Delaware, are deemed to be affiliates of
the Bank.
LOANS TO INSIDERS. Federal law also constrains the types and amounts of
loans that the Bank may make to its executive officers, directors and principal
shareholders. Among other things, such loans must be approved by the Bank's
board of directors in advance and must be on terms and conditions as favorable
to the Bank as those available to an unrelated person.
REGULATION OF LENDING ACTIVITIES. Loans made by the Bank are also
subject to numerous federal and state laws and regulations, including the
Truth-In-Lending Act, Federal Consumer Credit Protection Act, the Texas
Consumer Credit Code, the Texas Consumer Protection Code, the Equal Credit
Opportunity Act, the Real Estate Settlement Procedures Act and adjustable rate
mortgage disclosure requirements. Remedies to the borrower and penalties to
the Bank are provided for failure of the Bank to comply with such laws and
regulations. The scope and requirements of such laws and regulations have
expanded significantly in recent years.
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<PAGE> 53
BRANCH BANKING. Pursuant to the Texas Finance Code, all banks located in
Texas are authorized to branch statewide. Accordingly, a bank located anywhere
in Texas has the ability, subject to regulatory approval, to establish branch
facilities near any of the Bank's facilities and within its market areas. If
other banks were to establish branch facilities near the Bank or any of its
facilities, it is uncertain whether such branch facilities would have a
materially adverse effect on the business of the Bank.
In addition, in 1994 Congress adopted the Reigle-Neal Interstate Banking
and Branching Efficiency Act of 1994 (the "Reigle Act"). That statute provides
for nationwide interstate banking and branching. However, during 1995, the
Texas legislature elected to opt out of the branching provisions under the
Reigle Act until 1999, which effectively prohibits out of state banks from
opening branches in Texas until at least 1999. Similarly, banks located in
Texas are generally prohibited from opening branches outside of Texas. The
Texas legislature will revisit that issue during the 1999 session. Therefore,
interstate branching will continue to be prohibited in Texas until at least
1999.
GOVERNMENTAL MONETARY POLICIES. The commercial banking business is
affected not only by general economic conditions but also by the monetary
policies of the FRB. Changes in the discount rate on member bank borrowings,
control of borrowings, open market operations, the imposition of and changes in
reserve requirements against member banks, deposits and assets of foreign
branches, the imposition of and changes in reserve requirements against certain
borrowings by banks and their affiliates and the placing of limits on interest
rates which member banks may pay on time and savings deposits are some of the
instruments of monetary policy available to the FRB. Those monetary policies
influence to a significant extent the overall growth of bank loans, investments
and deposits and the interest rates charged on loans or paid on time and
savings deposits. The nature of future monetary policies and the effect of
such policies on the future business and earnings of the Bank, therefore,
cannot be predicted accurately.
DIVIDENDS. All dividends paid by the Bank are paid to the Company, the
sole indirect shareholder of the Bank, through Southside Delaware. The general
dividend policy of the Bank is to pay dividends at levels consistent with
maintaining liquidity and preserving applicable capital ratios and servicing
obligations of the Company. The dividend policy of the Bank is subject to the
discretion of the board of directors of the Bank and will depend upon such
factors as future earnings, financial conditions, cash needs, capital adequacy,
compliance with applicable statutory and regulatory requirements and general
business conditions.
The ability of the Bank, as a Texas banking association, to pay dividends
is restricted under applicable law and regulations. The Bank generally may not
pay a dividend reducing its capital and surplus without the prior approval of
the Texas Banking Commissioner. All dividends must be paid out of net profits
then on hand, after deducting expenses, including losses and provisions for
loan losses. Additionally, the FDIC has the right to prohibit the payment of
dividends by a bank where such payment is deemed to be an unsafe and unsound
banking practice. The Bank is also subject to certain restrictions on the
payment of dividends as a result of the requirements that it maintain an
adequate level of capital in accordance with guidelines promulgated from time
to time by the FDIC.
The exact amount of future dividends on the stock of the Bank will be a
function of the profitability of the Bank in general and applicable tax rates
in effect from year to year. The Bank's ability to pay dividends in the future
will directly depend on its future profitability, which cannot be accurately
estimated or assured.
CAPITAL ADEQUACY. In 1983, Congress enacted the International Lending
Supervision Act, which, among other things, directed the FDIC to establish
minimum levels of capital for banks and to require banks to achieve and
maintain adequate capital. Pursuant to this authority, the FDIC has
promulgated capital adequacy regulations to which all state nonmember banks,
such as the Bank, are subject. These requirements are substantially similar to
the FRB requirements promulgated with respect to bank holding companies.
FIRREA. The Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA") includes various provisions that affect or may affect the
Bank. Among other matters, FIRREA generally permits bank holding companies to
acquire healthy thrifts as well as failed or failing thrifts. FIRREA removed
certain cross-marketing prohibitions previously applicable to thrift and bank
subsidiaries of a common holding company. Furthermore, a multibank holding
company may now be required to indemnify the federal deposit insurance fund
against losses it incurs with respect to such company's affiliated banks, which
in effect makes a bank holding company's equity investments in healthy bank
subsidiaries available to the FDIC to assist such company's failing or failed
bank subsidiaries.
In addition, pursuant to FIRREA, any depository institution that has been
chartered less than two years, is not in compliance with the minimum capital
requirements of its primary federal banking regulator or is otherwise in a
troubled condition must notify its primary federal banking regulator of the
proposed addition of any person to the board of directors or the employment of
any person as a senior executive officer of the institution at least 30 days
before such addition or employment
47
<PAGE> 54
becomes effective. During such 30-day period, the applicable federal banking
regulatory agency may disapprove of the addition or employment of such director
or officer. The Bank is not subject to any such requirements.
FIRREA also expanded and increased civil and criminal penalties available
for use by the appropriate regulatory agency against certain
"institution-affiliated parties" primarily including (i) management, employees
and agents of a financial institution, as well as (ii) independent contractors
such as attorneys and accountants and others who participate in the conduct of
the financial institution's affairs and who cause or are likely to cause more
than minimum financial loss to or a significant adverse affect on the
institution, who knowingly or recklessly violate a law or regulation, breach a
fiduciary duty or engage in unsafe or unsound practices. Such practices can
include the failure of an institution to timely file required reports or the
submission of inaccurate reports. Furthermore, FIRREA authorizes the
appropriate banking agency to issue cease and desist orders that may, among
other things, require affirmative action to correct any harm resulting from a
violation or practice, including restitution, reimbursement, indemnifications
or guarantees against loss. A financial institution may also be ordered to
restrict its growth, dispose of certain assets or take other action as
determined by the ordering agency to be appropriate.
FDICIA. FDICIA made a number of reforms addressing the safety and
soundness of the deposit insurance system, supervision of domestic and foreign
depository institutions, and improvement of accounting standards. This statute
also limited deposit insurance coverage, implemented changes in consumer
protection laws and provided for least-cost resolution and prompt regulatory
action with regard to troubled institutions.
FDICIA requires every bank with total assets in excess of $500 million to
have an annual independent audit made of the bank's financial statements by a
certified public accountant to verify that the financial statements of the bank
are presented in accordance with generally accepted accounting principles and
comply with such other disclosure requirements as prescribed by the FDIC.
FDICIA also places certain restrictions on activities of banks depending
on their level of capital. FDICIA divides banks into five different
categories, depending on their level of capital. Under regulations recently
adopted by the FDIC, a bank is deemed to be "well capitalized" if it has a
total Risk-Based Capital Ratio of 10% or more, a Core Capital Ratio of 6% or
more and a Leverage Ratio of 5% or more, and if the bank is not subject to an
order or capital directive to meet and maintain a certain capital level. Under
such regulations, a bank is deemed to be "adequately capitalized" if it has a
total Risk-Based Capital Ratio of 8% or more, a Core Capital Ratio of 4% or
more and a Leverage Ratio of 4% or more (unless it receives the highest
composite rating at its most recent examination and is not experiencing or
anticipating significant growth, in which instance it must maintain a Leverage
Ratio of 3% or more). Under such regulations, a bank is deemed to be
"undercapitalized" if it has a total Risk-Based Capital Ratio of less than 8%,
a Core Capital Ratio of less than 4% or a Leverage Ratio of less than 4%.
Under such regulations, a bank is deemed to be "significantly undercapitalized"
if it has a Risk-Based Capital Ratio of less than 6%, a Core Capital Ratio of
less than 3% and a Leverage Ratio of less than 3%. Under such regulations, a
bank is deemed to be "critically undercapitalized" if it has a Leverage Ratio
of less than or equal to 2%. A bank may be reclassified to be in a
capitalization category that is next below that indicated by its actual capital
position (but not to "critically undercapitalized") if it receives a
less-than-satisfactory examination rating by its examiners with respect to its
asset quality, management, earnings or liquidity that has not been corrected,
or it is determined that the bank is in an unsafe or unsound condition or
engaged in an unsafe or unsound practice.
In addition, if a state nonmember bank is classified as undercapitalized,
the bank is required to submit a capital restoration plan to the FDIC.
Pursuant to FDICIA, an undercapitalized bank is prohibited from increasing its
assets, engaging in a new line of business, acquiring any interest in any
company or insured depository institution, or opening or acquiring a new branch
office, except under certain circumstances, including the acceptance by the
FDIC of a capital restoration plan for the bank.
Furthermore, if a state nonmember bank is classified as undercapitalized,
the FDIC may take certain actions to correct the capital position of the bank.
If a bank is classified as significantly undercapitalized, the FDIC is required
to take one or more prompt corrective actions. These actions include, among
other things, requiring: sales of new securities to bolster capital,
improvements in management, limits on interest rates paid, prohibitions on
transactions with affiliates, termination of certain risky activities and
restrictions on compensation paid to executive officers. If a bank is
classified as critically undercapitalized, FDICIA requires the bank to be
placed into conservatorship or receivership within 90 days, unless the FDIC
determines that other action would better achieve the purposes of FDICIA
regarding prompt corrective action with respect to undercapitalized banks.
The capital classification of a bank affects the frequency of
examinations of the bank and impacts the ability of the bank to engage in
certain activities and affects the deposit insurance premiums paid by the bank.
Under FDICIA, the FDIC is required to conduct a full-scope, on-site examination
of every bank at least once every twelve months. An exception to this rule
provides that banks that (i) have assets of less than $100 million, (ii) are
categorized as "well capitalized," (iii) are found to be well managed with a
composite rating of "outstanding" and (iv) have not been subject to a change in
control during the last twelve months, need only be examined by the FDIC once
every eighteen months.
48
<PAGE> 55
Under FDICIA, banks may be restricted in their ability to accept brokered
deposits, depending on their capital classification. "Well capitalized" banks
are permitted to accept brokered deposits, but all banks that are not well
capitalized are not permitted to accept such deposits. The FDIC may, on a
case-by-case basis, permit banks that are adequately capitalized to accept
brokered deposits if the FDIC determines that acceptance of such deposits would
not constitute an unsafe or unsound banking practice with respect to the bank.
The federal banking agencies have established guidelines, effective
August 9, 1995, which prescribe standards for depository institutions relating
to internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth and
management compensation. The agencies may require an institution which fails
to meet the standards set forth in the guidelines to submit a compliance plan.
The agencies are also currently proposing standards for asset quality and
earnings. The Company cannot predict what effect such guidelines will have on
the Bank.
DEPOSIT INSURANCE. Under the FDIC's risk-based insurance assessment
system, which was implemented as part of FDICIA, each insured bank is placed
in one of nine "assessment risk classifications" based on its capital
classification and the FDIC's consideration of supervisory evaluations provided
by the institution's primary federal regulator. Each insured bank's insurance
assessment rate is then determined by the risk category in which it has been
classified by the FDIC. There is currently a twenty-seven basis point spread
between the highest and lowest assessment rates, so that banks classified as
strongest by the FDIC are subject in 1998 to 0% assessment, and banks classified
as weakest by the FDIC are subject to an assessment rate of .27%. In addition to
its insurance assessment, each insured bank is subject in 1998 to a debt service
assessment of $1.26 per one hundred dollars of deposits to help recapitalize the
Savings Association Insurance Fund of the FDIC. Under these assessment criteria,
the Bank is required to pay annual deposit premiums to BIF in the amount of
$1.26 per hundred dollars of deposits. The Bank's deposit insurance assessments
may increase or decrease depending upon the risk assessment classification to
which the Bank is assigned by the FDIC. Any increase in insurance assessments
could have an adverse effect on the Bank's earnings.
THE PREFERRED SECURITIES AND THE JUNIOR SUBORDINATED DEBENTURES OFFERED
BY THIS PROSPECTUS ARE NOT SAVINGS OR DEPOSIT ACCOUNTS, ARE NOT OBLIGATIONS OF
ANY BANKING OR NONBANKING AFFILIATE OF THE COMPANY (EXCEPT TO THE EXTENT THAT
PREFERRED SECURITIES ARE GUARANTEED BY THE COMPANY AS DESCRIBED HEREIN), ARE
NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
Management of the Company and the Bank cannot predict what other
legislation might be enacted or what other regulations might be adopted or the
effects thereof.
THE FOREGOING IS AN ATTEMPT TO SUMMARIZE SOME OF THE RELEVANT LAWS, RULES
AND REGULATIONS GOVERNING BANKS AND BANK HOLDING COMPANIES BUT DOES NOT PURPORT
TO BE A COMPLETE SUMMARY OF ALL APPLICABLE LAWS, RULES AND REGULATIONS
GOVERNING BANKS AND BANK HOLDING COMPANIES.
49
<PAGE> 56
MANAGEMENT
The following table sets forth the names and ages of the directors of the
Company and the executive officers of the Company and the Bank, as well as the
positions of officers held by such persons.
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD
---------------------------------- --- ----------------------------------------------------------
<S> <C> <C>
B.G. Hartley 68 Chairman of the Board of the Company and Chairman of the
Board and Chief Executive Officer of the Bank
Robbie N. Edmonson 66 Vice Chairman of the Board of the Company and Vice
Chairman of the Board and Chief Administrative Officer of
the Bank
Sam Dawson 51 President, Secretary and Director of the Company and
President and Chief Operations Officer of the Bank
James F. Deakins 64 Senior Vice President, Loan Review, of the Company
Lee R. Gibson 41 Executive Vice President and Chief Accounting Officer of
the Company and Executive Vice President of the Bank
Titus E. Jones 53 Executive Vice President, Commercial Lending, and
Director of the Bank
Jeryl Story 46 Senior Executive Vice President, Loan Administration, of
the Bank
Lonny R. Uzzell 44 Executive Vice President, Marketing, of the Bank
H. Andy Wall 58 Executive Vice President, Commercial Lending, and
Director of the Bank
Fred E. Bosworth 80 Director of the Company
Herbert C. Buie 67 Director of the Company
Rollins Caldwell 76 Director of the Company
W.D. (Joe) Norton 61 Director of the Company
William Sheehy 57 Director of the Company
Murph Wilson 86 Director of the Company
</TABLE>
Officers of the Company and the Bank are elected annually by the board of
directors of the Company and the Bank, respectively. The business experience
of each executive officer of the Company and the Bank and each director of the
Company is set forth below.
B.G. HARTLEY - Mr. Hartley has been Chairman of the Board of the Company
since 1983. He is also Chairman of the Board and Chief Executive Officer of
the Bank, having served as the Bank's Chief Executive Officer since its opening
in 1960. He is a member of the Board of Directors of the American Bankers
Association and East Texas Medical Center Regional Healthcare Systems, and he
is Chairman of the Board of Directors of the Texas Taxpayers and Research
Association and Texas Bankers General Agency, Inc. He is also a Trustee of the
R. W. Fair Foundation, and a Trustee and a member of the Executive Committee of
Texas College.
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<PAGE> 57
ROBBIE N. EDMONSON - Mr. Edmonson is Vice Chairman of the Board of the
Company, serving since 1998. Prior to serving as Vice Chairman, Mr. Edmonson
served as President of the Company since 1983. He joined the Bank as Vice
President in 1968, and currently is Vice Chairman of the Board of Directors and
Chief Administrative Officer of the Bank.
SAM DAWSON - Mr. Dawson is President and Secretary of the Company,
serving since 1998. Prior to serving as President, Mr. Dawson served as
Executive Vice President and Secretary of the Company since 1990. He joined
the Bank in 1974 and currently serves as its President and Chief Operations
Officer. He is a Director of East Texas Medical Center Hospital, Cancer
Institute and Rehabilitation Hospital. He is also a Director of the Tyler Area
Chamber of Commerce.
JAMES F. DEAKINS - Mr. Deakins has served as Senior Vice President, Loan
Review, of the Company since 1988. He joined the Bank in 1987 as a Vice
President in commercial lending.
LEE R. GIBSON - Mr. Gibson serves as Executive Vice President and Chief
Accounting Officer of the Company and Executive Vice President of the Bank. He
became an officer of the Company in 1985 and of the Bank during 1984.
TITUS E. JONES - Mr. Jones has served as Executive Vice President,
Commercial Lending, and Director of the Bank since 1987. He joined the Bank in
1965.
JERYL STORY - Mr. Story was elected Senior Executive Vice President,
Loan Administration, of the Bank during 1996. He joined the Bank in 1979.
LONNY R. UZZELL - Mr. Uzzell was elected Executive Vice President,
Marketing, of the Bank during 1996. He joined the Bank in 1981.
H. ANDY WALL - Mr. Wall has served as Executive Vice President,
Commercial Lending, and Director of the Bank since 1984. He joined the Bank in
1968 and became an officer in 1969.
FRED E. BOSWORTH - Mr. Bosworth is a Director of the Company. Before
retiring in 1997, he had been Chairman of the Board of Bosworth & Associates,
Inc., an independent insurance agency, since 1982. He has been associated with
the insurance industry in various capacities since 1935.
HERBERT C. BUIE - Mr. Buie is a Director of the Company. He is President
of Tyler Packing Company, Inc., a meat processing firm. He was initially
employed by Tyler Packing in 1947, and acquired the corporation several years
later. He has served on the Board of Directors of the Church of God, School of
Theology, since 1979 and also serves on the Board of Directors of the
University of Texas Health Center and the Developmental Board of Directors of
the University of Texas-Tyler. He also serves on the Boards of Directors of
the East Texas Regional Food Bank and the Texas Chest Foundation.
ROLLINS CALDWELL - Mr. Caldwell is a Director of the Company. He is a
private investor who served as President of Caldwell Welding Supply Company for
37 years. He currently is involved in equipment and real estate leasing.
W. D. (JOE) NORTON - Mr. Norton is a Director of the Company. He is the
owner of W. D. Norton, Inc., dba Overhead Door. He also owns Norton Equipment
Company. Mr. Norton served as President and principal shareholder of Norton
Companies of Texas, Inc., for 25 years. He is a Director of the Tyler Area
Chamber of Commerce.
WILLIAM SHEEHY - Mr. Sheehy is a Director of the Company. He has been a
partner in the law firm of Wilson, Sheehy, Knowles, Robertson and Cornelius
since 1971, and a practicing attorney since 1964. Mr. Sheehy serves as the
Bank's outside general counsel.
MURPH WILSON - Mr. Wilson is a Director of the Company. He has been a
partner in the law firm of Wilson, Sheehy, Knowles, Robertson and Cornelius
since 1953, and a practicing attorney since 1938. He is a charter member of
the Board of Directors of the Sabine River Authority. He has also served as
Chairman of the Board of Directors of the Bank.
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<PAGE> 58
DESCRIPTION OF THE PREFERRED SECURITIES
GENERAL
The following is a summary of certain terms and provisions of the
Preferred Securities. This summary does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the Trust Agreement.
The form of the Trust Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
DISTRIBUTIONS
The Preferred Securities represent preferred undivided beneficial
interests in the assets of the Trust Issuer. Distributions on the Preferred
Securities will be payable at the annual rate of ____% of the stated
Liquidation Amount of $10, payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, to the holders of the Preferred
Securities on the relevant record dates. The record date for the Preferred
Securities will be, for as long as the Preferred Securities remain in
book-entry form, one Business Day (as defined below) prior to the relevant
Distribution payment date and, in the event the Preferred Securities are not in
book-entry form, 15 days prior to the relevant Distribution payment date.
Distributions will accumulate from the date of the initial issuance of the
Preferred Securities and are cumulative. The first Distribution payment date
for the Preferred Securities will be June 30, 1998. The amount of
Distributions payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months. In the event that any date on which
Distributions are payable on the Preferred Securities is not a Business Day,
then payment of the Distributions payable on such date will be made on the next
succeeding day that is a Business Day (and without any additional Distributions
or other payment in respect of any such delay), except that, if such Business
Day is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on the date such payment was originally payable (each date on which
Distributions are payable in accordance with the foregoing, a "Distribution
Date"). A "Business Day" shall mean any day other than a Saturday or a Sunday,
or a day on which federal or state banking institutions in the Borough of
Manhattan, the City of New York, or the State of Delaware are authorized or
required by law, executive order or regulation to close or a day on which the
Corporate Trust Office of the Property Trustee or the Debenture Trustee is
closed for business.
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right under the Indenture to defer the payment of interest
on the Junior Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarters with respect to each Extension
Period, provided that no Extension Period may extend beyond the Stated Maturity
of the Junior Subordinated Debentures. As a consequence of any such deferral
of interest, quarterly Distributions on the Preferred Securities by the Trust
Issuer will also be deferred during any such Extension Period. Distributions
to which holders of the Preferred Securities are entitled will accumulate
additional Distributions thereon at the rate and on the dates that interest
accrues on the Junior Subordinated Debentures. The term "Distributions" as
used herein, shall include any such additional Distributions. During any such
Extension Period, the Company may not, and may not permit any subsidiary of the
Company to, (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stock (other than (a) the reclassification of any class of
the Company's capital stock into another class of capital stock, (b) dividends
or distributions in common stock of the Company, (c) any declaration of a
dividend in connection with the implementation of a shareholders' rights plan,
or the issuance of stock under any such plan in the future or the redemption or
repurchase of any rights pursuant thereto, (d) payments under the Guarantee and
(e) purchases of common stock related to the issuance of common stock or rights
under any of the Company's benefit plans for its or its subsidiaries'
directors, officers or employees), (ii) make any payment of principal, interest
or premium, if any, on or repay, repurchase or redeem any debt securities of
the Company that rank pari passu with or junior in interest to the Junior
Subordinated Debentures, (iii) make any guarantee payments with respect to any
guarantee by the Company of the debt securities of any subsidiary of the
Company if such guarantee ranks pari passu with or junior in interest to the
Junior Subordinated Debentures, other than payments pursuant to the Guarantee
or (iv) redeem, purchase or acquire less than all of the outstanding Debentures
or any of the Preferred Securities. Upon the termination of any such Extension
Period and the payment of all interest then accrued and unpaid (together with
interest thereon at the rate of ____%, compounded quarterly, to the extent
permitted by applicable law), the Company may elect to begin a new Extension
Period. There is no limitation on the number of times that the Company may
elect to begin an Extension Period. See "Description of the Junior
Subordinated Debentures--Right to Defer Interest Payment Obligation" and
"Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount."
The revenue of the Trust Issuer available for distribution to holders of
its Preferred Securities will be limited to payments under the Junior
Subordinated Debentures in which the Trust Issuer will invest the proceeds from
the issuance and sale of its Trust Securities. See "Description of the Junior
Subordinated Debentures." If the Company does not make interest payments on
the Junior Subordinated Debentures, the Trust Issuer will not have funds
available to pay Distributions on the Preferred Securities. The payment of
Distributions (if and to the extent the Trust Issuer has funds legally
available for the payment of such Distributions
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<PAGE> 59
and cash sufficient to make such payments) is guaranteed by the Company on a
subordinated limited basis as set forth herein under "Description of the
Guarantee."
The Company has no current intention of exercising its right to defer
payments of interest on the Junior Subordinated Debentures.
SUBORDINATION OF THE COMMON SECURITIES
Payment of Distributions on and the Redemption Price of the Preferred
Securities and Common Securities, as applicable, shall be made pro rata based
on the Liquidation Amount of the Preferred Securities and the Common
Securities; provided, however, that if on any Distribution Date or Redemption
Date a Debenture Event of Default shall have occurred and be continuing, no
payment of any Distribution on, or Redemption Price of, any of the Common
Securities, and no other payment on account of the redemption, liquidation or
other acquisition of such Common Securities, shall be made unless payment in
full in cash of all accumulated and unpaid Distributions on all of the
outstanding Preferred Securities for all Distribution periods terminating on or
prior thereto, or, in the case of payment of the Redemption Price, the full
amount of such Redemption Price on all of the outstanding Preferred Securities
then called for redemption, shall have been made or provided for, and all funds
available to the Trust Issuer shall first be applied to the payment in full in
cash of all Distributions on, or the Redemption Price of, the Preferred
Securities then due and payable.
In the case of any Event of Default under the Trust Agreement resulting
from a Debenture Event of Default, the Company as holder of the Common
Securities will be deemed to have waived any right to act with respect to any
such Event of Default under the Trust Agreement until the effect of all such
Events of Default with respect to the Preferred Securities shall have been
cured, waived or otherwise eliminated. Until any such Events of Default under
the Trust Agreement shall have been so cured, waived or otherwise eliminated,
the Property Trustee shall act solely on behalf of the holders of the Preferred
Securities and not on behalf of the Company as holder of the Common Securities,
and only the holders of the Preferred Securities will have the right to direct
the Property Trustee to act on their behalf.
REDEMPTION
The Preferred Securities are subject to mandatory redemption, in whole or
in part, upon repayment of the Junior Subordinated Debentures at their Stated
Maturity or earlier redemption as provided in the Indenture. The proceeds from
such repayment or redemption shall be applied by the Trust Issuer to redeem a
Like Amount (as defined below) of the Trust Securities at a redemption price,
with respect to the Preferred Securities, equal to the aggregate Liquidation
Amount of such Preferred Securities plus accumulated and unpaid Distributions
thereon (the "Redemption Price") to the date of redemption (the "Redemption
Date"). For a description of the Stated Maturity and redemption provisions of
the Junior Subordinated Debentures, see "Description of the Junior Subordinated
Debentures--General" and "--Redemption or Exchange."
The Company has the option, subject to regulatory approval if then
required, to redeem the Junior Subordinated Debentures prior to maturity on or
after June 30, 2003, in whole at any time or in part from time to time, and
thereby cause a mandatory redemption of a Like Amount of the Trust Securities.
See "Description of the Junior Subordinated Debentures--Redemption or
Exchange." Any time that a Tax Event, an Investment Company Event or a Capital
Treatment Event shall occur and be continuing, the Company has the right to
redeem the Junior Subordinated Debentures in whole (but not in part) and
thereby cause a mandatory redemption of the Trust Securities in whole (but not
in part). See "Description of the Junior Subordinated Debentures--Redemption
or Exchange."
"Like Amount" means (i) with respect to a redemption of the Preferred
Securities, Preferred Securities having a Liquidation Amount equal to that
portion of the principal amount of the Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Preferred Securities pro rata based upon the
relative Liquidation Amounts of such Trust Securities and the proceeds of which
will be used to pay the Redemption Price of such Preferred Securities and (ii)
with respect to a distribution of the Junior Subordinated Debentures to holders
of the Preferred Securities in exchange therefor in connection with a
dissolution or liquidation of the Trust Issuer, Junior Subordinated Debentures
having a principal amount equal to the Liquidation Amount of the Preferred
Securities of the holder to whom such Junior Subordinated Debentures would be
distributed.
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<PAGE> 60
REDEMPTION PROCEDURES
Preferred Securities redeemed on any Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of a Like Amount of the Junior Subordinated Debentures. Redemptions
of the Preferred Securities shall be made and the Redemption Price shall be
paid on each Redemption Date only to the extent that the Trust Issuer has funds
on hand available for the payment of such Redemption Price. See also
"Description of the Preferred Securities--Subordination of the Common
Securities."
If the Trust Issuer gives a notice of redemption in respect of the
Preferred Securities, then, by 10:00 a.m., New York City time, on the
Redemption Date, to the extent funds are available, the Property Trustee will
deposit irrevocably with DTC funds sufficient to pay the applicable Redemption
Price and will give DTC irrevocable instructions and authority to pay the
Redemption Price to the holders of such Preferred Securities. See "Book-Entry,
Delivery and Form." If the Preferred Securities are no longer in book-entry
form, the Property Trustee, to the extent funds are available, will irrevocably
deposit with the paying agent for the Preferred Securities funds sufficient to
pay the applicable redemption price and will give such paying agent irrevocable
instructions and authority to pay the Redemption Price to the holders thereof
upon surrender of their certificates evidencing such Preferred Securities.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for the Preferred Securities called for redemption shall be
payable to the holders of the Preferred Securities on the relevant record dates
for the related Distribution Dates. If notice of redemption shall have been
given and funds deposited as required, then, upon the date of such deposit, all
rights of the holders of the Preferred Securities so called for redemption will
cease, except the right of the holders of such Preferred Securities to receive
the Redemption Price, but without interest on such Redemption Price, and such
Preferred Securities will cease to be outstanding.
In the event that any date fixed for redemption of the Preferred
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding day which is a Business Day
(and without any interest or other payment in respect of any such delay),
except that, if such Business Day falls in the next calendar year, such payment
will be made on the immediately preceding Business Day. In the event that
payment of the Redemption Price in respect of the Preferred Securities called
for redemption is improperly withheld or refused and not paid either by the
Trust Issuer or by the Company pursuant to the Guarantee as described under
"Description of the Guarantee," Distributions on such Preferred Securities will
continue to accrue at the then applicable rate, from the Redemption Date
originally established by the Trust Issuer for such Preferred Securities to the
date such Redemption Price is actually paid, in which case the actual payment
date will be the date fixed for redemption for purposes of calculating the
Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Preferred Securities by private
agreement.
Payment of the Redemption Price on the Preferred Securities shall be made
to the applicable recordholders thereof as they appear on the register for the
Preferred Securities on the relevant record date, which date shall be one
Business Day prior to the relevant Redemption Date; provided, however, in the
event the Preferred Securities do not remain in book entry form, the relevant
record date shall be the date 15 days prior to the Redemption Date.
If less than all of the Preferred Securities and Common Securities issued
by the Trust Issuer are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of the Preferred Securities and Common Securities to be
redeemed shall be allocated pro rata to the Preferred Securities and the Common
Securities based upon the relative Liquidation Amounts of such classes. The
particular Preferred Securities to be redeemed shall be selected not more than
60 days prior to the Redemption Date by the Property Trustee from the
outstanding Preferred Securities not previously called for redemption by such
method (including, without limitation, by lot) as the Property Trustee shall
deem fair and appropriate, or if the Preferred Securities are then held in the
form of a global preferred security, in accordance with DTC's customary
procedures. The Property Trustee shall promptly notify the trust registrar in
writing of the Preferred Securities selected for redemption and, in the case of
any Preferred Securities selected for partial redemption, the Liquidation
Amount thereof to be redeemed. For all purposes of the Trust Agreement, unless
the context otherwise requires, all provisions relating to the redemption of
the Preferred Securities shall relate, in the case of the Preferred Securities
redeemed or to be redeemed only in part, to the portion of the aggregate
Liquidation Amount of the Preferred Securities which has been or is to be
redeemed.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each holder of the Preferred
Securities to be redeemed at its registered address. Unless the Company
defaults in payment of the Redemption Price on the Junior Subordinated
Debentures, on and after the Redemption Date interest will cease to accrue on
the Junior Subordinated Debentures or portions thereof (and Distributions will
cease to accumulate on the Preferred Securities or portions thereof) called for
redemption.
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<PAGE> 61
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The Company has the right, subject to regulatory approval if then
required, at any time to dissolve the Trust Issuer and, after satisfaction of
the liabilities of creditors of the Trust Issuer as provided by applicable law,
cause the Junior Subordinated Debentures to be distributed to the holders of
the Preferred Securities and Common Securities in exchange therefor upon
liquidation of the Trust Issuer. In addition, the Trust Issuer shall
automatically dissolve upon expiration of its term on June 30, 2028 and shall
dissolve on the first to occur of (i) certain events of bankruptcy, dissolution
or liquidation of the Company, subject in certain instances to any such event
remaining in effect for a period of 90 consecutive days; (ii) redemption of all
of the Preferred Securities as described under "Description of the Preferred
Securities--Redemption;" and (iii) the entry of an order for the dissolution of
the Trust Issuer by a court of competent jurisdiction.
After the liquidation date fixed for any distribution of the Junior
Subordinated Debentures for Preferred Securities (i) such Preferred Securities
will no longer be deemed to be outstanding, (ii) DTC or its nominee, as the
registered holder of Preferred Securities, will receive a registered global
certificate or certificates representing the Junior Subordinated Debentures to
be delivered upon such distribution with respect to Preferred Securities held
by DTC or its nominee, and (iii) any certificates representing the Preferred
Securities not held by DTC or its nominee will be deemed to represent Junior
Subordinated Debentures having a principal amount equal to the stated
Liquidation Amount of such Preferred Securities, and bearing accrued and unpaid
interest in an amount equal to the accumulated and unpaid Distributions on such
series of the Preferred Securities until such certificates are presented to the
Administrative Trustees or their agent for transfer or reissuance. The holder
of the Common Securities will be entitled to receive distributions upon any
such liquidation pro rata with the holders of the Preferred Securities, except
that if a Debenture Event of Default has occurred and is continuing, the
Preferred Securities shall have a priority over the Common Securities with
respect to any such distributions.
Under current United States federal income tax law and interpretations, a
distribution of the Junior Subordinated Debentures will not be a taxable event
to holders of the Preferred Securities. Should there be a change in law, a
change in legal interpretation, a Tax Event or other circumstances, however,
the distribution could be a taxable event to holders of the Preferred
Securities. See "Certain Federal Income Tax Consequences--Distribution of the
Junior Subordinated Debentures to Holders of the Preferred Securities." If the
Company elects neither to redeem the Junior Subordinated Debentures prior to
maturity, nor to liquidate the Trust Issuer and distribute the Junior
Subordinated Debentures to holders of the Trust Securities in exchange
therefor, the Trust Securities will remain outstanding until the Stated
Maturity of the Junior Subordinated Debentures.
If the Company elects to liquidate the Trust Issuer and thereby causes
the Junior Subordinated Debentures to be distributed to holders of the Trust
Securities in exchange therefor upon liquidation of the Trust Issuer, the
Company will continue to have the right to redeem the Junior Subordinated
Debentures in certain circumstances as described under "Description of the
Junior Subordinated Debentures--Redemption or Exchange."
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under
the Trust Agreement (an "Event of Default") with respect to the Preferred
Securities issued thereunder (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) the occurrence of a Debenture Event of Default under
the Indenture (see "Description of the Junior Subordinated
Debentures--Debenture Events of Default"); or
(ii) default in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period of
30 days; or
(iii) default in the payment of any Redemption Price of any
Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any
material respect, of any covenant or warranty of the Trust Issuer
Trustees in the Trust Agreement (other than a covenant or warranty a
default in the performance of which or the breach of which is dealt with
in clause (ii) or (iii) above), and continuation of such default or
breach for a period of 60 days after there has been given, by registered
or certified mail, to the defaulting Trust Issuer Trustee or Trustees by
the holders of at least 25% in aggregate Liquidation Amount of the
outstanding Preferred Securities, a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" under the Trust Agreement; or
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<PAGE> 62
(v) the occurrence of certain events of bankruptcy or
insolvency with respect to the Property Trustee and the failure by the
Company to appoint a successor Property Trustee within 60 days thereof.
Within 90 days after the occurrence of any Event of Default actually
known to the Property Trustee, the Property Trustee shall transmit notice of
such Event of Default to the holders of the Preferred Securities, the
Administrative Trustees and the Company, as holder of the Common Securities,
unless such Event of Default shall have been cured or waived. The Company, as
depositor, and the Administrative Trustees are required to file annually with
the Property Trustee a certificate as to whether or not they are in compliance
with all of the conditions and covenants applicable to them under the Trust
Agreement.
If a Debenture Event of Default has occurred and is continuing, the
Preferred Securities shall have a preference over the Common Securities as
described above. See "Description of the Preferred Securities--Subordination
of the Common Securities" and "--Liquidation Distribution Upon Dissolution."
The existence of a Debenture Event of Default does not entitle the holders of
the Preferred Securities to accelerate the maturity thereof.
REMOVAL OF THE TRUST ISSUER TRUSTEES
Unless a Debenture Event of Default shall have occurred and be
continuing, any Trust Issuer Trustee may be removed at any time by the holder
of the Common Securities. If a Debenture Event of Default has occurred and is
continuing, the Property Trustee and the Delaware Trustee may be removed at
such time by the holders of a majority in Liquidation Amount of the outstanding
Preferred Securities. In no event will the holders of the Preferred Securities
have the right to vote to appoint, remove or replace the Administrative
Trustees, which voting rights are vested exclusively in the Company as the
holder of the Common Securities. No resignation or removal of any Trust Issuer
Trustee and no appointment of a successor trustee shall be effective until the
acceptance of appointment by the successor trustee in accordance with the
provisions of the Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or from time to time, for the purpose of meeting the legal requirements of
the Trust Indenture Act of 1939, as amended, (the "Trust Indenture Act") if
applicable, or of any jurisdiction in which any part of the Trust Property (as
defined in the Trust Agreement) may at the time be located, the Company, as the
holder of the Common Securities, shall have power to appoint one or more
persons either to act as a co-trustee, jointly with the Property Trustee, of
all or any part of such Trust Property, or to act as separate trustee of any
such property, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such person or persons in such
capacity any property, title, right or power deemed necessary or desirable,
subject to the provisions of the Trust Agreement. In the event a Debenture
Event of Default has occurred and is continuing, the Property Trustee alone
shall have power to make such appointment.
MERGER OR CONSOLIDATION OF THE TRUST ISSUER TRUSTEES
Any entity into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which such Trust Issuer Trustee shall be a party
or any entity succeeding to all or substantially all of the corporate trust
business of such Trust Issuer Trustee, shall be the successor of such Trust
Issuer Trustee under the Trust Agreement, provided such entity shall be
otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS OR REPLACEMENTS OF THE TRUST ISSUER
The Trust Issuer may not merge or consolidate with or into, be replaced
by, or convey, transfer or lease its properties and assets substantially as an
entirety to any entity, except as described below or as otherwise described in
the Trust Agreement. The Trust Issuer may, at the request of the Company, with
the consent of the Administrative Trustees and without the consent of the
holders of the Preferred Securities, the Property Trustee or the Delaware
Trustee, merge or consolidate with or into, be replaced by, or convey, transfer
or lease its properties and assets substantially as an entirety to, a trust
organized as such under the laws of any state; provided that (i) such successor
entity either (a) expressly assumes all of the obligations of the Trust Issuer
with respect to the Preferred Securities or (b) substitutes for the Preferred
Securities other securities having substantially the same terms as the
Preferred Securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Preferred Securities in priority with respect
to distributions and payments upon liquidation, redemption and otherwise, (ii)
the Company expressly appoints a trustee of such successor entity possessing
the same powers and duties as the Property Trustee as the holder of the Junior
Subordinated Debentures, (iii) the Successor Securities are registered or
listed, or any Successor Securities will be registered or listed upon
notification of issuance, on any national securities exchange or other
organization on which the Preferred Securities are then registered or listed,
if any, (iv) such merger, consolidation, replacement, conveyance, transfer or
lease does
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not cause the Preferred Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization, (v)
such merger, consolidation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the holders of the
Preferred Securities (including any Successor Securities) in any material
respect, (vi) such successor entity has a purpose substantially identical to
that of the Trust Issuer, (vii) prior to such merger, consolidation,
replacement, conveyance, transfer or lease, the Company has received an opinion
from independent counsel to the Trust Issuer experienced in such matters to the
effect that (a) such merger, consolidation, replacement, conveyance, transfer
or lease does not adversely affect the rights, preferences and privileges of
the holders of the Preferred Securities (including any Successor Securities) in
any material respect and (b) following such merger, consolidation, replacement,
conveyance, transfer or lease, neither the Trust Issuer nor such successor
entity will be required to register as an investment company under the
Investment Company Act and (viii) the Company or any permitted successor or
assignee owns all of the common securities or its equivalent of such successor
entity and guarantees the obligations of such successor entity under the
Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, the Trust Issuer shall not, except with the
consent of holders of 100% in Liquidation Amount of the Preferred Securities,
merge or consolidate with or into or be replaced by or convey, transfer or
lease its properties and assets substantially as an entirety to any other
entity or permit any other entity to merge or consolidate with or into the
Trust Issuer, if such merger or consolidation, replacement, conveyance,
transfer or lease would cause the Trust Issuer or the successor entity to be
classified as other than a grantor trust for United States federal income tax
purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of the
Guarantee--Amendments and Assignment" and as otherwise required by law and the
Trust Agreement, the holders of the Preferred Securities will have no voting
rights.
The Trust Agreement may be amended from time to time by the holder of the
Common Securities, the Property Trustee and the Administrative Trustees,
without the consent of the holders of the Preferred Securities, (i) with
respect to acceptance of appointment of a successor trustee, (ii) to cure any
ambiguity, correct or supplement any provisions in the Trust Agreement that may
be inconsistent with any other provision or to make any other provisions with
respect to matters or questions arising under the Trust Agreement, which shall
not be inconsistent with the other provisions of the Trust Agreement or (iii)
to modify, eliminate or add to any provisions of the Trust Agreement to such
extent as shall be necessary to ensure that the Trust Issuer will be classified
for United States federal income tax purposes as a grantor trust at all times
that the Preferred Securities are outstanding or to ensure that the Trust
Issuer will not be required to register as an "investment company" under the
Investment Company Act; provided, however, that in the case of clause (ii),
such action shall not adversely affect in any material respect the interests of
any holder of the Preferred Securities, and any such amendments of the Trust
Agreement shall become effective when notice thereof is given to the holders of
the Preferred Securities. The Trust Agreement may be amended by the Trust
Issuer Trustees and the holder of the Common Securities (i) with the consent of
holders representing not less than a majority (based upon Liquidation Amounts)
of the outstanding Preferred Securities and (ii) upon receipt by the Trust
Issuer Trustees of an opinion of counsel to the effect that such amendment or
the exercise of any power granted to the Trust Issuer Trustees in accordance
with such amendment will not affect the Trust Issuer's status as a grantor
trust for United States federal income tax purposes or the Trust Issuer's
exemption from status as an "investment company" under the Investment Company
Act, provided that without the consent of each holder of the Preferred
Securities, the Trust Agreement may not be amended to (a) change the amount or
timing of any Distribution on the Preferred Securities or otherwise adversely
affect the amount of any Distribution required to be made in respect of the
Preferred Securities as of a specified date or (b) restrict the right of a
holder of the Preferred Securities to institute suit for the enforcement of any
such payment on or after such date.
So long as the Junior Subordinated Debentures are held by the Property
Trustee, the Trust Issuer Trustees shall not (i) direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee or executing any trust or power conferred on the Property Trustee with
respect to the Junior Subordinated Debentures, (ii) waive any past default that
is waivable under the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Junior Subordinated Debentures shall
be due and payable or (iv) consent to any amendment, modification or
termination of the Indenture or the Junior Subordinated Debentures, where such
consent shall be required, without, in each case, obtaining the prior approval
of the holders of a majority in aggregate Liquidation Amount of all outstanding
Preferred Securities; provided, however, that where a consent under the
Indenture would require the consent of each holder of the Junior Subordinated
Debentures affected thereby, no such consent shall be given by the Property
Trustee without the prior consent of each holder of the Preferred Securities.
The Trust Issuer Trustees shall not revoke any action previously authorized or
approved by a vote of the holders of the Preferred Securities except by
subsequent vote of the holders of the Preferred Securities. The Property
Trustee shall notify each holder of the Preferred Securities of any notice of
default with respect to the Junior Subordinated Debentures. In addition to
obtaining the foregoing approvals of the holders of the Preferred Securities,
prior to taking any of the foregoing actions, the Trust Issuer shall obtain an
opinion of counsel experienced in such matters to the effect that the Trust
Issuer will continue to be classified as a grantor trust and not be classified
as an association taxable as a corporation for United States federal income tax
purposes on account of such action.
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Any required approval of holders of the Preferred Securities may be given
at a meeting of holders of the Preferred Securities convened for such purpose
or pursuant to written consent. The Property Trustee will cause a notice of
any meeting at which holders of the Preferred Securities are entitled to vote,
or of any matter upon which action by written consent of such holders is to be
taken, to be given to each holder of record of the Preferred Securities in the
manner set forth in the Trust Agreement.
No vote or consent of the holders of the Preferred Securities will be
required for the Trust Issuer to redeem and cancel the Preferred Securities in
accordance with the Trust Agreement.
Notwithstanding that holders of the Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Company, the Trust Issuer Trustees
or any affiliate of the Company or the Trust Issuer Trustees shall, for
purposes of such vote or consent, be treated as if they were not outstanding.
LIQUIDATION VALUE
The amount payable on the Preferred Securities in the event of any
liquidation of the Trust Issuer is $10 per Preferred Security plus accumulated
and unpaid Distributions, which may be in the form of a distribution of such
amount in Junior Subordinated Debentures, subject to certain exceptions. See
"Description of the Preferred Securities--Liquidation Distribution Upon
Dissolution."
EXPENSES AND TAXES
In the Indenture, the Company, as borrower, has agreed to pay all debts
and other obligations (other than with respect to the Preferred Securities) and
all costs and expenses of the Trust Issuer (including costs and expenses
relating to the organization of the Trust Issuer, the fees and expenses of the
Trust Issuer Trustees and the costs and expenses relating to the operation of
the Trust Issuer) and to pay any and all taxes and all costs and expenses with
respect thereto (other than United States withholding taxes) to which the Trust
Issuer might become subject. The foregoing obligations of the Company under
the Indenture are for the benefit of, and shall be enforceable by, any person
to whom any such debts, obligations, costs, expenses and taxes are owed (a
"Creditor") whether or not such Creditor has received notice thereof. Any such
Creditor may enforce such obligations of the Company directly against the
Company, and the Company has irrevocably waived any right or remedy to require
that any such Creditor take any action against the Trust Issuer or any other
person before proceeding against the Company. The Company has also agreed in
the Indenture to execute such additional agreements as may be necessary or
desirable to give full effect to the foregoing.
BOOK ENTRY, DELIVERY AND FORM
The Preferred Securities will be issued in the form of one or more fully
registered global securities which will be deposited with or on behalf of DTC
and registered in the name of DTC's nominee. Unless and until it is
exchangeable in whole or in part for the Preferred Securities in definitive
form, a global security may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by
DTC or any such nominee to a successor of DTC or a nominee of such successor.
Ownership of beneficial interests in a global security will be limited to
persons that have accounts with DTC or its nominee (a "Participant") or persons
that may hold interests through Participants. The Company expects that, upon
the issuance of a global security, DTC will credit, on its book-entry
registration and transfer system, the Participants' accounts with their
respective Liquidation Amounts of the Preferred Securities represented by such
global security. Ownership of beneficial interests in such global security
will be shown on, and the transfer of such ownership interests will be effected
only through, records maintained by DTC (with respect to interests of
Participants) and on the records of Participants (with respect to interests of
Persons who hold Preferred Securities through Participants). Beneficial owners
will not receive written confirmation from DTC of their purchase, but are
expected to receive written confirmations from the Participants through which
the beneficial owner enters into the transaction. Transfers of ownership
interests will be accomplished by entries on the books of Participants acting
on behalf of the beneficial owners.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Preferred Securities represented by such global security
for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in a global security will not be entitled to receive
physical delivery of the Preferred Securities in definitive form and will not
be considered the owners or holders thereof under the Indenture. Accordingly,
each person owning a beneficial interest in such a global security must rely on
the procedures of DTC and, if such person is not a Participant, on the
procedures of the Participant through which such person holds its interest, to
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exercise any rights of a holder of Preferred Securities under the Indenture.
The Company understands that, under DTC's existing practices, in the event that
the Company requests any action of holders, or an owner of a beneficial
interest in such a global security desires to take any action which a holder is
entitled to take under the Indenture, DTC would authorize the Participants
holding the relevant beneficial interests to take such action, and such
Participants would authorize beneficial owners holding their interests through
such Participants to take such action or would otherwise act upon the
instructions of beneficial owners holding their interests through them.
Redemption notices will also be sent to DTC. If less than all of the Preferred
Securities are being redeemed, the Company understands that it is DTC's
existing practice to determine by lot the amount of the interest of each
Participant to be redeemed.
Distributions on the Preferred Securities registered in the name of DTC
or its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the global security representing such Preferred Securities.
None of the Company, the Trust Issuer Trustees, any Paying Agent (as defined
herein) or any other agent of the Company or the Trust Issuer Trustees will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the global
security for such Preferred Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Disbursements of Distributions to Participants shall be the responsibility of
DTC. DTC's practice is to credit Participants' accounts on the relevant
payable date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payment on
the payable date. Payments by Participants to beneficial owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such Participant and not of
DTC, the Company, the Trust Issuer Trustees, the Paying Agent or any other
agent of the Company, subject to any statutory or regulatory requirements as
may be in effect from time to time.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to
the Company or the Trust Issuer Trustees. If DTC notifies the Company that it
is unwilling to continue as such, or if it is unable to continue or ceases to
be a clearing agency registered under the Exchange Act and a successor
depositary is not appointed by the Company within 90 days after receiving such
notice or becoming aware that DTC is no longer so registered, the Company will
issue the Preferred Securities in definitive form upon registration of transfer
of, or in exchange for, such global security. In addition, the Company may at
any time and in its sole discretion determine not to have the Preferred
Securities represented by one or more global securities and, in such event,
will issue Preferred Securities in definitive form in exchange for all of the
global securities representing such Preferred Securities.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC holds securities that its Participants deposit with DTC. DTC also
facilitates the settlement among Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Participants in DTC
include organizations ("Direct Participants"). DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange, Inc., the American
Stock Exchange, Inc., and the National Association of Securities Dealers, Inc.
Access to the DTC system is also available to others, such as securities
brokers and dealers, banks and trust companies that clear transactions through
or maintain a custodial relationship with a Direct Participant, either directly
or indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Commission.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Preferred Securities will be made by the Underwriter
in immediately available funds.
Secondary trading in preferred securities of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, the
Preferred Securities will trade in DTC's Same-Day Funds Settlement System, and
secondary market trading activity in the Preferred Securities will therefore be
required by DTC to settle in immediately available funds. No assurance can be
given as to the effect, if any, of settlement in immediately available funds on
trading activity in the Preferred Securities.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities will be made to DTC,
which will credit the relevant accounts at DTC on the applicable Distribution
Dates or, if the Preferred Securities are not held by DTC, such payments will
be made by check mailed to the address of the holder entitled thereto as such
address appears on the securities register for the Trust Securities. The
paying agent (the "Paying Agent") will initially be the Property Trustee and
any co-paying agent chosen by the Property Trustee and acceptable to the
Administrative Trustees. The Paying Agent will be permitted to resign as
Paying Agent upon 30 days' written
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notice to the Property Trustee and the Administrative Trustees. If the
Property Trustee is no longer the Paying Agent, the Property Trustee will
appoint a successor (which must be a bank or trust company reasonably
acceptable to the Administrative Trustees and the Company) to act as Paying
Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as the registrar and the transfer agent for
the Preferred Securities. Registration of transfers of Preferred Securities
will be effected without charge by or on behalf of the Trust Issuer, except for
the payment of any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. In the event of any redemption, the
Trust Issuer will not be required to (i) issue, register the transfer of, or
exchange any Preferred Securities during a period beginning at the opening of
business 15 days before the date of mailing of a notice of redemption of any
Preferred Securities called for redemption and ending at the close of business
on the day of such mailing; or (ii) register the transfer or exchange of any
Preferred Securities so selected for redemption, in whole or in part, except
the unredeemed portion of any such Preferred Securities being redeemed in part.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the Trust Agreement and, after such Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to
this provision, the Property Trustee is under no obligation to exercise any of
the powers vested in it by the Trust Agreement at the request of any holder of
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby. If no Event of
Default has occurred and is continuing and the Property Trustee is required to
decide between alternative causes of action, construe ambiguous provisions in
the Trust Agreement or is unsure of the application of any provision of the
Trust Agreement, and the matter is not one on which holders of Preferred
Securities are entitled under the Trust Agreement to vote, then the Property
Trustee will take such action as it deems advisable and in the best interests
of the holders of the Preferred Securities and will have no liability except
for its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Trust Issuer Trustees are authorized and directed to conduct the
affairs of and to operate the Trust Issuer in such a way that the Trust Issuer
will not be deemed to be an "investment company" required to be registered
under the Investment Company Act or classified as an association taxable as a
corporation for United States federal income tax purposes or as other than a
grantor trust and so that the Junior Subordinated Debentures will be treated as
indebtedness of the Company for United States federal income tax purposes. The
Company and the Administrative Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of the Trust Issuer
or the Trust Agreement, that the Company and the Administrative Trustees
determine in their discretion to be necessary or desirable for such purposes.
Holders of the Preferred Securities have no preemptive or similar rights.
The Trust Issuer may not borrow money or issue debt or mortgage or pledge
any of its assets.
The Trust Agreement and the Preferred Securities will be governed by, and
construed in accordance with, the laws of the State of Delaware.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under the Indenture
between the Company and U.S. Trust Company of Texas, N.A., as the "Debenture
Trustee." The Indenture will be qualified as an Indenture under the Trust
Indenture Act. This summary of certain terms and provisions of the Junior
Subordinated Debentures and the Indenture does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, the Indenture
and to the Trust Indenture Act. The form of the Indenture has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
GENERAL
Concurrently with the issuance of the Preferred Securities, the Trust
Issuer will invest the proceeds thereof, together with the consideration paid
by the Company for the Common Securities, in the Junior Subordinated
Debentures. The Junior Subordinated Debentures will bear interest, accruing
from the date of original issuance, in respect of the principal amount thereof,
at the annual rate of ____%, payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year
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(each, an "Interest Payment Date"), commencing June 30, 1998, to the person in
whose name each Junior Subordinated Debenture is registered, subject to certain
exceptions, at the close of business on the relevant record date. The record
dates for the Junior Subordinated Debentures will be, for so long as they are
held by the Trust Issuer or in global form, the Business Day next preceding
such Interest Payment Date and, in the case of Junior Subordinated Debentures
not held by the Trust Issuer or in global form, the 15th day (whether or not a
Business Day) prior to each Interest Payment Date. It is anticipated that,
until the liquidation, if any, of the Trust Issuer, the Junior Subordinated
Debentures will be held in the name of the Property Trustee in trust for the
benefit of the holders of the Trust Securities. The amount of interest payable
for any period will be computed on the basis of a 360-day year of twelve 30-day
months. In the event that any date on which interest is payable on the Junior
Subordinated Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on the date such payment was
originally payable. Accrued interest that is not paid on the applicable
Interest Payment Date will bear additional interest on the amount thereof (to
the extent permitted by law) at the rate per annum of ____% thereof, compounded
quarterly from the relevant Interest Payment Date. The term "interest" as used
herein shall include quarterly interest payments, interest on quarterly
interest payments not paid on the applicable Interest Payment Date and
Additional Interest (as defined below), as applicable.
The Junior Subordinated Debentures will mature on June 30, 2028. The
Junior Subordinated Debentures will be unsecured and will rank junior and be
subordinate in right of payment to all Senior Indebtedness of the Company. See
"--Subordination." Because the Company is a holding company, the right of the
Company to participate in any distribution of assets of any subsidiary,
including the Bank, upon such subsidiary's liquidation or reorganization or
otherwise (and thus the ability of the holders of the Preferred Securities to
benefit indirectly from such distributions), is subject to the prior claims of
creditors of that subsidiary, except to the extent that the Company may itself
be recognized as a creditor of that subsidiary. Accordingly, the Junior
Subordinated Debentures (and therefore the Preferred Securities) will be
effectively subordinated to all existing and future liabilities of the
Company's subsidiaries, and holders of the Junior Subordinated Debentures
should look only to the assets of the Company for payments on the Junior
Subordinated Debentures. The Indenture does not limit the incurrence or
issuance of other secured or unsecured debt of the Company, including Senior
Indebtedness, whether under the Indenture or any existing or other indenture
that the Company may enter into in the future or otherwise.
RIGHT TO DEFER INTEREST PAYMENT OBLIGATION
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right under the Indenture at any time or from time to time
during the term of the Junior Subordinated Debentures to defer the payment of
interest on the Junior Subordinated Debentures for a period not exceeding 20
consecutive quarters with respect to each Extension Period, provided that no
Extension Period may extend beyond the Stated Maturity of the Junior
Subordinated Debentures. At the end of each Extension Period, the Company must
pay all interest then accrued and unpaid on the Junior Subordinated Debentures
(together with interest on such unpaid interest at the annual rate of ____%,
compounded quarterly from the relevant Interest Payment Date, to the extent
permitted by applicable law). During an Extension Period, interest would
continue to accrue and holders of the Junior Subordinated Debentures would be
required to accrue interest income for United States federal income tax
purposes. See "Certain Federal Income Tax Consequences--Interest Income and
Original Issue Discount."
During any such Extension Period, the Company may not, and may not permit
any subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock (other than (a) the
reclassification of any class of the Company's capital stock into another class
of capital stock, (b) dividends or distributions in common stock of the
Company, (c) any declaration of a dividend in connection with the
implementation of a shareholders' rights plan, the issuance of stock under any
such plan in the future or the redemption or repurchase of any rights pursuant
thereto, (d) payments under the Guarantee and (e) purchases of common stock
related to the issuance of common stock or rights under any of the Company's
benefit plans for its or its subsidiaries' directors, officers or employees),
(ii) make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu
with or junior in interest to the Junior Subordinated Debentures, (iii) make
any guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks pari passu
with or junior in interest to the Junior Subordinated Debentures other then
payments pursuant to the Guarantee, or (iv) redeem, purchase or acquire less
than all the outstanding Junior Subordinated Debentures or any of the Preferred
Securities. Upon the termination of any such Extension Period and the payment
of all interest then accrued and unpaid (together with interest thereon at the
rate of ____%, compounded quarterly, to the extent permitted by applicable
law), the Company may elect to begin a new Extension Period subject to the
above requirements. No interest shall be due and payable during an Extension
Period, except at the end thereof.
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The Company must give the Property Trustee, the Administrative Trustees
and the Debenture Trustee notice of its election of such Extension Period at
least one Business Day prior to the earlier of (i) (a) the date interest on the
Junior Subordinated Debentures would have been payable except for the election
to begin such Extension Period (if the Property Trustee is not then the only
registered holder of the Debentures), (b) the date such Distributions are
payable (if the Property Trustee is then the only registered holder of
Debentures); or (ii) the date the Administrative Trustees are required to give
notice of the record date for payments of interest on the Junior Subordinated
Debentures, or the date Distributions are payable, to the Nasdaq National
Market or other applicable self-regulatory organization or to holders of the
Preferred Securities or Junior Subordinated Debentures as of the record date,
but in any event not less than one Business Day prior to such record date. The
Debenture Trustee shall give notice of the Company's election to begin a new
Extension Period to the holders of the Preferred Securities. There is no
limitation on the number of times that the Company may elect to begin an
Extension Period.
ADDITIONAL INTEREST
If the Trust Issuer or the Property Trustee is required to pay any
additional taxes, duties, assessments or other governmental charges as a result
of a Tax Event, the Company will pay such additional amounts (the "Additional
Interest") on the Junior Subordinated Debentures as shall be required so that
the Distributions payable by the Trust Issuer shall not be reduced as a result
of any such additional taxes, duties or other governmental charges.
REDEMPTION OR EXCHANGE
The Company will have the right to redeem the Junior Subordinated
Debentures prior to maturity (i) on or after June 30, 2003, in whole at any
time or in part from time to time, or (ii) at any time in whole (but not in
part), within 180 days following the occurrence of a Tax Event, an Investment
Company Event or a Capital Treatment Event, in either case at a redemption
price equal to 100% of the principal amount thereof plus the accrued and unpaid
interest on the Junior Subordinated Debentures so redeemed to the date fixed
for redemption. See "Risk Factors--Redemption Due to Tax Event, Investment
Company Event or Capital Treatment Event." The proceeds of any such redemption
will be used by the Trust Issuer to redeem a Like Amount of Trust Securities.
The Junior Subordinated Debentures will not be subject to any sinking fund. Any
such redemption prior to the Stated Maturity will be subject to prior
regulatory approvals if then required.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the redemption date (unless a shorter period is specified
in the Junior Subordinated Debentures to be redeemed) to each Holder of the
Junior Subordinated Debentures to be redeemed at its registered address.
Unless the Company defaults in payment of the redemption price, on and after
the redemption date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof called for redemption.
REGISTRATION, DENOMINATION AND TRANSFER
The Junior Subordinated Debentures will initially be registered in the
name of the Trust Issuer. If the Junior Subordinated Debentures are
distributed to holders of Preferred Securities, it is anticipated that the
depository arrangements for the Junior Subordinated Debentures will be
substantially identical to those in effect for the Preferred Securities. See
"Description of Preferred Securities--Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in
definitive form.
Payments on Junior Subordinated Debentures represented by a global
security will be made to DTC or its nominee, as the case may be, as the
registered holder of the Junior Subordinated Debentures, as described under
"Description of Preferred Securities--Book Entry, Delivery and Form." If Junior
Subordinated Debentures are issued in definitive form, principal and interest
will be payable, the transfer of the Junior Subordinated Debentures will be
registrable, and Junior Subordinated Debentures will be exchangeable for Junior
Subordinated Debentures of other authorized denominations of a like aggregate
principal amount, at the corporate trust office of the Debenture Trustee or at
the offices of any Paying Agent or transfer agent appointed by the Company,
provided that payment of interest may be made at the option of the Company by
check mailed to the address of the persons entitled thereto or by wire transfer
of immediately available funds.
Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of like tenor, of any authorized denominations and of a
like aggregate principal amount.
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Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Indenture or at the office of any transfer agent designated by the Company for
such purpose without service charge and upon payment of any taxes and other
governmental charges as described in the Indenture. The Company will appoint
the Debenture Trustee as securities registrar under the Indenture. The Company
may at any time designate additional transfer agents with respect to the Junior
Subordinated Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days prior to the date of mailing of a notice of redemption of the
Junior Subordinated Debentures to be redeemed and ending at the close of
business on the day of mailing of the relevant notice of redemption or (ii)
transfer or exchange any Junior Subordinated Debentures so selected for
redemption, except, in the case of any Junior Subordinated Debentures being
redeemed in part, any portion thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying agent, or then
held by the Company in trust, for the payment of the principal of or interest
(and premium, if any) on any Junior Subordinated Debenture and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall, at the request of the Company, be repaid to
the Company and the holder of such Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Company for
payment thereof.
RESTRICTIONS ON CERTAIN PAYMENTS
The Company will also covenant, as to the Junior Subordinated Debentures,
that it will not, and will not permit any subsidiary of the Company to, (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of the Company's capital
stock (other than (a) the reclassification of any class of the Company's
capital stock into another class of capital stock, (b) dividends or
distributions in common stock of the Company, (c) any declaration of a dividend
in connection with the implementation of a shareholders' rights plan, the
issuance of stock under any such plan in the future or the redemption or
repurchase of any rights pursuant thereto, (d) payments under the Guarantee and
(e) purchases of common stock related to the issuance of common stock or rights
under any of the Company's benefit plans for its or its subsidiaries'
directors, officers or employees), (ii) make any payment of principal, interest
or premium, if any, on or repay or repurchase or redeem any debt securities of
the Company that rank pari passu with or junior in interest to the Junior
Subordinated Debentures, (iii) make any guarantee payments with respect to any
guarantee by the Company of the debt securities of any subsidiary of the
Company if such guarantee ranks pari passu with or junior to the Junior
Subordinated Debentures (other than payments pursuant to the Guarantee) or (iv)
redeem, purchase or acquire less than all of the outstanding Junior
Subordinated Debentures or any of the Preferred Securities if at such time (i)
there shall have occurred a Debenture Event of Default with respect to the
Junior Subordinated Debentures, (ii) if the Junior Subordinated Debentures are
held by the Trust Issuer, the Company shall be in default with respect to its
payment of any obligations under the Guarantee relating to the Preferred
Securities or (iii) the Company shall have given notice of its election of an
Extension Period as provided in the Indenture with respect to the Junior
Subordinated Debentures and shall not have rescinded such notice, or such
Extension Period, or any extension thereof, shall be continuing.
MODIFICATION OF INDENTURE
From time to time the Company and the Debenture Trustee may, without the
consent of the holders of the Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies, qualifying, or maintaining the
qualification of, the Indenture under the Trust Indenture Act. The Indenture
contains provisions permitting the Company and the Debenture Trustee, with the
consent of the holders of not less than a majority in principal amount of the
Junior Subordinated Debentures affected, to modify the Indenture in a manner
affecting the rights of the holders of the Junior Subordinated Debentures,
provided that no such modification may, without the consent of the holder of
each outstanding Subordinated Debenture so affected, (i) extend the Stated
Maturity of the Junior Subordinated Debentures, reduce the principal amount
thereof or reduce the rate or extend the time of payment of interest thereon or
(ii) reduce the percentage of principal amount of the Junior Subordinated
Debentures, the holders of which are required to consent to any such
modification of the Indenture.
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DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures that has occurred and
is continuing constitutes a "Debenture Event of Default":
(i) failure for 30 days to pay interest (including Additional
Interest, if any) on the Junior Subordinated Debentures when due (subject to
the deferral of certain interest payments in the case of an Extension
Period); or
(ii) failure to pay any principal on the Junior Subordinated
Debentures when due, whether at maturity, upon declaration of acceleration
of maturity, upon redemption or otherwise; or
(iii) failure to observe or perform any other covenants contained in
the Indenture for 90 days after written notice to the Company from the
Debenture Trustee or the holders of at least 25% in aggregate outstanding
principal amount of the outstanding Junior Subordinated Debentures; or
(iv) certain events involving bankruptcy, insolvency or
reorganization of the Company, subject in certain instances to any such
event remaining in effect for a period of 60 consecutive days.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate outstanding principal amount of the Junior Subordinated Debentures
may declare the principal due and payable immediately upon a Debenture Event of
Default, and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in aggregate Liquidation Amount of the Preferred Securities shall have such
right. The holders of a majority in aggregate outstanding principal amount of
the Junior Subordinated Debentures may annul such declaration and waive the
default if the default (other than the non-payment of the principal of the
Junior Subordinated Debentures which has become due solely by such
acceleration) has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee. Should the holders of the Junior
Subordinated Debentures fail to annul such declaration and waive such default,
the holders of a majority in aggregate Liquidation Amount of the Preferred
Securities shall have such right.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures affected thereby may, on behalf of the holders
of all the Junior Subordinated Debentures, waive any past default, except a
default in the payment of principal or interest (unless such default has been
cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with the
Debenture Trustee) or a default in respect of a covenant or provision which
under the Indenture cannot be modified or amended without the consent of the
holder of each outstanding Junior Subordinated Debenture. Should the holders
of the Junior Subordinated Debentures fail to annul such declaration and waive
such default, the holders of a majority in aggregate Liquidation Amount of the
Preferred Securities shall have such right. The Company is required to file
annually with the Debenture Trustee a certificate as to whether or not the
Company is in compliance with all the conditions and covenants applicable to it
under the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest or
principal on the Junior Subordinated Debentures on the date such interest or
principal is otherwise payable, a holder of the Preferred Securities may
institute a Direct Action against the Company for enforcement of payment to
such holder of the principal of or interest on the Junior Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Preferred Securities of such holder. The Company may not amend the
Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the Preferred Securities. If
the right to bring a Direct Action is removed, the Trust Issuer may become
subject to the reporting obligations under the Exchange Act. The Company shall
have the right under the Indenture to set-off any payment made to such holder
of the Preferred Securities by the Company in connection with a Direct Action.
The holders of the Preferred Securities will not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the Junior Subordinated Debentures unless there
shall have been an Event of Default under the Trust Agreement. See
"Description of the Preferred Securities--Events of Default; Notice."
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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 is a party, or any corporation
succeeding to all or substantially all the corporate trust business of the
Trustee, is the automatic successor of the Trustee, provided that such
corporation is qualified and eligible. In case any Junior Subordinated
Debentures have been authenticated but not delivered by the Trustee then in
office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the Debentures
so authenticated with the same effect as if such successor Trustee had itself
authenticated such Debentures.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Company that may adversely affect holders of the
Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all of the Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and
payable at their Stated Maturity within one year, and the Company deposits or
causes to be deposited with the Debenture Trustee funds, in trust, in an amount
sufficient to pay and discharge the entire indebtedness on the Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation, including interest (including any Additional Interest) to the
date of the deposit or to the Stated Maturity, as applicable, then the
Indenture will cease to be of further effect (except as to the Company's
obligations to pay all other sums due pursuant to the Indenture, to provide the
officers' certificates and opinions of counsel described therein and to
compensate and reimburse the Trustee, and the requirement that funds be repaid
to the Company) and the Company will be deemed to have satisfied and discharged
the Indenture.
SUBORDINATION
In the Indenture, the Company has covenanted and agreed that the Junior
Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior Indebtedness to the extent provided in the
Indenture. If the Company defaults in the payment of any principal, premium,
interest or any other payment due on any Senior Indebtedness, or if the
maturity of any Senior Indebtedness has been accelerated because of a default,
then no payment shall be made with respect to the principal of or interest on
the Junior Subordinated Debentures unless and until such default has been cured
or waived or has ceased to exist or such Senior Indebtedness has been paid.
Upon any payment or distribution of assets to creditors upon the liquidation,
dissolution, winding-up, reorganization, assignment for the benefit of
creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company, the holders of Senior Indebtedness will
first be entitled to receive payment in full of principal of and interest, if
any, on such Senior Indebtedness before the holders of the Junior Subordinated
Debentures, or the Property Trustee on behalf of the holders, will be entitled
to receive or retain any payment in respect of the principal of or interest, if
any, on the Junior Subordinated Debentures. Moreover, in such event any
payment or distribution on account of the Junior Subordinated Debentures,
whether in cash, securities or other property, that would otherwise (but for
the subordination provisions) be payable or deliverable in respect of the
Junior Subordinated Debentures will be paid or delivered directly to the
holders of Senior Indebtedness in accordance with the priorities then existing
among such holders until all Senior Indebtedness has been paid in full. By
reason of such subordination, in the event of the insolvency of the Company,
holders of Senior Indebtedness may receive more, ratably, and holders of the
Junior Subordinated Debentures may receive less, ratably, than the other
creditors of the Company.
As used herein, "Senior Indebtedness" means "Senior Debt" and "Subordinated
Debt."
In the event of the acceleration of the maturity of any of the Junior
Subordinated Debentures, the holders of all Senior Indebtedness outstanding at
the time of such acceleration may first be entitled to receive payment in full
of all amounts due thereon (including any amounts due upon acceleration) before
the holders of the Junior Subordinated Debentures will be entitled to receive
or retain any payment in respect of the principal of or interest, if any, on
the Junior Subordinated Debentures.
"Debt" means with respect to the Company, whether recourse is to all or a
portion of the assets of the Company and whether or not contingent: (i) every
obligation of the Company for money borrowed; (ii) every obligation of the
Company evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of the Company with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of the Company; (iv) every obligation of the Company issued or
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assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of the Company; (vi) all
indebtedness of the Company whether incurred on or prior to the date of the
Indenture or thereafter incurred, for claims in respect of derivative products,
including interest rate, foreign exchange rate and commodity forward contracts,
options and swaps and similar arrangements; and (vii) every obligation of the
type referred to in clauses (i) through (vi) of another entity and all
dividends of another entity the payment of which, in either case, the Company
has guaranteed or is responsible or liable, directly or indirectly, as obligor
or otherwise.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Junior Subordinated Debentures or to other
Debt which is pari passu with, or subordinated to, the Junior Subordinated
Debentures; provided, however, that Senior Debt shall not be deemed to include:
(i) any Debt of the Company which when incurred and without respect to any
election under Section 1111(b) of the United States Bankruptcy Code of 1978, as
amended, was without recourse to the Company, (ii) any Debt of the Company to
any of its subsidiaries, and (iii) any Debt to any employee of the Company.
"Subordinated Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of the Indenture or thereafter
incurred, which is by its terms expressly provided to be junior and subordinate
to other Debt of the Company (other than the Debentures), except that
Subordinated Debt shall not include debentures sold by the Company to the
Trust.
The Indenture places no limitation on the amount of Senior Indebtedness that
may be incurred by the Company. The Company may from time to time incur
indebtedness constituting Senior Indebtedness.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of New York, without regard
to conflicts of laws principles thereof.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Debenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of the Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Debenture Trustee is not required to
expend or risk its own funds or otherwise incur personal financial liability in
the performance of its duties if the Debenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
DISTRIBUTION OF THE JUNIOR SUBORDINATED DEBENTURES
As described under "Description of the Preferred Securities--Liquidation of
the Trust Issuer and Distribution of the Junior Subordinated Debentures to
Holders," under certain circumstances involving the termination of the Trust
Issuer, Junior Subordinated Debentures may be distributed to the holders of the
Preferred Securities in exchange therefor upon liquidation of the Trust Issuer,
after satisfaction of liabilities to creditors of the Trust Issuer as provided
by applicable law. Any such distribution will be subject to receipt of prior
regulatory approval if then required. If the Junior Subordinated Debentures
are distributed to the holders of Preferred Securities upon the liquidation of
the Trust Issuer, the Company will use its best efforts to list the Junior
Subordinated Debentures on the Nasdaq National Market or such stock exchanges,
if any, on which the Preferred Securities are then listed. There can be no
assurance as to the market price of any Junior Subordinated Debentures that may
be distributed to the holders of the Preferred Securities.
PAYMENT AND PAYING AGENTS
Payment of principal of and interest on the Junior Subordinated Debentures
will be made at the offices of the Debenture Trustee or at the offices of such
Paying Agent or Paying Agents as the Company may designate from time to time,
except that at the option of the Company payment of any interest may be made
(i) except in the case of global Junior Subordinated Debentures, by check
mailed to the address of the person entitled thereto as such address shall
appear in the Securities Register
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(as defined in the Indenture) or (ii) by transfer to an account maintained by
the person entitled thereto as specified in the Securities Register, provided
that proper transfer instructions have been received by the regular record
date. Payment of interest on the Junior Subordinated Debentures will be made
to the person in whose name the Junior Subordinated Debenture is registered at
the close of business on the regular record date for such interest, except in
the case of Defaulted Interest. The Company may at any time designate
additional Paying Agents or rescind the designation of any Paying Agent;
however, the Company will at all times be required to maintain a Paying Agent
in each Place of Payment (as defined in the Indenture) for the Junior
Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or then
held by the Company in trust, for the payment of the principal of or interest
on the Junior Subordinated Debentures and remaining unclaimed for two years
after such principal or interest has become due and payable shall be repaid to
the Company upon written request of the Company on May 31 of each year or (if
then held in trust by the Company) will be discharged from such trust and the
holders of the Junior Subordinated Debentures shall thereafter look, as general
unsecured creditors, only to the Company for payment thereof.
REGISTRAR AND TRANSFER AGENT
The Company will designate a registrar or registrars (the "Debenture
Registrar") to act as the registrar and the transfer agent for the Junior
Subordinated Debentures. Junior Subordinated Debentures may be presented for
registration of transfer (with the form of transfer endorsed thereon, or a
satisfactory written instrument of transfer, duly executed) at the office of
the registrar. The Company may at any time rescind the designation of any such
transfer agent or approve a change in the location through which any such
transfer agent acts; provided that the Company maintains a transfer agent. The
Company may at any time designate additional transfer agents with respect to
the Junior Subordinated Debentures. In the event of any redemption, neither
the Company nor the Debenture Registrar will be required to (i) issue, register
the transfer of or exchange Junior Subordinated Debentures during a period
beginning at the opening of business 15 days prior to the day of selection for
redemption of Junior Subordinated Debentures and ending at the close of
business on the day of mailing of the relevant notice of redemption, or (ii)
transfer or exchange any Junior Subordinated Debentures so selected for
redemption, except, in the case of any Junior Subordinated Debentures being
redeemed in part, any portion thereof not to be redeemed.
DESCRIPTION OF THE GUARANTEE
This summary of certain provisions of the Guarantee does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
of the provisions of the Guarantee. The form of the Guarantee has been filed
as an exhibit to the Registration Statement of which this Prospectus is a part.
GENERAL
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to
the holders of the Preferred Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Trust Issuer may have or
assert other than the defense of payment. The following payments with respect
to the Preferred Securities, to the extent not paid by or on behalf of the
Trust Issuer (the "Guarantee Payments"), will be subject to the Guarantee: (i)
any accumulated and unpaid Distributions required to be paid on the Preferred
Securities, to the extent that the Trust Issuer has funds on hand available
therefor at such time, (ii) the Redemption Price with respect to any Preferred
Securities called for redemption, to the extent that the Trust Issuer has funds
on hand available therefor at such time, or (iii) upon a voluntary or
involuntary dissolution, winding up or termination of the Trust Issuer (unless
the Junior Subordinated Debentures are distributed to holders of the Preferred
Securities in exchange therefor), the lesser of (a) the Liquidation
Distribution, to the extent that the Trust Issuer has funds available therefor
at such time, and (b) the amount of assets of the Trust Issuer remaining
available for distribution to holders of the Preferred Securities after
satisfaction of liabilities to creditors of the Trust Issuer as required by
applicable law. The Company's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by the Company to the
holders of the Preferred Securities or by causing the Trust Issuer to pay such
amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Trust Issuer's obligations under the Preferred Securities, but will apply
only to the extent that the Trust Issuer has funds sufficient to make such
payments, and is not a guarantee of collection.
If the Company does not make interest payments on the Junior Subordinated
Debentures held by the Trust Issuer, the Trust Issuer will not be able to pay
Distributions on the Preferred Securities and will not have funds legally
available therefor. The Guarantee will rank subordinate and junior in right of
payment to all Senior Indebtedness of the Company. See "Description of the
Guarantee--Status of the Guarantee." Because the Company is a holding company,
the right of the Company to participate
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in any distribution of assets of any subsidiary upon such subsidiary's
liquidation or reorganization or otherwise is subject to the prior claims of
creditors of that subsidiary, except to the extent the Company may itself be
recognized as a creditor of that subsidiary. Accordingly, the Company's
obligations under the Guarantee will be effectively subordinated to all
existing and future liabilities of the Company's subsidiaries, and claimants
should look only to the assets of the Company for payments thereunder. The
Guarantee does not limit the incurrence or issuance of other secured or
unsecured debt of the Company, including Senior Indebtedness, whether under the
Indenture, any other indenture that the Company may enter into in the future,
or otherwise. The Company may from time to time to incur indebtedness
constituting Senior Indebtedness.
The Company, through the Guarantee, Trust Agreement, Junior Subordinated
Debentures and Indenture, fully, irrevocably and unconditionally guarantees all
of the Trust Issuer's obligations under the Preferred Securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes such guarantee. It is only the combined operation
of these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Trust Issuer's obligations under the Preferred
Securities. See "Relationship Among the Preferred Securities, Junior
Subordinated Debentures and Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Indebtedness
of the Company in the same manner as the Junior Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Company to enforce its rights under the Guarantee without first instituting
a legal proceeding against any other person or entity). The Guarantee will be
held for the benefit of the holders of the Preferred Securities. The Guarantee
will not be discharged except by payment of the Guarantee Payments in full to
the extent not paid by the Trust Issuer or upon distribution to the holders of
the Preferred Securities of the Junior Subordinated Debentures.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of the Preferred Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of the
outstanding Preferred Securities. The manner of obtaining any such approval
will be as set forth under "Description of the Preferred Securities--Voting
Rights; Amendment of the Trust Agreement." All guarantees and agreements
contained in the Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Company and shall inure to the benefit of
the holders of the Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder if such
failure remains unremedied for any applicable cure period. The holders of not
less than a majority in aggregate Liquidation Amount of the Preferred
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Guarantee Trustee in respect of
such Guarantee or to direct the exercise of any trust or power conferred upon
the Guarantee Trustee under the Guarantee.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with
all the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Company in the performance of the Guarantee, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after default with respect to the Guarantee, must exercise the same degree of
care and skill as a prudent person would exercise or use in the conduct of his
or her own affairs. Subject to this provision, the Guarantee Trustee is under
no obligation to exercise any of the powers vested in it by the Guarantee at
the request of any holder of the Preferred Securities unless it is offered
reasonable indemnity by such holder against the costs, expenses and liabilities
that might be incurred thereby. The Guarantee Trustee is not required to
expend or risk its own funds or otherwise incur personal financial liability in
the performance of its duties if the Guarantee Trustee reasonably believes
repayment or adequate indemnity is not reasonably assured to it.
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TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon (a)
full payment of the Redemption Price of the Preferred Securities, (b) full
payment of the amounts payable upon liquidation of the Trust Issuer or (c)
distribution of the Junior Subordinated Debentures to the holders of the
Preferred Securities in exchange therefor. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of the Preferred Securities must restore payment of any sums paid under the
Preferred Securities or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York, without regard to conflicts of laws principles
thereof.
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
JUNIOR SUBORDINATED DEBENTURES AND GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent the Trust Issuer has funds available for the payment of such
Distributions) are irrevocably guaranteed by the Company as and to the extent
set forth under "Description of the Guarantee." The Company's obligations
under the Junior Subordinated Debentures, Indenture, Trust Agreement and
Guarantee provide, in the aggregate, a full, irrevocable and unconditional
guarantee of payments of distributions and other amounts due on the Preferred
Securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such a guarantee. It is only
the combined operation of these documents that has the effect of providing a
full, irrevocable and unconditional guarantee of the Trust Issuer's obligations
under the Preferred Securities. If and to the extent that the Company does not
make payments on the Junior Subordinated Debentures, the Trust Issuer will not
pay Distributions or other amounts due on its Preferred Securities. The
Guarantee does not cover payment of Distributions when the Trust Issuer does
not have sufficient funds to pay such Distributions. In such event, the remedy
of a holder of the Preferred Securities is to institute a Direct Action against
the Company for enforcement of payment of amounts equal to such Distributions
to such holder. The obligations of the Company under the Guarantee are
subordinate and junior in right of payment to all Senior Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Preferred Securities, primarily
because: (i) the aggregate principal amount of the Junior Subordinated
Debentures will be equal to the sum of the aggregate stated Liquidation Amount
of the Preferred Securities and Common Securities; (ii) the interest rate and
interest and other payment dates on the Junior Subordinated Debentures will
match the Distribution rate and Distribution and other payment dates for the
Preferred Securities; (iii) the Company shall pay for all and any costs,
expenses and liabilities of the Trust Issuer except the Trust Issuer's
obligations to holders of its Preferred Securities; and (iv) the Trust
Agreement further provides that the Trust Issuer will not engage in any
activity that is not consistent with the limited purposes of the Trust Issuer.
Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set off any payment it is otherwise required to make thereunder
with and to the extent the Company has theretofore made, or is concurrently on
the date of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF THE PREFERRED SECURITIES
A holder of Preferred Securities may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Trust Issuer
or any other person or entity.
A default or event of default under any Senior Indebtedness of the Company
would not constitute a Debenture Event of Default. However, in the event of
payment defaults under, or acceleration of, Indebtedness of the Company, the
subordination provisions of the Indenture provide that no payments may be made
in respect of the Junior Subordinated Debentures until such Senior Indebtedness
has been paid in full or any payment default thereunder has been cured or
waived. Failure to make required payments on the Junior Subordinated
Debentures would constitute a Debenture Event of Default under the Indenture.
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LIMITED PURPOSE OF THE TRUST ISSUER
The Preferred Securities evidence a preferred undivided beneficial interest
in the Trust Issuer, and the Trust Issuer exists for the sole purpose of
issuing its Preferred Securities and Common Securities and investing the
proceeds thereof in Junior Subordinated Debentures. A principal difference
between the rights of a holder of a Preferred Security and a holder of a Junior
Subordinated Debenture is that a holder of a Junior Subordinated Debenture is
entitled to receive from the Company the principal amount of and interest
accrued on Junior Subordinated Debentures held, while a holder of the Preferred
Securities is entitled to receive Distributions from the Trust Issuer (or from
the Company under the Guarantee) if, and to the extent, the Trust Issuer has
funds available for the payment of such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution of the Trust Issuer involving
the liquidation of the Junior Subordinated Debentures, after satisfaction of
liabilities to creditors of the Trust Issuer, if any, as provided by applicable
law, the holders of the Preferred Securities will be entitled to receive, out
of assets held by the Trust Issuer, the Liquidation Distribution in cash. See
"Description of the Preferred Securities--Liquidation Distribution Upon
Dissolution." Upon any voluntary or involuntary liquidation or bankruptcy of
the Company, the Property Trustee, as holder of the Junior Subordinated
Debentures, would be a subordinated creditor of the Company, subordinated in
right of payment to all Senior Indebtedness as set forth in the Indenture, but
entitled to receive payment in full of principal and interest, before any
shareholders of the Company receive payments or distributions. Since the
Company is the guarantor under the Guarantee and has agreed to pay for all
costs, expenses and liabilities of the Trust Issuer (other than the Trust
Issuer's obligations to the holders of the Preferred Securities), the positions
of a holder of the Preferred Securities and a holder of the Junior Subordinated
Debentures relative to other creditors and to shareholders of the Company in
the event of liquidation or bankruptcy of the Company are expected to be
substantially the same.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Jenkens & Gilchrist, a Professional Corporation, special
tax counsel to the Company ("Tax Counsel"), the following summary accurately
describes the material United States federal income tax consequences that may
be relevant to the purchase, ownership and disposition of Preferred Securities.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury regulations promulgated thereunder and administrative and
judicial interpretations thereof, as of the date hereof, all of which are
subject to change, possibly on a retroactive basis. Unless otherwise stated,
this summary deals only with Preferred Securities held as capital assets by
United States Persons (defined below) who purchase the Preferred Securities
upon original issuance at their original offering price. As used herein, a
"United States Person" means a person that is (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political
subdivision thereof, (iii) an estate or trust formed pursuant to Section
7701(a)(30) of the Code or (iv) a person whose worldwide income or gain is
subject to United States federal income taxation on a net income basis. The
tax treatment of holders may vary depending on their particular situation. This
summary does not address all the tax consequences that may be relevant to a
particular holder or to holders who may be subject to special tax treatment,
such as banks, real estate investment trusts, regulated investment companies,
insurance companies, dealers in securities or currencies, tax-exempt investors,
persons holding Preferred Securities as part of a straddle, a "synthetic
security," or as part of a hedging or conversion transaction, or, except to the
extent described below in "--United States Alien Holders", foreign taxpayers.
In addition, this summary does not include any description of any alternative
minimum tax consequences or the tax laws of any state, local or foreign
government that may be applicable to a holder of Preferred Securities.
The authorities on which this summary is based are subject to various
interpretations and the opinions of Tax Counsel are not binding on the Internal
Revenue Service ("Service") or the courts, either of which could take a
contrary position. Moreover, no rulings have been or will be sought from the
Service with respect to the transactions described herein. Accordingly, there
can be no assurance that the Service will not challenge the opinions expressed
herein or that a court would not sustain such a challenge. Nevertheless, Tax
Counsel has advised that it is of the view that, if challenged, the opinions
expressed herein would be sustained by a court with jurisdiction in a properly
presented case.
CLASSIFICATION OF TRUST ISSUER AND THE JUNIOR SUBORDINATED DEBENTURES
In the opinion of Tax Counsel, for United States federal income tax purposes
under current law and assuming compliance with the terms of the Trust
Agreement, (i) the Trust Issuer will be classified as a grantor trust and not
as an association taxable as a corporation for United States federal income tax
purposes, and (ii) the Junior Subordinated Debentures will be classified as
indebtedness of the Company. Accordingly, for United States federal income tax
purposes, each beneficial owner of the Preferred Securities (a
"Securityholder") will be treated as owning an undivided beneficial interest in
the Junior Subordinated Debentures held by the Trust Issuer. As a result, each
Securityholder will be required to include in its gross income its pro rata
share of the interest income or original issue discount that is paid or accrued
on the Junior Subordinated Debentures. See "--Interest Income and Original
Issue Discount" herein. This opinion is based in part upon certain factual
assumptions and upon certain representations made by the Company, which
representations Tax Counsel has relied upon and assumed to be true, correct and
complete. If such representations are inaccurate, this opinion could be
adversely affected.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under applicable Treasury regulations, currently Section 1.1275-2(h) (the
"Regulations"), if the terms and conditions of a debt instrument make the
likelihood that the stated interest will not be timely paid a "remote"
contingency, such contingency will be ignored in determining whether the debt
instrument is issued with original issue discount ("OID"). The Company
believes that, under the Regulations, the Junior Subordinated Debentures will
not be considered to have been issued with OID. In such a case, stated interest
on the Junior Subordinated Debentures generally will be included in income by a
Securityholder at the time such interest income is paid or accrued in
accordance with such Securityholder's regular method of tax accounting.
If, however, the Company exercises its right to defer payments of interest
on the Junior Subordinated Debentures, the Junior Subordinated Debentures will
be treated under the Regulations as issued with OID at such time, and all
stated interest on the Junior Subordinated Debentures will thereafter be
treated as OID as long as the Junior Subordinated Debentures remain
outstanding. In such event, all Securityholders would thereafter be required
to include the stated interest on the Junior Subordinated Debentures in income
on a daily economic accrual basis, regardless of their method of tax accounting
and in advance of receipt of the cash attributable to such interest income. In
particular, Securityholders would be required to include OID in gross income
during an Extension Period even though the Company would not make actual cash
payments during such Extension Period. Under the OID economic accrual rules, a
Securityholder would accrue an amount of interest income each year that
approximates the stated interest payments called for under the Junior
Subordinated Debentures, and actual cash payments of interest on the Junior
Subordinated Debentures would not be reported separately as taxable income.
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The Regulations have not yet been addressed in any rulings or other
interpretations by the Service, and the Service could take the position that
the likelihood of deferral of interest payments is not remote. If the Service
were to assert successfully that the stated interest on the Junior Subordinated
Debentures was OID regardless of whether the Company exercises its right to
defer payments of interest on such debentures, all Securityholders would be
required to include such stated interest in income on a daily economic accrual
basis as described above. Because income on the Preferred Securities will
constitute interest income for United States federal income tax purposes,
corporate holders of Preferred Securities will not be entitled to claim a
dividends-received deduction in respect of such income.
DISTRIBUTION OF THE JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF THE PREFERRED
SECURITIES
Under current United States federal income tax law and provided that the
Trust Issuer is not treated as an association taxable as a corporation, a
distribution by the Trust Issuer of the Junior Subordinated Debentures as
described under the caption "Description of the Preferred
Securities--Liquidation of the Trust Issuer and Distribution of the Junior
Subordinated Debentures to Holders" will be nontaxable to the Securityholders
and will result in a Securityholder receiving its pro rata share of the Junior
Subordinated Debentures previously held indirectly through the Trust Issuer,
with a holding period and aggregate tax basis equal to the holding period and
aggregate tax basis such Securityholder had in its Preferred Securities before
such distribution. A Securityholder will account for interest in respect of
the Junior Subordinated Debentures received from the Trust Issuer in the manner
described above under "Certain Federal Income Tax Consequences--Interest Income
and Original Issue Discount," including any accrual of OID (if any) attributed
to the Junior Subordinated Debentures upon the distribution.
SALES OR REDEMPTION OF THE PREFERRED SECURITIES
Gain or loss will be recognized by a Securityholder on the sale of Preferred
Securities (including a redemption for cash or other consideration) in an
amount equal to the difference between the amount realized on the sale (or
redemption) and the Securityholder's adjusted tax basis in the Preferred
Securities sold or so redeemed. A Securityholder's adjusted tax basis in the
Preferred Securities generally will be its initial purchase price increased by
OID (if any) previously includible in such holder's gross income to the date of
disposition and decreased by payments received (other than payments of stated
interest that are not treated as OID) on the Preferred Securities. Gain or
loss recognized by a Securityholder on Preferred Securities held for more than
one year will generally be taxable as long-term capital gain or loss.
Preferred Securities constituting a capital asset which are acquired by an
individual and held for more than 18 months are accorded a maximum United
States federal capital gains tax rate of 20% (or a rate of 10%, if the
individual taxpayer is in the 15% tax bracket). Effective in 2001, the 20%
rate drops to 18% (and the 10% rate drops to 8%) for capital assets acquired
after the year 2000 and held more than five years; however, the requirement
that the capital asset be acquired after the year 2000 does not apply to the 8%
rate. Preferred Securities held by an individual for more than one year, but
not more than 18 months, are accorded a maximum United States federal capital
gains tax rate of 28%. For corporate holders, capital gain will be subject to
tax at the ordinary income tax rates applicable to corporations.
If the Company were to exercise its option to defer payments of interest on
the Junior Subordinated Debentures, the Preferred Securities might trade at a
price that does not fully reflect the value of accrued but unpaid interest with
respect to the underlying Junior Subordinated Debentures. A Securityholder
that disposes of its Preferred Securities between record dates for payments of
Distributions (and consequently does not receive a Distribution from the Trust
Issuer for the period prior to such disposition) will nevertheless be required
to include in income as ordinary income accrued but unpaid interest on the
Junior Subordinated Debentures through the date of disposition and to add such
amount to its adjusted tax basis in its Preferred Securities disposed of. Such
Securityholder will recognize a capital loss on the disposition of its
Preferred Securities to the extent the selling price (which might not fully
reflect the value of accrued but unpaid interest) is less than the
Securityholder's adjusted tax basis in the Preferred Securities (which would
include accrued but unpaid interest). Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for United States
federal income tax purposes.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the United
States, a foreign corporation, a non-resident alien individual, a foreign
partnership, a foreign estate or a foreign trust. A "United States Alien
Holder" does not include, however, any person whose income or gain in respect
of the Preferred Securities is effectively connected with the conduct of a
United States trade or business.
Under current United States federal income tax law payments by the Trust
Issuer or any of its paying agents to any Securityholder who or which is a
United States Alien Holder will not be subject to United States federal
withholding tax, provided that (a) the Securityholder does not actually or
constructively (as determined under certain attribution rules prescribed by the
Code) own 10% or more of the total combined voting power of all classes of
stock of the Company entitled to vote, (b) the
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Securityholder is not a controlled foreign corporation that is related to the
Company through stock ownership, (c) the Securityholder is not a bank receiving
interest described in section 881(c)(3)(A) of the Code, and (d) either (A) the
Securityholder certifies to the Trust Issuer or its agent, under penalties of
perjury, that it is not a United States holder and provides its name and
address or (B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "Financial Institution"), and holds the Preferred
Securities in such capacity, certifies to the Trust Issuer or its agent, under
penalties of perjury, that such statement has been received from the
Securityholder by it or by a Financial Institution holding such security for
the Securityholder and furnishes the Trust Issuer or its agent with a copy
thereof. Recently issued Treasury regulations provide alternative methods for
satisfying the identification and certification requirements described in the
preceding sentence. These regulations generally are effective for payments
made after December 31, 1998, subject to certain transition rules. United
States Alien Holders are urged to consult their tax advisors about these new
regulations.
A United States Alien Holder of Preferred Securities generally will not be
subject to United States federal withholding tax on any gain realized upon the
sale or other disposition of Preferred Securities. In the case of a United
States Alien Holder who is an individual, however, gain realized on the
disposition of Preferred Securities may be subject to United States federal
income tax if (i) such individual is present in the United States for a period
or periods aggregating 183 days or more during the taxable year of the
disposition and (ii) either (A) such individual has a "tax home" in the United
States or (B) the disposition is attributable to an office or other fixed place
of business maintained by such individual in the United States.
INFORMATION REPORTING TO SECURITYHOLDERS
The amount of interest paid or OID accrued on the Preferred Securities will
be reported to Securityholders and the Service on Forms 1099, which forms
should be mailed to such holders by January 31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, Preferred Securities may be
subject to a "backup" withholding tax of 31% unless the Securityholder complies
with certain certification requirements. Any amounts withheld under the backup
withholding rules will be allowed as a credit against the Securityholder's
United States federal income tax, provided the required information is provided
to the Internal Revenue Service on a timely basis.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION PURPOSES ONLY AND MAY NOT BE APPLICABLE DEPENDING ON A PROSPECTIVE
INVESTOR'S PARTICULAR SITUATION. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR
OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE PREFERRED SECURITIES OR THE DISTRIBUTION TO
THEM OF THE JUNIOR SUBORDINATED DEBENTURES, INCLUDING THE TAX CONSEQUENCES
UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
The Company and certain affiliates of the Company may each be considered a
"party in interest" within the meaning of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or a "disqualified person" within
the meaning of Section 4975 of the Code with respect to certain employee
benefit plans (a "Plan") that are subject to ERISA. The purchase of the
Preferred Securities by a Plan that is subject to the fiduciary responsibility
provisions of ERISA or the prohibited transaction provisions of Section
4975(e)(1) of the Code and with respect to which the Company, or any affiliate
of the Company, is a service provider (or otherwise is a party in interest or a
disqualified person) may constitute or result in a prohibited transaction under
ERISA or Section 4975 of the Code, unless the Preferred Securities are acquired
pursuant to and in accordance with an applicable exemption. Any pension or
other employee benefit plan proposing to acquire any Preferred Securities
should consult with its counsel.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") dated ________________, 1998, among the Company, the
Trust Issuer and the Underwriter, the Trust Issuer has agreed to sell to the
Underwriter, and the Underwriter has agreed to purchase from the Trust Issuer,
$20,000,000 aggregate Liquidation Amount of Preferred Securities at the public
offering price set forth on the cover page of this Prospectus.
The Underwriting Agreement provides that the obligations of the Underwriter
are subject to certain conditions precedent and that the Underwriter will
purchase all of the Preferred Securities offered hereby if any of such
Preferred Securities are purchased.
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the Preferred Securities to the public and other dealers at
the public offering price set forth on the cover page of this Prospectus and
will share with certain dealers from its commission a concession not in excess
of $_____________. The Underwriter may allow, and such dealers may reallow, a
concession not in excess of $_______________ to certain other dealers. After
the public offering, the offering price and other selling terms may be changed
by the Underwriter.
The Company has granted to the Underwriter an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to an additional
$3,000,000 aggregate Liquidation Amount of Preferred Securities at the public
offering price plus accrued Distributions, if any, from __________, 1998. To
the extent that the Underwriter exercises such option, the Company will be
obligated, pursuant to the option, to sell such Preferred Securities to the
Underwriter. The Underwriter may exercise such option only to cover
over-allotments made in connection with the sale of the Preferred Securities
offered hereby. If purchased, the Underwriter will offer such additional
Preferred Securities on the same terms as those on which the $20,000,000
aggregate Liquidation Amount of the Preferred Securities are being offered.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures issued
by the Company, the Underwriting Agreement provides that the Company will pay
as compensation for the Underwriter's arranging the investment therein of such
proceeds an amount of $__________ per Preferred Security (or $_________
($__________ if the over-allotment option is exercised in full) in the
aggregate). The Company has also agreed to reimburse the Underwriter for its
reasonable out-of-pocket expenses, including legal fees and expenses relating
to the Offering of the Preferred Securities.
In connection with the offering of the Preferred Securities, the Underwriter
and any selling group members and their respective affiliates may engage in
transactions effected in accordance with Rule 104 of the SEC's Regulation M
that are intended to stabilize, maintain or otherwise affect the market price
of the Preferred Securities. Such transactions may include over-allotment
transactions in which the Underwriter creates a short position for its own
account by selling more Preferred Securities than it is committed to purchase
from the Trust Issuer. In such a case, to cover all or part of the short
position, the Underwriter may exercise the over-allotment option described
above or may purchase Preferred Securities in the open market following
completion of the initial offering of the Preferred Securities. The
Underwriter also may engage in stabilizing transactions in which it bids for,
and purchases, the Preferred Securities at a level above that which might
otherwise prevail in the open market for the purpose of preventing or retarding
a decline in the market price of the Preferred Securities. The Underwriter
also may reclaim any selling concessions allowed to an Underwriter or dealer if
the Underwriter repurchases Preferred Securities distributed by the Underwriter
or dealer. Any of the foregoing transactions may result in the maintenance of
a price for the Preferred Securities at a level above that which might
otherwise prevail in the open market. Neither the Company nor the Underwriter
makes any representation or prediction as to the direction or magnitude of any
effect that the transactions described above, if any, may have on the price of
the Preferred Securities. The Underwriter is not required to engage in any of
the foregoing transactions and, if commenced, such transactions may be
discontinued at any time without notice.
Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the Preferred Securities as interests in a direct
participation program, the offering of the Preferred Securities is being made
in compliance with the applicable provisions of Rule 2810 of the NASD's Conduct
Rules.
The Preferred Securities are a new issue of securities with no established
trading market. The Company has applied to list the Preferred Securities on
the Nasdaq National Market under the symbol "SBSIP." However, the Preferred
Securities must have three market makers to qualify for an initial listing on
the Nasdaq National Market and two market makers to qualify for continued
listing. The Company and the Trust Issuer have been advised by the Underwriter
that it intends to make a market in the Preferred Securities. However, the
Underwriter is not obligated to do so and such market making may be interrupted
or discontinued at any time without notice at the sole discretion of the
Underwriter. Furthermore, the Company and the Trust Issuer have not been
advised by any firm other than the Underwriter that it intends to make a market
in the Preferred Securities, and
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even if they are so advised, any such firm will not be obligated to make a
market in the Preferred Securities and may interrupt or discontinue its market
making in the Preferred Securities at any time without notice at its sole
discretion. Accordingly, no assurance can be given as to the development or
liquidity of any market for the Preferred Securities.
The Company and the Trust Issuer have agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the enforceability of the Trust Agreement and the creation of the
Trust Issuer will be passed upon by Richards, Layton & Finger, P.A., special
Delaware counsel to the Company and the Trust Issuer. The validity of the
Guarantee and the Junior Subordinated Debentures will be passed upon for the
Company by Jenkens & Gilchrist, a Professional Corporation. Certain legal
matters will be passed upon for the Underwriter by Schiff Hardin & Waite.
Certain matters relating to the United States federal income tax considerations
will be passed upon for the Company by Jenkens & Gilchrist, a Professional
Corporation.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1996 and the
consolidated statements of income, shareholders equity and cash flows for each
of the three years in the period ended December 31, 1997, included in this
Prospectus, have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and
Suite 1400, Citicorp Center, 14th Floor, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can also be obtained at prescribed
rates by writing to the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
The Company and the Trust Issuer have filed with the Commission a
Registration Statement on Form S-2 (together with all amendments thereto, the
"Registration Statement"), of which this Prospectus is a part, under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Preferred Securities, the Junior Subordinated Debentures and the Guarantee.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. In addition, certain
documents filed by the Company with the Commission have been incorporated in
this Prospectus by reference. See "Incorporation of Certain Documents by
Reference." For further information with respect to the Company, the Trust
Issuer, the Preferred Securities and the Junior Subordinated Debentures,
reference is made to the Registration Statement, including the exhibits thereto
and the documents incorporated therein by reference. Any statements contained
herein concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission or incorporated
by reference herein are not necessarily complete, and, in each instance,
reference is made to the copy of such document so filed for a more complete
description of the matter involved. Each such statement is qualified in its
entirety by such reference. The Registration Statement may be inspected
without charge at the principal office of the Commission in Washington, D.C.,
and copies of all or part of it may be obtained from the Commission upon
payment of the prescribed fees.
No separate financial statements of the Trust Issuer have been included
herein. The Company does not consider that such financial statements would be
material to holders of Preferred Securities because (i) all of the voting
securities of the Trust Issuer will be owned by the Company, a reporting
company under the Exchange Act, (ii) the Trust Issuer has no independent
operations but exists for the sole purpose of issuing securities representing
undivided beneficial interests in the assets of the Trust Issuer and investing
the proceeds thereof in Junior Subordinated Debentures issued by the Company,
and (iii) the obligations of the Company described herein to provide certain
indemnities in respect of and be responsible for certain costs, expenses, debts
and liabilities of the Trust Issuer under the Indenture and pursuant to the
Trust Agreement, Guarantee and Junior Subordinated Debentures, in the
aggregate, constitute a full and unconditional guarantee of payments due on the
Preferred Securities. See "Description of
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the Junior Subordinated Debentures" and "Description of the Guarantee" and
"Relationship Among the Preferred Securities, Junior Subordinated Debentures
and Guarantee."
The Trust Issuer is not currently subject to the information reporting
requirements of the Exchange Act and the Company does not expect that the Trust
Issuer will file reports, proxy statements or other information under the
Exchange Act with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following document of the Company is incorporated by reference herein
(Commission File No. 00012247): The Company's Annual Report on Form 10-K for
the year ended December 31, 1997 filed with the Commission on March 30, 1998.
Any statement contained in this Prospectus or in a document incorporated or
deemed to be incorporated by reference herein will be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded will not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. Copies of any such documents, other than
exhibits thereto, are available without charge to any person, including any
beneficial owner, to whom this Prospectus is delivered upon written or oral
request to Southside Bancshares, Inc., 1201 S. Beckham, Tyler, Texas 75701,
(903) 531-7111; Attention: Lee Gibson, Executive Vice President.
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SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SOUTHSIDE BANCSHARES, INC.
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets at December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income for the three years ended December 31, 1997, 1996 and 1995 . . . . . . . . . . F-4
Consolidated Statements of Changes in Shareholders' Equity for the three years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
</TABLE>
F-1
<PAGE> 84
Report of Independent Accountants
To the Shareholders and Board of Directors
Southside Bancshares, Inc.
We have audited the accompanying consolidated balance sheets of Southside
Bancshares, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity, and cash flow
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Southside
Bancshares, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flow for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Dallas, Texas
March 13, 1998
F-2
<PAGE> 85
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
--------------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks........................................................... $ 36,593 $ 31,653
Investment securities:
Available for sale............................................................. 71,031 56,091
Held to maturity............................................................... 804 1,734
-------------- -------------
Total Investment securities.................................................. 71,835 57,825
Mortgage-backed and related securities:
Available for sale............................................................. 127,751 90,574
Held to maturity............................................................... 13,662 23,782
-------------- -------------
Total Mortgage-backed securities............................................. 141,413 114,356
Marketable equity securities:
Available for sale............................................................. 3,258 2,220
Loans:
Loans, net of unearned discount................................................ 296,035 258,167
Less: Reserve for loan losses................................................. (3,370) (3,249)
-------------- -------------
Net Loans.................................................................... 292,665 254,918
Premises and equipment, net....................................................... 17,627 13,695
Other real estate owned, net...................................................... 364 273
Interest receivable............................................................... 3,918 3,300
Deferred tax asset................................................................ 460 464
Other assets...................................................................... 3,012 3,990
-------------- -------------
Total Assets................................................................. $ 571,145 $ 482,694
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing............................................................ $ 113,499 $ 98,901
Interest bearing............................................................... 349,175 327,049
-------------- -------------
Total Deposits............................................................... 462,674 425,950
Short-term obligations:
Federal funds purchased........................................................ 3,884 4,800
FHLB Dallas Advances........................................................... 29,000
Other obligations.............................................................. 1,647 2,035
Long-term obligations:
FHLB Dallas Advances........................................................... 28,547 9,096
Other liabilities................................................................. 5,362 4,209
-------------- -------------
Total Liabilities............................................................ 531,114 446,090
-------------- -------------
Shareholders' equity:
Common stock: ($2.50 par, 6,000,000 shares authorized,
3,496,269 and 3,316,127 shares issued)........................................ 8,740 8,290
Paid-in capital................................................................ 21,290 18,501
Retained earnings.............................................................. 10,414 9,628
Treasury stock (116,750 and 62,986 shares at cost)............................. (1,820) (777)
Net unrealized gains on securities available for sale, net of taxes............ 1,407 962
-------------- -------------
Total Shareholders' Equity.................................................. 40,031 36,604
-------------- -------------
Total Liabilities and Shareholders' Equity.................................. $ 571,145 $ 482,694
============== =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 86
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Interest income:
Loans..................................................................... $ 23,847 $ 21,314 $ 18,861
Investment securities..................................................... 3,299 3,374 4,343
Mortgage-backed and related securities.................................... 7,729 6,756 5,673
Marketable equity securities.............................................. 129 119 121
Other interest earning assets............................................. 163 209 592
----------- ----------- ----------
Total interest income............................................... 35,167 31,772 29,590
----------- ----------- ----------
Interest expense:
Time and savings deposits................................................. 14,711 13,593 12,290
Short-term obligations.................................................... 773 132 94
Long-term obligations..................................................... 721 672 453
----------- ----------- ----------
Total interest expense.............................................. 16,205 14,397 12,837
----------- ----------- ----------
Net interest income.......................................................... 18,962 17,375 16,753
Provision for loan losses.................................................... 1,005 500 (300)
----------- ----------- ----------
Net interest income after provision for loan losses.......................... 17,957 16,875 17,053
----------- ----------- ----------
Noninterest income:
Deposit services.......................................................... 4,001 2,821 2,752
Gain on sales of securities available for sale............................ 233 132 221
Other..................................................................... 1,432 1,180 901
----------- ----------- ----------
Total noninterest income............................................ 5,666 4,133 3,874
----------- ----------- ----------
Noninterest expense:
Salaries and employee benefits............................................ 9,889 9,382 8,545
Net occupancy expense..................................................... 2,089 1,749 1,636
Equipment expense......................................................... 414 321 302
Advertising, travel & entertainment....................................... 1,006 956 888
Supplies.................................................................. 440 436 388
FDIC insurance............................................................ 52 2 434
Postage................................................................... 331 301 303
Other..................................................................... 2,707 2,219 2,186
----------- ----------- ----------
Total noninterest expense........................................... 16,928 15,366 14,682
----------- ----------- ----------
Income before federal tax expense............................................ 6,695 5,642 6,245
----------- ----------- ----------
Provision (benefit) for federal tax expense:
Current................................................................... 1,914 1,648 1,429
Deferred.................................................................. (225) (211) 284
----------- ----------- ----------
Total income taxes.................................................. 1,689 1,437 1,713
----------- ----------- ----------
Net Income................................................................... $ 5,006 $ 4,205 $ 4,532
=========== =========== ==========
Earnings Per Common Share-Basic:
Net Income................................................................ $ 1.47 $ 1.23 $ 1.33
Earnings Per Common Share-Diluted:
Net Income................................................................ $ 1.43 $ 1.21 $ 1.31
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 87
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED TOTAL
COMMON PAID IN RETAINED TREASURY GAINS SHAREHOLDERS
STOCK CAPITAL EARNINGS STOCK (LOSSES) EQUITY
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994................ $ 7,433 $ 14,529 $ 7,480 $ (219) $ (1,699) $ 27,524
Net Income.................................. 4,532 4,532
Cash dividend ($.35 per share).............. (1,047) (1,047)
5% Stock dividend........................... 368 1,474 (1,842)
Common stock issued (20,800 shares)......... 52 206 258
Purchase of 26,339 shares of
treasury stock............................. (267) (267)
Net increase in unrealized gains on
securities available for sale (net of tax). 2,352 2,352
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995................ 7,853 16,209 9,123 (486) 653 33,352
Net Income.................................. 4,205 4,205
Cash dividend ($.40 per share).............. (1,258) (1,258)
5% Stock dividend........................... 388 2,017 (2,405)
Common stock issued (19,557 shares)......... 49 259 308
Purchase of 27,648 shares of
treasury stock............................. (425) (425)
Sale of 14,083 shares of
treasury stock............................. (37) 134 97
Net increase in unrealized gains on
securities available for sale
(net of tax)............................... 309 309
FAS 109 - Incentive Stock Options........... 16 16
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996................ 8,290 18,501 9,628 (777) 962 36,604
Net Income.................................. 5,006 5,006
Cash dividend ($.40 per share).............. (1,316) (1,316)
5% Stock dividend........................... 404 2,466 (2,870)
Common stock issued (18,430 shares)......... 46 280 326
Purchase of 65,464 shares of
treasury stock............................. (1,154) (1,154)
Sale of 11,700 shares of
treasury stock............................. (34) 111 77
Net increase in unrealized gains on
securities available for sale
(net of tax)............................... 445 445
FAS 109 - Incentive Stock Options........... 43 43
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997................ $ 8,740 $ 21,290 $ 10,414 $ (1,820) $ 1,407 $ 40,031
========== ========== ========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 88
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Operating Activities:
Net income................................................................. $ 5,006 $ 4,205 $ 4,532
Adjustments to reconcile net cash provided by operations:
Depreciation and amortization............................................ 2,804 2,250 1,563
Accretion of discount and loan fees...................................... (780) (737) (846)
Provision for loan losses................................................ 1,005 500 (300)
Deferred loan origination cost........................................... (72)
Gain on sales of securities available for sale........................... (233) (132) (221)
Gain on sales of premises and equipment.................................. (12) (6) (10)
Gain on sales of other real estate owned................................. (20)
Increase in interest receivable.......................................... (618) (205) (514)
(Increase) decrease in other assets...................................... 923 (964) 563
(Increase) decrease in deferred tax asset................................ (182) (194) 284
Increase in interest payable............................................. 598 103 217
Increase (decrease) in other payables.................................... 167 (2,586) 2,912
----------- ------------ ----------
Net cash provided by operating activities............................ 8,678 2,234 8,088
Investing Activities:
Proceeds from sales of investment securities available for sale............ 31,037 19,928 33,457
Proceeds from sales of mortgage-backed securities available for sale....... 37,247 18,991 16,555
Proceeds from maturities of investment securities available for sale....... 16,366 33,920 20,582
Proceeds from maturities of mortgage-backed securities available for sale.. 33,389 18,529 5,994
Proceeds from maturities of investment securities held to maturity......... 936 941 17,510
Proceeds from maturities of mortgage-backed securities held to maturity.. 10,214 10,398 6,403
Purchases of investment securities available for sale...................... (61,370) (35,098) (63,663)
Purchases of mortgage-backed securities available for sale................. (108,788) (63,353) (38,299)
Purchases of marketable equity securities available for sale............... (1,038) (108) (107)
Net decrease in federal funds sold......................................... 11,100
Net increase in loans...................................................... (39,900) (31,144) (27,486)
Purchases of premises and equipment........................................ (5,153) (3,070) (2,822)
Proceeds from sales of premises and equipment.............................. 17 25 42
Proceeds from sales of repossessed assets.................................. 1,015 1,165 1,002
Proceeds from sales of other real estate owned............................. 98 145
----------- ----------- ----------
Net cash used in investing activities.................................. (85,930) (28,876) (19,587)
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 89
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Financing Activities:
Net increase (decrease) in demand and savings accounts..................... $ 24,443 $ 16,332 $ (6,388)
Net increase in certificates of deposit.................................... 12,281 21,310 9,594
Proceeds from advances..................................................... 58,900 6,500
Repayment of advances...................................................... (10,449) (4,590) (811)
Net increase (decrease) in federal funds purchased......................... (916) 200 4,600
Proceeds from the issuance of common stock................................. 326 308 258
Purchase of treasury stock................................................. (1,154) (425) (267)
Proceeds from sale of treasury stock....................................... 77 97
Dividends paid............................................................. (1,316) (1,258) (1,047)
----------- ----------- ----------
Net cash provided by financing activities............................ 82,192 31,974 12,439
----------- ----------- ----------
Net increase in cash and cash equivalents.................................. 4,940 5,332 940
Cash and cash equivalents at beginning of year............................. 31,653 26,321 25,381
----------- ----------- ----------
Cash and cash equivalents at end of year................................... $ 36,593 $ 31,653 $ 26,321
=========== =========== ==========
Supplemental Disclosure for Cash Flow Information:
Interest paid.............................................................. $ 15,701 $ 14,294 $ 12,620
Income taxes paid.......................................................... $ 1,990 $ 1,623 $ 1,440
Supplemental Disclosures of Noncash Investing and Financing Activities:
Acquisition of OREO and other repossessed assets through foreclosure....... $ 1,148 $ 1,187 $ 986
Transfer of securities to available for sale............................... $ 57,584
FAS 114 reclassification................................................... $ 807
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE> 90
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The significant accounting and reporting policies of Southside Bancshares, Inc.
(the "Company"), and its wholly owned subsidiaries, Southside Delaware Financial
Corporation, Southside Bank (the "Bank") and the nonbank subsidiary, are
summarized below.
ORGANIZATION AND BASIS OF PRESENTATION. The consolidated financial statements
include the accounts of the Company, Southside Delaware Financial Corporation,
Southside Bank and the nonbank subsidiary, which did not conduct any business in
1997. Southside Bank offers a full range of financial services to commercial,
industrial, financial and individual customers. All significant intercompany
accounts and transactions are eliminated in consolidation. The preparation of
these consolidated financial statements in conformity with generally accepted
accounting principles requires the use of management's estimates. These
estimates are subjective in nature and involve matters of judgment. Actual
amounts could differ from these estimates.
CASH EQUIVALENTS. Cash equivalents for purposes of reporting cash flow, include
cash and amounts due from banks.
LOANS. All loans are stated at principal outstanding net of unearned income.
Interest income on installment loans is recognized primarily using the level
yield method. Interest income on other loans is credited to income based
primarily on the principal outstanding at contract rates of interest. Loans
receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans. A loan is considered impaired, based
on current information and events, if it is probable that the Company will be
unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Substantially all of
the Company's impaired loans are collateral-dependent, and as such, are measured
for impairment based on the fair value of the collateral.
LOAN FEES. The Company treats loan fees, net of direct costs, as an adjustment
to the yield of the related loan over its term.
RESERVE FOR LOAN LOSSES. A reserve for loan losses is provided through charges
to income in the form of a provision for loan losses. Loans which management
believes are uncollectible are charged against this account with subsequent
recoveries, if any, credited to the account. The amount of the current allowance
for loan losses is determined by management's evaluation of the quality and
inherent risks in the loan portfolio, economic conditions and other factors
which warrant current recognition.
NONACCRUAL LOANS. A loan is placed on nonaccrual when principal or interest is
past due 90 days or more unless, in the determination of management, the
principal and interest on the loan are well collateralized and in the process of
collection. In addition, a loan is placed on nonaccrual when, in the opinion of
management, the future collectibility of interest and principal is in serious
doubt. When classified as nonaccrual, accrued interest receivable on the loan is
reversed and the future accrual of interest is suspended. Payments of
contractual interest are recognized as income only to the extent that full
recovery of the principal balance of the loan is reasonably certain.
OTHER REAL ESTATE OWNED. Other Real Estate Owned includes real estate acquired
in full or partial settlement of loan obligations. Other Real Estate Owned is
carried at the lower of (1) the recorded amount of the loan for which the
foreclosed property previously served as collateral or (2) the fair market value
of the property. Prior to foreclosure, the recorded amount of the loan is
written down, if necessary, to the appraised fair market value of the real
estate to be acquired, less selling costs, by charging the allowance for loan
losses. Any subsequent reduction in fair market value is charged to results of
operations through the Allowance for Losses on Other Real Estate account. Costs
of maintaining and operating foreclosed properties are expensed as incurred.
Expenditures to complete or improve foreclosed properties are capitalized only
if expected to be recovered; otherwise, they are expensed.
F-8
<PAGE> 91
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SECURITIES. The Company uses the specific identification method to determine the
basis for computing realized gain or loss. The Company accounts for debt and
equity securities as follows:
Held to Maturity (HTM). Debt securities that management has the positive
intent and ability to hold until maturity are classified as held to maturity and
are carried at their remaining unpaid principal balance, net of unamortized
premiums or unaccreted discounts. Premiums are amortized and discounts are
accreted using the level interest yield method over the estimated remaining term
of the underlying security.
Available for Sale (AFS). Debt and equity securities that will be held
for indefinite periods of time, including securities that may be sold in
response to changes in market interest or prepayment rates, needs for liquidity
and changes in the availability of and the yield of alternative investments are
classified as available for sale. These assets are carried at market value.
Market value is determined using published quotes as of the close of business.
Unrealized gains and losses are excluded from earnings and reported net of tax
as a separate component of shareholders' equity until realized.
PREMISES AND EQUIPMENT. Bank premises and equipment are stated at cost, net of
accumulated depreciation. Depreciation is computed on a straight line basis over
the estimated useful lives of the related assets. Useful lives are estimated to
be 20 to 40 years for premises and 3 to 10 years for equipment. Maintenance and
repairs are charged to income as incurred while major improvements and
replacements are capitalized.
INCOME TAXES. The Company files a consolidated Federal income tax return.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of changes in tax rates is recognized in income in the
period the change occurs.
EARNINGS PER SHARE. The Company adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"). This statement
supersedes APB 15, "Earnings Per Share" and simplifies the computation of
earnings per share ("EPS") by replacing the "primary" EPS requirements of APB 15
with a "basic" EPS computation based upon weighted-average shares outstanding.
The new standard requires a dual presentation of basic and diluted EPS. Diluted
EPS is similar to fully diluted EPS required under APB 15 for entities with
complex capital structures. The adoption of FAS 128 did not have a material
impact on the Company. All previous periods have been restated to reflect the
adoption of FAS 128. Earnings per share have been adjusted to give retroactive
recognition to stock dividends.
F-9
<PAGE> 92
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Earnings per share on a basic and diluted basis as required by Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share" is
calculated as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
------------- ------------- ---------
<S> <C> <C> <C>
Basic net earnings per share:
Net income............................................................. $ 5,006 $ 4,205 $ 4,532
Weighted average shares outstanding.................................... 3,394 3,409 3,401
------------- ------------- -------------
$ 1.47 $ 1.23 $ 1.33
============= ============= =============
Diluted net earnings per share:
Net income............................................................. $ 5,006 $ 4,205 $ 4,532
Weighted average shares outstanding plus
assumed conversions................................................. 3,490 3,487 3,450
------------- ------------- -------------
$ 1.43 $ 1.21 $ 1.31
============= ============= =============
Calculation of weighted average shares outstanding plus assumed conversions:
Weighted average share outstanding..................................... 3,394 3,409 3,401
Effect of dilutive securities options.................................. 96 78 49
------------- ------------- -------------
3,490 3,487 3,450
============= ============= =============
</TABLE>
STOCK OPTIONS. The Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("FAS 123") on January 1,
1996. FAS 123 encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options and other equity
instruments to employees based on new fair value accounting rules. Companies
that choose not to adopt the new rules will continue to apply existing rules,
but will be required to disclose pro forma net income and earnings per share
under the new method. The Company elected to provide the pro forma disclosures
for 1995, 1996 and 1997.
RECENT ACCOUNTING PRONOUNCEMENTS. In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130"). This statement, which the Company
will be required to adopt in 1998, establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. The new standard requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The Company will adopt FAS 130 beginning January 1, 1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131"). This statement, which the
Company will be required to adopt in 1998, supersedes FAS 14, Financial
Reporting for Segments of a Business Enterprise, but retains the requirement to
report information about major customers. The new standard requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments. In the initial year of application,
comparative information for earlier years is to be restated. The Company will
adopt FAS 131 in the year ending December 31, 1998.
F-10
<PAGE> 93
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits" ("FAS 132"). This statement, which the
Company will be required to adopt in 1998, amends FAS 87, Employers' Accounting
for Pension, FAS 88, Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits and FAS 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions. The new
standard revises employers' disclosures about pension and other postretirement
benefit plans without changing the measurement or recognition of those plans. It
standardizes the disclosure requirements for pension and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures. The Company will adopt
FAS 132 beginning January 1, 1998.
GENERAL. Certain prior period amounts have been reclassified to conform to
current year presentation.
2. CASH AND DUE FROM BANKS
The Company is required to maintain cash reserve balances with the Federal
Reserve Bank. The reserve balances were $2,816,000 and $3,788,000 as of December
31, 1997 and 1996, respectively.
3. INVESTMENT, MORTGAGE-BACKED AND MARKETABLE EQUITY SECURITIES
The amortized cost and estimated market value of investment, mortgage-backed and
marketable equity securities as of December 31, 1997 and 1996 were (in
thousands):
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
-------------------------------------------------------------------------
GROSS GROSS ESTIMATED
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED MARKET
1997 COST GAINS LOSSES VALUE
---- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury .......................... $ 19,958 $ 6 $ 8 $ 19,956
U.S. Government Agencies................ 629 2 631
Mortgage-backed Securities:
Direct Govt. Agency Issues............ 93,829 339 187 93,981
Other Private Issues.................. 33,333 439 2 33,770
State and Political
Subdivisions.......................... 45,938 1,728 8 47,658
Other Stocks and Bonds.................. 6,041 3 6,044
---------------- ----------------- ---------------- ----------------
Total .............................. $ 199,728 $ 2,517 $ 205 $ 202,040
================ ================= ================ ================
</TABLE>
<TABLE>
<CAPTION>
HELD TO MATURITY
------------------------------------------------------------------------
GROSS GROSS ESTIMATED
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED MARKET
1997 COST GAINS LOSSES VALUE
---- ---------------- ----------------- --------------- ----------------
<S> <C> <C> <C>
U.S. Government Agencies................ $ 804 $ $ 5 $ 799
Mortgage-backed Securities:
Direct Govt. Agency Issues............ 13,662 129 103 13,688
---------------- ----------------- ---------------- ----------------
Total .............................. $ 14,466 $ 129 $ 108 $ 14,487
================ ================= ================ ================
</TABLE>
F-11
<PAGE> 94
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
-------------------------------------------------------------------------
GROSS GROSS ESTIMATED
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED MARKET
1996 COST GAINS LOSSES VALUE
---- ---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C>
U.S. Treasury .......................... $ 5,026 $ 28 $ $ 5,054
U.S. Government Agencies................ 8,492 10 45 8,457
Mortgage-backed Securities:
Direct Govt. Agency Issues............ 74,005 479 42 74,442
Other Private Issues.................. 15,808 328 4 16,132
State and Political
Subdivisions.......................... 38,555 1,095 21 39,629
Other Stocks and Bonds.................. 5,163 8 5,171
---------------- ---------------- --------------- ---------------
Total .............................. $ 147,049 $ 1,948 $ 112 $ 148,885
================ ================ =============== ===============
</TABLE>
<TABLE>
<CAPTION>
HELD TO MATURITY
--------------------------------------------------------------------------
GROSS GROSS ESTIMATED
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED MARKET
1996 COST GAINS LOSSES VALUE
---- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
U.S. Government Agencies................ $ 1,124 $ $ 14 $ 1,110
Mortgage-backed Securities:
Direct Govt. Agency Issues............ 23,782 212 141 23,853
State and Political
Subdivisions.......................... 610 1 611
--------------- ---------------- ---------------- ---------------
Total .............................. $ 25,516 $ 213 $ 155 $ 25,574
=============== ================ =============== ===============
</TABLE>
Interest income recognized on securities for the years presented (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
U.S. Treasury............................................................ $ 461 $ 397 $ 713
U.S. Government Agencies................................................. 578 858 2,039
Mortgage-backed Securities............................................... 7,729 6,756 5,673
State and Political Subdivisions......................................... 2,067 2,000 1,581
Other Stocks and Bonds................................................... 322 238 131
------------- ------------- -------------
Total interest income on securities...................................... $ 11,157 $ 10,249 $ 10,137
============= ============= =============
</TABLE>
In October 1995, the Financial Accounting Standards Board issued an
implementation guide to FAS 115 which allowed entities to reclassify their
securities among the three categories provided in FAS 115. Transfers were
permitted after October 1995, but no later than December 31, 1995. As a result,
on November 16, 1995 the Company transferred a total of $57,584,000 from HTM to
AFS at the amortized cost at date of transfer. Of this total, $37,308,000 were
investment securities. The remaining $20,276,000 transferred were
mortgage-backed securities. The unrealized loss on the securities transferred
from HTM to AFS was $419,000, net of tax, at date of transfer. The transfer was
done according to the guidelines set forth in the implementation guide to FAS
115. There were no securities transferred from AFS to HTM or sales from the HTM
portfolio during the year ended December 31, 1997 or 1996.
F-12
<PAGE> 95
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Of the $233,000 in net securities gains from the AFS portfolio in 1997, there
were $376,000 in realized gains and $143,000 in realized losses. Of the $132,000
in net securities gains from the AFS portfolio in 1996, there were $199,000 in
realized gains and $67,000 in realized losses. The $221,000 in net securities
gains from the AFS portfolio in 1995 were comprised of $450,000 in realized
gains and $229,000 in realized losses.
The scheduled maturities of AFS and HTM securities as of December 31, 1997 are
presented below. Mortgage-backed securities are presented in total by category.
<TABLE>
<CAPTION>
AMORTIZED AGGREGATE
COST FAIR VALUE
-------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Held to maturity securities:
Due in one year or less.......................................................... $ 804 $ 799
-------------- ---------------
Due after one year through five years............................................ 804 799
Mortgage-backed securities.......................................................... 13,662 13,688
-------------- ---------------
Total......................................................................... $ 14,466 $ 14,487
============== ===============
Available for sale securities:
Due in one year or less.......................................................... $ 26,930 $ 26,938
Due after one year through five years............................................ 11,680 11,913
Due after five years through ten years........................................... 8,869 9,172
Due after ten years.............................................................. 25,087 26,266
-------------- ---------------
72,566 74,289
Mortgage-backed securities.......................................................... 127,162 127,751
-------------- ---------------
Total......................................................................... $ 199,728 $ 202,040
============== ===============
</TABLE>
Investment securities with book values of $32,844,000 and $17,474,000 were
pledged as of December 31, 1997 and 1996, respectively, to collateralize public
and trust deposits or for other purposes as required by law.
F-13
<PAGE> 96
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LOANS AND RESERVE FOR POSSIBLE LOAN LOSSES
Loans in the accompanying consolidated balance sheets are classified as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
----------------- -----------------
<S> <C> <C>
Real Estate Loans:
Construction......................................................... $ 10,299 $ 7,821
1-4 family residential............................................... 76,243 62,356
Other................................................................ 55,802 57,198
Commercial loans........................................................ 62,161 51,514
Loans to individuals.................................................... 96,432 85,758
------------------ ------------------
Total loans............................................................. 300,937 264,647
Less: Unearned income............................................... 4,902 6,480
Reserve for loan losses..................................... 3,370 3,249
------------------ ------------------
Net loans............................................................... $ 292,665 $ 254,918
================== ==================
</TABLE>
The following is a summary of the Reserve for Loan Losses for the years ended
December 31, 1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Balance at beginning of year........................................... $ 3,249 $ 3,317 $ 3,137
Provision for loan losses............................................ 1,005 500 (300)
Loans charged off.................................................. (1,229) (838) (599)
Recoveries of loans charged off.................................... 345 270 1,079
------------ ------------ ------------
Net loan (losses) recoveries..................................... (884) (568) 480
------------ ------------ ------------
Balance at end of year................................................. $ 3,370 $ 3,249 $ 3,317
============ ============ ============
</TABLE>
Nonaccrual loans at December 31, 1997 and 1996 were $1,344,000 and $1,533,000,
respectively. Loans with terms modified in troubled debt restructuring at
December 31, 1997 and 1996 were $435,000 and $400,000, respectively.
The following is a summary of the Company's recorded investment in loans
(primarily nonaccrual loans) for which impairment has been recognized in
accordance with FAS 114 (in thousands):
<TABLE>
<CAPTION>
VALUATION CARRYING
TOTAL ALLOWANCE VALUE
------------ ------------ ------------
<S> <C> <C> <C>
Real Estate Loans...................................................... $ 108 $ 27 $ 81
Commercial Loans....................................................... 1,059 185 874
Loans to Individuals................................................... 177 12 165
------------ ------------ ------------
Balance at December 31, 1997........................................... $ 1,344 $ 224 $ 1,120
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
VALUATION CARRYING
TOTAL ALLOWANCE VALUE
------------ ------------ ------------
<S> <C> <C> <C>
Real Estate Loans...................................................... $ 646 $ 128 $ 518
Commercial Loans....................................................... 774 199 575
Loans to Individuals................................................... 113 18 95
------------ ------------ ------------
Balance at December 31, 1996........................................... $ 1,533 $ 345 $ 1,188
============ ============ ============
</TABLE>
F-14
<PAGE> 97
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 1997 and 1996, the average recorded investment
in impaired loans was approximately $1,450,000 and $1,468,000, respectively.
During the year ended December 31, 1997, the amount of interest income reversed
on impaired loans placed on nonaccrual and the amount of interest income
subsequently recognized on the cash basis was not material.
The amount of interest recognized on nonaccrual or restructured loans was
$110,000, $97,000 and $78,000 for the years ended December 31, 1997, 1996 and
1995, respectively. If these loans had been accruing interest at their original
contracted rates, related income would have been $336,000, $216,000 and $273,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
5. BANK PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Bank premises........................................................... $ 18,713 $ 14,681
Furniture and equipment................................................. 9,559 8,542
----------------- -----------------
28,272 23,223
Less accumulated depreciation........................................... 10,645 9,528
----------------- -----------------
Total....................................................... $ 17,627 $ 13,695
================= =================
</TABLE>
Depreciation expense was $1,215,000, $1,025,000 and $997,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
Future minimum rental commitments under noncancelable leases are:
<TABLE>
<S> <C>
1998 $ 121,914
1999 122,839
2000 128,840
2001 115,638
2002 49,668
Thereafter 25,332
------------------
$ 564,231
==================
</TABLE>
6. OTHER REAL ESTATE OWNED
The following is a summary of the Allowance for Losses on Other Real Estate
Owned for the periods presented (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996
----------------- ----------------
<S> <C> <C>
Balance at beginning of year............................................... $ 946 $ 946
Provision for Losses...................................................
Losses on sales........................................................
Gains on sales.........................................................
Other.................................................................. (274)
----------------- ----------------
Balance at end of year..................................................... $ 672 $ 946
================= ================
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, income from OREO
properties exceeded the provision and other expenses by $23,000, $35,000 and
$34,000, respectively.
F-15
<PAGE> 98
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. TIME DEPOSITS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Savings deposits....................................................... $ 16,155 $ 15,213
Money Market demand deposits........................................... 57,493 51,872
NOW demand deposits.................................................... 64,368 61,085
Certificates and other time deposits
of $100,000 or more................................................... 62,152 55,758
Certificates and other time
deposits under $100,000............................................... 149,007 143,121
----------------- ------------------
Total...................................................... $ 349,175 $ 327,049
================= ==================
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, interest expense on time
certificates of deposit of $100,000 or more aggregated $2,922,000, $2,518,000
and $2,083,000, respectively.
At December 31, 1997, the scheduled maturities of CDs are as follows (in
thousands):
<TABLE>
<S> <C>
1998 $ 154,699
1999 36,146
2000 9,972
2001 2,887
2002 and thereafter 7,455
-------------------
$ 211,159
===================
</TABLE>
The aggregate amount of demand deposits that has been reclassified as loans were
$.5 million and $.4 million for December 31, 1997 and 1996, respectively.
F-16
<PAGE> 99
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. SHORT-TERM BORROWINGS
Information related to short-term borrowings for the three years ended December
31 is provided in the table below (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Federal funds purchased:
Balance at end of period............................................. $ 3,884 $ 4,800 $ 4,600
Average amount outstanding during the period (1)..................... 2,695 1,367 611
Maximum amount outstanding during the period......................... 12,384 7,700 5,350
Weighted average interest rate during the period (2)................. 5.7% 5.1% 6.1%
Interest rate at end of period....................................... 7.8% 6.9% 6.0%
Securities sold under agreements to repurchase:
Balance at end of period............................................. $ $ $
Average amount outstanding during the period (1)..................... 3,649 191
Maximum amount outstanding during the period......................... 13,027 1,980
Weighted average interest rate during the period (2)................. 5.2% 5.2%
Interest rate at end of period.......................................
Treasury tax and loan funds:
Balance at end of period............................................. $ 1,647 $ 2,035 $ 1,352
Average amount outstanding during the period (1)..................... 1,080 1,113 1,180
Maximum amount outstanding during the period......................... 2,850 2,731 2,907
Weighted average interest rate during the period (2)................. 5.2% 4.6% 4.8%
Interest rate at end of period....................................... 5.3% 5.2% 5.2%
Federal Home Loan Bank ("FHLB") Dallas Advances:
Balance at end of period............................................$ 29,000 $ $
Average amount outstanding during the period (1)..................... 6,798
Maximum amount outstanding during the period......................... 29,000
Weighted average interest rate during the period (2)................. 5.5%
Interest rate at end of period....................................... 4.9%
</TABLE>
- -------------------
(1) The average amount outstanding during the period was computed by dividing
the total month-end outstanding principal balances by the number of
months in the period.
(2) The weighted average interest rate during the period was computed by
dividing the actual interest expense (annualized) by average short-term
debt outstanding.
F-17
<PAGE> 100
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. LONG TERM OBLIGATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FHLB Dallas Advances:
Balance at end of period............................................. $ 28,547 $ 9,096 $ 13,686
Average amount outstanding during the period (1)..................... 12,151 12,010 8,912
Maximum amount outstanding during the period......................... 28,547 13,686 13,766
Weighted average interest rate during the period (2)................. 5.9% 5.6% 5.1%
Interest rate at end of period....................................... 6.0% 5.8% 5.5%
</TABLE>
- -------------------
(1) The average amount outstanding during the period was computed by dividing
the total month-end outstanding principal balances by the number of
months in the period.
(2) The weighted average interest rate during the period was computed by
dividing the actual interest expense (annualized) by average long-term
debt outstanding.
FHLB Dallas Long-term advances based on scheduled repayments at December 31 are:
<TABLE>
<CAPTION>
UNDER DUE DUE OVER 1997
1 YEAR 1-5 YEARS 6-10 YEARS 10 YEARS TOTAL
------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Fixed rate............................ $ 1,320 $ 15,920 $ 10,654 $ 653 $ 28,547
------------- -------------- ------------- ------------- -------------
Total Long-term Obligations......... $ 1,320 $ 15,920 $ 10,654 $ 653 $ 28,547
============= ============== ============= ============= =============
</TABLE>
FHLB Dallas advances are collateralized by FHLB Dallas stock, nonspecified real
estate loans and mortgage-backed securities.
10. EMPLOYEE BENEFITS
Southside Bank has a deferred compensation agreement with eight of its executive
officers, which generally provides for payment of an aggregate amount of $3.4
million over a maximum period of fifteen years after retirement or death.
Deferred compensation expense was $43,000, $96,000 and $97,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
The Company provides accident and health insurance for substantially all
employees through an insurance program funded by the Company. Health insurance
benefits are offered to retired employees who pay a premium based on cost as
determined by a third party administrator. Substantially all of the Company's
employees may become eligible for those benefits if they reach normal retirement
age after fifteen years of employment with the Company. The cost of health care
benefits was $792,000, $760,000 and $628,000 for the years ended December 31,
1997, 1996 and 1995, respectively. There was one retiree participating in the
health insurance plan as of December 31, 1997 and 1996.
The Company has an Employee Stock Ownership Plan which covers substantially all
employees. Contributions to the plan are at the sole discretion of the Board of
Directors. There were no contributions to the plan for the year ended December
31, 1997. Contributions to the plan for the years ended December 31, 1996 and
1995 were $75,000 and $150,000, respectively. At December 31, 1997 and 1996,
93,851 and 94,615 shares of common
F-18
<PAGE> 101
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
stock were owned by the Employee Stock Ownership Plan, respectively. The number
of shares have been adjusted as a result of stock dividends. These shares are
treated as externally held shares for dividend and earnings per share
calculations.
The Company has an Officers Long-term Disability Income Plan, (the "Disability
Plan"), which covers officers of the Company and Southside Bank in the event
they become disabled as defined under its terms. Individuals are automatically
covered under the plan if they (a) have been elected as an officer, (b) have
been an employee of the Company and Southside Bank for three years and (c)
receive earnings of $50,000 or more on an annual basis. The Disability Plan
provides, among other things, under its terms that should a covered individual
become totally disabled he would receive 66-2/3%, not to exceed $10,000 per
month, of their current salary. The benefits paid out of this plan are limited
by the benefits paid to the individual under the terms of other Company
sponsored benefit plans.
The Company and Southside Bank have a defined benefit pension plan pursuant to
which participants are entitled to benefits based on final average monthly
compensation and years of credited service determined in accordance with plan
provisions. All employees of the Company and Southside Bank who have worked 1000
hours or more in their first twelve months of employment or during any plan year
thereafter are eligible to participate. Employees are vested upon the earlier of
five years credited service or the employee attaining 60 years of age. Benefits
are payable monthly commencing on the later of age 65 or the participants date
of retirement. Eligible participants may retire at reduced benefit levels after
reaching age 55. The Company contributes amounts to the pension fund sufficient
to satisfy funding requirements of the Employee Retirement Income Security Act.
Plan assets included 59,992 shares of Southside Bancshares, Inc. stock purchased
at fair market value as of December 31, 1997 and 1996. The number of shares have
been adjusted as a result of stock dividends.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $8,000 and $6,944 respectively..................................... $ 9,042 $ 7,758
================ ================
Projected benefit obligation for service rendered to date............... $ (11,853) $ (10,086)
Plan assets at fair value, primarily stocks, bonds and CD's............. 10,233 9,049
---------------- ----------------
Plan assets (under) projected benefit obligation........................ (1,620) (1,037)
Unrecognized net loss................................................... 1,143 829
Unrecognized net asset being amortized over 16.55 years................. (278) (324)
---------------- ----------------
Net pension liability included in other liabilities................... $ (755) $ (532)
================ ================
</TABLE>
The weighted average discount rate and rate of increase in future compensation
levels used in determining actuarial present value of the projected benefit
obligation was 7.25% and 4.50% and 7.75% and 4.50% at December 31, 1997 and
1996, respectively. The assumed long-term rate of return on plan assets was 9.0%
at December 31, 1997 and 1996.
F-19
<PAGE> 102
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Net periodic pension cost for the years ended December 31, 1997, 1996 and 1995
included the following components (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Service cost - benefits earned during the period.................... $ 510 $ 547 $ 436
Interest cost on projected benefit obligation....................... 778 691 623
Actual return on plan assets........................................ (1,415) (992) (1,212)
Net amortization and deferral....................................... 563 326 652
-------------- ------------- -------------
Net periodic pension cost........................................... $ 436 $ 572 $ 499
============== ============= =============
</TABLE>
The Company has a nonfunded supplemental retirement plan (restoration plan) for
its employees whose benefits under the principal retirement plan are reduced
because of compensation deferral elections or limitations under federal tax
laws. The expense for this plan for the years ended December 31, 1997, 1996 and
1995 was $45,000, $52,000 and $59,000, respectively.
Net periodic postretirement benefit cost for the years ended December 31, 1997,
1996 and 1995 includes the following components (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C>
Service cost........................................................ $ $ 1 $ 6
Interest cost....................................................... 37 38 41
Net amortization and deferral on
unrecognized transition obligation................................ 3 3 3
Net amortization and deferral on
unrecognized net loss............................................ 3 10 9
-------------- ------------- -------------
Net periodic postretirement benefit cost............................ $ 43 $ 52 $ 59
============== ============= =============
</TABLE>
Accrued postretirement benefit cost at December 31, 1997 and 1996 is composed of
the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits
of $491 and $584, respectively.................................................. $ (510) $ (584)
Unrecognized net transition obligation............................................ 26 29
Unrecognized actuarial loss....................................................... 130 181
Additional minimum liability...................................................... (156) (210)
------------- -------------
Accrued postretirement benefit cost............................................... $ (510) $ (584)
============= ==============
Assumed discount rate............................................................. 7.25% 7.75%
============= ==============
Compensation increase rate........................................................ 4.50% 4.50%
============== ==============
</TABLE>
INCENTIVE STOCK OPTIONS. In April 1993, the Company adopted the Southside
Bancshares, Inc. 1993 Incentive Stock Option Plan ("the Plan"), a stock-based
incentive compensation plan. The Company applies APB Opinion 25 and related
Interpretations in accounting for the Plan. In 1995, the FASB issued FASB
Statement No. 123
F-20
<PAGE> 103
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
"Accounting for Stock-Based Compensation" ("SFAS 123"), which, if fully adopted
by the Company, would change the methods the Company applies in recognizing the
cost of the Plan. Adoption of the cost recognition provisions of SFAS 123 is
optional and the Company has decided not to elect these provisions of SFAS 123.
However, pro forma disclosures as if the Company adopted the cost recognition
provisions of SFAS 123 in 1995 are required by SFAS 123 and are presented below.
Under the Plan, the Company is authorized to issue shares of Common Stock
pursuant to "Awards" granted in the form of incentive stock options (intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended).
Awards may be granted to selected employees and directors of the Company or any
subsidiary.
The Plan provides that the exercise price of any stock option may not be less
than the fair market value of the Common Stock on the date of grant. The Company
granted incentive stock options in 1995, 1996 and 1997. The stock options
granted in 1995, 1996 and 1997 have contractual terms of 10 years. All options
vest on a graded schedule, 20% per year for 5 years, beginning on the first
anniversary date of the grant date. In accordance with APB 25, the Company has
not recognized any compensation cost for these stock options granted in 1995,
1996 and 1997.
A summary of the status of the Company's stock options as of December 31, 1997,
1996 and 1995 and the changes during the year ended on those dates is presented
below (for presentation purposes, all options are adjusted for all stock
dividends declared through December 31, 1997):
<TABLE>
<CAPTION>
INCENTIVE STOCK OPTIONS
1997 1996 1995
------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
# SHARES OF AVERAGE # SHARES OF AVERAGE # SHARES OF AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of the year............. 220,611 $10.02 158,964 $7.94 94,137 $6.27
Granted................. 75,602 $16.90 77,175 $13.61 64,827 $10.37
Exercised............... 11,700 $6.58 14,083 $6.91 0 N/A
Forfeited............... 1,635 $13.10 1,445 $6.42 0 N/A
Expired................. 0 N/A 0 N/A 0 N/A
Outstanding at end of year
282,878 $12.01 220,611 $10.02 158,964 $7.94
Exercisable at end of year
88,865 $8.74 53,930 $7.26 37,656 $6.27
Weighted-average FV of
options granted during
the year................ $5.12 $3.55 $2.49
</TABLE>
The fair value of each stock option granted is estimated on the date of grant
using the minimum value method of option pricing with the following
weighted-average assumptions for grants in 1995, 1996 and 1997, respectively:
dividend yield of 3.9%, 2.9%, and 2.4%; risk-free interest rates of 5.99%,
5.41%, and 6.52%; the expected lives of six years; the expected volatility is
26.56%.
F-21
<PAGE> 104
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- -------------------------------
NUMBER WEIGHTED AVG. NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED AVG EXERCISABLE WEIGHTED AVG.
EXERCISE PRICES AT 12/31/97 CONTR. LIFE EXERCISE PRICE AT 12/31/97 EXERCISE PRICE
<S> <C> <C> <C> <C> <C>
$ 6.27 to $11.00 131,151 7.00 $ 8.30 88,865 $ 8.74
$ 11.01 to $16.90 151,727 8.80 $15.23 0 $ 0
----------------- ------- ---- ------ --------- -------
$ 6.27 to $16.90 282,878 8.00 $12.01 88,865 $ 8.74
</TABLE>
PRO FORMA NET INCOME AND NET INCOME PER COMMON SHARE. Had the compensation cost
for the Company's stock-based compensation plans been determined consistent with
SFAS 123, the Company's net income and net income per common share for 1995,
1996, and 1997 would approximate the pro forma amounts below (in thousands, net
of taxes):
<TABLE>
<CAPTION>
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
12/31/97 12/31/97 12/31/96 12/31/96 12/31/95 12/31/95
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SFAS 123 Charge..................... $ 0 $ 93 $ 0 $ 62 $ 0 $ 9
Net Income.......................... $ 5,006 $ 4,913 $ 4,205 $ 4,143 $ 4,532 $ 4,523
Net Income per Common
Share-Basic....................... $ 1.47 $ 1.45 $ 1.23 $ 1.22 $ 1.33 $ 1.33
Net Income per Common
Share-Diluted..................... $ 1.43 $ 1.41 $ 1.21 $ 1.19 $ 1.31 $ 1.31
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. SFAS 123 does not apply to awards prior to 1995, and the
Company anticipates making awards in the future under its stock-based
compensation plan.
11. SHAREHOLDERS' EQUITY
Cash dividends declared and paid were $.40 per share, $.40 per share and $.35
per share for the years ended December 31, 1997, 1996 and 1995, respectively.
Future dividends will depend on the Company's earnings, financial condition and
other factors which the Board of Directors of the Company considers to be
relevant. The Company's dividend policy requires that any dividend payments made
by the Company not exceed consolidated earnings for that year. Retained earnings
not available for the payment of dividends at December 31, 1997 was $10,414,000.
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
F-22
<PAGE> 105
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of Total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum Total risk-based, Tier 1 risk-based,
and Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------------ -------------------------- -------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- --------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets)......... $ 41,965 12.89% > OR = $26,038 > OR = 8.0% > OR = $32,547 > OR = 10.0%
Tier 1 Capital
(to Risk Weighted Assets)......... $ 38,595 11.86% > OR = $13,019 > OR = 4.0% > OR = $19,528 > OR = 6.0%
Tier 1 Capital
(to Average Assets) (1)........... $ 38,595 7.25% > OR = $21,283 > OR = 4.0% > OR = $26,604 > OR = 5.0%
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets)......... $ 38,891 13.74% > OR = $22,640 > OR = 8.0% > OR = $28,300 > OR = 10.0%
Tier 1 Capital
(to Risk Weighted Assets)......... $ 35,642 12.59% > OR = $11,320 > OR = 4.0% > OR = $16,980 > OR = 6.0%
Tier 1 Capital
(to Average Assets) (1)........... $ 35,642 7.63% > OR = $14,015 > OR = 3.0% > OR = $23,359 > OR = 5.0%
</TABLE>
- --------------------
(1) Refers to quarterly average assets as calculated by bank regulatory
agencies.
Payment of dividends by the Bank is limited under regulation. The amount that
can be paid in any calendar year without prior approval of the Bank's regulatory
agencies cannot exceed the lesser of net profits (as defined) for that year plus
the net profits for the preceding two calendar years, or retained earnings.
F-23
<PAGE> 106
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The table below summarizes key equity ratios for the Company for the years ended
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
--------- -------- -------
<S> <C> <C> <C>
Percentage of Net Income to:
Average Total Assets................................................ .99% .92% 1.07%
Average Shareholders' Equity........................................ 13.20% 12.20% 15.01%
Percentage of Dividends Declared Per Common
Share to Net Income Per Common Share-Basic.......................... 27.21% 32.52% 26.32%
Percentage of Dividends Declared Per Common
Share to Net Income Per Common Share-Diluted........................ 27.97% 33.06% 26.72%
Percentage of Average Shareholders'
Equity to Average Total Assets...................................... 7.50% 7.55% 7.16%
</TABLE>
12. DIVIDEND REINVESTMENT AND COMMON STOCK REPURCHASE PLAN
The Company has a Dividend Reinvestment Plan funded by stock authorized, but not
yet issued. Proceeds from the sale of the common stock will be used for general
corporate purposes and could be directed to the Company's subsidiaries. For the
year ended December 31, 1997, 18,430 shares were sold under this plan at an
average price of $17.69 per share, reflective of other trades at the time of
each sale.
The Company instituted a Common Stock Repurchase Plan in late 1994. Under the
repurchase plan, the Board of Directors establishes, on a quarterly basis, total
dollar limitations and price per share for stock to be repurchased. The Board
reviews this plan in conjunction with the capital needs of the Company and
Southside Bank and may, at it's discretion, modify or discontinue the plan.
During 1997, 65,464 shares of treasury stock were purchased under this plan at a
cost of $1,154,000.
13. INCOME TAXES
The provisions for federal income taxes included in the accompanying statements
consist of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Current tax provision.................................................. $ 1,914 $ 1,648 $ 1,429
Deferred tax provision (benefit)....................................... (225) (211) 284
------------ ------------ -------------
Provision for tax expense charged to operations........................ 1,689 1,437 1,713
Shareholders' Equity - Unrealized gains on
securities available for sale...................................... 229 159 1,212
------------ ------------ -------------
Comprehensive provision for income tax................................. $ 1,918 $ 1,596 $ 2,925
============ ============ =============
</TABLE>
F-24
<PAGE> 107
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes result from temporary differences in the recognition of
revenues and expenses for tax and book purposes. These differences and the tax
effect of each of the major categories are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Provision for loan losses.............................................. $ (323) $ (170) $ 102
Provision for OREO losses.............................................. 83 117
Depreciation........................................................... 29 57 31
Retirement and other benefit plans..................................... (60) (123) (41)
FHLB Dallas Stock dividends............................................ 40 37 37
Loan origination costs................................................. 11 2 25
Other.................................................................. (5) (14) 13
------------ ------------ -------------
Deferred tax provision (benefit)....................................... $ (225) $ (211) $ 284
============ ============ =============
</TABLE>
The components of the net deferred tax asset as of December 31, 1997 and 1996
are summarized below (in thousands):
<TABLE>
<CAPTION>
ASSETS LIABILITIES
------------ -------------
<S> <C> <C>
Allowance for Losses on OREO...................................................... $ 318 $
Reserve for Loan Losses........................................................... 737
Retirement and Other Benefit Plans................................................ 640
Unrealized gains on securities available for sale................................. (725)
Loan Origination Costs............................................................ (154)
Premises and Equipment............................................................ (209)
FHLB Dallas Stock Dividends....................................................... (145)
Other............................................................................. (2)
------------ -------------
Gross deferred tax assets (liabilities)........................................ 1,695 (1,235)
------------ -------------
Net deferred tax asset at December 31, 1997................................. $ 460
============
</TABLE>
<TABLE>
<CAPTION>
ASSETS LIABILITIES
------------ -------------
<S> <C> <C>
Allowance for Losses on OREO...................................................... $ 401 $
Reserve for Loan Losses........................................................... 415
Retirement and Other Benefit Plans................................................ 576
Unrealized gains on securities available for sale................................. (496)
Loan Origination Costs............................................................ (143)
Premises and Equipment............................................................ (183)
FHLB Dallas Stock Dividends....................................................... (105)
Other............................................................................. (1)
------------ -------------
Gross deferred tax assets (liabilities)........................................ 1,392 (928)
------------ -------------
Net deferred tax asset at December 31, 1996................................. $ 464
============
</TABLE>
F-25
<PAGE> 108
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of tax at statutory rates and total tax expense is as follows
(dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
PERCENT PERCENT PERCENT
OF OF OF
PRE-TAX PRE-TAX PRE-TAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Calculated Tax Expense............................. $ 2,276 34.0% $ 1,918 34.0% $ 2,123 34.0%
Increase (Decrease) in Taxes from:
Tax Exempt Interest................................ (706) (10.5%) (650) (11.5%) (518) (8.3%)
Other Net.......................................... 119 1.7% 169 3.0% 108 1.7%
-------- -------- -------- -------- -------- -------
Provision for Tax Expense Charged to
Operations...................................... 1,689 25.2% 1,437 25.5% 1,713 27.4%
Shareholders' Equity - Unrealized gains
on securities available for sale................ 229 3.4% 159 2.8% 1,212 19.4%
-------- -------- -------- -------- -------- -------
Comprehensive Provision for Income Tax............. $ 1,918 28.6% $ 1,596 28.3% $ 2,925 46.8%
======== ======== ======== ======== ======== =======
</TABLE>
14. CONTINGENCIES
The Company, or its subsidiaries, is involved with various litigation which
resulted in the normal course of business. Management of the Company, after
consulting with its legal counsel, believes that any liability resulting from
litigation will not have a material effect on the financial position and results
of operations of the Company or its subsidiaries.
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business the Company is a party to certain financial
instruments, with off-balance-sheet risk, to meet the financing needs of its
customers. These off-balance-sheet instruments include commitments to extend
credit and standby letters of credit. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
reflected in the financial statements. The contract or notional amounts of these
instruments reflect the extent of involvement and exposure to credit loss the
Company has in these particular classes of financial instruments.
Commitments to extend credit are agreements to lend to a customer provided that
the terms established in the contract are met. Commitments generally have fixed
expiration dates and may require payment of fees. Since some commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Standby letters of credit are
conditional commitments issued to guarantee the performance of a customer to a
third party. These guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan commitments to
customers.
F-26
<PAGE> 109
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company had outstanding unused commitments to extend credit of $28,313,000
and $27,172,000 at December 31, 1997 and 1996, respectively. The Company had
outstanding standby letters of credit of $277,000 and $202,000 at December 31,
1997 and 1996, respectively.
In the normal course of business the Company buys and sells securities. At
December 31, 1997 and 1996, the Company had commitments to purchase $624,000 and
$322,000 in securities, respectively.
The Company applies the same credit policies in making commitments and standby
letters of credit as it does for on-balance-sheet instruments. The Company
evaluates each customer's credit worthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary, upon extension of credit is based
on management's credit evaluation of the borrower. Collateral held varies but
may include real estate, accounts receivable, inventory, property, plant, and
equipment.
16. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
The economy of the Company's market area, East Texas, is directly tied to the
oil and gas Industry. Oil prices have had an indirect effect on the Company's
business. Although the Company has a diversified loan portfolio, a significant
portion of its loans are collateralized by real estate. Repayment of these loans
is in part dependent upon the economic conditions in the market area. Part of
the risk associated with real estate loans has been mitigated since 53.6% of
this group represents loans collateralized by residential dwellings that are
primarily owner occupied. Losses on this type of loan have historically been
less than those on speculative properties. Many of the remaining real estate
loans are collateralized primarily with owner occupied commercial real estate.
The Mortgage-backed Securities held by the Company consist solely of Government
agency pass-through securities which are either directly or indirectly backed by
the full faith and credit of the United States Government.
17. RELATED PARTY TRANSACTIONS
Loan activity of executive officers, directors, and their affiliates for the
years ended December 31, 1997 and 1996 were (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------ -----------------
<S> <C> <C>
Beginning Balance of Loans.............................................. $ 6,999 $ 7,127
Additional Loans...................................................... 2,507 2,331
Payments.............................................................. (3,346) (2,459)
----------------- ----------------
Ending Balance of Loans................................................. $ 6,160 $ 6,999
================= ================
</TABLE>
Other indebtedness of officers and employees as of December 31, 1997 and 1996
was $2,478,000 and $2,901,000, respectively.
The Company incurred legal costs of $148,000, $141,000 and $152,000 during the
years ended December 31, 1997, 1996 and 1995, respectively, from a law firm of
which an outside director of the Company is a partner. The Company paid
approximately $55,000, $57,000 and $75,000 in insurance premiums during the
years ended December 31, 1997, 1996 and 1995, respectively, to companies of
which two outside directors are officers. The Company paid approximately
$50,000, $106,000 and $49,000 in architectural fees during the years ended
December 31, 1997, 1996 and 1995, respectively, to a company of which an outside
director is an officer.
F-27
<PAGE> 110
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
18. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other estimation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future cash
flows. Such techniques and assumptions, as they apply to individual categories
of the Company's financial instruments, are as follows:
Cash and due from banks: The carrying amounts for cash and due from banks is a
reasonable estimate of those assets' fair value.
Investment, mortgage-backed and marketable equity securities: Fair values for
these securities are based on quoted market prices, where available. If quoted
market prices are not available, fair values are based on quoted market prices
for similar securities.
Loans receivable: For adjustable rate loans that reprice frequently and with no
significant change in credit risk, the carrying amounts are a reasonable
estimate of those assets' fair value. The fair value of other types of loans is
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for
the same remaining maturities. Nonperforming loans are estimated using
discounted cash flow analyses or underlying value of the collateral where
applicable.
Accrued interest receivable: The carrying amount of accrued interest
approximates its fair value.
Deposit liabilities: The fair value of demand deposits, savings accounts, and
certain money market deposits is the amount on demand at the reporting date,
that is, the carrying value. Fair values for fixed rate certificates of
deposits are estimated using a discounted cash flow calculation that applies
interest rates currently being offered for deposits of similar remaining
maturities.
Federal funds purchased and securities sold under agreement to repurchase:
Federal funds purchased and securities sold under agreement to repurchase
generally have an original term to maturity of one day and thus are considered
short-term borrowings. Consequently, their carrying value is a reasonable
estimate of fair value.
Commitments to extend credit: The carrying amounts of commitments to extend
credit and standby letters of credit are a reasonable estimate of those assets'
fair value.
FHLB Dallas Advances: The fair value of these advances is estimated by
discounting the future cash flows using rates at which advances would be made
to borrowers with similar credit ratings and for the same remaining maturities.
F-28
<PAGE> 111
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table presents the Company's assets, liabilities, and unrecognized
financial instruments at both their respective carrying amounts and fair value.
The Company's nonfinancial assets and liabilities are presented in both columns
at their carrying amount (in thousands).
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 AT DECEMBER 31, 1996
-------------------------------- --------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks.................... $ 36,593 $ 36,593 $ 31,653 $ 31,653
Investment securities:
Available for sale....................... 71,031 71,031 56,091 56,091
Held to maturity......................... 804 799 1,734 1,720
Mortgage-backed and related securities:
Available for sale....................... 127,751 127,751 90,574 90,574
Held to maturity......................... 13,662 13,688 23,782 23,853
Marketable equity securities:
Available for sale....................... 3,258 3,258 2,220 2,220
Loans, net.................................... 292,665 295,097 254,918 259,648
Interest receivable........................... 3,918 3,918 3,300 3,300
Financial liabilities:
Retail deposits............................ $ 462,674 $ 463,157 $ 425,950 $ 426,570
Federal funds purchased.................... 3,884 3,884 4,800 4,800
FHLB Dallas notes payable.................. 57,547 54,753 9,096 8,572
Off-balance sheet liabilities:
Commitments to extend credit............... 24,036 24,036 23,285 23,285
Standby letters of credit.................. 277 277 202 202
Credit card arrangements................... 4,277 4,277 3,887 3,887
</TABLE>
As discussed earlier, the fair value estimate of financial instruments and
outstanding credit arrangements for which quoted market prices are unavailable
is dependent upon the assumptions used. Consequently, those estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in immediate settlement of the instruments. Accordingly, the
aggregate fair value amounts presented in the above fair value table do not
necessarily represent the underlying value of the Company.
The Company did not own any derivative financial instruments as defined by FAS
119 and adoption of the statement did not affect the Company's financial
statements.
F-29
<PAGE> 112
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
19. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for Southside Bancshares, Inc. (parent company
only) was as follows (dollars in thousands):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS 1997 1996
------------------ -------------------
<S> <C> <C>
Cash and due from banks.................................................... $ 222 $ 347
Investment in bank subsidiaries at equity in
underlying net assets.................................................... 39,804 36,292
Investment in nonbank subsidiary at equity in
underlying net assets.................................................... 15 15
Other assets............................................................... 2 2
------------------ ------------------
Total Assets....................................................... $ 40,043 $ 36,656
================= ==================
LIABILITIES
Other liabilities.......................................................... $ 12 $ 52
----------------- -------------------
Total liabilities.................................................. 12 52
----------------- -------------------
SHAREHOLDERS' EQUITY
Common Stock ($2.50 par, 6,000,000 shares authorized:
3,496,269 and 3,316,127 and shares issued).............................. 8,740 8,290
Paid-in Capital............................................................ 21,290 18,501
Retained earnings.......................................................... 10,414 9,628
Treasury Stock (116,750 and 62,986 shares)................................. (1,820) (777)
Net unrealized gains on securities available for sale ..................... 1,407 962
----------------- ------------------
Total Shareholders' Equity......................................... 40,031 36,604
----------------- -------------------
Total Liabilities and Shareholders' Equity......................... $ 40,043 $ 36,656
================= ===================
</TABLE>
F-30
<PAGE> 113
SOUTHSIDE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Income:
Dividends from subsidiary.............................................. $ 2,066 $ 1,458 $ 1,197
------------ ------------ -------------
Total Income...................................................... 2,066 1,458 1,197
------------ ------------ -------------
Expense:
Salaries and employee benefits......................................... 75 150
Taxes other than income................................................ 41 40 39
Other.................................................................. 70 43 84
------------- ------------ -------------
Total Expense..................................................... 111 158 273
------------- ------------ -------------
Income before federal income tax expense............................... 1,955 1,300 924
Benefit for federal income tax expense................................. 37 54 93
------------- ------------- --------------
Income before equity in undistributed
earnings of subsidiaries............................................ 1,992 1,354 1,017
Equity in undistributed earnings of subsidiaries....................... 3,014 2,851 3,515
------------ ------------ -------------
Net Income........................................................ $ 5,006 $ 4,205 $ 4,532
============ ============ =============
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Operating Activities:
Net Income........................................................... $ 5,006 $ 4,205 $ 4,532
Adjustments to reconcile net income
to cash provided by operations:
Equity in undistributed earnings of subsidiaries................... (3,014) (2,851) (3,515)
(Increase) decrease in taxes receivable............................ 7 (2)
Increase (decrease) in other liabilities........................... (40) (3) 49
------------ ------------ -------------
Net cash provided by operating activities..................... 1,952 1,358 1,064
Investing Activities:
Investments in subsidiaries.......................................... (10)
------------ ------------ -------------
Net cash used in investing activities......................... (10)
Financing Activities:
Purchase of treasury stock........................................... (1,154) (425) (267)
Proceeds from sale of treasury stock................................. 77 97
Proceeds from issuance of Common Stock............................... 326 308 258
Dividends paid....................................................... (1,316) (1,258) (1,047)
------------ ------------ -------------
Net cash used in financing activities......................... (2,067) (1,278) (1,056)
Net increase (decrease) in cash and cash equivalents................. (125) 80 8
Cash and cash equivalents at beginning of year....................... 347 267 259
------------ ------------ -------------
Cash and cash equivalents at end of year............................. $ 222 $ 347 $ 267
============ ============ =============
</TABLE>
F-31
<PAGE> 114
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE TRUST ISSUER OR
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 THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH
IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................ 1
Summary Consolidated Financial
Information and Other Data........... 7
Summary of Recent Developments......... 9
Risk Factors........................... 11
Use of Proceeds........................ 18
Market for the Preferred Securities.... 18
Accounting Treatment................... 18
Capitalization......................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 20
Business............................... 32
Supervision and Regulation............. 45
Management............................. 50
Description of the Preferred
Securities........................... 52
Description of the Junior Subordinated
Debentures........................... 60
Description of the Guarantee........... 67
Relationship Among the Preferred
Securities, Junior Subordinated
Debentures and Guarantee............. 69
Certain Federal Income Tax
Consequences......................... 71
ERISA Considerations................... 73
Underwriting........................... 74
Validity of Securities................. 75
Experts................................ 75
Available Information.................. 75
Incorporation of Certain Documents by
Reference............................ 76
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
======================================================
======================================================
$20,000,000
SOUTHSIDE CAPITAL TRUST I
% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT
$10 PER PREFERRED SECURITY)
GUARANTEED, AS DESCRIBED HEREIN, BY
[SOUTHSIDE LOGO]
------------------------
PROSPECTUS
------------------------
[RYAN, BECK & CO. LOGO]
, 1998
======================================================
<PAGE> 115
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the offering of the securities to
which this Registration Statement relates which will be borne by Southside
Bancshares, Inc., are as set forth below. With the exception of the Securities
and Exchange Commission ("SEC") and National Association of Securities Dealers,
Inc. ("NASD") filing fees, all amounts shown are estimates.
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
SEC registration fee .............................. $ 6,785
NASD filing fee ................................... 2,500
NASDAQ listing fee ................................ 28,090
Trustee fees and expenses ......................... 15,000*
Legal fees and expenses ........................... 125,000*
Accounting fees and expenses....................... 75,000*
Printing expenses.................................. 100,000*
Blue Sky fees and expenses ........................ 15,000*
Miscellaneous ..................................... 32,625*
--------
TOTAL .................................... $400,000*
========
</TABLE>
- ---------------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation of Southside Bancshares, Inc. provides
that its officers and directors will be indemnified by Southside Bancshares,
Inc. to the fullest extent permitted by law. The Texas Business Corporations Act
("TBCA") permits, and in some cases requires, corporations to indemnify
officers, directors, agents and employees who are or have been a party to or are
threatened to be made a party to litigation against judgements, fines,
settlements and reasonable expenses under certain circumstances. Under the TBCA,
reasonable expenses incurred by a director or officer may be paid or reimbursed
by the Company in advance of a final disposition of the proceeding after the
Company receives a written affirmation by the director or officer of his or her
good faith belief that he or she has met the standard of conduct necessary for
indemnification and a written undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined that the director or
officer is not entitled to indemnification by the Company. The TBCA requires the
Company to indemnify an officer or director against reasonable expenses incurred
in connection with the proceeding in which he or she is named defendant or
respondent because he or she is or was a director or officer if he or she is
wholly successful in defense of the proceeding.
Southside Bancshares, Inc. has purchased director and officer
liability insurance that insures directors and officers of Southside Bancshares,
Inc. and Southside Bank against liabilities in connection with the performance
of their duties.
Under the Trust Agreement of Southside Capital Trust I (the "Trust
Issuer"), Southside Bancshares, Inc. will agree to indemnify each of the
Trustees of the Trust Issuer or any predecessor trustee for the Trust Issuer,
and to hold harmless against, any loss, damage, claim, liability or expense
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the Trust Agreement
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties under the Trust Agreement.
II-1
<PAGE> 116
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
REGULATION S-K
EXHIBIT
NUMBER DOCUMENT
- -------------- ----------------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement.*
3.1 Articles of Incorporation of Southside Bancshares, Inc. (filed as
Exhibit 3 to the Registrant's Form 10-K for the year ended December 31,
1992, and incorporated herein).
3.2 Articles of Amendment of Southside Bancshares, Inc. (filed as Exhibit
3(a)(ii) to the Registrant's Form 10-K for the year ended December 31,
1994, and incorporated herein).
3.3 Bylaws of Southside Bancshares, Inc. (filed as Exhibit 3(b) to the
Registrant's Form 10-K for the year ended December 31, 1994, and
incorporated herein).
4.1 Form of Indenture with respect to Southside Bancshares, Inc.'s ___%
Junior Subordinated Debentures.*
4.2 Form of ___% Junior Subordinated Debenture (included as an exhibit to
the Form of Indenture filed as Exhibit 4.1).*
4.3 Certificate of Trust of Southside Capital Trust I (included as an
exhibit to the Form of Amended and Restated Trust Agreement filed as
Exhibit 4.5).*
4.4 Form of Trust Agreement of Southside Capital Trust I (included as an
exhibit to the Form of Amended and Restated Trust Agreement filed as
Exhibit 4.5).*
4.5 Form of Amended and Restated Trust Agreement of Southside Capital
Trust I.*
4.6 Form of Certificate for ___% Trust Preferred Security of Southside
Capital Trust I (included as an exhibit to Exhibit 4.5).*
4.7 Form of Guarantee Agreement for Southside Capital Trust I.*
4.8 Form of Agreement as to Expenses and Liabilities (included as an
exhibit to Exhibit 4.5)*
5.1 Opinion of Jenkens & Gilchrist, a Professional Corporation, as to the
validity of the Guarantee and the issuance of the ___% Junior
Subordinated Debentures to be issued by Southside Capital Trust I.*
5.2 Opinion of Richards, Layton & Finger, special Delaware counsel, as to
the enforceability of the Trust Agreement and Trust Preferred Securities
to be issued by Southside Capital Trust I.*
8.1 Tax Opinion of Jenkens & Gilchrist, a Professional Corporation.*
10.1 Deferred Compensation Plan for B.G. Hartley effective February 13,
1984, as amended June 28, 1990 and December 15, 1994 (filed as
Exhibit 10(a)(i) to the Registrant's Form 10-K for the year ended
December 31, 1994, and incorporated herein).
10.2 Deferred Compensation Plan for Robbie N. Edmonson effective February
13, 1984, as amended June 28, 1990 and March 16, 1995 (filed as
Exhibit 10(a)(ii) to the Registrant's Form 10-K for the year ended
December 31, 1995, and incorporated herein).
10.3 Officers Long-term Disability Income Plan effective June 25, 1990
(filed as Exhibit 10(b) to the Registrant's Form 10-K for the year
ended June 30, 1990, and incorporated herein).
10.4 Retirement Plan Restoration Plan for the subsidiaries of SoBank, Inc.
(now named Southside Bancshares, Inc.)(filed as Exhibit 10(c) to the
Registrant's Form 10-K for the year ended December 31, 1992, and
incorporated herein).
10.5 Incentive Stock Option Plan effective April 1, 1993 of SoBank, Inc.
(now named Southside Bancshares, Inc.) (filed as Exhibit 10(d) to the
Registrant's Form 10-K for the year ended December 31, 1994, and
incorporated herein).
</TABLE>
II-2
<PAGE> 117
<TABLE>
<CAPTION>
REGULATION S-K
EXHIBIT
NUMBER DOCUMENT
- -------------- ----------------------------------------------------------------------
<S> <C>
10.6 Form of Deferred Compensation Agreements dated June 30, 1994 with
each of Titus Jones and Andy Wall as amended November 13, 1995.
(filed as Exhibit 10(e) to the Registrant's Form 10-K for the year
ended December 31, 1995 and incorporated herein).
10.7 Form of Deferred Compensation Agreements dated June 30, 1994 with
each of Sam Dawson, Lee Gibson and Jeryl Story as amended October 15,
1997 and Form of Deferred Compensation Agreement dated October 15,
1997 with Lonny Uzzell. (filed as Exhibit 10(f) to the Registrant's
Form 10-K for the year ended December 31, 1997, and incorporated herein).
12 Statements re: calculation of ratios.*
23.1 Consent of Coopers & Lybrand, L.L.P.*
23.2 Consent of Jenkens & Gilchrist, a Professional Corporation (set forth
in Exhibit 5.1 to this Registration Statement).*
23.3 Consent of Richards, Layton & Finger (included in Exhibit 5.2 to this
Registration Statement).*
24 Power of Attorney.
25.1 Form T-1: Statement of Eligibility of U.S. Trust Company of Texas,
N.A. to act as trustee under the Indenture.*
25.2 Form T-1: Statement of Eligibility of U.S. Trust Company of
Texas, N.A. to act as trustee under the Amended and Restated
Trust Agreement.*
25.3 Form T-1: Statement of Eligibility of U.S. Trust Company of
Texas to act as trustee under the Guarantee Agreement for
Southside Capital Trust I.*
27 Financial Data Schedule.*
</TABLE>
- ------------------
* Filed herewith.
ITEM 17. UNDERTAKINGS.
Each of the undersigned Registrants hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrants pursuant to Item 15 of this Registration Statement,
or otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrants of expenses incurred or paid by a director, officer or
controlling person of the Registrants in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrants will, unless
in the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by them is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(b)(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrants pursuant to Rule 424 (b) (1) or (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 the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
II-3
<PAGE> 118
contains a form of prospectus shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 119
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Southside
Bancshares, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Tyler, State of Texas, on May 12, 1998.
SOUTHSIDE BANCSHARES, INC.
By: /s/ SAM DAWSON
-------------------------------------
Sam Dawson, President
<PAGE> 120
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.
SIGNATURE TITLE DATE
<TABLE>
<S> <C> <C>
* Chairman of the Board of Directors May 12, 1998
- --------------------------------
B.G. Hartley
* Vice Chairman of the Board of Directors May 12, 1998
- --------------------------------
Robbie N. Edmonson
* President, Secretary and Director May 12, 1998
- --------------------------------
Sam Dawson
* Director May 12, 1998
- --------------------------------
Fred E. Bosworth
* Director May 12, 1998
- --------------------------------
Herbert C. Buie
* Director May 12, 1998
- --------------------------------
Rollins Caldwell
* Director May 12, 1998
- --------------------------------
W.D. (Joe) Norton
* Director May 12, 1998
- --------------------------------
William Sheehy
Director _____________, 1998
- --------------------------------
Murph Wilson
*By: /s/ LEE R. GIBSON May 12, 1998
---------------------------
Attorney-in-Fact and Agent
</TABLE>
<PAGE> 121
Pursuant to the requirements of the Securities Act of 1933, Southside
Capital Trust I certifies that it has reasonable grounds to believe it meets all
of the requirements for filing on Form S-2 and has duly caused this Registration
Statement to be filed on its behalf by the undersigned, thereunto duly
authorized, in the City of Tyler, State of Texas on May 12, 1998.
SOUTHSIDE CAPITAL TRUST I
By: SOUTHSIDE BANCSHARES, INC.
By: /s/ SAM DAWSON
------------------------------------
Sam Dawson, President
<PAGE> 122
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------ ----------------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement.*
3.1 Articles of Incorporation of Southside Bancshares, Inc. (filed as
Exhibit 3 to the Registrant's Form 10-K for the year ended
December 31, 1992, and incorporated herein).
3.2 Articles of Amendment of Southside Bancshares, Inc. (filed as Exhibit
3(a)(ii) to the Registrant's Form 10-K for the year ended
December 31, 1994, and incorporated herein).
3.3 Bylaws of Southside Bancshares, Inc. (filed as Exhibit 3(b) to
the Registrant's Form 10-K for the year ended December 31, 1994,
and incorporated herein).
4.1 Form of Indenture with respect to Southside Bancshares, Inc.'s ___%
Junior Subordinated Debentures.*
4.2 Form of ___% Junior Subordinated Debenture (included as an exhibit to
the Form of Indenture filed as Exhibit 4.1).*
4.3 Certificate of Trust of Southside Capital Trust I (included as an
exhibit to the Form of Amended and Restated Trust Agreement filed as
Exhibit 4.5).*
4.4 Trust Agreement of Southside Capital Trust I (included as an exhibit
to the Form of Amended and Restated Trust Agreement filed as
Exhibit 4.5).*
4.5 Form of Amended and Restated Trust Agreement of Southside Capital
Trust I.*
4.6 Form of Certificate for ___% Trust Preferred Security of Southside
Capital Trust I (included as an exhibit to Exhibit 4.5).*
4.7 Form of Guarantee Agreement for Southside Capital Trust I.*
4.8 Form of Agreement as to Expenses and Liabilities (included as an
exhibit to Exhibit 4.5).*
5.1 Opinion of Jenkens & Gilchrist, a Professional Corporation, as to the
validity of the Guarantee and the issuance of the ___% Junior
Subordinated Debentures to be issued by Southside Capital Trust I.*
5.2 Opinion of Richards, Layton & Finger, P.A., special Delaware counsel,
as to the enforceability of the Trust Agreement and Trust Preferred
Securities to be issued by Southside Capital Trust I.*
8.1 Tax Opinion of Jenkens & Gilchrist, a Professional Corporation.*
10.1 Deferred Compensation Plan for B.G. Hartley effective February 13,
1984, as amended June 28, 1990 and December 15, 1994 (filed as
Exhibit 10(a)(i) to the Registrant's Form 10-K for the year ended
December 31, 1994, and incorporated herein).
10.2 Deferred Compensation Plan for Robbie N. Edmonson effective February
13, 1984, as amended June 28, 1990 and March 16, 1995 (filed as
Exhibit 10(a)(ii) to the Registrant's Form 10-K for the year ended
December 31, 1995, and incorporated herein).
10.3 Officers Long-term Disability Income Plan effective June 25, 1990
(filed as Exhibit 10(b) to the Registrant's Form 10-K for the year
ended June 30, 1990, and incorporated herein).
10.4 Retirement Plan Restoration Plan for the subsidiaries of SoBank, Inc.
(now named Southside Bancshares, Inc.)(filed as Exhibit 10(c) to the
Registrant's Form 10-K for the year ended December 31, 1992, and
incorporated herein).
10.5 Incentive Stock Option Plan effective April 1, 1993 of SoBank, Inc.
(now named Southside Bancshares, Inc.) (filed as Exhibit 10(d) to the
Registrant's Form 10-K for the year ended December 31, 1994, and
incorporated herein).
</TABLE>
<PAGE> 123
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------ ----------------------------------------------------------------------
<S> <C>
10.6 Form of Deferred Compensation Agreements dated June 30, 1994 with
each of Titus Jones and Andy Wall as amended November 13, 1995.
(filed as Exhibit 10(e) to the Registrant's Form 10-K for the year
ended December 31, 1995 and incorporated herein).
10.7 Form of Deferred Compensation Agreements dated June 30, 1994 with
each of Sam Dawson, Lee Gibson and Jeryl Story as amended October 15,
1997 and Form of Deferred Compensation Agreement dated October 15,
1997 with Lonny Uzzell. (filed as Exhibit 10(f) to the Registant's Form
10-K for the year ended December 31, 1997, and incorporated herein).
12 Statements re: calculation of ratios.*
23.1 Consent of Coopers & Lybrand, L.L.P.*
23.2 Consent of Jenkens & Gilchrist, a Professional Corporation (set forth
in Exhibit 5.1 to this Registration Statement).*
23.3 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2 to this
Registration Statement).*
24 Power of Attorney.
25.1 Form T-1: Statement of Eligibility of U.S. Trust Company of Texas,
N.A. to act as trustee under the Indenture.*
25.2 Form T-1: Statement of Eligibility of U.S. Trust Company of Texas, N.A. to act
as trustee under the Amended and Restated Trust Agreement.*
25.3 Form T-1: Statement of Eligibility of U.S. Trust Company of Texas, N.A. as trustee
under the Guarantee Agreement for Southside Capital Trust I.*
27 Financial Data Schedule.*
- ----------------
* Filed herewith.
</TABLE>
<PAGE> 1
EXHIBIT 1
SOUTHSIDE CAPITAL TRUST I
(a Delaware business trust)
2,000,000 Preferred Securities
_____% Cumulative Trust Preferred Securities
(Liquidation Amount $10 per Preferred Security)
UNDERWRITING AGREEMENT
__________, 1998
Ryan, Beck & Co., Inc.
220 South Orange Avenue
Livingston, New Jersey 07039
Ladies and Gentlemen:
Southside Capital Trust I (the "Trust"), a statutory business
trust organized under the Business Trust Act of the State of Delaware (the
"Delaware Act"), and Southside Bancshares, Inc., a Texas corporation (the
"Company"), as depositor of the Trust and as guarantor (the Trust and the
Company are referred to collectively as the "Offerors"), hereby confirm their
agreement with Ryan, Beck & Co., Inc. (the "Underwriter"), with respect to the
issue and sale by the Trust and the purchase by the Underwriter of 2,000,000
(the "Initial Securities") of the Trust's _____% Cumulative Trust Preferred
Securities (the "Preferred Securities"). The Trust and the Company also propose
to issue and sell to the Underwriter, at the Underwriter's option, up to an
additional 300,000 Preferred Securities (the "Option Securities") as set forth
herein. The term "Preferred Securities" as used herein, unless indicated
otherwise, shall mean the Initial Securities and the Option Securities.
The Preferred Securities and the Common Securities (as defined
herein) are to be issued pursuant to the terms of an Amended and Restated Trust
Agreement dated as of __________, 1998 (the "Trust Agreement"), among the
Company, as depositor, and U.S. Trust Company of Texas, N.A. (the "Trust
Company"), a trust company organized under the laws of the United States, as
property trustee (the "Property Trustee"), Wilmington Trust Company, a Delaware
trust company, as Delaware trustee (the "Delaware Trustee"), and Sam Dawson and
Lee Gibson (the
<PAGE> 2
"Administrative Trustees" and, together with the Property Trustee and the
Delaware Trustee, the "Trustees") and the holders from time to time of undivided
interests in the assets of the Trust. The Preferred Securities will be
guaranteed by the Company, on a subordinated basis and subject to certain
limitations, with respect to distributions and payments upon liquidation,
redemption or otherwise (the "Guarantee") pursuant to the Preferred Securities
Guarantee Agreement to be dated as of __________, 1998 (the "Guarantee
Agreement") between the Company and the Trust Company, as guarantee trustee (the
"Guarantee Trustee"). The assets of the Trust will consist of _____% junior
subordinated deferrable interest debentures due June 30, 2028 (the "Junior
Subordinated Debentures") of the Company which will be issued under the
Indenture to be dated as of __________, 1998 (the "Indenture"), between the
Company and the Trust Company, as trustee (the "Indenture Trustee"). The Company
has agreed to pay all costs, expenses and liabilities of the Trust payable to
third parties, with certain exceptions, pursuant to the Agreement as to Expenses
and Liabilities, dated as of ____________, 1998, between the Company and the
Trust (the "Expense Agreement"). Under certain circumstances, the Junior
Subordinated Debentures will be distributable to the holders of undivided
beneficial interests in the assets of the Trust. The entire proceeds from the
sale of the Preferred Securities will be combined with the entire proceeds from
the sale by the Trust to the Company of the Trust's common securities (the
"Common Securities") and will be used by the Trust to purchase an equivalent
amount of the Junior Subordinated Debentures.
The initial public offering price for the Preferred
Securities, the purchase price to be paid by the Underwriter for the Preferred
Securities, the commission per Preferred Security to be paid by the Company to
the Underwriter and the rate of interest to be paid on the Preferred Securities
shall be agreed upon by the Company and the Underwriter, and such agreement
shall be set forth in a separate written instrument substantially in the form of
Exhibit A hereto (the "Price Determination Agreement"). The Price Determination
Agreement may take the form of an exchange of any standard form of written
telecommunication between the Company and the Underwriter and shall specify such
applicable information as is indicated in Exhibit A hereto. The offering of the
Preferred Securities will be governed by this Agreement, as supplemented by the
Price Determination Agreement. From and after the date of the execution and
delivery of the Price Determination Agreement, this Agreement shall be deemed to
incorporate, and all references herein to "this Agreement" shall be deemed to
include, the Price Determination Agreement.
The Offerors have prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-2
(File Nos. 333-49889 and 333-49889-01) covering the registration of the
Preferred Securities, the Guarantee and the Junior Subordinated Debentures under
the Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectus or prospectuses, and, if such registration statement has
not become effective, the Company will prepare and file, prior to the effective
date of such registration statement, an amendment to such registration
statement, including a final prospectus. Each prospectus used before the time
such registration statement becomes effective is herein called a "preliminary
prospectus." Such registration statement, including the exhibits thereto and the
documents incorporated by reference therein pursuant to Item 12 of Form S-2
under the 1933 Act, at the time it becomes effective, is herein called the
"Registration Statement," and the prospectus, including the documents
2
<PAGE> 3
incorporated by reference therein pursuant to Item 12 of Form S-2 under the 1933
Act, included in the Registration Statement at the time it becomes effective is
herein called the "Prospectus," except that if any revised prospectus provided
to the Underwriter by the Company for use in connection with the offering of the
Preferred Securities differs from the prospectus included in the Registration
Statement at the time it becomes effective (whether or not such prospectus is
required to be filed pursuant to Rule 424(b) under the 1933 Act ("Rule 424(b)"),
the term "Prospectus" shall refer to such revised prospectus from and after the
time it is first furnished to the Underwriter for such use.
The Company understands that the Underwriter proposes to make
a public offering of the Preferred Securities (the "Offering") as soon as
possible after the Registration Statement becomes effective. The Underwriter may
assemble and manage a selling group of broker-dealers that are members of the
National Association of Securities Dealers, Inc. ("NASD") to participate in the
solicitation of purchase orders for the Preferred Securities.
Section 1. Representations and Warranties.
(a) The Offerors jointly and severally represent and
warrant to and agree with the Underwriter that:
(i) The Company meets the requirements for use of Form S-2
under the 1933 Act and, at the time of effectiveness of the
Registration Statement or the effectiveness of any post-effective
amendment to the Registration Statement, when the Prospectus is first
filed with the Commission pursuant to Rule 424(b), when any supplement
to or amendment of the Prospectus is filed with the Commission and
(with respect to the Prospectus or any supplement or amendment to the
Prospectus), at the Closing Time referred to below (and with respect to
the Option Securities, at the Option Closing Date referred to below),
(A) the Registration Statement and any amendments and supplements
thereto will comply in all material respects with the requirements of
the 1933 Act and the rules and regulations of the Commission under the
1933 Act (the "1933 Act Regulations"); (B) neither the Registration
Statement nor any amendment or supplement thereto will contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and (C) neither the Prospectus nor any
amendment or supplement thereto will include an untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. When any preliminary prospectus
was first filed with the Commission (whether filed as part of the
Registration Statement or any amendment thereto or pursuant to Rule
424(a) of the 1933 Act Regulations) and when any amendment thereof or
supplement thereto was first filed with the Commission, such
preliminary prospectus and any amendments thereof and supplements
thereto complied in all material respects with the applicable
provisions of the 1933 Act and the 1933 Act Regulations and did not
contain an untrue statement of a material fact and did not omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not
3
<PAGE> 4
misleading. No representation or warranty made in this Section (a)(i)
applies to statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Offerors by the
Underwriter expressly for use in the Registration Statement or the
Prospectus, or any information contained in any Form T-1 which is an
exhibit to the Registration Statement. The statements contained under
the caption "Underwriting" in the Prospectus constitute the only
information furnished to the Offerors in writing by the Underwriter
expressly for use in the Registration Statement or the Prospectus.
(ii) The documents incorporated by reference in the
Prospectus pursuant to Item 12 of Form S-2 under the 1933 Act, at the
time they were filed with the Commission, complied in all material
respects with the requirements of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations") and, when read
together and with the other information in the Prospectus, at the time
of effectiveness of the Registration Statement or the effectiveness of
any post-effective amendment to the Registration Statement, when the
Prospectus is first filed with the Commission pursuant to Section
424(b) of the 1933 Act Regulations, when any supplement to or amendment
of the Prospectus is filed with the Commission and (with respect to the
Prospectus or any supplement or amendment to the Prospectus), at the
Closing Time (and with respect to the Option Securities, at the Option
Closing Date), will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, in
each case after excluding any statement that does not constitute a part
of the Registration Statement or the Prospectus pursuant to Rule 412 of
the 1933 Act Regulations.
(iii) Coopers & Lybrand L.L.P., who are reporting upon the
audited financial statements included or incorporated by reference in
the Registration Statement, are independent public accountants as
required by the 1933 Act and the 1933 Act Regulations.
(iv) The consolidated financial statements, audited and
unaudited (including the notes thereto), included or incorporated by
reference in the Registration Statement present fairly in all material
respects the consolidated financial position of the Company and its
subsidiaries as of the dates indicated and the consolidated results of
operations and cash flows of the Company and its subsidiaries for the
periods specified. Such financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved, except as otherwise
stated therein. The financial statement schedules, if any, included in
the Registration Statement present fairly the information required to
be stated therein. The selected financial, pro forma and statistical
data included in the Prospectus are accurate in all material respects
and present fairly the information shown therein and have been compiled
on a basis consistent with that of the audited and unaudited
consolidated financial statements included or incorporated by reference
in the Registration Statement.
4
<PAGE> 5
(v) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas with
corporate power and authority under such laws to own, lease and operate
its properties and conduct its business as described in the Prospectus.
Each subsidiary of the Company is an entity duly organized, validly
existing and in good standing under the laws of its respective
jurisdiction of organization with corporate power and authority under
such laws to own, lease and operate its properties and conduct its
business. The Company and each of its subsidiaries is duly qualified to
transact business as a foreign corporation and is in good standing in
each other jurisdiction in which it owns or leases property of a
nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure to so
qualify or be in good standing would not have a material adverse effect
on the condition (financial or otherwise), earnings, business or assets
of the Company and its subsidiaries, considered as one enterprise.
(vi) The Company is duly registered with the Board of
Governors of the Federal Reserve System as a bank holding company under
the Bank Holding Company Act of 1956, as amended (the "BHC Act"); each
subsidiary of the Company that conducts business as a bank is duly
authorized to conduct such business in each jurisdiction in which such
business is currently conducted; and the deposit accounts of Southside
Bank (the "Bank") are insured by the Bank Insurance Fund of the Federal
Deposit Insurance Corporation (the "FDIC"), up to the maximum allowable
limits thereof. The Offerors have all such power, authority,
authorization, approvals and orders as may be required to enter into
this Agreement, to carry out the provisions and conditions hereof and
to issue and sell the Preferred Securities and the Junior Subordinated
Debentures.
(vii) The Bank is a banking corporation duly organized,
validly existing and in good standing under the laws of the State of
Texas with corporate power and authority under such laws to own, lease
and operate its properties and conduct its business; the Bank is duly
qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases property
of a nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure to so
qualify or be in good standing would not have a material adverse effect
on the condition (financial or otherwise), earnings, business affairs,
assets or business prospects of the Bank and its subsidiaries,
considered as one enterprise. All of the outstanding shares of capital
stock of the Bank and each of the Company's other subsidiaries have
been duly authorized and validly issued and are fully paid and
non-assessable and are owned by the Company directly or indirectly,
free and clear of any pledge, lien, security interest, charge, claim,
equity or encumbrance of any kind.
(viii) Except for Southside Delaware Financial Corporation, a
Delaware corporation ("Southside Delaware") and the Bank, the Company
does not have any "significant subsidiaries" as defined in Rule 1-02 of
Regulation S-X of the Commission. Southside Delaware conducts no
business except to hold all of the capital stock of the Bank.
5
<PAGE> 6
(ix) The Company had at the date indicated a duly authorized
and outstanding capitalization as set forth in the Prospectus under the
caption "Capitalization."
(x) This Agreement has been duly authorized, executed and
delivered by the Offerors and, when duly executed by the Underwriter,
will constitute the valid and binding agreement of the Offerors
enforceable against the Offerors in accordance with its terms, except
as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles. The Guarantee Agreement, the Junior Subordinated
Debentures, the Trust Agreement, the Expense Agreement and the
Indenture have each been duly authorized and, when duly executed and
delivered by the Company and, in the case of the Guarantee, by the
Guarantee Trustee, in the case of the Trust Agreement, by the Trustees,
and in the case of the Indenture, by the Indenture Trustee, will
constitute valid and legally binding obligations of the Company
enforceable against the Company in accordance with their respective
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to or affecting creditors' rights generally or general equitable
principles. The Junior Subordinated Debentures are entitled to the
benefits of the Indenture; and the Guarantee Agreement, the Junior
Subordinated Debentures, the Trust Agreement, the Expense Agreement and
the Indenture conform in all material respects to the descriptions
thereof in the Prospectus. The Trust Agreement, the Guarantee Agreement
and the Indenture have been duly qualified under the Trust Indenture
Act of 1939, as amended (the "TIA").
(xi) The Trust has been duly created and is validly existing
as a statutory business trust in good standing under the Delaware Act
with the power and authority to own, lease and operate its properties
and conduct its business as described in the Prospectus. The Trust has
conducted no business to date, and it will conduct no business in the
future that would be inconsistent with the description of the Trust set
forth in the Prospectus. The Trust is not a party to or bound by any
agreement or instrument other than this Agreement, the Trust Agreement
and the agreements and instruments contemplated by the Trust Agreement
or described in the Prospectus; the Trust has no liabilities or
obligations other than those arising out of the transactions
contemplated by this Agreement and the Trust Agreement and described in
the Prospectus; and the Trust is not a party to or subject to any
action, suit or proceeding of any nature.
(xii) The Preferred Securities have been duly and validly
authorized by the Trust for issuance and sale to the Underwriter
pursuant to this Agreement and, when executed and authenticated in
accordance with the terms of the Trust Agreement and delivered by the
Trust to the Underwriter pursuant to this Agreement against payment of
the consideration set forth herein, will be validly issued, fully paid
and non-assessable and will constitute valid and legally binding
obligations of the Trust enforceable against the Trust in accordance
with their terms and entitled to the benefits provided by the Trust
Agreement, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium
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<PAGE> 7
or other similar laws relating to or affecting creditors' rights
generally or general equitable principles. The Preferred Securities
conform in all material respects to the description thereof in the
Prospectus, and such description conforms in all material respects to
the rights set forth in the instruments defining the same; the holders
of the Preferred Securities, except as otherwise set forth in the Trust
Agreement, will be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit
organized under the General Corporation Law of the State of Delaware;
and the issuance of the Preferred Securities is not subject to any
preemptive or other similar rights.
(xiii) The Common Securities have been duly and validly
authorized by the Trust and, upon delivery by the Trust to the Company
against payment therefor as described in the Prospectus, will be duly
and validly issued and fully paid undivided beneficial interests in the
assets of the Trust and will conform in all material respects to the
description thereof in the Prospectus; the issuance of the Common
Securities is not subject to any preemptive or other similar rights;
and at the Closing Time, all of the issued and outstanding Common
Securities of the Trust will be directly owned by the Company, free and
clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity.
(xiv) The issuance and sale of the Preferred Securities and
the Common Securities by the Trust, the compliance by the Trust with
all of the provisions of this Agreement, the purchase of the Junior
Subordinated Debentures by the Trust, and the consummation of the
transactions herein contemplated will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default
under, the Trust Agreement or any statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Trust or any of its properties; and no consent,
approval, authorization, order, license, certificate, permit,
registration or qualification of or with any such court or other
governmental agency or body is required to be obtained by the Trust for
the issue and sale of the Preferred Securities and the Common
Securities by the Trust, the purchase of the Junior Subordinated
Debentures by the Trust or the consummation by the Trust of the
transactions contemplated by this Agreement and the Trust Agreement,
except for such consents, approvals, authorizations, licenses,
certificates, permits, registrations or qualifications as have already
been obtained, or as may be required under the 1933 Act or the 1933 Act
Regulations, the 1934 Act or the 1934 Act Regulations, state securities
laws or the TIA.
(xv) The issuance by the Company of the Guarantee and the
Junior Subordinated Debentures, the compliance by the Company with all
of the provisions of this Agreement, the execution, delivery and
performance by the Company of the Trust Agreement, the Junior
Subordinated Debentures, the Guarantee Agreement, the Expense Agreement
and the Indenture, and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any indenture, loan agreement, mortgage, deed of trust or other
material agreement or instrument to which the Company or any of its
subsidiaries is a party
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<PAGE> 8
or by which the Company or any of its subsidiaries is 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 Articles of Incorporation or by-laws of the Company
or any of its subsidiaries or any statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company, any of its subsidiaries or any of their
respective properties; and no consent, approval, authorization, order,
license, certificate, permit, registration or qualification of or with
any such court or other governmental agency or body is required for the
issuance of the Guarantee and the Junior Subordinated Debentures or the
consummation by the Company of the other transactions contemplated by
this Agreement, except for such consents, approvals, authorizations,
licenses, certificates, permits, registrations or qualifications as
have already been obtained, or as may be required under the 1933 Act or
the 1933 Act Regulations, the 1934 Act or the 1934 Act Regulations,
state securities laws or the TIA.
(xvi) The Trust has not engaged in any activity that would
result in the Trust being, and after giving effect to the offering and
sale of the Preferred Securities the Trust will not be, an "investment
company," or an entity "controlled" by an "investment company," as such
terms are defined in the Investment Company Act of 1940, as amended
(the "Investment Company Act").
(xvii) All of the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid
and non-assessable, and are not subject to the preemptive rights of any
shareholder of the Company.
(xviii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as
otherwise stated therein, there has not been (A) any material adverse
change in the condition (financial or otherwise), earnings, business or
assets of the Company and its subsidiaries, considered as one
enterprise, whether or not arising in the ordinary course of business,
(B) any transaction entered into by the Company or any subsidiary,
other than in the ordinary course of business, that is material to the
Company and its subsidiaries, considered as one enterprise, or (C) any
dividend or distribution of any kind declared, paid or made by the
Company on its capital stock. Neither the Company, the Bank nor any
other subsidiary has any material liability of any nature, contingent
or otherwise, except as set forth in the Prospectus.
(xix) Neither the Company, the Bank nor any other subsidiary
is in violation of any provision of its articles of incorporation,
charter or by-laws or in default in the performance or observance of
any obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which it is a party or by which it may be
bound or to which any of its properties may be subject, except for such
defaults that in the aggregate would not have a material adverse effect
on the condition (financial or otherwise), earnings, business or assets
of the Company and its subsidiaries, considered as one enterprise.
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<PAGE> 9
(xx) Except as disclosed in the Prospectus, there is no
action, suit or proceeding before or by any government, governmental
instrumentality or court, domestic or foreign, now pending or, to the
knowledge of the Company, threatened against the Company, the Bank or
any other subsidiary that is required to be disclosed in the Prospectus
or that could reasonably be expected to result in any material adverse
change in the condition (financial or otherwise), earnings, business or
assets of the Company and its subsidiaries, considered as one
enterprise, or that could reasonably be expected materially and
adversely to affect the consummation of the transactions contemplated
in this Agreement; all pending legal or governmental proceedings to
which the Company, the Bank or any other subsidiary is a party that are
not described in the Prospectus, including ordinary routine litigation
incidental to its business, if decided in a manner adverse to the
Company, would not have a material adverse effect on the condition
(financial or otherwise), earnings, business or assets of the Company
and its subsidiaries, considered as one enterprise.
(xxi) There are no material contracts or documents of a
character required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not described and filed as required.
(xxii) The Company and its subsidiaries, including the Bank,
each has good and indefeasible title to all properties and assets
described in the Prospectus as owned by it, free and clear of all
liens, charges, encumbrances or restrictions, except such as (A) are
described in the Prospectus or (B) are neither material in amount nor
materially significant in relation to the business of the Company and
its subsidiaries, considered as one enterprise; all of the leases and
subleases material to the business of the Company and its subsidiaries,
considered as one enterprise are in full force and effect, and neither
the Company, the Bank nor any other subsidiary has any notice of any
material claim that has been asserted by anyone adverse to the rights
of the Company, the Bank or any other subsidiary under any such lease
or sublease or affecting or questioning the rights of such corporation
to the continued possession of the leased or subleased premises under
any such lease or sublease.
(xxiii) Each of the Company and its subsidiaries, including
the Bank, owns, possesses or has obtained all material governmental
licenses, permits, certificates, consents, orders, approvals and other
authorizations necessary to own or lease, as the case may be, and to
operate its properties and to carry on its business as presently
conducted, and neither the Company, the Bank nor any other subsidiary
has received any notice of any restriction upon, or any notice of
proceedings relating to revocation or modification of, any such
licenses, permits, certificates, consents, orders, approvals or
authorizations, except where the failure to have such licenses,
permits, certificates, consents, orders, approvals or authorizations
would not have a material adverse effect on the condition (financial or
otherwise), earnings, business or assets of the Company and its
subsidiaries, considered as one enterprise.
(xxiv) No labor problem with the employees of the Company,
the Bank or any other subsidiary exists or, to the best knowledge of
the Company, is imminent that could
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<PAGE> 10
materially adversely affect the condition (financial or otherwise),
earnings, business or assets of the Company and its subsidiaries,
considered as one enterprise, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its,
the Bank's or any other subsidiary's principal suppliers, contractors
or customers that could reasonably be expected to materially adversely
affect the condition (financial or otherwise), earnings, business or
assets of the Company and its subsidiaries, considered as one
enterprise.
(xxv) Except as disclosed in the Prospectus, there are no
persons with registration or other similar rights to have any
securities of the Company registered pursuant to the Registration
Statement or otherwise registered by the Company under the 1933 Act.
(xxvi) Except as disclosed in the Prospectus, the Company
and its subsidiaries, including the Bank, own or possess all patents,
patent rights, licenses, inventions, copyrights, know-how (including
trade secrets or other unpatented and/or unpatentable proprietary or
confidential information systems or procedures), trademarks, service
marks and trade names (collectively, "patent and proprietary rights")
currently employed by them in connection with the business now operated
by them except where the failure to own, possess or acquire such patent
and proprietary rights would not have a material adverse effect on the
condition (financial or otherwise), earnings, business or assets of the
Company and its subsidiaries, considered as one enterprise. Neither the
Company, the Bank nor any other subsidiary has received any notice or
is otherwise aware of any infringement of or conflict with asserted
rights of others with respect to any patent or proprietary rights, and
which infringement or conflict (if the subject of any unfavorable
decision, rule and refinement, singly or in the aggregate) could
reasonably be expected to result in any material adverse change in the
condition (financial or otherwise), earnings, business or assets of the
Company and its subsidiaries, considered as one enterprise.
(xxvii) The Company and each subsidiary of the Company have
filed all federal, state and local income, franchise or other tax
returns required to be filed and have made timely payments of all taxes
due and payable in respect of such returns, and no material deficiency
has been asserted with respect thereto by any taxing authority.
(xxviii) The Preferred Securities have been approved for
listing on The Nasdaq Stock Market, Inc.'s (the "Nasdaq Stock Market")
National Market.
(xxix) Neither the Trust, the Company, the Bank nor any
other subsidiary has taken or will take, directly or indirectly, any
action designed to cause or result in, or which has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation, under the Exchange Act or otherwise, of the price of the
Preferred Securities.
(xxx) Neither the Company, the Bank nor any other
subsidiary is or has been (by virtue of any action, omission to act,
contract to which it is a party or by which it is bound,
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<PAGE> 11
or any occurrence or state of facts whatsoever) in violation of any
applicable foreign, federal, state, municipal or local statutes, laws,
ordinances, rules, regulations and/or orders issued pursuant to
foreign, federal, state, municipal or local statutes, laws, ordinances,
rules, or regulations (including those relating to any aspect of
banking, bank holding companies, consumer credit, truth-in-lending,
usury, currency transaction reporting, community reinvestment
obligations, environmental protection, occupational safety and health
and equal employment practices) heretofore or currently in effect,
except such violations that have been fully cured or satisfied without
recourse or that in the aggregate will not have a material adverse
effect on the condition (financial or otherwise), earnings, business or
assets of the Company and its subsidiaries, considered as one
enterprise.
(xxxi) Neither the Company, the Bank nor any other
subsidiary has any agreement or understanding with any person (A)
concerning the future acquisition by the Company or the Bank of a
controlling interest in any entity or (B) concerning the future
acquisition by any person of a controlling interest in the Company, the
Bank or any other subsidiary, in either case that is required by the
1933 Act or the 1933 Act Regulations to be disclosed by the Company
that is not disclosed in the Prospectus.
(xxxii) The Company and its affiliates have complied with
all provisions of Section 517.075, Florida Statutes, and all rules and
regulations thereunder, relating to issuers doing business in Cuba.
(b) Any certificate signed by any authorized officer of
the Company or the Bank and delivered to the Underwriter or to counsel for the
Underwriter pursuant to this Agreement shall be deemed a representation and
warranty by the Company to the Underwriter as to the matters covered thereby.
Section 2. Sale and Delivery to the Underwriter; Closing.
(a) On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Trust agrees to sell to the Underwriter, and the Underwriter agrees to purchase
from the Trust, 2,000,000 Initial Securities at the purchase price and terms set
forth herein and in the Price Determination Agreement.
In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Trust hereby grants an option to the Underwriter to purchase up to an
additional 300,000 Preferred Securities in accordance with the terms set forth
herein and in the Price Determination Agreement. The option hereby granted will
expire at 5:00 p.m. New York City time on the 30th day after the date the
Registration Statement is declared effective by the Commission (or at 5:00 p.m.
New York City time on the next business day following the 30th day if such 30th
day is not a business day) and may be exercised, on one occasion only, solely
for the purpose of covering over-allotments which may be made in connection with
the offering and distribution of the Initial Securities upon notice by the
Underwriter to the Company
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<PAGE> 12
setting forth the number of Option Securities as to which the Underwriter is
exercising the option and the time, date and place of payment and delivery for
the Option Securities. Such time and date of delivery (the "Option Closing
Date") shall be determined by the Underwriter but shall not be later than five
full business days after the exercise of said option, nor in any event prior to
Closing Time, as hereinafter defined, nor earlier than the second business day
after the date on which the notice of the exercise of the option shall have been
given.
(b) Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Schiff
Hardin & Waite, 7300 Sears Tower, Chicago, Illinois 60606, or at such other
place as shall be agreed upon by the Company and the Underwriter, at 8:00 a.m.
Chicago time on the third full business day after the effective date of the
Registration Statement, or at such other time not earlier than three nor more
than ten full business days thereafter as the Underwriter and the Company shall
determine (such date and time of payment and delivery being herein called the
"Closing Time"). In addition, in the event that any or all of the Option
Securities are purchased by the Underwriter, payment of the purchase price for,
and delivery of certificates for, such Option Securities shall be made at the
above-mentioned office of Schiff Hardin & Waite, or at such other place as shall
be agreed upon by the Company and the Underwriter, on the Option Closing Date as
specified in the notice from the Underwriter to the Company. Payment for the
Initial Securities and the Option Securities, if any, shall be made to the
Company by wire transfer of immediately available funds, against delivery to the
Underwriter for the account of the Underwriter of Preferred Securities to be
purchased by it.
(c) The Preferred Securities shall be issued in the form
of one or more fully registered global securities (the "Global Securities") in
book-entry form in such denominations and registered in the name of the nominee
of The Depository Trust Company ("DTC") or in such names as the Underwriter may
request in writing at least one business day before the Closing Date or the
Option Closing Date, as the case may be. The Global Securities representing the
Initial Securities or the Option Securities to be purchased will be made
available for examination by the Underwriter and counsel to the Underwriter not
later than 10:00 a.m. New York City time on the business day prior to the
Closing Time or the Option Closing Date, as the case may be.
Section 3. Certain Covenants of the Offerors. Each of the
Offerors covenants jointly and severally with the Underwriter as follows:
(a) The Offerors will use their best efforts to cause the
Registration Statement to become effective and will notify the Underwriter
immediately, and confirm the notice in writing, (i) when the Registration
Statement, or any post-effective amendment to the Registration Statement, shall
have become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments from the
Commission, (iii) of any request of the Commission to amend the Registration
Statement or amend or supplement the Prospectus or for additional information
and (iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of the
qualification of the Preferred Securities for
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<PAGE> 13
offering or sale in any jurisdiction, or of the institution or threatening of
any proceedings for any of such purposes. The Offerors will use every reasonable
effort to prevent the issuance of any such stop order or of any order preventing
or suspending such use and, if any such order is issued, to obtain the lifting
thereof at the earliest practicable moment.
(b) The Offerors will not at any time file or make any
amendment to the Registration Statement or, if the Offerors have elected to rely
upon Rule 430A of the 1933 Act Regulations ("Rule 430A"), any amendment or
supplement to the Prospectus (including documents incorporated by reference into
the Registration Statement or the Prospectus) of which the Underwriter shall not
previously have been advised and furnished a copy, or to which the Underwriter
or counsel for the Underwriter shall reasonably object.
(c) The Offerors have furnished or will furnish to the
Underwriter as many signed and conformed copies of the Registration Statement as
originally filed and of each amendment thereto, whether filed before or after
the Registration Statement becomes effective, copies of all exhibits and
documents filed therewith (including documents incorporated by reference into
the Prospectus pursuant to Item 12 of Form S-2 under the 1933 Act) and signed
copies of all consents and certificates of experts as the Underwriter may
reasonably request.
(d) The Offerors will deliver or cause to be delivered to
the Underwriter, without charge, from time to time until the effective date of
the Registration Statement, as many copies of each preliminary prospectus as the
Underwriter may reasonably request, and the Offerors hereby consent to the use
of such copies for purposes permitted by the 1933 Act. The Offerors will deliver
or cause to be delivered to the Underwriter, without charge, as soon as the
Registration Statement shall have become effective (or, if the Offerors have
elected to rely upon Rule 430A, as soon as practicable after the Price
Determination Agreement has been executed and delivered) and thereafter from
time to time as requested by the Underwriter during the period when the
Prospectus is required to be delivered under the 1933 Act, such number of copies
of the Prospectus (as supplemented or amended) as the Underwriter may reasonably
request.
(e) The Company will comply to the best of its ability
with the 1933 Act and the 1933 Act Regulations, and the 1934 Act and the 1934
Act Regulations, so as to permit the completion of the distribution of the
Preferred Securities as contemplated in this Agreement and in the Prospectus.
If, at any time when a prospectus is required by the 1933 Act to be delivered in
connection with sales of the Preferred Securities, any event shall occur or
condition exist as a result of which it is necessary, in the reasonable opinion
of counsel for the Underwriter or counsel for the Offerors, to amend the
Registration Statement or amend or supplement the Prospectus in order that the
Prospectus will not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein not
misleading, in the light of the circumstances existing at the time it is
delivered to a purchaser, or if it shall be necessary, in the reasonable opinion
of either such counsel, at any such time to amend the Registration Statement or
amend or supplement the Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and
file with the Commission, subject to Section
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<PAGE> 14
3(b) hereof, such amendment or supplement as may be necessary to correct such
untrue statement or omission or to make the Registration Statement or the
Prospectus comply with such requirements.
(f) The Offerors will use their best efforts, in
cooperation with the Underwriter, to qualify the Preferred Securities and the
Junior Subordinated Debentures, for offering and sale under the applicable
securities laws of such states and other jurisdictions as the Underwriter may
designate and to maintain such qualifications in effect for a period of not less
than one year from the effective date of the Registration Statement; provided,
however, that the Company shall not be obligated to file any general consent to
service of process or to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not so qualified or to subject
itself to taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject. The Company will file such statements and reports
as may be required by the laws of each jurisdiction in which the Preferred
Securities have been qualified as above provided.
(g) The Company will make generally available (within the
meaning of Rule 158 of the 1933 Act Regulations ("Rule 158") to its
securityholders and the Underwriter as soon as practicable, but not later than
90 days after the close of the period covered thereby, an earnings statement of
the Company and its subsidiaries (in form complying with the provisions of Rule
158) covering a period of at least 12 months beginning after the effective date
of the Registration Statement but not later than the first day of the Company's
fiscal quarter next following such effective date.
(h) The Trust shall apply the entire proceeds from its
sale of the Preferred Securities, combined with the entire proceeds from the
issuance by the Trust to the Company of the Trust's Common Securities, to
purchase an equivalent amount of Junior Subordinated Debentures from the
Company. The Company and the Bank will use the net proceeds received by them
from the sale of the Junior Subordinated Debentures in the manner specified in
the Prospectus under the caption "Use of Proceeds."
(i) The Offerors, during the period when a prospectus is
required by the 1933 Act to be delivered in connection with sales of Preferred
Securities, will timely file all documents required to be filed with the
Commission pursuant to Section 13 or 14 of the 1934 Act subsequent to the time
the Registration Statement becomes effective.
(j) For a period of five years after the Closing Time,
the Company will furnish to the Underwriter copies of all annual reports,
quarterly reports and current reports filed by the Company with the Commission
and such other documents, reports, proxy statements and information as shall be
furnished by the Company to its shareholders generally.
(k) The Company will provide to the holders of the
Preferred Securities annual reports containing financial statements audited by
the Company's independent auditors and, upon written request, the Company's
annual reports on Form 10-K.
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<PAGE> 15
(l) The Offerors will file with the Nasdaq Stock Market
all documents and notices required by the Nasdaq Stock Market of companies that
have issued securities that are traded on the Nasdaq Stock Market's National
Market, in the over-the-counter market and quotations for which are reported by
the Nasdaq Stock Market.
(m) The Company shall pay the legal fees and related
filing fees of Jenkens & Gilchrist, P.C. to prepare one or more "blue sky"
surveys (each, a "Blue Sky Survey") for use in connection with the offering of
the Preferred Securities as contemplated by the Prospectus and a copy of such
Blue Sky Survey or surveys shall be delivered to each of the Company and the
Underwriter.
(n) If, at the time the Registration Statement becomes
effective, any information shall have been omitted therefrom in reliance upon
Rule 430A, then the Offerors will prepare, and file or transmit for filing with
the Commission in accordance with Rule 430A and Rule 424(b), copies of an
amended Prospectus or, if required by Rule 430A, a post-effective amendment to
the Registration Statement (including an amended Prospectus) containing all
information so omitted.
(o) The Company will, at its expense, subsequent to the
issuance of the Preferred Securities, prepare and distribute to the Underwriter
and counsel to the Underwriter, a bound volume containing copies of the
documents used in connection with the issuance of the Preferred Securities.
(p) The Offerors will not, prior to the Option Closing
Date or thirty (30) days after the date of this Agreement, whichever occurs
first, incur any material liability or obligation, direct or contingent, or
enter into any material transaction, other than in the ordinary course of
business, or any transaction with a related party which is required to be
disclosed in the Prospectus pursuant to Item 404 of Regulation S-K of the
Commission, except as contemplated by the Prospectus.
(q) During a period of thirty (30) days from the date of
the Prospectus, neither the Trust nor the Company will, without the prior
written consent of the Underwriter, directly or indirectly, offer, sell, offer
to sell, or otherwise dispose of any Preferred Securities, any other beneficial
interests in the assets of the Trust, or any preferred securities or other
securities of the Trust or the Company that are substantially similar to the
Preferred Securities, including any guarantee of such securities. The foregoing
sentence shall not apply to any of the Preferred Securities to be sold
hereunder.
Section 4. Payment of Expenses.
(a) The Offerors jointly and severally will pay and bear
all costs and expenses incident to the performance of its and the Trust's
obligations under this Agreement, including (a) the preparation, printing and
filing of the Registration Statement (including financial statements and
exhibits), as originally filed and as amended, all amendments thereto, all
preliminary prospectuses, the Prospectus and any amendments or supplements
thereto, and the cost of furnishing copies thereof
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<PAGE> 16
to the Underwriter, (b) the preparation, printing and distribution of this
Agreement, the Preferred Securities and the Blue Sky Survey, (c) the issuance
and delivery of the Preferred Securities to the Underwriter, including any
transfer taxes payable upon the sale of the Preferred Securities to the
Underwriter, (d) the fees and disbursements of the Company's counsel and
accountants, (e) Nasdaq Stock Market filing fees, (f) fees and disbursements of
Jenkens & Gilchrist, P.C. in connection with the Blue Sky Survey, (g) the
qualification of the Preferred Securities under the applicable securities laws
in accordance with Section 3(f) hereof, (h) any filing fee for review of the
Offering with the NASD, (i) the legal fees and expenses of the Underwriter's
counsel not to exceed $55,000 without the prior consent of the Company, and
general out-of-pocket expenses of the Underwriter not to exceed $15,000, (j) the
fees and expenses of the Indenture Trustee, including the fees and disbursements
of counsel for the Indenture Trustee, in connection with the Indenture and the
Junior Subordinated Debentures; (k) the fees and expenses of the Property
Trustee and Delaware Trustee, including the fees and disbursements of counsel
for the Property Trustee and the Delaware Trustee, in connection with the Trust
Agreement and the Certificate of Trust, and (l) all other costs incident to the
performance of the Offerors' obligations hereunder.
If (i) the Closing Time does not occur on or before September
30, 1998 or (ii) the Company abandons or terminates the Offering, or (iii) this
Agreement is terminated by the Underwriter in accordance with the provisions of
Section 5 or 9(a), the Company shall reimburse the Underwriter for its
reasonable out-of-pocket expenses, as set forth in this Section 4, including the
reasonable fees and disbursements of counsel for the Underwriter.
Section 5. Conditions of Underwriter's Obligations. The
obligations of the Underwriter to purchase and pay for the Preferred Securities
that it has agreed to purchase pursuant to this Agreement are subject to the
following further conditions:
(a) The Registration Statement shall have become
effective not later than 4:00 p.m., New York City time, on the first business
day following the date hereof, or at such later time or on such later date as
the Underwriter may agree to in writing; at the Closing Time, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act and no proceedings for that purpose shall be pending
or, to the Underwriter's knowledge or the knowledge of the Offerors, shall be
contemplated by the Commission, and any request on the part of the Commission
for additional information shall have been complied with to the satisfaction of
counsel for the Underwriter. If the Offerors have elected to rely upon Rule
430A, a prospectus containing the information required by Rule 430A shall have
been filed with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A).
(b) At the Closing Time, the Underwriter shall have
received:
(i) The favorable opinion, dated as of the Closing Time,
of Jenkens & Gilchrist, counsel for the Company, in form and substance
reasonably satisfactory to counsel for the Underwriter, substantially
in the form set forth in Exhibit B.
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<PAGE> 17
(ii) The favorable opinion, dated as of the Closing Time,
of Richards Layton & Finger, P.A. special Delaware counsel for the
Offerors, in form and substance satisfactory to counsel for the
Underwriter, substantially in the form set forth in Exhibit C.
(iii) The favorable opinion, dated as of the Closing Time,
of Richards Layton & Finger, P.A. counsel for the Indenture Trustee and
the Delaware Trustee, in form and substance satisfactory to counsel for
the Underwriter, substantially in the form set forth in Exhibit D.
(iv) The favorable opinion, dated as of the Closing Time,
of Schiff Hardin & Waite, counsel for the Underwriter, in form and
substance satisfactory to the Underwriter.
In giving such opinions, such counsel may rely, as to all
matters governed by the laws of jurisdictions other than the federal law of the
United States, the laws of Texas (in the case of Jenkens & Gilchrist, P.C.) and
the laws of Delaware (in the case of Richards Layton & Finger, P.A.) upon
opinions of other counsel, who shall be counsel satisfactory to counsel for the
Underwriter, in which case the opinion shall state that such counsel believes
that it, the Underwriter and the Underwriter's counsel are entitled to so rely
upon the opinions of such other counsel. Such counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to the
extent they deem proper, upon certificates of officers or trustees of the
Company, the Bank and the Trust and certificates of public officials.
(c) At the Closing Time and again at the Option Closing
Date, (i) there shall not have been, since the respective dates as of which
information is given in the Registration Statement, any material adverse change
in the condition (financial or otherwise), earnings, business or assets of the
Company and its subsidiaries, considered as one enterprise, whether or not
arising in the ordinary course of business; (ii) no action, suit or proceeding
at law or in equity shall be pending or, to the knowledge of the Offerors,
threatened against the Company or any subsidiary or the Trust that would be
required to be set forth in the Prospectus that is not set forth therein, and no
proceedings shall be pending or, to the knowledge of the Offerors, threatened
against either of the Offerors or any subsidiary of the Company before or by any
federal, state or other commission, board or administrative agency wherein an
unfavorable decision, ruling or finding would materially adversely affect the
condition (financial or otherwise), earnings, business or assets of the Company
and its subsidiaries, considered as one enterprise, other than as set forth in
the Prospectus; (iii) each of the Offerors shall have complied, in all material
respects, with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Closing Time or Option Closing Date,
as applicable; and (iv) the representations and warranties of the Offerors set
forth in Section l(a) hereof shall be accurate in all material respects as
though expressly made at and as of the Closing Time or Option Closing Date, as
applicable. At the Closing Time or the Option Closing Date, as applicable, the
Underwriter shall have received a certificate of the Chairman of the Board and
the Executive Vice President and Chief Financial Officer of the Company, dated
as of the Closing Time, to such effect.
17
<PAGE> 18
(d) At the time that this Agreement is executed by the
Company, the Underwriter shall have received from Coopers & Lybrand L.L.P., a
letter or letters, dated such date, in form and substance satisfactory to the
Underwriter, confirming that they are independent certified public accountants
with respect to the Company within the meaning of the 1933 Act and the 1933 Act
Regulations, and stating in effect that with respect to the Company:
(i) in their opinion, the consolidated financial
statements as of December 31, 1997 and 1996, and for each of the years
in the three year period ended December 31, 1997 and the related
financial statement schedules, if any, included or incorporated by
reference in the Registration Statement and the Prospectus and covered
by their opinions included therein comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act
and the 1933 Act Regulations;
(ii) on the basis of procedures (but not an audit in
accordance with generally accepted accounting standards) specified by
the American Institute of Certified Public Accountants for a review of
interim financial information as described in SAS No. 71, Interim
Financial Information, for the unaudited interim condensed consolidated
financial information for the three month period ended March 31, 1998,
including a reading of the latest available unaudited interim
consolidated financial statements of the Company, a reading of the
minutes of all meetings of the Board of Directors of the Company and
the Bank and of the Audit-Compliance and Electronic Data Processing and
Executive Committees of the Board of Directors of the Bank since
January 1, 1998, inquiries of certain officials of the Company and its
subsidiaries responsible for financial and accounting matters, and such
other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) the unaudited interim condensed consolidated financial
information included as Recent Developments in the Prospectus,
if any, are not stated in conformity with generally accepted
accounting principles applied on a basis consistent with that
of the audited financial statements included in the
Prospectus;
(B) at a specified date not more than three days prior to the
date of this Agreement, there was any increase in long-term
debt or Federal Home Loan Bank advances of the Company and its
consolidated subsidiaries or any decrease in total assets,
total deposits or shareholders' equity of the Company and its
consolidated subsidiaries, any increase in the number of
outstanding shares of capital stock of the Company and its
consolidated subsidiaries or any increase or decrease in loan
loss allowance of the Company and its consolidated
subsidiaries, in each case as compared with amounts shown in
the financial statements at December 31, 1997 included in the
Registration Statement, except in all cases for changes,
increases or decreases that the Registration Statement
discloses have occurred or may occur; or
18
<PAGE> 19
(C) for the period from January 1, 1998 to a specified date
not more than three days prior to the date of this Agreement,
there was any decrease in consolidated net interest income,
net income, noninterest income or net income per share or any
increase in provision for loan losses or noninterest expense,
in each case as compared with a period of comparable length in
the preceding year, except in all cases for increases or
decreases that the Registration Statement discloses have
occurred or may occur; and
(iii) in addition to the procedures referred to in clause
(ii) above, they have performed other specified procedures, not
constituting an audit, with respect to certain amounts, percentages,
numerical data and financial information appearing in the Registration
Statement (including the Selected Consolidated Financial Data and
Recent Developments, if any), having compared such items with, and have
found such items to be in agreement with, the financial statements of
the Company or general accounting records of the Company, as
applicable, which are subject to the Company's internal accounting
controls or other data and schedules prepared by the Company from such
records.
(e) At the Closing Time, the Underwriter shall have
received from Coopers & Lybrand L.L.P. a letter, in form and substance
satisfactory to the Underwriter and dated as of the Closing Time, reaffirming
the statements made in the letter(s) furnished pursuant to Section 5(d) hereof,
except that the inquiries specified in Section 5(d) hereof shall be made based
upon the latest available unaudited interim consolidated financial statements
and the specified date referred to shall be a date not more than three days
prior to the Closing Time.
(f) At the Closing Time, counsel for the Underwriter
shall have been furnished with all such documents, certificates and opinions as
they may request for the purpose of enabling them to pass upon the issuance and
sale of the Preferred Securities as contemplated in this Agreement and the
matters referred to in Section 5(c) hereof and in order to evidence the accuracy
and completeness of any of the representations, warranties or statements of the
Offerors, the performance of any of the covenants of the Offerors or the
fulfillment of any of the conditions herein contained; and all proceedings taken
by the Company at or prior to the Closing Time in connection with the
authorization, issuance and sale of the Preferred Securities and the Junior
Subordinated Debentures as contemplated in this Agreement shall be reasonably
satisfactory in form and substance to the Underwriter and to counsel for the
Underwriter.
(g) The Company shall have paid, or made arrangements
satisfactory to the Underwriter for the payment of, all such expenses as may be
required by Section 4 hereof.
(h) In the event the Underwriter exercises its option
provided in Section 2 hereof to purchase all or any portion of the Option
Securities, the obligations of the Underwriter to purchase the Option Securities
that it has agreed to purchase shall be subject to the receipt by the
Underwriter on the Option Closing Date of:
19
<PAGE> 20
(1) A certificate, dated the Option Closing Date,
of the Chairman of the Board and the Executive Vice President
and Chief Financial Officer of the Company confirming that the
certificate delivered at the Closing Time pursuant to Section
5(c) hereof remains true as of the Option Closing Date;
(2) The favorable opinion of Jenkens & Gilchrist,
P.C. counsel for the Company, addressed to the Underwriter and
dated the Option Closing Date, in form satisfactory to counsel
to the Underwriter, relating to the Option Securities and
otherwise to the same effect as the opinion required by
Section 5(b)(i) hereof;
(3) The favorable opinion of Richards Layton &
Finger, P.A. special Delaware counsel for the Offerors,
addressed to the Underwriter and dated the Option Closing
Date, in form satisfactory to counsel to the Underwriter,
relating to the Option Securities and otherwise to the same
effect as the opinion required by Section 5(b)(ii) hereof;
(4) The favorable opinion of Richards Layton &
Finger, P.A. counsel for the Indenture Trustee and the
Delaware Trustee, addressed to the Underwriter and dated the
Option Closing Date, in form satisfactory to counsel to the
Underwriter, relating to the Option Securities and otherwise
to the same effect as the opinion required by Section
5(b)(iii) hereof;
(5) The favorable opinion of Schiff Hardin &
Waite, counsel to the Underwriter, dated the Option Closing
Date, relating to the Option Securities and otherwise to the
same effect as the opinion required by Section 5(b)(iv)
hereof; and
(6) A letter from Coopers & Lybrand L.L.P.
addressed to the Underwriter and dated the Option Closing
Date, in form and substance satisfactory to the Underwriter
and substantially the same in form and substance as the letter
furnished to the Underwriter pursuant to Section 5(e) hereof.
(i) The Preferred Securities, the Guarantee and the
Junior Subordinated Debentures shall have been qualified or registered for sale,
or subject to an available exemption from such qualification or registration,
under the Blue Sky or securities laws of such jurisdictions as shall have been
reasonably specified by the Underwriter, and the Offering contemplated by this
Agreement shall have been cleared by the NASD.
If any of the conditions specified in this Section 5 shall not
have been fulfilled when and as required by this Agreement, this Agreement may
be terminated by the Underwriter on notice to the Offerors at any time at or
prior to the Closing Time, and such termination shall be without liability of
any party to any other party, except as provided in Section 4 of this Agreement.
Notwithstanding any such termination, the provisions of Sections 4, 6, 10 and 12
of this Agreement shall remain in effect.
20
<PAGE> 21
Section 6. Indemnification.
(a) The Offerors jointly and severally agree to indemnify
and hold harmless the Underwriter, each officer, director, employees, agent and
legal counsel of the Underwriter, and each person, if any, who controls the
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20(a) of
the 1934 Act, against any loss, liability, claim, damage and expense whatsoever
(which shall include, but not be limited to, amounts incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim or investigation whatsoever and any and all amounts paid in settlement of
any claim or litigation, provided such settlement is entered into with the
consent of the Offerors as provided herein), as and when incurred, arising out
of, based upon or in connection with (i) any untrue statement or alleged untrue
statement of a material fact or any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, contained in (A) any preliminary prospectus, the
Registration Statement or the Prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto or in any document
incorporated by reference therein or required to be delivered with any
preliminary prospectus or the Prospectus or (B) in any application or other
document or communication (collectively called an "application") executed by or
on behalf of the Company or the Trust or based upon written information
furnished by or on behalf of the Company or the Trust filed in any jurisdiction
in order to qualify the Preferred Securities under the Blue Sky or securities
laws thereof or filed with the Commission, the NASD or any securities exchange,
unless such statement or omission or alleged statement or omission was made in
reliance upon and in conformity with written information concerning the
Underwriter, the Underwriting Agreement or the compensation of the Underwriter
furnished to the Offerors by or on behalf of the Underwriter expressly for
inclusion in any preliminary prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or in any application, as
the case may be, or (ii) any breach of any representation, warranty, covenant or
agreement of the Offerors contained in the Underwriting Agreement, provided,
however, that such indemnity with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter (or any person controlling such
Underwriter) from whom the person asserting any such loss, claim, damage,
liability or action purchased Preferred Securities that are the subject thereof
to the extent that any such loss, liability, claim, damage or expense (i)
results from the fact that the Underwriter failed to send or give a copy of the
Prospectus (as amended or supplemented) to such person at or prior to the
confirmation of the sale of such Preferred Securities to such person in any case
where such delivery is required by the 1933 Act and (ii) arises out of or is
based upon an untrue statement or omission of a material fact contained in such
preliminary prospectus that was corrected in the Prospectus (or any amendment or
supplement thereto), unless such failure to deliver the Prospectus (as amended
or supplemented) was the result of noncompliance by the Company. For purposes of
this section, the term "expense" shall include, but not be limited to, counsel
fees and costs, court costs, out-of-pocket costs and compensation for the time
spent by any of the Underwriter's directors, officers, employees and counsel
according to his or her normal hourly billing rates. The indemnification
provisions shall also extend to all directors, officers, employees, agents,
legal counsel and controlling persons of each affiliate of the Underwriter.
21
<PAGE> 22
(b) The Underwriter agrees to indemnify and hold harmless
each of the Offerors, each of their directors or trustees, each officer who
signed the Registration Statement, and each person, if any, who controls the
Offerors within the meaning of Section 15 of the 1933 Act or Section 20(a) of
the 1934 Act, against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) above, but only with
respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in any preliminary prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or any application in
reliance upon and in conformity with written information about the Underwriter,
the Underwriting Agreement or the compensation of the Underwriter, furnished to
either of the Offerors by the Underwriter expressly for inclusion in such
preliminary prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or in any application.
(c) An indemnified party shall give prompt notice to each
indemnifying party if any action, suit, proceeding or investigation is commenced
in respect of which indemnity may be sought hereunder, but failure to notify an
indemnifying party shall not relieve the indemnifying party from its obligations
to indemnify hereunder, except to the extent that the indemnifying party has
been prejudiced in any material respect by such failure. If it so elects within
a reasonable time after receipt of such notice, an indemnifying party may assume
the defense of such action, including the employment of counsel satisfactory to
the indemnified parties and the payment of all expenses of the indemnified party
in connection with such action. Such indemnified party or parties shall have the
right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless the employment of such counsel shall have been authorized in
writing by the indemnifying party in connection with the defense of such action
or the indemnifying party shall not have promptly employed counsel satisfactory
to such indemnified party or parties or such indemnified party or parties shall
have reasonably concluded that there may be one or more legal defenses available
to it or them or to other indemnified parties that are different from or
additional to those available to one or more of the indemnifying parties, in any
of which events such fees and expenses shall be borne by the indemnifying party
and the indemnifying party shall not have the right to direct the defense of
such action on behalf of the indemnified party or parties. The Offerors shall be
jointly and severally liable for any settlement of any claim against the
Underwriter (or any of its directors, officers, employees, agents, legal counsel
or controlling persons) made with the Offerors' written consent, which consent
shall not be unreasonably withheld. The Offerors shall not, without the written
consent of the Underwriter, settle or compromise any claim against the
Underwriter (or any of its directors, officers, employees, agents, legal counsel
or controlling persons) based upon circumstances giving rise to an
indemnification claim against the Offerors hereunder unless such settlement or
compromise provides that the Underwriter and the other indemnified parties shall
be unconditionally and irrevocably released from all liability in respect to
such claim.
(d) In order to provide for just and equitable
contribution, if a claim for indemnification pursuant to these indemnification
provisions is made but it is found in a final judgment by a court that such
indemnification may not be enforced in such case, even though the
22
<PAGE> 23
express provisions hereof provide for indemnification in such case, then the
Offerors, on the one hand, and the Underwriter, on the other hand, shall
contribute to the amount paid or payable by such indemnified persons as a result
of such loss, liability, claim, damage and expense in such proportion as is
appropriate to reflect the relative benefits received by the Offerors, on the
one hand, and the Underwriter, on the other hand, from the underwriting, and
also the relative fault of the Offerors, on the one hand, and the Underwriter,
on the other hand, in connection with the statements, acts or omissions which
resulted in such loss, liability, claim, damage and expense, and any other
relevant equitable considerations. No person found liable for a fraudulent
misrepresentation or omission shall be entitled to contribution from any person
who is not also found liable for such fraudulent misrepresentation or omission.
Notwithstanding the foregoing, the Underwriter shall not be obligated to
contribute any amount hereunder that exceeds the amount of the underwriting
commission paid to the Underwriter with respect to the Preferred Securities
purchased by the Underwriter.
(e) The indemnity and contribution agreements contained
herein are in addition to any liability which the Offerors may otherwise have to
the Underwriter.
(f) Neither termination nor completion of the engagement
of the Underwriter nor any investigation made by or on behalf of the Underwriter
shall affect the indemnification obligations of the Offerors or the Underwriter
hereunder, which shall remain and continue to be operative and in full force and
effect.
Section 7. Representations, Warranties and Agreements to
Survive Delivery. The representations, warranties, indemnities, agreements and
other statements of the Offerors or their officers or trustees set forth in or
made pursuant to this Agreement will remain operative and in full force and
effect regardless of any investigation made by or on behalf of the Offerors or
the Underwriter or any controlling person and will survive delivery of and
payment for the Preferred Securities.
Section 8. Offering by the Underwriter. The Offerors are
advised by the Underwriter that the Underwriter proposes to make a public
offering of the Preferred Securities, on the terms and conditions set forth in
the Registration Statement from time to time as and when the Underwriter deems
advisable after the Registration Statement becomes effective. Because the NASD
is expected to view the Preferred Securities as interests in a direct
participation program, the offering of the Preferred Securities is being made in
compliance with the applicable provisions of Rule 2810 of the NASD's Conduct
Rules.
Section 9. Termination of Agreement.
(a) The Underwriter may terminate this Agreement, by
notice to the Offerors, at any time at or prior to the Closing Time (i) if there
has been, since the respective dates as of which information is given in the
Registration Statement, any material adverse change in the condition (financial
or otherwise), earnings, business or assets of the Company and its subsidiaries,
considered
23
<PAGE> 24
as one enterprise, whether or not arising in the ordinary course of business, or
(ii) if there has occurred any outbreak or escalation of existing hostilities or
other national or international calamity or crisis, the effect of which on the
financial markets of the United States is such as to make it, in the
Underwriter's judgment, impracticable to market the Preferred Securities or
enforce contracts for the sale of the Preferred Securities, or (iii) if trading
in any securities of the Company has been suspended or materially limited by the
Commission or the NASD, or if trading generally on the New York Stock Exchange
or in the over-the-counter market has been suspended, or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices for securities
have been required, by such exchange or by order of the Commission, the NASD or
any other governmental authority with appropriate jurisdiction over such
matters, or (iv) if a banking moratorium has been declared by either federal or
Texas authorities, or (v) if there shall have been such material and substantial
change in the market for securities in general or in political, financial or
economic conditions as in the Underwriter's judgment makes it inadvisable to
proceed with the offering, sale and delivery of the Preferred Securities on the
terms contemplated by the Prospectus, or (vi) if the Underwriter reasonably
determines (which determination shall be in good faith) that there has not been
satisfactory disclosure of all relevant financial information relating to the
Offerors in the Offerors' disclosure documents and that the sale of the
Preferred Securities is inadvisable given such disclosures.
(b) If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party, except to the extent provided in Section 4 hereof. Notwithstanding any
such termination, the provisions of Sections 4, 6, 10 and 12 hereof shall remain
in effect.
Section 10. Notices. All notices and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given if delivered, mailed or transmitted by any standard form of
telecommunication. Notices shall be addressed as follows:
If to the Underwriter:
Ryan, Beck & Co., Inc.
220 South Orange Avenue
Livingston, New Jersey 07039
Attention: Bruce G. Miller, Senior Vice President
with a copy to:
Schiff Hardin & Waite
7300 Sears Tower
Chicago, Illinois 60606
Attention: Robert J. Minkus, Esq.
24
<PAGE> 25
If to the Company or the Trust:
Southside Bancshares, Inc.
1201 South Beckham
P.O. Box 1079
Tyler, Texas 75701
Attention: Lee Gibson
with a copy to:
Jenkens & Gilchrist, P.C.
1445 Ross Avenue, Suite 5200
Dallas, Texas 75202
Attention: Ronald J. Frappier, Esq.
Section 11. Parties. This Agreement is made solely for the
benefit of the Underwriter, and the officers, directors, employees, agents and
legal counsel of the Underwriter specified in Section 6 hereof, the Trust and
the Company and, to the extent expressed, any person controlling the Trust, the
Company or the Underwriter, and the directors of the Company, or trustees of the
Trust, their respective officers who have signed the Registration Statement, and
their respective executors, administrators, successors and assigns, and no other
person shall acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" shall not include any purchaser, as such
purchaser, from the Underwriter of the Preferred Securities.
Section 12. Arbitration. Any claims, controversies, demands,
disputes or differences between or among the parties hereto or any persons bound
hereby arising out of, or by virtue of, or in connection with, or otherwise
relating to this Agreement shall be submitted to and settled by arbitration
conducted in Dallas, Texas before one or three arbitrators, each of whom shall
be knowledgeable in the field of securities law and investment banking. Such
arbitration shall be conducted in accordance with the rules then obtaining of
the American Arbitration Association. The parties hereto agree to share equally
the responsibility for all fees of the arbitrators, abide by any decision
rendered as final and binding and waive the right to appeal the decision or
otherwise submit the dispute to a court of law for a jury or non-jury trial. The
parties hereto specifically agree that neither party may appeal or subject the
award or decision of any such arbitrator to appeal or review in any court of law
or in equity or in any other tribunal, arbitration system or otherwise. Judgment
upon any award granted by such arbitrator may be enforced in any court having
jurisdiction thereof.
Section 13. Governing Law. This Agreement shall be governed by
the laws of the State of New Jersey.
Section 14. Counterparts. This Agreement may be executed in
one or more counterparts (including by means of facsimile signature pages), any
one of which need not contain
25
<PAGE> 26
the signatures of more than one party, but all such counterparts taken together
shall constitute one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
26
<PAGE> 27
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement between the Company and the
Underwriter in accordance with its terms.
Very truly yours,
SOUTHSIDE CAPITAL TRUST I
By: Southside Bancshares, Inc., as Depositor
By:
---------------------------------
Name:
Title:
SOUTHSIDE BANCSHARES, INC.
By:
------------------------------------------
Name:
Title:
Confirmed and accepted as of the date first above written:
RYAN, BECK & CO., INC.
By:
- ------------------------------
Name:
Title:
[UNDERWRITING AGREEMENT SIGNATURE PAGE]
27
<PAGE> 28
EXHIBIT A
SOUTHSIDE CAPITAL TRUST I
(a Delaware business trust)
2,000,000 Preferred Securities
_____% Cumulative Trust Preferred Securities
(Liquidation Amount $10 per Preferred Security)
PRICE DETERMINATION AGREEMENT
__________, 1998
Ryan, Beck & Co., Inc.
220 South Orange Avenue
Livingston, New Jersey 07039
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement, dated the date hereof
(the "Underwriting Agreement"), among Southside Capital Trust I, a Delaware
business trust (the "Trust"), Southside Bancshares, Inc., a Texas corporation
(the "Company" and, together with the Trust, the "Offerors"), and Ryan, Beck &
Co., Inc. (the "Underwriter"). The Underwriting Agreement provides for the
purchase by the Underwriter from the Trust, subject to the terms and conditions
set forth therein, of 2,000,000 of the ____% Cumulative Trust Preferred
Securities of the Trust (the "Preferred Securities"), subject to the
Underwriter's option to purchase up to an additional 300,000 Preferred
Securities (to cover over-allotments, if any). This Agreement is the Price
Determination Agreement referred to in the Underwriting Agreement.
Pursuant to Section 2 of the Underwriting Agreement, the Offerors agree
with the Underwriter as follows:
1
<PAGE> 29
1. The public offering price per Preferred Security shall be $10.
2. The purchase price for the Preferred Securities to be paid by the
Underwriter shall be $10 per Preferred Security.
3. The commission per Preferred Security to be paid by the Company to
the Underwriter for its commitment hereunder shall be $______ per Preferred
Security.
4. The distribution rate on the Preferred Securities shall be ____% per
annum.
The Offerors represent and warrant to the Underwriter that the
representations and warranties of the Offerors set forth in Section 1(a) of the
Underwriting Agreement are accurate as though expressly made at and as of the
date hereof.
This Agreement shall be governed by the laws of the State of New
Jersey.
[SIGNATURE PAGE FOLLOWS]
2
<PAGE> 30
If the foregoing is in accordance with the understanding of the
Underwriter of the agreement between the Underwriter and the Offerors, please
sign and return to the Company a counterpart hereof (containing manually
executed or facsimile signatures pages), whereupon this instrument, along with
all counterparts and together with the Underwriting Agreement, shall be a
binding agreement between the Underwriter and the Offerors in accordance with
its terms and the terms of the Underwriting Agreement.
Very truly yours,
SOUTHSIDE CAPITAL TRUST I
By: Southside Bancshares, Inc., as Depositor
By:
---------------------------------
Name:
Title:
SOUTHSIDE BANCSHARES, INC.
By:
------------------------------------------
Name:
Title:
Confirmed and accepted as of the date first above written:
RYAN, BECK & CO., INC.
By:
--------------------------
Name:
Title:
[PRICE DETERMINATION AGREEMENT SIGNATURE PAGE]
3
<PAGE> 31
EXHIBIT B
The opinion of counsel to the Company to be delivered pursuant to Section
5(b)(i) of the Underwriting Agreement shall be substantially to the effect that:
1. Each of the Company and Southside Delaware is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Texas, with requisite corporate power and authority to own, lease and operate
its properties and conduct its business as described in the Registration
Statement and is registered as a bank holding company under the BHC Act. The
Bank is a banking corporation duly incorporated, validly existing and in good
standing under the laws of the State of Texas, with requisite power and
authority to own, lease and operate its properties and conduct its business as
described in the Registration Statement. Each of the Company's other
subsidiaries is duly incorporated, validly existing and in good standing under
the laws of its respective jurisdiction of incorporation, with requisite
corporate power and authority to own, lease and operate its respective
properties and conduct its business as described in the Registration Statement,
except where the failure to be in good standing would not have a material
adverse effect on the Company and its subsidiaries, considered as one
enterprise.
2. The Company and each subsidiary are duly qualified to transact business as
foreign corporations under the corporation laws of each jurisdiction in which
the Company or such subsidiary, as the case may be, owns or leases property of a
nature, has an office or transacts business of a type that would make such
qualification necessary, except where the failure so to qualify would not have a
material adverse effect on the Company and its subsidiaries, considered as one
enterprise.
3. The deposit accounts of the Bank are insured by the Bank Insurance Fund of
the FDIC up to the maximum amount allowable by law, and, to such counsel's
knowledge, no proceedings for the termination or revocation of such membership
or insurance are pending or threatened.
4. All of the issued and outstanding shares of capital stock of each of the
Company's direct or indirect subsidiaries have been duly and validly authorized
and issued and are fully paid and nonassessable and, to such counsel's
knowledge, are owned by the Company or one of its wholly-owned subsidiaries,
free and clear of any security interests, liens, pledges, claims or other
encumbrances, except where the failure to own such shares free and clear of any
security interests, liens, pledges, claims or other encumbrances would not have
a material adverse effect on the Company and its subsidiaries, considered as one
enterprise.
5. The authorized capital stock of the Company as of the date indicated is as
set forth in the Prospectus under the heading "Capitalization."
6. The Company has the requisite corporate power and authority to execute,
deliver and perform the Underwriting Agreement and to issue the Junior
Subordinated Debentures as contemplated by
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the Prospectus; the Underwriting Agreement has been duly authorized, executed
and delivered by the Company.
7. The Trust Agreement has been duly authorized, executed and delivered by the
Company.
8. The Guarantee Agreement has been duly authorized, executed and delivered by
the Company and is a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or affecting creditors' rights generally and by
general equity principles (whether considered in a proceeding in equity or at
law).
9. The Expense Agreement has been duly authorized, executed and delivered by
the Company and is a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or affecting creditors' rights generally and by
general equity principles (whether considered in a proceeding in equity or at
law).
10. The Indenture has been duly authorized, executed and delivered by the
Company, has been duly qualified under the Trust Indenture Act and is a valid
and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally and by general equity
principles (whether considered in a proceeding in equity or at law).
11. The Junior Subordinated Debentures have been duly authorized, executed and
delivered by the Company and, when duly authenticated in accordance with the
Indenture and delivered and paid for as contemplated by the Prospectus, will be
valid and binding obligations of the Company, entitled to the benefits of the
Indenture and enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally and by general equity principles (whether considered
in a proceeding in equity or at law).
12. Neither the Company nor the Trust is an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act.
13. The statements set forth in the Registration Statement under the captions
"Description of Preferred Securities," "Description of Junior Subordinated
Debentures," "Description of Guarantee" and "Relationship Among the Preferred
Securities, the Junior Subordinated Debentures and the Guarantee," insofar as
they purport to describe the provisions of the laws referred to therein, fairly
summarize in all material respects the legal matters described therein.
2
<PAGE> 33
14. The statements of law or legal conclusions and opinions set forth in the
Registration Statement under the caption "Certain Federal Income Tax
Consequences," subject to the assumptions and conditions described therein,
constitute such counsel's opinion.
15. The Registration Statement was declared effective under the 1933 Act as of
the date and time specified in such opinion, any required filing of the
Prospectus or any supplement thereto pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b) and, to such
counsel's knowledge and information, no stop order suspending the effectiveness
of the Registration Statement has been issued under the 1933 Act and no
proceedings therefor have been initiated or overtly threatened by the
Commission.
16. The Registration Statement (including the information required by Rule
430A, if applicable) and the Prospectus and any amendment or supplement thereto
(except for the financial statements and other financial and statistical data
included therein or omitted therefrom, as to which such counsel need express no
opinion), as of their respective effective or issue dates, complied as to form
in all material respects with the applicable requirements of the 1933 Act and
the 1933 Act Regulations.
17. The documents incorporated by reference in the Prospectus (except for the
exhibits and the financial statements and other financial or statistical data
included therein or omitted therefrom, as to which such counsel need express no
opinion, and except to the extent that any statement therein is modified or
superseded in the Prospectus), as of the dates they were filed with the
Commission, complied as to form in all material respects with the applicable
requirements of the 1934 Act and the 1934 Act Regulations.
18. Such counsel knows of no legal or governmental proceedings pending to which
the Company or any subsidiary is a party or of which any property of the Company
or any subsidiary is the subject that are required to be disclosed in the
Registration Statement that are not so disclosed or that would affect the
consummation of the transactions contemplated in the Underwriting Agreement or
the Indenture; and such counsel knows of no such proceedings that are threatened
or contemplated by governmental authorities or threatened by others.
19. Such counsel knows of no contracts, indentures, mortgages, loan agreements,
notes, leases or other instruments required to be described in the Registration
Statement or to be filed as exhibits thereto other than those described therein
or filed or incorporated by reference as exhibits thereto, and such instruments
as are summarized in the Registration Statement are fairly summarized in all
material respects.
20. No approval, authorization, consent, registration, qualification or other
order of any public board or body is required in connection with the execution
and delivery of the Underwriting Agreement, the Trust Agreement, the Guarantee
Agreement, the Expense Agreement and the Indenture or the issuance and sale of
the Preferred Securities or the consummation by the Company of the other
transactions contemplated by the Underwriting Agreement, the Trust Agreement,
the
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<PAGE> 34
Guarantee Agreement, the Expense Agreement or the Indenture, except such as have
been obtained under the 1933 Act, the 1934 Act and the Trust Indenture Act or
such as may be required under the blue sky or securities laws of various states
in connection with the offering and sale of the Preferred Securities.
21. The execution and delivery of the Underwriting Agreement, the Trust
Agreement, the Guarantee Agreement, the Expense Agreement and the Indenture, the
issue and sale of the Junior Subordinated Debentures, the compliance by the
Company with the provisions of the Junior Subordinated Debentures, the
Indenture, the Trust Agreement, the Guarantee Agreement, the Expense Agreement
and the Underwriting Agreement and the consummation of the transactions therein
contemplated will not conflict with or constitute a breach of, or default under,
the articles of incorporation or by-laws of the Company or any subsidiary or a
breach or default under any contract, indenture, mortgage, loan agreement, note,
lease or other agreement that the Company has certified as material to such
counsel to which either the Company or any subsidiary is a party or by which any
of them or any of their respective properties may be bound except for such
breaches as would not have a material adverse effect on the Company and its
subsidiaries considered as one enterprise, nor will such action result in a
violation on the part of the Company or any subsidiary of any applicable law or
regulation or of any administrative, regulatory or court decree known to such
counsel.
22. Such counsel has participated in conferences with officers and
representatives of the Company, representatives of the independent public
accountants for the Company and the Underwriter at which the contents of the
Registration Statement and the Prospectus and related matters were discussed,
and, although it is not passing upon and does not assume any responsibility for
and has not verified the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus, on the basis of the
foregoing (relying as to materiality to a large extent upon facts provided by
officers and other representatives of the Company) no facts have come to such
counsel's attention that leads it to believe that either the Registration
Statement or any amendment thereto, at the time it became effective (including
the information deemed to be part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b)), contained an untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, or any amendment or supplement thereto, as of its date and as of the
Closing Date contained or contains an untrue statement of a material fact or
omitted or omits to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading (it being understood that such
counsel need express no belief or opinion with respect to the exhibits and the
financial statements and other financial and statistical data included therein).
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<PAGE> 35
EXHIBIT C
The opinion of special Delaware counsel to the Company and the Trust to be
delivered pursuant to Section 5(b)(ii) of the Underwriting Agreement shall be
substantially to the effect that:
1. The Trust has been duly created and is validly existing in good standing as
a business trust under the Delaware Act and all filings required under the laws
of the State of Delaware with respect to the creation and valid existence of the
Trust as a business trust have been made.
2. Under the Delaware Act and the Trust Agreement, the Trust has the business
trust power and authority to own its property and to conduct its business, all
as described in the Prospectus.
3. The Trust Agreement constitutes a valid and binding obligation of the
Company and the Trustees and is enforceable against the Company and the Trustees
in accordance with its terms, except as such enforceability may be limited by
(i) bankruptcy, insolvency, receivership, liquidation, fraudulent transfer,
reorganization, moratorium and other similar laws relating to or affecting the
rights and remedies of creditors generally, (ii) general principles of equity
(regardless of whether considered and applied in a proceeding in equity or at
law) and (iii) considerations of public policy or the effect of applicable law
relating to fiduciary duties.
4. Under the Delaware Act and the Trust Agreement, the Trust has the business
trust power and authority to execute and deliver, and to perform its obligations
under, the Underwriting Agreement and to issue and perform its obligations under
the Preferred Securities and the Common Securities.
5. Under the Delaware Act and the Trust Agreement, the execution and delivery
by the Trust of the Underwriting Agreement, and the performance by the Trust of
its obligations thereunder, have been duly authorized by all necessary business
trust action on the part of the Trust.
6. The Preferred Securities have been duly authorized for issuance by the
Trust Agreement and, when issued, executed, authenticated and delivered in
accordance with the terms of the Trust Agreement against payment therefor as set
forth in the Underwriting Agreement, will be duly and validly issued and
(subject to the terms of the Trust Agreement) fully paid and nonassessable
undivided beneficial interests in the assets of the Trust entitled to the
benefits of the Trust Agreement (subject to the limitations set forth in
paragraph 3 above). The holders of the Preferred Securities, as beneficial
owners of the Trust, will be entitled to the same limitations of personal
liability as are extended to stockholders of private corporations for profit
organized under the General Corporation Law of the State of Delaware; provided
that such counsel may note that the holders of Preferred Securities will be
required to make certain payments described in the Trust Agreement.
7. The Common Securities have been duly authorized for issuance by the Trust
Agreement and, when issued, executed, and delivered to the Company against
payment therefor in accordance with the terms of the Trust Agreement, will be
duly and validly issued and undivided beneficial interests
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in the assets of the Trust entitled to the benefits of the Trust Agreement
(subject to the limitations set forth in paragraph 3 above).
8. Under the Delaware Act and the Trust Agreement, the issuance of the
Preferred Securities and the Common Securities is not subject to any preemptive
rights.
9. The issuance and sale by the Trust of the Preferred Securities and Common
Securities, the purchase by the Trust of the Junior Subordinated Debentures, the
execution, delivery and performance by the Trust of the Underwriting Agreement,
the consummation by the Trust of the transactions contemplated by the
Underwriting Agreement and the compliance by the Trust with its obligations
thereunder will not violate (i) any of the provisions of the Certificate of
Trust or the Trust Agreement or (ii) any applicable Delaware law or
administrative regulation.
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EXHIBIT D
The opinion of counsel to Trust Company and Delaware Trustee to be delivered
pursuant to Section 5(b)(iii) of the Underwriting Agreement shall be
substantially to the effect that:
1. The Trust Company is a national banking corporation with trust
powers, duly organized, validly existing and in good standing under the laws of
the United States, with all necessary power and authority to execute and
deliver, and to carry out and perform its obligations under, the terms of the
Indenture, the Trust Agreement and the Guarantee Agreement.
2. The Delaware Trust is a Delaware banking corporation with trust
powers, duly organized, validly existing and in good standing under the laws of
the State of Delaware, with all necessary power and authority to execute and
deliver, and to carry out and perform its obligations under, the terms of the
Trust Agreement.
3. The execution, delivery and performance by the Property Trustee of
the Trust Agreement, the execution, delivery and performance by the Guarantee
Trustee of the Guarantee Agreement and the execution, delivery and performance
by the Indenture Trustee of the Indenture have been duly authorized by all
necessary corporate action on the part of the Property Trustee, the Guarantee
Trustee and the Indenture Trustee, respectively. The Trust Agreement, the
Guarantee Agreement and the Indenture have been duly executed and delivered by
the Property Trustee, the Guarantee Trustee and the Indenture Trustee,
respectively, and constitute the legal, valid and binding obligations of the
Property Trustee, the Guarantee Trustee and the Indenture Trustee, respectively,
enforceable against the Property Trustee, the Guarantee Trustee and the
Indenture Trustee, respectively, in accordance with their terms, except as
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, receivership or similar laws relating
to the enforcement of creditors' rights generally, and by general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
4. The execution, delivery and performance of the Trust Agreement, the
Guarantee Agreement and the Indenture by the Property Trustee, the Guarantee
Trustee and the Indenture Trustee, respectively, does not conflict with or
constitute a breach of the charter or by-laws of the Property Trustee, the
Guarantee Trustee and the Indenture Trustee, respectively.
5. No consent, approval or authorization of, or registration with or
notice to any federal or ___________ State banking authority is required for the
execution, delivery or performance by the Property Trustee, the Guarantee
Trustee or the Indenture Trustee of the Trust Agreement, the Guarantee Agreement
and the Indenture, respectively.
6. The Junior Subordinated Debentures delivered on the date hereof have
been duly authenticated by the Indenture Trustee in accordance with the terms of
the Indenture.
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EXHIBIT 4.1
================================================================================
SOUTHSIDE BANCSHARES, INC.
AND
U.S. TRUST COMPANY OF TEXAS, N.A.,
AS TRUSTEE
INDENTURE
____% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
DUE JUNE 30, 2028
DATED AS OF MAY __, 1998
================================================================================
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ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definition of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - ISSUE, DESCRIPTION, TERMS, CONDITIONS, REGISTRATION AND EXCHANGE OF THE DEBENTURES . . . . . . . . . . . 8
Section 2.1 Designation and Principal Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.2 Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.3 Form and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.4 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.5 Execution and Authentications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.6 Registration of Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.7 Temporary Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.7A Global Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.8 Mutilated, Destroyed, Lost or Stolen Debentures . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.9 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.10 Benefit of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.11 Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.12 Right of Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.13 CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE III - REDEMPTION OF DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.1 Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.2 Special Event Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.3 Optional Redemption by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.4 Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.5 Payment Upon Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.6 No Sinking Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IV - EXTENSION OF INTEREST PAYMENT PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.1 Extension of Interest Payment Period . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.2 Notice of Extension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.3 Limitation on Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE V - PARTICULAR COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.1 Payment of Principal and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.2 Maintenance of Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.3 Paying Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.4 Appointment to Fill Vacancy in Office of Trustee . . . . . . . . . . . . . . . . . . . . . 20
Section 5.5 Compliance with Consolidation Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.6 Limitation on Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.7 Covenants as to the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
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Section 5.8 Covenants as to Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VI - DEBENTUREHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE . . . . . . . . . . . . . . . . . . . 21
Section 6.1 Company to Furnish Trustee Names and Addresses of Debentureholders . . . . . . . . . . . . . 21
Section 6.2 Preservation of Information Communications with Debentureholders . . . . . . . . . . . . . 22
Section 6.3 Reports by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 6.4 Reports by the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.5 Statements as to Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VII - REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS ON EVENT OF DEFAULT . . . . . . . . . . . . . . . . . . . 23
Section 7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.2 Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . . . . . . . . . 25
Section 7.3 Application of Moneys Collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.4 Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.5 Rights and Remedies Cumulative; Delay or Omission not Waiver . . . . . . . . . . . . . . . 27
Section 7.6 Control by Debentureholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.7 Undertaking to Pay Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.8 Direct Action by Holders of Preferred Securities . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VIII - FORM OF DEBENTURE AND ORIGINAL ISSUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.1 Form of Debenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.2 Original Issue of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE IX - CONCERNING THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.1 Certain Duties and Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.2 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.3 Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.4 Trustee not Responsible for Recitals, etc. . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.5 May Hold Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.6 Moneys Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.7 Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.8 Reliance on Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.9 Disqualification: Conflicting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.10 Corporate Trustee Required Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.11 Resignation and Removal; Appointment of Successor . . . . . . . . . . . . . . . . . . . . . 33
Section 9.12 Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.13 Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . . . . . . 35
Section 9.14 Preferential Collection of Claims Against the Company . . . . . . . . . . . . . . . . . . . 35
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ARTICLE X - CONCERNING THE DEBENTUREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 10.1 Evidence of Action by Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 10.2 Proof of Execution by Debentureholders . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 10.3 Who may be Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 10.4 Certain Debentures Owned by Company Disregarded . . . . . . . . . . . . . . . . . . . . . . 36
Section 10.5 Actions Binding on Future Debentureholders . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE XI - SUPPLEMENTAL INDENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 11.1 Supplemental Indentures Without the Consent of Debentureholders . . . . . . . . . . . . . . 37
Section 11.2 Supplemental Indentures with Consent of Debentureholders . . . . . . . . . . . . . . . . . 38
Section 11.3 Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.4 Debentures Affected by Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.5 Execution of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XII - SUCCESSOR CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.1 Company may Consolidate, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.2 Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 12.3 Evidence of Consolidation, etc. to Trustee . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE XIII - SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 13.1 Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 13.2 Discharge of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 13.3 Deposited Moneys to be Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 13.4 Payment of Moneys Held by Paying Agents . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 13.5 Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE XIV - IMMUNITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS AND DIRECTORS . . . . . . . . . . . . . . . . . . . . 42
Section 14.1 No Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE XV - MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 15.1 Effect on Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 15.2 Actions by Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 15.3 Surrender of Company Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 15.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 15.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 15.6 Treatment of Debentures as Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 15.7 Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 15.8 Payments on Business Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 15.9 Conflict with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 15.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 15.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 15.12 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
iii
<PAGE> 5
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 15.13 Acknowledgment of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE XVI - SUBORDINATION OF DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 16.1 Agreement to Subordinate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 16.2 Default on Senior Debt or Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 16.3 Liquidation; Dissolution; Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 16.4 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 16.5 Trustee to Effectuate Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 16.6 Notice by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 16.7 Rights of the Trustee; Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . 48
Section 16.8 Subordination may not be Impaired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
iv
<PAGE> 6
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
Section of Trust Indenture Act of 1939, as amended Section of Indenture
<S> <C>
310(a) 9.10
310(b) 9.9
9.11
310(c) N/A
311(a) 9.14
311(b) 9.14
311(c) N/A
312(a) 6.1
6.2(a)
312(b) 6.2(c)
312(c) 6.2(c)
313(a) 6.4(a)
313(b) 6.4(b)
313(c) 6.4(a)
6.4(b)
313(d) 6.4(c)
314(a) 6.3(a)
314(b) N/A
314(c) 15.7
314(d) N/A
314(e) 15.7
314(f) N/A
</TABLE>
v
<PAGE> 7
<TABLE>
<CAPTION>
Section of Trust Indenture Act of 1939, as amended Section of Indenture
<S> <C>
315(a) 9.1(a)
9.3
315(b) 9.2
315(c) 9.1(a)
315(d) 9.1(b)
315(e) 7.7
316(a) 1.1
7.6
316(b) 7.4(b)
316(c) 10.1(b)
317(a) 7.2
317(b) 5.3
318(a) 15.9
</TABLE>
Note: This Cross-Reference Table does not constitute part of this Indenture
and shall not affect the interpretation of any of its terms or provisions.
vi
<PAGE> 8
INDENTURE
INDENTURE, dated as of May __, 1998, between SOUTHSIDE BANCSHARES,
INC., a Texas corporation (the "Company"), and U.S. TRUST COMPANY OF TEXAS,
N.A., a trust company organized under the laws of the United States (the
"Trustee").
RECITALS
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the execution and delivery of this Indenture to provide for the
issuance of unsecured securities to be known as its ____% Junior Subordinated
Deferrable Interest Debentures due June 30, 2028 (referred to as the
"Debentures"), the form and substance of the Debentures and the terms,
provisions and conditions thereof to be set forth as provided in this
Indenture; and
WHEREAS, Southside Capital Trust I, a Delaware statutory business
trust (the "Trust"), has offered to the public up to $23 million aggregate
liquidation amount of its Preferred Securities (as defined herein) and proposes
to invest the proceeds from such offering, together with the proceeds of the
issuance and sale by the Trust to the Company of $________ aggregate
liquidation amount of its Common Securities (as defined herein), in $________
aggregate principal amount of the Debentures; and
WHEREAS, the Company has requested that the Trustee execute and
deliver this Indenture; and
WHEREAS, all requirements necessary to make this Indenture a valid
instrument in accordance with its terms, and to make the Debentures, when
executed by the Company and authenticated and delivered by the Trustee, the
valid obligations of the Company, have been performed, and the execution and
delivery of this Indenture have been duly authorized in all respects, and
WHEREAS, to provide the terms and conditions upon which the Debentures
are to be authenticated, issued and delivered, the Company has duly authorized
the execution of this Indenture; and
WHEREAS, all things necessary to make this Indenture a valid agreement
of the Company, in accordance with its terms, have been done.
NOW, THEREFORE, in consideration of the premises and the purchase of
the Debentures by the holders thereof, it is mutually covenanted and agreed as
follows for the equal and ratable benefit of the holders of the Debentures and
intending to be legally bound hereby:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITION OF TERMS.
The terms defined in this Section (except as in this Indenture
otherwise expressly provided or unless the context otherwise requires) for all
purposes of this Indenture and of any indenture supplemental hereto shall have
the respective meanings specified in this Section and shall include the plural
as well as the singular. All other terms used in this Indenture that are
defined in the Trust Indenture Act, or that are by reference in the Trust
Indenture Act defined in the Securities Act (except as herein otherwise
expressly provided or unless the
<PAGE> 9
context otherwise requires), shall have the meanings assigned to such terms in
the Trust Indenture Act and in the Securities Act as in force at the date of
the execution of this instrument. All accounting terms used herein and not
expressly defined shall have the meanings assigned to such terms in accordance
with generally accepted accounting principles ("GAAP") as in effect at the time
of computation.
"Additional Interest" shall have the meaning set forth in SECTION 2.4.
"Administrative Trustees" shall have the meaning set forth in the
Trust Agreement.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities or other ownership interests of the
specified Person; (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person; (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person; (d) a partnership in which the specified Person is a
general partner; (e) any officer or director of the specified Person; and (f)
if the specified Person is an individual, any entity of which the specified
Person is an executive officer, director or general partner.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Global Security, in each case
to the extent applicable to such transaction and as in effect from time to
time.
"Authenticating Agent" means an authenticating agent with respect to
the Debentures appointed by the Trustee pursuant to SECTION 2.11.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or
any duly authorized committee of such Board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification.
"Business Day" means, with respect to the Debentures, any day other
than a Saturday or a Sunday or a day on which federal or state banking
institutions in the Borough of Manhattan, the City of New York, or the State of
Delaware are authorized or required by law, executive order or regulation to
close, or a day on which the Corporate Trust Office of the Trustee or the
Property Trustee is closed for business.
"Capital Treatment Event" means the receipt by the Trust of an Opinion
of Counsel to the effect that, as a result of any amendment to, or change
(including any proposed change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision thereof or therein, or as a
result of any official or administrative pronouncement or action or judicial
decision interpreting or applying such laws or regulations, which amendment or
change is effective or such proposed change pronouncement, action or decision
is announced on or after the date of original issuance of the Preferred
Securities under the Trust Agreement, there is more than an insubstantial risk
that the Preferred Securities would not constitute "Tier 1 Capital" (or the
then equivalent thereof) applied as if the Company (or its successor) were a
bank holding
2
<PAGE> 10
company for purposes of the capital adequacy guidelines of the Federal Reserve
(or any successor regulatory authority with jurisdiction over bank holding
companies), or any capital adequacy guidelines as then in effect and applicable
to the Company.
"Certificate" means a certificate signed by the principal executive
officer, the principal financial officer, the principal accounting officer, the
treasurer or any vice president of the Company. The Certificate need not
comply with the provisions of SECTION 15.7.
"Change in 1940 Act Law" shall have the meaning set forth in the
definition of "Investment Company Event."
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
"Common Securities" means undivided beneficial interests in the assets
of the Trust which rank pari passu with the Preferred Securities; provided,
however, that upon the occurrence of an Event of Default, the rights of holders
of Common Securities to payment in respect of (i) distributions and (ii)
payments upon liquidation, redemption and otherwise are subordinated to the
rights of holders of Preferred Securities.
"Company" means Southside Bancshares, Inc., a corporation duly
organized and existing under the laws of the State of Texas, and, subject to
the provisions of ARTICLE XII, shall also include its successors and assigns.
"Compounded Interest" shall have the meaning set forth in SECTION 4.1.
"Corporate Trust Office" means the office of the Trustee at which, at
any particular time, its corporate trust business shall be principally
administered, which office at the date hereof is located at 2001 Ross Avenue,
Suite 2700, Dallas, Texas 75201, Attention: Corporate Trust Trustee
Administration.
"Coupon Rate" shall have the meaning set forth in SECTION 2.4.
"Custodian" means any receiver, trustee, assignee, liquidator, or
similar official under any Bankruptcy Law.
"Debentures" shall have the meaning set forth in the Recitals hereto.
"Debentureholder," "holder of Debentures," "registered holder," or
other similar term, means the Person or Persons in whose name or names a
particular Debenture shall be registered on the books of the Company or the
Trustee kept for that purpose in accordance with the terms of this Indenture.
"Debenture Register" shall have the meaning set forth in SECTION
2.6(B).
"Debt" means with respect to any Person, whether recourse is to all or
a portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every
3
<PAGE> 11
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person; (iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business); (v) every
capital lease obligation of such Person; (vi) all indebtedness of such Person,
whether incurred on or prior to the date of the Indenture or thereafter
incurred, for claims in respect of derivative products, including interest
rate, foreign exchange rate and commodity forward contracts, options, swaps and
similar arrangements; (vii) every obligation of the type referred to in
clauses (i) through (v) of another Person and all dividends of another Person
the payment of which, in either case, such Person has guaranteed or is
responsible or liable, directly or indirectly, as obligor or otherwise.
"Default" means any event, act or condition that with notice or lapse
of time, or both, would constitute an Event of Default.
"Deferred Interest" shall have the meaning set forth in SECTION 4.1.
"Depositary" means, with respect to the Debentures issuable or issued
in whole or in part in the form of one or more Global Securities, the Person
designated as Depositary by the Company pursuant to SECTION 2.3. The initial
Depositary shall be DTC.
"Dissolution Event" means that as a result of the occurrence and
continuation of a Special Event, the Trust is to be dissolved in accordance
with the Trust Agreement and the Debentures held by the Property Trustee are to
be distributed to the holders of the Trust Securities issued by the Trust pro
rata in accordance with the Trust Agreement.
"DTC" shall mean The Depository Trust Company.
"Event of Default" means, with respect to the Debentures, any event
specified in SECTION 7.1, which has continued for the period of time, if any,
and after the giving of the notice, if any, therein designated.
"Exchange Act" means the Securities Exchange Act of 1934, or any
successor statute, in each case as amended from time to time.
"Extended Interest Payment Period" shall have the meaning set forth in
SECTION 4.1.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System.
"GAAP" means such accounting principles as are generally accepted in
the United States at the time of any computation required hereunder.
"Global Security" means a Debenture evidencing all or part of the
Debentures, issued to the Depositary or its nominee, and registered in the name
of such Depositary or its nominee.
"Governmental Obligations" means securities that are (i) direct
obligations of the United States for the payment of which its full faith and
credit is pledged; or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by
the United States that, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depositary receipt
issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as
custodian with respect to any such Governmental Obligation
4
<PAGE> 12
or a specific payment of principal of or interest on any such Governmental
Obligation held by such custodian for the account of the holder of such
depositary receipt; provided, however, that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depositary receipt from any amount received by the custodian
in respect of the Governmental Obligation or the specific payment of principal
of or interest on the Governmental Obligation evidenced by such depositary
receipt.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into in accordance with the terms hereof.
"Interest Payment Date," when used with respect to any installment of
interest on the Debentures, means the date specified in the Debenture or in a
Board Resolution or in an indenture supplemental hereto with respect to the
Debentures as the fixed date on which an installment of interest with respect
to the Debentures is due and payable.
"Investment Company Act" means the Investment Company Act of 1940, and
any statute successor thereto, in each case as amended from time to time.
"Investment Company Event" means the receipt by the Trust of an
Opinion of Counsel, to the effect that, as a result of the occurrence of a
change in law or regulation or a change in interpretation or application of law
or regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law"), the Trust is or shall be considered an
"investment company" that is required to be registered under the Investment
Company Act, which Change in 1940 Act Law becomes effective on or after the
date of original issuance of the Preferred Securities under the Trust
Agreement.
"Maturity Date" means the date on which the Debentures mature and on
which the principal shall be due and payable together with all accrued and
unpaid interest thereon including Compounded Interest and Additional Interest,
if any as set forth in SECTION 2.2.
"Ministerial Action" shall have the meaning set forth in SECTION 3.2.
"Officers' Certificate" means a certificate signed by the President or
a Vice President and by the Treasurer, an Assistant Treasurer, the Controller,
an Assistant Controller, the Secretary or an Assistant Secretary of the Company
and delivered to the Trustee. Any Officers' Certificate delivered with respect
to compliance with a condition or covenant provided for in this Indenture shall
include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the
definitions relating thereto;
(b) a brief statement of the nature and scope of the examination
or investigation undertaken by each officer in rendering the
Officers' Certificate;
(c) a statement that each such officer has made such examination
or investigation as, in such officer's opinion, is necessary
to enable such officer to express an informed opinion as to
whether or not such covenant or condition has been complied
with; and
5
<PAGE> 13
(d) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"Opinion of Counsel" means an opinion in writing of independent legal
counsel experienced in such matters as being opined upon, that is delivered to
the Trustee in accordance with the terms hereof.
"Outstanding" when used with reference to the Debentures, means,
subject to the provisions of SECTION 10.4, as of any particular time, all
Debentures theretofore authenticated and delivered by the Trustee under this
Indenture, except (a) Debentures theretofore canceled by the Trustee or any
paying agent, or delivered to the Trustee or any paying agent for cancellation
or that have previously been canceled; (b) Debentures or portions thereof for
the payment or redemption of which moneys or Governmental Obligations in the
necessary amount shall have been deposited in trust with the Trustee or with
any paying agent (other than the Company) or shall have been set aside and
segregated in trust by the Company (if the Company shall act as its own paying
agent); provided, however, that if such Debentures or portions of such
Debentures are to be redeemed prior to the maturity thereof, notice of such
redemption shall have been given as provided in Article III or provision
satisfactory to the Trustee shall have been made for giving such notice; (c)
Debentures in lieu of or in substitution for which other Debentures shall have
been authenticated and delivered pursuant to the terms of SECTION 2.6 and (d)
Debentures paid pursuant to SECTION 2.8.
"Person" means any individual, corporation, partnership, joint
venture, trust, joint stock company, unincorporated organization or government
or any agency or political subdivision thereof.
"Place of Payment" means the place or places where the principal of
and interest on the Debentures are payable in accordance with the terms of this
Indenture.
"Predecessor Debenture" means every previous Debenture evidencing all
or a portion of the same debt as that evidenced by such particular Debenture;
and, for the purposes of this definition, any Debenture authenticated and
delivered under SECTION 2.8 in lieu of a lost, destroyed or stolen Debenture
shall be deemed to evidence the same debt as the lost, destroyed or stolen
Debenture.
"Preferred Securities" means undivided beneficial interests in the
assets of the Trust which rank pari passu with Common Securities issued by the
Trust; provided, however, that upon the occurrence of an Event of Default, the
rights of holders of Common Securities to payment in respect of distributions
and payments upon liquidation, redemption and otherwise are subordinated to the
rights of holders of Preferred Securities.
"Preferred Securities Guarantee" means the Preferred Securities
Guarantee, as amended from time to time, by and between the Company, as
guarantor, and the Trustee, executed and delivered for the benefit of the
holders of the Preferred Securities.
"Property Trustee" has the meaning set forth in the Trust Agreement.
"Responsible Officer" when used with respect to the Trustee means any
vice president, any assistant vice president, any assistant secretary, any
assistant treasurer, any corporate trust officer or any other officer or
assistant officer of the Trustee customarily performing functions similar to
those performed by the Persons who at the time shall be such officers,
respectively, or to whom any corporate trust matter is referred because of his
or her knowledge of and familiarity with the particular subject.
6
<PAGE> 14
"Securities Act" means the Securities Act of 1933, or any successor
statute, in each case as amended from time to time.
"Senior Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of this Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Debentures or to other Debt which is pari
passu with, or subordinated to, the Debentures; provided, however, that Senior
Debt shall not be deemed to include (i) any Debt of the Company which when
incurred and without respect to any election under Section 1111 (b) of the
United States Bankruptcy Code of 1978, as amended, was without recourse to the
Company; (ii) any Debt of the Company to any of its subsidiaries; and (iii) any
Debt to any employee of the Company.
"Senior Indebtedness" shall have the meaning set forth in SECTION
16.1.
"Special Event" means a Tax Event, an Investment Company Event or a
Capital Treatment Event.
"Subordinated Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of this Indenture or thereafter
incurred, which is by its terms expressly provided to be junior and subordinate
to other Debt of the Company (other than the Debentures), except that
Subordinated Debt shall not include Debentures sold by the Company to the
Trust.
"Subsidiary" means, with respect to any Person, (i) any corporation at
least a majority of whose outstanding Voting Stock shall at the time be owned,
directly or indirectly, by such Person or by one or more of its Subsidiaries or
by such Person and one or more of its Subsidiaries; (ii) any general
partnership, joint venture, trust or similar entity, at least a majority of
whose outstanding partnership or similar interests shall at the time be owned
by such Person, or by one or more of its Subsidiaries, or by such Person and
one or more of its Subsidiaries; and (iii) any limited partnership of which
such Person or any of its Subsidiaries is a general partner.
"Tax Event" means the receipt by the Trust of an Opinion of Counsel,
to the effect that, as a result of any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official administrative pronouncement or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or which pronouncement or decision is
announced on or after the date of issuance of the Preferred Securities under
the Trust Agreement, there is more than an insubstantial risk that (i) the
Trust is, or shall be within 90 days after the date of such Opinion of Counsel,
subject to United States federal income tax with respect to income received or
accrued on the Debentures; (ii) interest payable by the Company on the
Debentures is not, or within 90 days after the date of such Opinion of Counsel
shall not be, deductible by the Company, in whole or in part, for United States
federal income tax purposes; or (iii) the Trust is, or shall be within 90 days
after the date of such Opinion of Counsel, subject to more than a de minimis
amount of other taxes, duties, assessments or other governmental charges. The
Trust or the Company shall request and receive such Opinion of Counsel with
regard to such matters within a reasonable period of time after the Trust or
the Company shall have become aware of the possible occurrence of any of the
events described in clauses (i) through (iii) above.
7
<PAGE> 15
"Trust" means Southside Capital Trust I, a Delaware statutory business
trust created by the Trust Agreement.
"Trust Agreement" means the Amended and Restated Trust Agreement,
dated March __, 1998, of the Trust, as amended, modified or supplemented in
accordance with the applicable provisions thereof, among the trustees of the
Trust named therein, the Company, as depositor, and the holders from time to
time of undivided beneficial ownership interests in the assets of the Trust,
including all exhibits thereto, including, for all purposes of the Trust
Agreement, and any such modification, amendment or supplement, the provisions
of the Trust Indenture Act that are deemed to be a part of and govern the Trust
Agreement and any such modification, amendment or supplement, respectively.
"Trustee" means U.S. Trust Company of Texas, N.A. and, subject to
the provisions of ARTICLE IX, shall also include its successors and assigns,
and if at any time there is more than one Person acting in such capacity
hereunder, "Trustee" shall mean each such Person.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, subject to the provisions of SECTIONS 11.1, 11.2, and 12.1 and any
statute successor thereto, in each case as amended from time to time.
"Trust Securities" means the Common Securities and Preferred
Securities, collectively.
"Voting Stock" as applied to stock of any Person, means shares,
interests, participations or other equivalents in the equity interest (however
designated) in such Person having ordinary voting power for the election of a
majority of the directors (or the equivalent) of such Person, other than
shares, interests, participations or other equivalents having such power only
by reason of the occurrence of a contingency.
ARTICLE II
ISSUE, DESCRIPTION, TERMS, CONDITIONS, REGISTRATION
AND EXCHANGE OF THE DEBENTURES
SECTION 2.1 DESIGNATION AND PRINCIPAL AMOUNT.
The Company hereby authorizes Debentures designated the "___% Junior
Subordinated Deferrable Interest Debentures due June 30, 2028," limited in
aggregate principal amount to $___________ which amount shall be as set forth
in any written order of the Company for the authentication and delivery of
Debentures pursuant to SECTION 2.5.
SECTION 2.2 MATURITY.
The Maturity Date shall be June 30, 2028.
SECTION 2.3 FORM AND PAYMENT.
The Debentures initially issued to the Property Trustee of the Trust
shall be issued in fully registered certificated form without interest coupons.
Principal and interest on the Debentures issued in certificated form shall be
payable, the transfer of such Debentures shall be registrable and such
Debentures shall be exchangeable for Debentures bearing identical terms and
provisions at the office or agency of the Trustee; provided, however, that
payment of interest may be made at the option of the Company by check mailed to
the holder at such address as shall appear in the Debenture Register or by wire
transfer to an account
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maintained by the holder as specified in the Debenture Register, provided that
the holder provides proper wire transfer instructions by the regular record
date. Notwithstanding the foregoing, so long as the holder of any Debentures
is the Property Trustee, the payment of the principal of and interest
(including Compounded Interest and Additional Interest, if any) on such
Debentures held by the Property Trustee shall be made at such place and to such
account as may be designated by the Property Trustee.
In connection with the distribution of the Debentures to the holders
of the Preferred Securities upon a Dissolution Event, Debentures shall be
issuable in whole or in part in the form of one or more Global Securities
pursuant to SECTION 2.7A and, in such case, the Depositary for such Global
Securities shall be DTC.
SECTION 2.4 INTEREST.
(a) Each Debenture shall bear interest at the rate of ____% per
annum (the "Coupon Rate") from the original date of issuance until the
principal thereof becomes due and payable, and on any overdue principal and (to
the extent that payment of such interest is enforceable under applicable law)
on any overdue installment of interest at the Coupon Rate, compounded
quarterly, payable (subject to the provisions of ARTICLE IV) quarterly in
arrears on March 31, June 30, September 30, and December 31 of each year (each,
an "Interest Payment Date," commencing on June 30, 1998), to the Person in
whose name such Debenture or any Predecessor Debenture is registered, at the
close of business on the regular record date for such interest installment,
next preceding such Interest Payment Date.
(b) The amount of interest payable for any period shall be
computed on the basis of a 360-day year of twelve 30-day months. Except as
provided in the following sentence, the amount of interest payable for any
period shorter than a full quarterly period for which interest is computed,
shall be computed on the basis of the actual number of days elapsed in such
period. In the event that any date on which interest is payable on the
Debentures is not a Business Day, then payment of interest payable on such date
shall be made on the next succeeding day which is a Business Day (and without
any interest or other payment in respect of any such delay), except that, if
such Business Day is in the next succeeding calendar year, such payment shall
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on the date such payment was originally payable.
(c) If, at any time while the Property Trustee is the holder of
any Debentures, the Trust or the Property Trustee is required to pay any taxes,
duties, assessments or other governmental charges of whatever nature (other
than withholding taxes) imposed by the United States, or any other taxing
authority, then, in any case, the Company shall pay as additional interest
("Additional Interest") on the Debentures held by the Property Trustee, such
additional amounts as shall be required so that the net amounts received and
retained by the Trust and the Property Trustee after paying such taxes, duties,
assessments or other governmental charges shall be equal to the amounts the
Trust and the Property Trustee would have received had no such taxes, duties,
assessments or other governmental charges been imposed.
SECTION 2.5 EXECUTION AND AUTHENTICATIONS.
(a) The Debentures shall be signed on behalf of the Company by its
Chief Executive Officer, President or one of its Vice Presidents, under its
corporate seal attested by its Secretary or one of its Assistant Secretaries.
Signatures may be in the form of a manual or facsimile signature. The Company
may use the facsimile signature of any Person who shall have been a Chief
Executive Officer, President or Vice President thereof, or of any Person who
shall have been a Secretary or Assistant Secretary thereof, notwithstanding the
fact that at the time the Debentures shall be authenticated and delivered or
disposed of such Person shall have
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ceased to be the Chief Executive Officer, President or a Vice President, or the
Secretary or an Assistant Secretary, of the Company. The seal of the Company
may be in the form of a facsimile of such seal and may be impressed, affixed,
imprinted or otherwise reproduced on the Debentures. The Debentures may
contain such notations, legends or endorsements required by law, stock exchange
rule or usage. Each Debenture shall be dated the date of its authentication by
the Trustee.
(b) A Debenture shall not be valid until authenticated manually by
an authorized signatory of the Trustee, or by an Authenticating Agent. Such
signature shall be conclusive evidence that the Debenture so authenticated has
been duly authenticated and delivered hereunder and that the holder is entitled
to the benefits of this Indenture.
(c) At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Debentures executed by the
Company to the Trustee for authentication, together with a written order of the
Company for the authentication and delivery of such Debentures signed by its
Chief Executive Officer, President or any Vice President and its Secretary or
any Assistant Secretary, and the Trustee in accordance with such written order
shall authenticate and make available for delivery such Debentures.
(d) In authenticating such Debentures and accepting the additional
responsibilities under this Indenture in relation to such Debentures, the
Trustee shall be entitled to receive, and (subject to SECTION 9.1) shall be
fully protected in relying upon, an Opinion of Counsel stating that the form
and terms thereof have been established in conformity with the provisions of
this Indenture.
(e) The Trustee shall not be required to authenticate such
Debentures if the issue of such Debentures pursuant to this Indenture shall
affect the Trustee's own rights, duties or immunities under the Debentures and
this Indenture or otherwise in a manner that is not reasonably acceptable to
the Trustee.
SECTION 2.6 REGISTRATION OF TRANSFER AND EXCHANGE.
(a) Debentures may be exchanged upon presentation thereof at the
office or agency of the Company designated for such purpose, for other
Debentures and for a like aggregate principal amount, upon payment of a sum
sufficient to cover any tax or other governmental charge in relation thereto,
all as provided in this Section. In respect of any Debentures so surrendered
for exchange, the Company shall execute, the Trustee shall authenticate and
such office or agency shall deliver in exchange therefor the Debenture or
Debentures that the Debentureholder making the exchange shall be entitled to
receive, bearing numbers not contemporaneously outstanding.
(b) The Company shall keep, or cause to be kept, at its office or
agency designated for such purpose or such other location designated by the
Company a register or registers (herein referred to as the "Debenture
Register") in which, subject to such reasonable regulations as it may
prescribe, the Company shall register the Debentures and the transfers of
Debentures as in this Article provided and which at all reasonable times shall
be open for inspection by the Trustee. The registrar for the purpose of
registering Debentures and transfer of Debentures as herein provided shall be
appointed as authorized by Board Resolution (the "Debenture Registrar"). Upon
surrender for transfer of any Debenture at the office or agency of the Company
designated for such purpose, the Company shall execute, the Trustee shall
authenticate and such office or agency shall make available for delivery in the
name of the transferee or transferees a new Debenture or Debentures for a like
aggregate principal amount. All Debentures presented or surrendered for
exchange or registration of transfer, as provided in this Section, shall be
accompanied (if so required by the Company or
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the Debenture Registrar) by a written instrument or instruments of transfer, in
form satisfactory to the Company or the Debenture Registrar, duly executed by
the registered holder or by such holder's duly authorized attorney in writing.
(c) No service charge shall be made for any exchange or
registration of transfer of Debentures, or issue of new Debentures in case of
partial redemption, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge in relation thereto, other than
exchanges pursuant to SECTION 2.7, SECTION 3.5(B) and SECTION 11.4 not
involving any transfer.
(d) The Company shall not be required (i) to issue, exchange or
register the transfer of any Debentures during a period beginning at the
opening of business 15 days before the day of the mailing of a notice of
redemption of less than all the Outstanding Debentures and ending at the close
of business on the day of such mailing; nor (ii) to register the transfer of or
exchange any Debentures or portions thereof called for redemption.
SECTION 2.7 TEMPORARY DEBENTURES.
Pending the preparation of definitive Debentures, the Company may
execute, and the Trustee shall authenticate and deliver, temporary Debentures
(printed, lithographed, or typewritten). Such temporary Debentures shall be
substantially in the form of the definitive Debentures in lieu of which they
are issued, but with such omissions, insertions and variations as may be
appropriate for temporary Debentures, all as may be determined by the Company.
Every temporary Debenture shall be executed by the Company and be authenticated
by the Trustee upon the same conditions and in substantially the same manner,
and with like effect, as the definitive Debentures. Without unnecessary delay
the Company shall execute and shall furnish definitive Debentures and thereupon
any or all temporary Debentures may be surrendered in exchange therefor
(without charge to the holders), at the office or agency of the Company
designated for such purpose, and the Trustee shall authenticate and such office
or agency shall deliver in exchange for such temporary Debentures an equal
aggregate principal amount of definitive Debentures, unless the Company advises
the Trustee to the effect that definitive Debentures need not be executed and
furnished until further notice from the Company. Until so exchanged, the
temporary Debentures shall be entitled to the same benefits under this
Indenture as definitive Debentures authenticated and delivered hereunder.
SECTION 2.7A GLOBAL SECURITIES.
(a) Debentures distributed to holders of book-entry Preferred
Securities upon the dissolution of the Trust shall be distributed in the form
of one or more Global Securities registered in the name of the Depositary or
its nominee, and deposited with the Securities Registrar, as custodian for such
Depositary, or with such Depositary, for credit by the Depositary to the
respective accounts of the beneficial owners of the Debentures represented
thereby (or such other accounts as they may direct). Debentures distributed to
holders of Preferred Securities other than book- entry Preferred Securities
upon the dissolution of the Trust shall not be issued in the form of a Global
Security or any other form intended to facilitate book-entry trading in
beneficial interests in such Debentures.
(b) Each Global Security issued under this Indenture shall be
registered in the name of the Depositary designated by the Company for such
Global Security or a nominee thereof and delivered to such Depositary or a
nominee thereof or custodian therefor, and each such Global Security shall
constitute a single Global Security for all purposes of this Indenture.
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(c) Notwithstanding any other provision in this Indenture, no
Global Security may be exchanged in whole or in part for Debentures registered,
and no transfer of a Global Security in whole or in part may be registered, in
the name of any Person other than the Depositary for such Global Security or a
nominee thereof unless (i) such Depositary advises the Trustee in writing that
such Depositary is no longer willing or able to properly discharge its
responsibilities as Depositary with respect to such Global Security, and the
Company is unable to locate a qualified successor, (ii) the Company executes
and delivers to the Trustee a Company Order stating that the Company elects to
terminate the book-entry system through the Depositary, or (iii) there shall
have occurred and be continuing an Event of Default.
(d) If any Global Security is to be exchanged for other Debentures
or canceled in whole, it shall be surrendered by or on behalf of the Depositary
or its nominee to the Securities Registrar for exchange or cancellation as
provided in this Article. If any Global Security is to be exchanged for other
Debentures or canceled in part, or if another Security is to be exchanged in
whole or in part for a beneficial interest in any Global Security, then either
(i) such Global Security shall be so surrendered for exchange or cancellation
as provided in this Article or (ii) the principal amount thereof shall be
reduced or increased by an amount equal to the portion thereof to be so
exchanged or canceled, or equal to the principal amount of such Debenture to be
so exchanged for a beneficial interest therein, as the case may be, by means of
an appropriate adjustment made on the records of the Securities Registrar,
whereupon the Trustee, in accordance with Applicable Procedures, shall instruct
the Depositary or its authorized representative to make a corresponding
adjustment to its records. Upon any such surrender or adjustment of a Global
Security by the Depositary, accompanied by registration instructions, the
Trustee shall, subject to SECTION 2.6 and as otherwise provided in this
Article, authenticate and make available for delivery any Debentures issuable
in exchange for such Global Security (or any portion thereof) in accordance
with the instructions of the Depositary. The Trustee shall not be liable for
any delay in delivery of such instructions and may conclusively rely on, and
shall be fully protected in relying on, such instructions.
(e) Every Debenture authenticated and delivered upon registration
of transfer of, or in exchange for or in lieu of, a Global Security or any
portion thereof, whether pursuant to this Article, SECTION 3.5 or ARTICLE IX or
otherwise, shall be authenticated and delivered in the form of, and shall be, a
Global Security, unless such Debenture is registered in the name of a Person
other than the Depositary for such Global Security or a nominee thereof.
(f) The Depositary or its nominee, as the registered owner of a
Global Security, shall be the Holder of such Global Security for all purposes
under this Indenture and the Debenture, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security shall be
shown only on, and the transfer of such interest shall be effected only
through, records maintained by the Depositary or its nominee or agent. Neither
the Trustee nor the Securities Registrar shall have any liability in respect of
any transfers effected by the Depositary.
(g) The rights of owners of beneficial interests in a Global
Security shall be exercised only through the Depositary and shall be limited to
those established by law and agreements between such owners and the Depositary
and/or its Agent Members.
(h) If (i) the Depositary notifies the Company that it is
unwilling or unable to continue as a depositary for such Global Security and no
successor
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depositary shall have been appointed within 90 days by the Company, (ii) the
Depositary, at any time, ceases to be a clearing agency registered under the
Exchange Act at which time the Depositary is required to be so registered to
act as such depositary and no successor depositary shall have been appointed
within 90 days by the Company, (iii) the Company, in its sole discretion,
determines that such Global Security shall be so exchangeable or (iv) there
shall have occurred and be continuing an Event of Default with respect to such
Debentures, as the case may be, the Company will execute, and, subject to
ARTICLE II of this Indenture, the Trustee, upon written notice from the Company
and receipt of an Officers' Certificate, will authenticate and deliver the
Debentures in definitive registered form without coupons, in authorized
denominations, and in an aggregate principal amount equal to the principal
amount of the Global Security in exchange for such Global Security. In
addition, upon an Event of Default that has occurred and is continuing or in
the event the Company determines that the Debentures shall no longer be
represented by a Global Security, the Company will execute, and subject to
SECTION 2.5 of this Indenture, the Trustee, upon receipt of an Officers'
Certificate evidencing such determination by the Company, will authenticate and
make available for delivery, the Debentures in definitive registered form
without coupons, in authorized denominations, and in an aggregate principal
amount equal to the principal amount of the Global Security in exchange for
such Global Security. Upon the exchange of the Global Security for such
Debentures in definitive registered form without coupons, in authorized
denominations, the Global Security shall be canceled by the Trustee. Such
Debentures in definitive registered form issued in exchange for the Global
Security shall be registered in such names and in such authorized denominations
as the Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee in writing. The Trustee
shall deliver such Debentures to the Depositary for delivery to the Persons in
whose names such Debentures are so registered.
SECTION 2.8 MUTILATED, DESTROYED, LOST OR STOLEN DEBENTURES.
(a) In case any temporary or definitive Debenture shall become
mutilated or be destroyed, lost or stolen, the Company (subject to the next
succeeding sentence) shall execute, and upon the Company's request the Trustee
(subject as aforesaid) shall authenticate and make available for delivery, a
new Debenture bearing a number not contemporaneously outstanding, in exchange
and substitution for the mutilated Debenture, or in lieu of and in substitution
for the Debenture so destroyed, lost or stolen. In every case the applicant
for a substituted Debenture shall furnish to the Company and the Trustee such
security or indemnity as may be required by them to save each of them harmless,
and, in every case of destruction, loss or theft, the applicant shall also
furnish to the Company and the Trustee evidence to their satisfaction of the
destruction, loss or theft of the applicant's Debenture and of the ownership
thereof. The Trustee may authenticate any such substituted Debenture and make
available for delivery the same upon the written request or authorization of
any officer of the Company. Upon the issuance of any substituted Debenture,
the Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
In case any Debenture that has matured or is about to mature shall become
mutilated or be destroyed, lost or stolen, the Company may, instead of issuing
a substitute Debenture, pay or authorize the payment of the same (without
surrender thereof except in the case of a mutilated Debenture) if the applicant
for such payment shall furnish to the Company and the Trustee such security or
indemnity as they may require to save them harmless, and, in case of
destruction, loss or theft, evidence to the satisfaction of the Company and the
Trustee of the destruction, loss or theft of such Debenture and of the
ownership thereof.
(b) Every replacement Debenture issued pursuant to the provisions
of this Section shall constitute an additional contractual obligation of the
Company whether or not the mutilated, destroyed, lost or stolen Debenture shall
be found at any time, or be enforceable by anyone, and shall be entitled to all
the benefits of this Indenture equally and proportionately with any and all
other Debentures duly issued hereunder. All Debentures shall be held and owned
upon the express condition that the foregoing provisions are exclusive with
respect to the replacement or payment of mutilated, destroyed, lost or stolen
Debentures, and shall preclude
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(to the extent lawful) any and all other rights or remedies, notwithstanding
any law or statute existing or hereafter enacted to the contrary with respect
to the replacement or payment of negotiable instruments or other securities
without their surrender.
SECTION 2.9 CANCELLATION.
All Debentures surrendered for the purpose of payment, redemption,
exchange or registration of transfer shall, if surrendered to the Company or
any paying agent, be delivered to the Trustee for cancellation or if
surrendered to the Trustee, shall be canceled by it, and no Debentures shall be
issued in lieu thereof except as expressly required or permitted by any of the
provisions of this Indenture. On request of the Company at the time of such
surrender, the Trustee shall deliver to the Company canceled Debentures held by
the Trustee. In the absence of such request the Trustee may dispose of
canceled Debentures in accordance with its standard procedures. If the Company
shall otherwise acquire any of the Debentures, however, such acquisition shall
not operate as a redemption or satisfaction of the indebtedness represented by
such Debentures unless and until the same are delivered to the Trustee for
cancellation.
SECTION 2.10 BENEFIT OF INDENTURE.
Nothing in this Indenture or in the Debentures, express or implied,
shall give or be construed to give to any Person, other than the parties hereto
and the holders of the Debentures (and, with respect to the provisions of
ARTICLE XVI, the holders of Senior Indebtedness) any legal or equitable right,
remedy or claim under or in respect of this Indenture, or under any covenant,
condition or provision herein contained. All such covenants, conditions, and
provisions are for the sole benefit of the parties hereto and of the holders of
the Debentures (and, with respect to the provisions of ARTICLE XVI, the holders
of Senior Indebtedness).
SECTION 2.11 AUTHENTICATING AGENT.
(a) So long as any of the Debentures remain Outstanding the
Trustee shall have the right to appoint an Authenticating Agent for any or all
such Debentures. The Authenticating Agent shall be authorized to act on behalf
of the Trustee to authenticate Debentures issued upon exchange, transfer or
partial redemption thereof, and Debentures so authenticated shall be entitled
to the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. All references in this
Indenture to the authentication of Debentures by the Trustee shall be deemed to
include authentication by an Authenticating Agent. Such Authenticating Agent
shall be acceptable to the Company and shall be a corporation that has a
combined capital and surplus, as most recently reported or determined by it,
sufficient under the laws of each jurisdiction under which it is organized or
in which it is doing business to conduct a trust business, and that is
otherwise authorized under such laws to conduct such business and is subject to
supervision or examination by federal or state authorities. If at any time any
Authenticating Agent shall cease to be eligible in accordance with these
provisions, it shall resign or be terminated immediately.
(b) The Authenticating Agent may at any time resign by giving
written notice of resignation to the Trustee and to the Company. The Trustee
may at any time (and upon request by the Company shall) terminate the agency of
the Authenticating Agent by giving written notice of termination to such
Authenticating Agent and to the Company. Upon resignation, termination or
cessation of eligibility of the Authenticating Agent, the Trustee may appoint
an eligible successor Authenticating Agent acceptable to the Company. The
successor Authenticating Agent, upon acceptance of its appointment hereunder,
shall become vested with all the rights, powers and duties of its predecessor
hereunder as if originally named as an Authenticating Agent pursuant hereto.
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SECTION 2.12 RIGHT OF SET-OFF.
With respect to the Debentures initially issued to the Trust,
notwithstanding anything to the contrary herein, the Company shall have the
right to set-off any payment it is otherwise required to make in respect of any
such Debenture to the extent the Company has theretofore made, or is
concurrently on the date of such payment making, a payment under the Preferred
Securities Guarantee relating to such Debenture or to a holder of Preferred
Securities pursuant to an action undertaken under SECTION 7.8 of this
Indenture.
SECTION 2.13 CUSIP NUMBERS.
The Company in issuing the Debentures may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Debentureholders; provided that any such
notice may state that no representation is made as to the correctness of such
numbers either as printed on the Debentures or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Debentures, and any such redemption shall not be
affected by any defect in or omission of such numbers. The Company will
promptly notify the Trustee of any change in the CUSIP numbers.
ARTICLE III
REDEMPTION OF DEBENTURES
SECTION 3.1 REDEMPTION.
Subject to the Company having received prior regulatory approval, if
then required under applicable capital guidelines or regulatory policies, the
Company may redeem the Debentures issued hereunder on and after the dates set
forth in and in accordance with the terms of this Article.
SECTION 3.2 SPECIAL EVENT REDEMPTION.
Subject to the Company having received prior regulatory approval, if
then required under applicable capital guidelines or regulatory policies, if a
Special Event has occurred and is continuing, then, notwithstanding SECTION
3.3, the Company shall have the right upon not less than 30 days nor more than
60 days notice to the holders of the Debentures to redeem the Debentures, in
whole but not in part, for cash within 180 days following the occurrence of
such Special Event (the "180-Day Period") at a redemption price equal to 100%
of the principal amount to be redeemed plus any accrued and unpaid interest
thereon to the date of such redemption (the "Redemption Price"), provided that
if at the time there is available to the Company the opportunity to eliminate,
within the 180-Day Period, a Tax Event by taking some ministerial action (a
"Ministerial Action"), such as filing a form or making an election, or pursuing
some other similar reasonable measure which has no adverse effect on the
Company, the Trust or the holders of the Trust Securities issued by the Trust,
the Company shall pursue such Ministerial Action in lieu of redemption, and,
provided further, that the Company shall have no right to redeem the Debentures
while the Trust is pursuing any Ministerial Action pursuant to its obligations
under the Trust Agreement. The Redemption Price shall be paid prior to 12:00
noon, New York City time, on the date of such redemption or such earlier time
as the Company determines, provided that the Company shall deposit with the
Trustee an amount sufficient to pay the Redemption Price by 10:00 a.m., New
York City time, on the date such Redemption Price is to be paid.
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SECTION 3.3 OPTIONAL REDEMPTION BY COMPANY.
Except as otherwise specified in this Indenture, the Company shall
have the right to redeem the Debentures, in whole or in part, from time to
time, on or after June 30, 2003, at a Redemption Price equal to 100% of the
principal amount to be redeemed plus any accrued and unpaid interest thereon to
the date of such redemption. Any redemption pursuant to this Section shall be
made upon not less than 30 days nor more than 60 days notice to the holder of
the Debentures, at the Redemption Price. If the Debentures are only partially
redeemed pursuant to this Section, the Debentures shall be redeemed pro rata or
by lot or in such other manner as the Trustee shall deem appropriate and fair
in its discretion. The Redemption Price shall be paid prior to 12:00 noon, New
York City time, on the date of such redemption or at such earlier time as the
Company determines provided that the Company shall deposit with the Trustee an
amount sufficient to pay the Redemption Price by 10:00 a.m., New York City
time, on the date such Redemption Price is to be paid.
SECTION 3.4 NOTICE OF REDEMPTION.
(a) The Company may exercise its right to redeem all or a portion
of the Debentures in accordance with this Section by giving or by causing the
Trustee to give, upon receipt of 45 days' written notice from the Company,
notice of such redemption to holders of the Debentures to be redeemed by
mailing, first class postage prepaid, a notice of such redemption not less than
30 days and not more than 60 days before the date fixed for redemption unless a
shorter period is specified in the Debentures to be redeemed to such holders at
their last addresses as they appear upon the Debenture Register. Any notice
that is mailed in the manner herein provided shall be conclusively presumed to
have been duly given, whether or not the registered holder receives the notice.
In any case, failure duly to give such notice to the holder of any Debenture
designated for redemption in whole or in part, or any defect in the notice,
shall not affect the validity of the proceedings for the redemption of any
other Debentures. In the case of any redemption of Debentures prior to the
expiration of any restriction on such redemption provided in the terms of such
Debentures or elsewhere in this Indenture, the Company shall furnish the
Trustee with an Officers' Certificate evidencing compliance with any such
restriction. Each such notice of redemption shall identify the Debenture to be
redeemed (including CUSIP numbers, if any) and shall specify the date fixed for
redemption and the Redemption Price and shall state that payment of the
Redemption Price shall be made at the office or agency of the Company or at the
Corporate Trust Office, upon presentation and surrender of such Debentures,
that interest accrued to the date fixed for redemption shall be paid as
specified in said notice and that from and after said date interest shall cease
to accrue. If less than all the Debentures are to be redeemed, the notice to
the holders of the Debentures shall specify the particular Debentures to be
redeemed. If the Debentures are to be redeemed in part only, the notice shall
state the portion of the principal amount thereof to be redeemed and shall
state that on and after the redemption date, upon surrender of such Debenture,
a new Debenture or Debentures in principal amount equal to the unredeemed
portion thereof shall be issued.
(b) If less than all the Debentures are to be redeemed, the
Company shall give the Trustee at least 45 days notice in advance of the date
fixed for redemption as to the aggregate principal amount of Debentures to be
redeemed, and thereupon the Trustee shall select, by lot or in such other
manner as it shall deem appropriate and fair in its discretion, the portion or
portions (equal to $10 or any integral multiple thereof) of the Debentures to
be redeemed and shall thereafter promptly notify the Company in writing of the
numbers of the Debentures to be redeemed, in whole or in part. The Company
may, if and whenever it shall so elect pursuant to the terms hereof, by
delivery of instructions signed on its behalf by its Chief Executive Officer,
its President or any Vice President, instruct the Trustee or any paying agent
to call all or any part of the Debentures for redemption and to give notice of
redemption in the manner set forth in this Section, such notice to be in the
name of the Company or its own name as the Trustee or such paying agent may
deem advisable.
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In any case in which notice of redemption is to be given by the Trustee or any
such paying agent, the Company shall deliver or cause to be delivered to, or
permit to remain with, the Trustee or such paying agent, as the case may be,
such Debenture Register, transfer books or other records, or suitable copies or
extracts therefrom, sufficient to enable the Trustee or such paying agent to
give any notice by mail that may be required under the provisions of this
Section.
SECTION 3.5 PAYMENT UPON REDEMPTION.
(a) If the giving of notice of redemption shall have been
completed as above provided, the Debentures or portions of Debentures to be
redeemed specified in such notice shall become due and payable on the date and
at the place stated in such notice at the applicable Redemption Price, and
interest on such Debentures or portions of Debentures shall cease to accrue on
and after the date fixed for redemption, unless the Company shall default in
the payment of such Redemption Price with respect to any such Debenture or
portion thereof. On presentation and surrender of such Debentures on or after
the date fixed for redemption at the place of payment specified in the notice,
said Debentures shall be paid and redeemed at the Redemption Price (but if the
date fixed for redemption is an interest payment date, the interest installment
payable on such date shall be payable to the registered holder at the close of
business on the applicable record date pursuant to SECTION 2.4).
(b) Upon presentation of any Debenture that is to be redeemed in
part only, the Company shall execute and the Trustee shall authenticate and the
office or agency where the Debenture is presented shall make available for
delivery to the holder thereof, at the expense of the Company, a new Debenture
of authorized denomination in principal amount equal to the unredeemed portion
of the Debenture so presented.
SECTION 3.6 NO SINKING FUND.
The Debentures are not entitled to the benefit of any sinking fund.
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1 EXTENSION OF INTEREST PAYMENT PERIOD.
So long as no Event of Default has occurred and is continuing, the
Company shall have the right, at any time and from time to time during the term
of the Debentures, to defer payments of interest by extending the interest
payment period of such Debentures for a period not exceeding 20 consecutive
quarters (the "Extended Interest Payment Period"), during which Extended
Interest Payment Period no interest shall be due and payable; provided that no
Extended Interest Payment Period may extend beyond the Maturity Date.
Interest, which has been deferred because of the extension of the interest
payment period pursuant to this Section, shall bear interest (to the extent
permitted under applicable law) thereon at the rate of ___% per annum,
compounded quarterly during the Extended Interest Payment Period (the
"Compounded Interest"). At the end of the Extended Interest Payment Period,
the Company shall calculate (and deliver such calculation to the Trustee) and
pay all interest accrued and unpaid on the Debentures, including any Additional
Interest and Compounded Interest (together, "Deferred Interest") that shall be
payable to the holders of the Debentures in whose names the Debentures are
registered in the Debenture Register on the first record date after the end of
the Extended Interest Payment Period. Before the termination of any Extended
Interest Payment Period, the Company may further extend such period, provided
that such period together with all such further extensions thereof shall not
exceed 20 consecutive quarters, or extend beyond the Maturity Date of the
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Debentures. Upon the termination of any Extended Interest Payment Period and
upon the payment of all Deferred Interest then due, the Company may commence a
new Extended Interest Payment Period, subject to the foregoing requirements.
No interest shall be due and payable during an Extended Interest Payment
Period, except at the end thereof, but the Company may prepay at any time all
or any portion of the interest accrued during an Extended Interest Payment
Period.
SECTION 4.2 NOTICE OF EXTENSION.
(a) If the Property Trustee is the only registered holder of the
Debentures at the time the Company selects an Extended Interest Payment Period,
the Company shall give written notice to the Administrative Trustees, the
Property Trustee and the Trustee of its selection of such Extended Interest
Payment Period one Business Day before the earlier of (i) the next succeeding
date on which Distributions on the Trust Securities issued by the Trust are
payable; or (ii) the date the Trust is required to give notice of the record
date or the date such Distributions are payable to The Nasdaq Stock Market's
National Market or other applicable self-regulatory organization or to holders
of the Preferred Securities issued by the Trust, but in any event at least one
Business Day before such record date.
(b) If the Property Trustee is not the only holder of the
Debentures at the time the Company selects an Extended Interest Payment Period,
the Company shall give the holders of the Debentures and the Trustee written
notice of its selection of such Extended Interest Payment Period at least one
Business Day before the earlier of (i) the next succeeding Interest Payment
Date; or (ii) the date the Company is required to give notice of the record or
payment date of such interest payment to The Nasdaq Stock Market's National
Market or other applicable self-regulatory organization or to holders of the
Debentures.
(c) The quarter in which any notice is given pursuant to
paragraphs (a) or (b) of this Section shall be counted as one of the 20
quarters permitted in the Extended Interest Payment Period permitted under
SECTION 4.1.
SECTION 4.3 LIMITATION ON TRANSACTIONS.
If (i) there shall have occurred and be continuing any Event of
Default; (ii) an Extended Interest Payment Period shall have been declared and
be continuing; or (iii) the Company is in default with respect to its
obligations under the Preferred Securities Guarantee, then (a) the Company
shall not, and shall not permit any Subsidiary to, declare or pay any dividends
or distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock (other than (1) the
reclassification of any class of the Company's capital stock into another class
of its capital stock; (2) dividends or distributions payable in any class of
the Company's common stock, (3) any declaration of a dividend in connection
with the implementation of a shareholder rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any
rights pursuant thereto, (4) payments under the Preferred Securities Guarantee
and (5) purchases of the Company's common stock related to the rights under any
of the Company's benefit plans for its or its subsidiaries' directors, officers
or employees); (b) the Company shall not, and shall not permit any Subsidiary
to, make any payment of principal of, or interest or premium, if any, on, or
repay, repurchase or redeem, any debt securities issued by the Company which
rank pari passu with or junior to the Debentures; (c) the Company shall not
make any guarantee payments with respect to any guarantee by the Company of the
debt securities of any Subsidiary of the Company if such guarantee ranks pari
passu with or junior to the Debentures; provided, however, that notwithstanding
the foregoing the Company may make payments pursuant to its obligations under
the Preferred Securities Guarantee; and (d) the Company shall not redeem,
purchase or acquire less than all of the outstanding Debentures or any of the
Preferred Securities.
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ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY
SECTION 5.1 PAYMENT OF PRINCIPAL AND INTEREST.
The Company shall duly and punctually pay or cause to be paid the
principal of and interest on the Debentures at the time and place and in the
manner provided herein.
SECTION 5.2 MAINTENANCE OF AGENCY.
So long as any of the Debentures remain Outstanding, the Company shall
maintain an office or agency in the Place of Payment where (i) Debentures may
be presented for payment; (ii) Debentures may be presented as hereinabove
authorized for registration of transfer and exchange; and (iii) notice and
demands to or upon the Company in respect of the Debentures and this Indenture
may be given or served, such designation to continue with respect to such
office or agency until the Company shall, by written notice signed by its Chief
Executive Officer, its President or a Vice President and delivered to the
Trustee, designate some other office or agency for such purposes or any of
them. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, notices and demands may be made or served at the Corporate
Trust Office of the Trustee, and the Company hereby appoints the Trustee as its
agent to receive all such presentations, notices and demands. In addition to
any such office or agency, the Company may from time to time designate one or
more offices or agencies where the Debentures may be presented for registration
or transfer and for exchange in the manner provided herein, and the Company may
from time to time rescind such designation as the Company may deem desirable or
expedient; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain any such office or
agency in the Place of Payment for such purposes. The Company shall give the
Trustee prompt written notice of any such designation or rescission thereof.
SECTION 5.3 PAYING AGENTS.
(a) If the Company shall appoint one or more paying agents for the
Debentures, other than the Trustee, the Company shall cause each such paying
agent to execute and deliver to the Trustee an instrument in which such agent
shall agree with the Trustee, subject to the provisions of this Section:
(i) that it shall hold all sums held by it as such agent
for the payment of the principal of or interest on the Debentures (whether such
sums have been paid to it by the Company or by any other obligor of such
Debentures) in trust for the benefit of the Persons entitled thereto;
(ii) that it shall give the Trustee prompt written notice
of any failure by the Company (or by any other obligor of such Debentures) to
make any payment of the principal of or interest on the Debentures when the
same shall be due and payable;
(iii) that it shall, at any time during the continuance of
any failure referred to in the preceding paragraph (a)(ii) above, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held
in trust by such paying agent; and
(iv) that it shall perform all other duties of paying
agent as set forth in this Indenture.
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(b) If the Company shall act as its own paying agent with respect
to the Debentures, it shall on or before each due date of the principal of or
interest on such Debentures, set aside, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay such principal
or interest so becoming due on Debentures until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and shall promptly notify
the Trustee of such action, or any failure (by it or any other obligor on such
Debentures) to take such action. Whenever the Company shall have one or more
paying agents for the Debentures, it shall, prior to each due date of the
principal of or interest on any Debentures, deposit with the paying agent a sum
sufficient to pay the principal or interest so becoming due, such sum to be
held in trust for the benefit of the Persons entitled to such principal or
interest, and (unless such paying agent is the Trustee) the Company shall
promptly notify the Trustee of this action or failure so to act.
(c) Notwithstanding anything in this Section to the contrary, (i)
the agreement to hold sums in trust as provided in this Section is subject to
the provisions of SECTION 13.3 and 13.4; and (ii) the Company may at any time,
for the purpose of obtaining the satisfaction and discharge of this Indenture
or for any other purpose, pay, or direct any paying agent to pay, to the
Trustee all sums held in trust by the Company or such paying agent, such sums
to be held by the Trustee upon the same terms and conditions as those upon
which such sums were held by the Company or such paying agent; and, upon such
payment by any paying agent to the Trustee, such paying agent shall be released
from all further liability with respect to such money.
SECTION 5.4 APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE.
The Company, whenever necessary to avoid or fill a vacancy in the
office of Trustee, shall appoint, in the manner provided in SECTION 9.10, a
Trustee, so that there shall at all times be a Trustee hereunder.
SECTION 5.5 COMPLIANCE WITH CONSOLIDATION PROVISIONS.
The Company shall not, while any of the Debentures remain outstanding,
consolidate with, or merge into, or merge into itself, or convey, transfer or
lease all or substantially all of its property and assets to any other entity
and no entity shall consolidate with or merge into the Company or convey,
transfer or lease substantially all of its properties and assets to the
Company, unless the provisions of ARTICLE XII hereof are complied with.
SECTION 5.6 LIMITATION ON TRANSACTIONS.
If Debentures are issued to the Trust or a trustee of the Trust in
connection with the issuance of Trust Securities by the Trust and (i) there
shall have occurred any event that would constitute an Event of Default; (ii)
the Company shall be in default with respect to its payment of any obligations
under the Preferred Securities Guarantee relating to the Trust; or (iii) the
Company shall have given notice of its election to defer payments of interest
on such Debentures by extending the interest payment period as provided in this
Indenture and such period, or any extension thereof, shall be continuing, then
(a) the Company may not, and may not permit any Subsidiary to, declare or pay
any dividend on, make any distributions with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock
(other than (1) the reclassification of any class of the Company's capital
stock into another class of capital stock, (2) dividends or distributions
payable in any class of the Company's common stock, (3) any declaration of a
dividend in connection with the implementation of a shareholder rights plan, or
the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (4) payments under the
Preferred Securities Guarantee and (5) purchases of the Company's common stock
related to the rights under any of the Company's benefit plans for its or its
subsidiaries' directors, officers or employees); (b) the
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Company shall not make any payment of interest, principal or premium, if any,
or repay, repurchase or redeem any debt securities issued by the Company which
rank pari passu with or junior to the Debentures; provided, however, that the
Company may make payments pursuant to its obligations under the Preferred
Securities Guarantee; and (c) the Company shall not redeem, purchase or acquire
less than all of the outstanding Debentures or any of the Preferred Securities.
SECTION 5.7 COVENANTS AS TO THE TRUST.
For so long as such Trust Securities of the Trust remain outstanding,
the Company shall (i) maintain 100% direct or indirect ownership of the Common
Securities of the Trust; provided, however, that any permitted successor of the
Company under this Indenture may succeed to the Company's ownership of the
Common Securities; (ii) not voluntarily terminate, wind up or liquidate the
Trust, except upon prior regulatory approval if then so required under
applicable capital guidelines or regulatory policies and use its reasonable
efforts to cause the Trust (a) to remain a business trust, except in connection
with a distribution of Debentures, the redemption of all of the Trust
Securities of the Trust or certain mergers, consolidations or amalgamations,
each as permitted by the Trust Agreement; and (b) to otherwise continue not to
be treated as an association taxable as a corporation or partnership for United
States federal income tax purposes; and (iii) use its reasonable efforts to
cause each holder of Trust Securities to be treated as owning an individual
beneficial interest in the Debentures. In connection with the distribution of
the Debentures to the holders of the Preferred Securities upon a Dissolution
Event, the Company shall use its best efforts to list such Debentures on The
Nasdaq Stock Market's National Market or on such other exchange as the
Preferred Securities are then listed.
SECTION 5.8 COVENANTS AS TO PURCHASES.
Prior to June 30, 2003, the Company shall not purchase any Debentures,
in whole or in part, from the Trust.
ARTICLE VI
DEBENTUREHOLDERS' LISTS AND REPORTS BY
THE COMPANY AND THE TRUSTEE
SECTION 6.1 COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
DEBENTUREHOLDERS.
The Company shall furnish or cause to be furnished to the Trustee (a)
within one Business Day after June 30 and December 31 of each year a list, in
such form as the Trustee may reasonably require, of the names and addresses of
the holders of the Debentures as of such regular record date, provided that the
Company shall not be obligated to furnish or cause to furnish such list at any
time that the list shall not differ in any respect from the most recent list
furnished to the Trustee by the Company; and (b) at such other times as the
Trustee may request in writing within 30 days after the receipt by the Company
of any such request, a list of similar form and content as of a date not more
than 15 days prior to the time such list is furnished; provided, however, that,
in either case, no such list need be furnished if the Trustee shall be the
Debenture Registrar.
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SECTION 6.2 PRESERVATION OF INFORMATION COMMUNICATIONS WITH
DEBENTUREHOLDERS.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses of the
holders of Debentures contained in the most recent list furnished to it as
provided in SECTION 6.1 and as to the names and addresses of holders of
Debentures received by the Trustee in its capacity as registrar for the
Debentures (if acting in such capacity).
(b) The Trustee may destroy any list furnished to it as provided
in SECTION 6.1 upon receipt of a new list so furnished.
(c) Debentureholders may communicate as provided in Section 312(b)
of the Trust Indenture Act with other Debentureholders with respect to their
rights under this Indenture or under the Debentures.
SECTION 6.3 REPORTS BY THE COMPANY.
(a) The Company covenants and agrees to file with the Trustee,
within 15 days after the Company is required to file the same with the
Commission, copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may from time to time by rules and regulations prescribe) that the
Company may be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act; or, if the Company is not required to file
information, documents or reports pursuant to either of such Sections, then to
file with the Trustee and the Commission, in accordance with the rules and
regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports that may be
required pursuant to Section 13 of the Exchange Act in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations.
(b) The Company covenants and agrees to file with the Trustee and
the Commission, in accordance with the rules and regulations prescribed from to
time by the Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants provided
for in this Indenture as may be required from time to time by such rules and
regulations.
(c) The Company covenants and agrees to transmit by mail, first
class postage prepaid, or reputable overnight delivery service that provides
for evidence of receipt, to the Debentureholders, as their names and addresses
appear upon the Debenture Register, within 30 days after the filing thereof
with the Trustee, such summaries of any information, documents and reports
required to be filed by the Company pursuant to subsections (a) and (b) of this
Section and delivered to Debentureholders or the Company's shareholders as may
be required by rules and regulations prescribed from time to time by the
Commission.
(d) Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein
or determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
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SECTION 6.4 REPORTS BY THE TRUSTEE.
(a) The Trustee shall transmit to Debentureholders such reports
concerning the Trustee and its actions under this Indenture as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant thereto. If required by Section 313(a) of the Trust Indenture Act,
the Trustee shall, within 60 days after each June 30 following the date of this
Indenture deliver to Debentureholders a brief report, dated as of such June 30,
which complies with the provisions of such Section 313(a).
(b) A copy of each such report shall, at the time of such
transmission to Debentureholders, be filed by the Trustee with each stock
exchange, if any, upon which the Debentures are listed with the Commission and
the Company shall promptly notify the Trustee when any Debentures become
listed on any stock exchange.
SECTION 6.5 STATEMENTS AS TO DEFAULT.
(a) The Company shall deliver to the Trustee annually, within 120
days after the end of each of its fiscal years, a certificate, from its
principal executive officer, principal financial officer or principal
accounting officer, stating whether or not to the best knowledge of the signer
thereof the Company is in compliance (without regard to periods of grace or
notice requirements) with all conditions and covenants under this Indenture,
and if the Company shall not be in compliance, specifying such non-compliance
and the nature and status thereof of which such signer may have knowledge.
(b) The Company shall deliver to the Trustee, as soon as possible
and in any event within five days after the Company becomes aware of the
occurrence of any Event of Default or an event which, with notice or the lapse
of time or both, would constitute an Event of Default, an Officers' Certificate
setting forth the details of such Event of Default or Default and the action
which the Company proposes to take with respect thereto.
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ARTICLE VII
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON EVENT OF DEFAULT
SECTION 7.1 EVENTS OF DEFAULT.
(a) Whenever used herein with respect to the Debentures, "Event of
Default" means any one or more of the following events that has occurred and is
continuing:
(i) the Company defaults in the payment of any
installment of interest (including Additional Interest or Compounded Interest,
if any) upon any of the Debentures, as and when the same shall become due and
payable, and continuance of such default for a period of 30 days; provided,
however, that a valid extension of an interest payment period by the Company in
accordance with the terms of this Indenture shall not constitute a default in
the payment of interest for this purpose;
(ii) the Company defaults in the payment of the principal
on the Debentures as and when the same shall become due and payable whether at
maturity, upon redemption, by declaration of acceleration of maturity or
otherwise;
(iii) the Company fails to observe or perform any other of
its covenants or agreements with respect to the Debentures for a period of 90
days after the date on which written notice of such failure, requiring the same
to be remedied and stating that such notice is a "Notice of Default" hereunder,
shall have been given to the Company by the Trustee, by registered or certified
mail, or to the Company and the Trustee, by registered or certified mail, by
the holders of at least 25% in aggregate principal amount of the Debentures at
the time Outstanding;
(iv) the Company pursuant to or within the meaning of any
Bankruptcy Law (i) commences a voluntary case; (ii) consents to the entry of an
order for relief against it in an involuntary case; (iii) consents to the
appointment of a Custodian of it or for all or substantially all of its
property; or (iv) makes a general assignment for the benefit of its creditors;
(v) a court of competent jurisdiction enters an order
under any Bankruptcy Law that (i) is for relief against the Company in an
involuntary case; (ii) appoints a Custodian of the Company for all or
substantially all of its property; or (iii) orders the liquidation of the
Company, and the order or decree remains unstayed and in effect for 60 days; or
(vi) the Trust shall have voluntarily or involuntarily
dissolved, wound-up its business or otherwise terminated its existence except
in connection with (i) the distribution of Debentures to holders of Trust
Securities in liquidation of their interests in the Trust; (ii) the redemption
of all of the outstanding Trust Securities of the Trust; or (iii) certain
mergers, consolidations or amalgamations, each as permitted by the Trust
Agreement.
(b) In each and every such case, unless the principal of all the
Debentures shall have already become due and payable, either the Trustee or the
holders of not less than 25% in aggregate principal amount of the Debentures
then Outstanding hereunder, by notice in writing to the Company (and to the
Trustee if given by such Debentureholders) may declare the principal of all the
Debentures to be due and payable immediately, and upon any such declaration the
same shall become and shall be immediately due and payable, notwithstanding
anything contained in this Indenture or in the Debentures.
(c) At any time after the principal of the Debentures shall have
been so declared due and payable, and before any judgment or decree for the
payment of the moneys due shall have been obtained or entered as hereinafter
provided, the holders of a majority in aggregate principal amount of the
Debentures then
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Outstanding hereunder, by written notice to the Company and the Trustee, may
rescind and annul such declaration and its consequences if: (i) the Company has
paid or deposited with the Trustee a sum sufficient to pay all matured
installments of interest (including Additional Interest and Compounded
Interest, if any) upon all the Debentures and the principal of any and all
Debentures that shall have become due otherwise than by acceleration (with
interest upon such principal, and upon overdue installments of interest, at the
rate per annum expressed in the Debentures to the date of such payment or
deposit) and the amount payable to the Trustee under SECTION 9.6; and (ii) any
and all Events of Default under this Indenture, other than the nonpayment of
principal on Debentures that shall not have become due by their terms, shall
have been remedied or waived as provided in SECTION 7.6. No such rescission
and annulment shall extend to or shall affect any subsequent default or impair
any right consequent thereon.
(d) In case the Trustee shall have proceeded to enforce any right
with respect to Debentures under this Indenture and such proceedings shall have
been discontinued or abandoned because of such rescission or annulment or for
any other reason or shall have been determined adversely to the Trustee, then
and in every such case the Company and the Trustee shall be restored
respectively to their former positions and rights hereunder, and all rights,
remedies and powers of the Company and the Trustee shall continue as though no
such proceedings had been taken.
SECTION 7.2 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
(a) The Company covenants that (i) if it defaults in the payment
of any installment of interest (including Additional Interest and Compounded
Interest) on any of the Debentures, and such default continues for a period of
90 Business Days; or (ii) if it defaults in the payment of the principal of any
of the Debentures when the same have become due and payable, whether upon
maturity of the Debentures or upon redemption or upon declaration or otherwise,
then, upon demand of the Trustee, the Company shall pay to the Trustee, for the
benefit of the holders of the Debentures, the whole amount that then has become
due and payable on all such Debentures for principal or interest, or both, as
the case may be, with interest upon the overdue principal and (if the
Debentures are held by the Trust or a trustee of the Trust, without duplication
of any other amounts paid by the Trust or trustee in respect thereof) upon
overdue installments of interest at the rate per annum expressed in the
Debentures; and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, and the amount
payable to the Trustee and its counsel under SECTION 9.7.
(b) If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any action or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or other obligor upon the
Debentures and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or other obligor upon
the Debentures, wherever situated.
(c) In case of any receivership, insolvency, liquidation,
bankruptcy, reorganization, readjustment, arrangement, composition or judicial
proceedings affecting the Company or the creditors or property of either, the
Trustee shall have power to intervene in such proceedings and take any action
therein that may be permitted by the court and shall (except as may be
otherwise provided by law) be entitled to file such proofs of claim and other
papers and documents as may be necessary or advisable in order to have the
claims of the Trustee and of the holders of the Debentures allowed for the
entire amount due and payable by the Company under this Indenture at the date
of institution of such proceedings and for any additional amount that may
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become due and payable by the Company after such date, and to collect and
receive any moneys or other property payable or deliverable on any such claim,
and to distribute the same after the deduction of the amount payable to the
Trustee and its counsel under SECTION 9.7; and any receiver, assignee or
trustee in bankruptcy or reorganization is hereby authorized by each of the
holders of the Debentures to make such payments to the Trustee, and, in the
event that the Trustee shall consent to the making of such payments directly to
such Debentureholders, to pay to the Trustee any amount due it under SECTION
9.7.
(d) All rights of action and of asserting claims under this
Indenture, or under any of the terms established with respect to Debentures,
may be enforced by the Trustee without the possession of any of such
Debentures, or the production thereof at any trial or other proceeding relating
thereto, and any such suit or proceeding instituted by the Trustee shall be
brought in its own name as trustee of an express trust, and any recovery of
judgment shall, after provision for payment to the Trustee of any amounts due
under SECTION 9.7, be for the ratable benefit of the holders of the Debentures.
In case of an Event of Default hereunder, the Trustee may in its discretion
proceed to protect and enforce the rights vested in it by this Indenture by
such appropriate judicial proceedings as the Trustee shall deem most effectual
to protect and enforce any of such rights, either at law or in equity or in
bankruptcy or otherwise, whether for the specific enforcement of any covenant
or agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law. Nothing contained herein
shall be deemed to authorize the Trustee to authorize or consent to or accept
or adopt on behalf of any Debentureholder any plan of reorganization,
arrangement, adjustment or composition affecting the Debentures or the rights
of any holder thereof or to authorize the Trustee to vote in respect of the
claim of any Debentureholder in any such proceeding.
SECTION 7.3 APPLICATION OF MONEYS COLLECTED.
Any moneys collected by the Trustee pursuant to this Article with
respect to the Debentures shall be applied in the following order, at the date
or dates fixed by the Trustee and, in case of the distribution of such moneys
on account of principal or interest, upon presentation of the Debentures, and
notation thereon the payment, if only partially paid, and upon surrender
thereof if fully paid:
FIRST: to the payment of costs and expenses of collection and
of all amounts payable to the Trustee under SECTION 9.7;
SECOND: to the payment of all Senior Indebtedness of the
Company if and to the extent required by ARTICLE XVI;
THIRD: to the payment of the amounts then due and unpaid upon
the Debentures for principal and interest, in respect of which
or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according
to the amounts due and payable on such Debentures for
principal and interest, respectively; and
FOURTH: any remaining balance to the Company.
SECTION 7.4 LIMITATION ON SUITS.
(a) No holder of any Debenture shall have any right by virtue of
any provision of this Indenture to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Indenture or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(i) such holder
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previously shall have given to the Trustee written notice of an Event of
Default and of the continuance thereof with respect to the Debentures
specifying such Event of Default, as hereinbefore provided; (ii) the holders of
not less than 25% in aggregate principal amount of the Debentures then
Outstanding shall have made written request upon the Trustee to institute such
action, suit or proceeding in its own name as trustee hereunder; (iii) such
holder or holders shall have offered to the Trustee such reasonable indemnity
as it may require against the costs, expenses and liabilities to be incurred
therein or thereby; and (iv) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity, shall have failed to institute any such
action, suit or proceeding; and (v) during such 60 day period, the holders of a
majority in principal amount of the Debentures do not give the Trustee a
direction inconsistent with the request.
(b) Notwithstanding anything contained herein to the contrary or
any other provisions of this Indenture, the right of any holder of the
Debentures to receive payment of the principal of and interest on the
Debentures, as therein provided, on or after the respective due dates expressed
in such Debenture (or in the case of redemption, on the redemption date), or to
institute suit for the enforcement of any such payment on or after such
respective dates or redemption date, shall not be impaired or affected without
the consent of such holder and by accepting a Debenture hereunder it is
expressly understood, intended and covenanted by the taker and holder of every
Debenture with every other such taker and holder and the Trustee, that no one
or more holders of Debentures shall have any right in any manner whatsoever by
virtue of any provision of this Indenture to affect, disturb or prejudice the
rights of the holders of any other of such Debentures, or to obtain or seek to
obtain priority over or preference to any other such holder, or to enforce any
right under this Indenture, except in the manner herein provided and for the
ratable and common benefit of all holders of Debentures. For the protection
and enforcement of the provisions of this Section, each and every
Debentureholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity.
SECTION 7.5 RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER.
(a) Except as otherwise provided in SECTION 2.8, all powers and
remedies given by this Article to the Trustee or to the Debentureholders shall,
to the extent permitted by law, be deemed cumulative and not exclusive of any
other powers and remedies available to the Trustee or the holders of the
Debentures, by judicial proceedings or otherwise, to enforce the performance or
observance of the covenants and agreements contained in this Indenture or
otherwise established with respect to such Debentures.
(b) No delay or omission of the Trustee or of any holder of any of
the Debentures to exercise any right or power accruing upon any Event of
Default occurring and continuing as aforesaid shall impair any such right or
power, or shall be construed to be a waiver of any such default or an
acquiescence therein; and, subject to the provisions of SECTION 7.4, every
power and remedy given by this Article or by law to the Trustee or the
Debentureholders may be exercised from time to time, and as often as shall be
deemed expedient, by the Trustee or by the Debentureholders, as appropriate.
SECTION 7.6 CONTROL BY DEBENTUREHOLDERS.
The holders of a majority in aggregate principal amount of the
Debentures at the time Outstanding, determined in accordance with SECTION 10.4,
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee; provided, however, that such direction shall
not be in conflict with any rule of law or with this Indenture. Subject to the
provisions of SECTION 9.1, the Trustee shall have the right to decline to
follow any such direction if the Trustee in good faith shall, by a Responsible
Officer or Officers of the Trustee, determine that the proceeding so directed
would involve the Trustee in personal liability. The holders of a majority in
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aggregate principal amount of the Debentures at the time Outstanding affected
thereby, determined in accordance with SECTION 10.4, may on behalf of the
holders of all of the Debentures waive any past default in the performance of
any of the covenants contained herein and its consequences, except (i) a
default in the payment of the principal of or interest on, any of the
Debentures as and when the same shall become due by the terms of such
Debentures otherwise than by acceleration (unless such default has been cured
and a sum sufficient to pay all matured installments of interest and principal
has been deposited with the Trustee (in accordance with SECTION 7.1(C)); (ii) a
default in the covenants contained in SECTION 5.6; or (iii) in respect of a
covenant or provision hereof which cannot be modified or amended without the
consent of the holder of each Outstanding Debenture affected; provided,
however, that if the Debentures are held by the Trust or a trustee of the
Trust, such waiver or modification to such waiver shall not be effective until
the holders of a majority in liquidation preference of Trust Securities of the
Trust shall have consented to such waiver or modification to such waiver;
provided further, that if the consent of the holder of each Outstanding
Debenture is required, such waiver shall not be effective until each holder of
the Trust Securities of the Trust shall have consented to such waiver. Upon
any such waiver, the default covered thereby shall be deemed to be cured for
all purposes of this Indenture and the Company, the Trustee and the holders of
the Debentures shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 7.7 UNDERTAKING TO PAY COSTS.
All parties to this Indenture agree, and each holder of any Debentures
by such holder's acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for
any action taken or omitted by it as Trustee, the filing by any party litigant
in such suit of an undertaking to pay the costs of such suit, and that such
court may in its discretion assess reasonable costs, including reasonable
attorneys' fees and expenses, 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 Debentureholder, or
group of Debentureholders holding more than 10% in aggregate principal amount
of the Outstanding Debentures, or to any suit instituted by any Debentureholder
for the enforcement of the payment of the principal of or interest on the
Debentures, on or after the respective due dates expressed in such Debenture or
established pursuant to this Indenture.
SECTION 7.8 DIRECT ACTION BY HOLDERS OF PREFERRED SECURITIES.
Any registered holder of the Preferred Securities shall have the
right, upon the occurrence of an Event of Default described in SECTION
7.1(A)(I) or 7.1(A)(II), to institute a suit directly against the Company for
enforcement of payment to such holder of principal of and (subject to SECTIONS
2.3 and 4.1) interest (including any Additional Interest) on the Debentures
having a principal amount equal to the aggregate Liquidation Amount (as defined
in the Trust Agreement) of such Preferred Securities held by such holder. The
Company may not amend this Indenture to remove this right to institute a suit
directly against the Company without the prior consent of the holders of all
the Preferred Securities.
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ARTICLE VIII
FORM OF DEBENTURE AND ORIGINAL ISSUE
SECTION 8.1 FORM OF DEBENTURE.
The definitive Debenture and the Trustee's Certificate of
Authentication to be endorsed thereon are to be substantially in the forms
contained as EXHIBIT A attached hereto and incorporated herein by reference.
SECTION 8.2 ORIGINAL ISSUE OF DEBENTURES.
Debentures in the aggregate principal amount of up to $23,000,000 may,
upon execution of this Indenture, be executed by the Company and delivered to
the Trustee for authentication, and the Trustee shall thereupon authenticate
and make available for delivery said Debentures to or upon the written order of
the Company, signed by its Chairman, its Vice Chairman, its Chief Executive
Officer, its President, or any Vice President and its Treasurer or an Assistant
Treasurer, without any further action by the Company.
ARTICLE IX
CONCERNING THE TRUSTEE
SECTION 9.1 CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The Trustee, prior to the occurrence of an Event of Default
and after the curing of all Events of Default that may have occurred, shall
undertake to perform with respect to the Debentures such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants shall be read into this Indenture against the Trustee. In case an
Event of Default has occurred that has not been cured or waived, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture,
and use the same degree of care and skill in their exercise, as a prudent man
would exercise or use under the circumstances in the conduct of his own
affairs.
(b) No provision of this Indenture shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that:
(1) prior to the occurrence of an Event of Default and
after the curing or waiving of all Events of Default that may have occurred:
(i) the duties and obligations of the Trustee
shall, with respect to the Debentures, be determined solely by the express
provisions of this Indenture, and the Trustee shall not be liable with respect
to the Debentures except for the performance of such duties and obligations as
are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on the part of
the Trustee, the Trustee may with respect to the Debentures conclusively rely,
as to the truth of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but in the case of any such
certificates or opinions that by any provision hereof are specifically required
to be furnished to the Trustee, the Trustee shall be under a duty to examine
the same to determine whether or not they conform to the requirements of this
Indenture;
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(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer or Responsible Officers of
the Trustee, unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the holders of not less than a majority in principal amount of the
Debentures at the time outstanding relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee under this Indenture
with respect to the Debentures; and
(4) none of the provisions contained in this Indenture
shall require the Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if there is reasonable ground for
believing that the repayment of such funds or liability is not reasonably
assured to it under the terms of this Indenture or adequate indemnity against
such risk is not reasonably assured to it.
SECTION 9.2 NOTICE OF DEFAULTS.
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Debentures, the Trustee shall transmit by mail to all holders of the
Debentures, as their names and addresses appear in the Debenture Register,
notice of such default, unless such default shall have been cured or waived;
provided, however, that, except in the case of any default in the payment of
the principal or interest (including Additional Interest and Compounded
Interest, if any) on any Debenture, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of the directors and/or Responsible Officers of
the Trustee determines in good faith that the withholding of such notice is in
the interests of the holders of such Debentures; and provided, further, that in
the case of any default of the character specified in SECTION 7.1(A)(III), no
such notice to holders of Debentures need be sent until at least 30 days after
the occurrence thereof. For the purposes of this Section, the term "default"
means any event which is, or after notice or lapse of time or both, would
become, an Event of Default with respect to the Debentures.
SECTION 9.3 CERTAIN RIGHTS OF TRUSTEE.
Except as otherwise provided in SECTION 9.1:
(a) The Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
security or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(b) Any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by a Board Resolution or an
instrument signed in the name of the Company by the Chief Executive Officer,
the President or any Vice President and by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer thereof (unless other
evidence in respect thereof is specifically prescribed herein);
(c) The Trustee shall not be deemed to have knowledge of a default
or an Event of Default, other than an Event of Default specified in SECTION
7.1(A)(I) or (II), unless and until it receives notification of such
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Event of Default from the Company or from holders of at least 25% of the
aggregate principal amount of the Debentures at the time Outstanding;
(d) The Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or suffered or
omitted hereunder in good faith and in reliance thereon;
(e) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Debentureholders, pursuant to the provisions of this
Indenture, unless such Debentureholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby; nothing contained herein shall,
however, relieve the Trustee of the obligation, upon the occurrence of an Event
of Default (that has not been cured or waived) to exercise with respect to the
Debentures such of the rights and powers vested in it by this Indenture, and to
use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of his or her own
affairs;
(f) The Trustee shall not be liable for any action taken or
omitted to be taken by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Indenture;
(g) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
security or other papers or documents, but the Trustee in its discretion may
make such inquiry or investigation into such facts or matters as it may see
fit, and, if the Trustee shall determine to make such inquiry or investigation,
it shall be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney; and
(h) The Trustee may execute any of its trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
SECTION 9.4 TRUSTEE NOT RESPONSIBLE FOR RECITALS, ETC.
(a) The Recitals contained herein and in the Debentures, except
the certificates of authentication, shall be taken as the statements of the
Company and the Trustee assumes no responsibility for the correctness of the
same.
(b) The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Debentures.
(c) The Trustee shall not be accountable for the use or
application by the Company of any of the Debentures or of the proceeds of such
Debentures, or for the use or application of any moneys paid over by the
Trustee in accordance with any provision of this Indenture, or for the use or
application of any moneys received by any paying agent other than the Trustee.
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SECTION 9.5 MAY HOLD DEBENTURES.
The Trustee or any paying agent or registrar for the Debentures, in
its individual or any other capacity, may become the owner or pledgee of
Debentures and, subject to SECTIONS 9.9 and 9.14, may otherwise deal with the
Company with the same rights it would have if it were not Trustee, paying agent
or Debenture Registrar.
SECTION 9.6 MONEYS HELD IN TRUST.
Subject to the provisions of SECTION 13.5, all moneys received by the
Trustee shall, until used or applied as herein provided, be held in trust for
the purposes for which they were received, but need not be segregated from
other funds except to the extent required by law. The Trustee shall have no
liability for interest on any moneys received by it hereunder except such as it
may agree in writing with the Company to pay thereon.
SECTION 9.7 COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(i) to pay to the Trustee from time to time such compensation as
the Company and the Trustee shall from time to time agree in writing 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);
(ii) 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 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
(iii) to indemnify each of the Trustee or any predecessor Trustee
and their agents for, and to hold them harmless against, any and all loss,
damage, claims, liability or expense, including taxes (other than taxes based
upon, measured by or determined by the income of the Trustee), arising out of
or in connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder, except to the extent that such loss, damage, claim,
liability or expense is due to its own negligence or bad faith.
The Trustee shall have a lien prior to the Debentures as to all
property and funds held by it hereunder for any amount owing it or any
predecessor Trustee pursuant to this Section, except with respect to funds held
in trust for the benefit of the holders of particular Debentures. When the
Trustee incurs expenses or renders services in connection with an Event of
Default specified in SECTION 7.1(A)(IV), SECTION 7.1(A)(V) or 7.1(A)(VI), the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Bankruptcy Law.
The provisions of this Section shall survive the termination of this
Indenture.
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SECTION 9.8 RELIANCE ON OFFICERS' CERTIFICATE.
Except as otherwise provided in SECTION 9.1, whenever in the
administration of the provisions of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking
or suffering or omitting to take any action hereunder, such matter (unless
other evidence in respect thereof be herein specifically prescribed) may, in
the absence of negligence or bad faith on the part of the Trustee, be deemed to
be conclusively proved and established by an Officers' Certificate delivered to
the Trustee and such certificate, in the absence of negligence or bad faith on
the part of the Trustee, shall be full warrant to the Trustee for any action
taken, suffered or omitted to be taken by it under the provisions of this
Indenture upon the faith thereof.
SECTION 9.9 DISQUALIFICATION: CONFLICTING INTERESTS.
If the Trustee has or shall acquire any "conflicting interest" within
the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the
Company shall in all respects comply with the provisions of Section 310(b) of
the Trust Indenture Act.
SECTION 9.10 CORPORATE TRUSTEE REQUIRED ELIGIBILITY.
There shall at all times be a Trustee with respect to the Debentures
issued hereunder which shall at all times be a corporation organized and doing
business under the laws of the United States of America or any State or
Territory thereof or of the District of Columbia or a corporation or other
Person permitted to act as trustee by the Commission, authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least $50,000,000, and subject to supervision or examination by federal,
state, territorial, or District of Columbia authority. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. The Company may not, nor may any
Person directly or indirectly controlling, controlled by, or under common
control with the Company, serve as Trustee. In case at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section,
the Trustee shall resign immediately in the manner and with the effect
specified in SECTION 9.11.
SECTION 9.11 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) The Trustee or any successor hereafter appointed, may at any
time resign by giving written notice thereof to the Company and by transmitting
notice of resignation by mail, first class postage prepaid, to the
Debentureholders, as their names and addresses appear upon the Debenture
Register. Upon receiving such notice of resignation, the Company shall
promptly appoint a successor trustee with respect to Debentures by written
instrument, in duplicate, executed by order of the Board of Directors, one copy
of which instrument shall be delivered to the resigning Trustee and one copy to
the successor trustee. If no successor trustee shall have been so appointed
and have accepted appointment within 30 days after the mailing of such notice
of resignation, the resigning Trustee may petition at the expense of the
Company any court of competent jurisdiction for the appointment of a successor
trustee with respect to the Debentures, or any Debentureholder who has been a
bona fide holder of a Debenture or Debentures for at least six months may,
subject to the provisions of SECTION 9.9, on behalf of himself and all others
similarly situated, petition any such court for the appointment of a successor
trustee. Such court may thereupon after such notice, if any, as it may deem
proper, appoint a successor trustee.
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(b) In case at any time any one of the following shall occur
(i) the Trustee shall fail to comply with the provisions
of SECTION 9.9 after written request therefor by the Company or by any
Debentureholder who has been a bona fide holder of a Debenture or Debentures
for at least six months;
(ii) the Trustee shall cease to be eligible in accordance
with the provisions of SECTION 9.10 and shall fail to resign after written
request therefor by the Company or by any such Debentureholder; or
(iii) the Trustee shall become incapable of acting, or
shall be adjudged bankrupt or insolvent, or commence a voluntary bankruptcy
proceeding, or a receiver of the Trustee or of its property shall be appointed
or consented to, or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, the Company may remove the Trustee with
respect to all Debentures and appoint a successor trustee by written
instrument, in duplicate, executed by order of the Board of Directors, one copy
of which instrument shall be delivered to the Trustee so removed and one copy
to the successor trustee, or, subject to the provisions of SECTION 9.9, unless
the Trustee's duty to resign is stayed as provided herein, any Debentureholder
who has been a bona fide holder of a Debenture or Debentures for at least six
months may, on behalf of that holder and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor trustee. Such court may thereupon, after such
notice, if any, as it may deem proper, remove the Trustee and appoint a
successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Debentures at the time Outstanding may at any time remove the Trustee by so
notifying the Trustee and the Company and may appoint a successor Trustee with
the consent of the Company. If no successor trustee shall have been so
appointed and have accepted appointment within 30 days after such notification,
the Trustee may petition at the expense of the Company any court of competent
jurisdiction for the appointment of a successor trustee with respect to
Debentures, or any Debentureholder who has been a bona fide holder of a
Debenture or Debentures for at least six months may, subject to the provisions
of SECTION 9.9, on behalf of himself and all others similarly situated,
petition any such court for the appointment of a successor trustee. Such court
may appoint a successor trustee.
(d) No resignation or removal of the Trustee and no appointment of
a successor trustee with respect to the Debentures pursuant to any of the
provisions of this Section shall become effective until acceptance of
appointment by the successor trustee as provided in SECTION 9.12.
SECTION 9.12 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor trustee
with respect to the Debentures, every successor trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on the request
of the Company or the successor trustee, such retiring Trustee shall, upon
payment of its charges, execute and deliver an instrument transferring to such
successor trustee all the rights, powers, and trusts of the retiring
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Trustee and shall duly assign, transfer and deliver to such successor trustee
all property and money held by such retiring Trustee hereunder.
(b) Upon request of any successor trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor trustee all such rights, powers and trusts
referred to in paragraph (a) of this Section.
(c) No successor trustee may accept its appointment unless at the
time of such acceptance such successor trustee shall be qualified and eligible
under this Article.
(d) Upon acceptance of appointment by a successor trustee as
provided in this Section, the Company shall transmit notice of the succession
of such trustee hereunder by mail, first class postage prepaid, to the
Debentureholders, as their names and addresses appear upon the Debenture
Register. If the Company fails to transmit such notice within ten days after
acceptance of appointment by the successor trustee, the successor trustee shall
cause such notice to be transmitted at the expense of the Company.
SECTION 9.13 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided that such corporation shall be qualified under the provisions of
SECTION 9.9 and eligible under the provisions of SECTION 9.10, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding. In case any
Debentures shall have been authenticated, but not delivered, by the Trustee
then in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the Debentures
so authenticated with the same effect as if such successor Trustee had itself
authenticated such Debentures.
SECTION 9.14 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with Section 311(a) of the Trust Indenture
Act, excluding any creditor relationship described in Section 311(b) of the
Trust Indenture Act. A Trustee who has resigned or been removed shall be
subject to Section 311(a) of the Trust Indenture Act to the extent included
therein.
ARTICLE X
CONCERNING THE DEBENTUREHOLDERS
SECTION 10.1 EVIDENCE OF ACTION BY HOLDERS.
(a) Whenever in this Indenture it is provided that the holders of
a majority or specified percentage in aggregate principal amount of the
Debentures may take any action (including the making of any demand or request,
the giving of any notice, consent or waiver or the taking of any other action),
the fact that at the time of taking any such action the holders of such
majority or specified percentage have joined therein may be evidenced by any
instrument or any number of instruments of similar tenor executed by such
holders of Debentures in Person or by agent or proxy appointed in writing.
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(b) If the Company shall solicit from the Debentureholders any
request, demand, authorization, direction, notice, consent, waiver or other
action, the Company may, at its option, as evidenced by an Officers'
Certificate, fix in advance a record date for the determination of
Debentureholders entitled to give such request, demand, authorization,
direction, notice, consent, waiver or other action, but the Company shall have
no obligation to do so. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other action may be given
before or after the record date, but only the Debentureholders of record at the
close of business on the record date shall be computed to be Debentureholders
for the purposes of determining whether Debentureholders of the requisite
proportion of Outstanding Debentures have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or
other action, and for that purpose the Outstanding Debentures shall be computed
as of the record date; provided, however, that no such authorization, agreement
or consent by such Debentureholders on the record date shall be deemed
effective unless it shall become effective pursuant to the provisions of this
Indenture not later than six months after the record date.
SECTION 10.2 PROOF OF EXECUTION BY DEBENTUREHOLDERS.
Subject to the provisions of SECTION 9.1, proof of the execution of
any instrument by a Debentureholder (such proof shall not require notarization)
or its agent or proxy and proof of the holding by any Person of any of the
Debentures shall be sufficient if made in the following manner:
(a) The fact and date of the execution by any such Person of any
instrument may be proved in any reasonable manner acceptable to the Trustee.
(b) The ownership of Debentures shall be proved by the Debenture
Register of such Debentures or by a certificate of the Debenture Registrar
thereof.
(c) The Trustee may require such additional proof of any matter
referred to in this Section as it shall deem necessary.
SECTION 10.3 WHO MAY BE DEEMED OWNERS.
Prior to the due presentment for registration of transfer of any
Debenture, the Company, the Trustee, any paying agent, any Authenticating Agent
and any Debenture Registrar may deem and treat the Person in whose name such
Debenture shall be registered upon the books of the Company as the absolute
owner of such Debenture (whether or not such Debenture shall be overdue and
notwithstanding any notice of ownership or writing thereon made by anyone other
than the Debenture Registrar) for the purpose of receiving payment of or on
account of the principal of and interest on such Debenture (subject to SECTION
2.3) and for all other purposes; and neither the Company, the Trustee, any
paying agent, any Authenticating Agent or any Debenture Registrar shall be
affected by any notice to the contrary.
SECTION 10.4 CERTAIN DEBENTURES OWNED BY COMPANY DISREGARDED.
In determining whether the holders of the requisite aggregate
principal amount of Debentures have concurred in any direction, consent or
waiver under this Indenture, the Debentures that are owned by the Company or
any other obligor on the Debentures or by any Person directly or indirectly
controlling or controlled by, or under common control with the Company or any
other obligor on the Debentures shall be disregarded and deemed not to be
Outstanding for the purpose of any such determination, except that for the
purpose of determining whether the Trustee shall be protected in relying on any
such direction, consent or
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waiver, only Debentures that a Responsible Officer of the Trustee actually
knows are so owned shall be so disregarded. The Debentures so owned that have
been pledged in good faith may be regarded as Outstanding for the purposes of
this Section, if the pledgee shall establish to the satisfaction of the Trustee
the pledgee's right so to act with respect to such Debentures and that the
pledgee is not a Person directly or indirectly controlling or controlled by, or
under direct or indirect common control with the Company or any such other
obligor. In case of a dispute as to such right, any decision by the Trustee
taken upon the advice of counsel shall be fully protected.
SECTION 10.5 ACTIONS BINDING ON FUTURE DEBENTUREHOLDERS.
At any time prior to (but not after) the evidencing to the Trustee, as
provided in SECTION 10.1, of the taking of any action by the holders of the
majority or percentage in aggregate principal amount of the Debentures
specified in this Indenture in connection with such action, any holder of a
Debenture that is shown by the evidence to be included in the Debentures the
holders of which have consented to such action may, by filing written notice
with the Trustee, and upon proof of holding as provided in SECTION 10.2, revoke
such action so far as concerns such Debenture. Except as aforesaid any such
action taken by the holder of any Debenture shall be conclusive and binding
upon such holder and upon all future holders and owners of such Debenture, and
of any Debenture issued in exchange therefor, on registration of transfer
thereof or in place thereof, irrespective of whether or not any notation in
regard thereto is made upon such Debenture. Any action taken by the holders of
the majority or percentage in aggregate principal amount of the Debentures
specified in this Indenture in connection with such action shall be
conclusively binding upon the Company, the Trustee and the holders of all the
Debentures.
ARTICLE XI
SUPPLEMENTAL INDENTURES
SECTION 11.1 SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF
DEBENTUREHOLDERS.
In addition to any supplemental indenture otherwise authorized by this
Indenture, the Company and the Trustee may from time to time and at any time
enter into an indenture or indentures supplemental hereto (which shall conform
to the provisions of the Trust Indenture Act as then in effect), without the
consent of the Debentureholders, for one or more of the following purposes:
(a) to cure any ambiguity, defect or inconsistency herein or in
the Debentures;
(b) to comply with ARTICLE X;
(c) to provide for uncertificated Debentures in addition to or in
place of certificated Debentures;
(d) to add to the covenants of the Company for the benefit of the
holders of all or any of the Debentures or to surrender any right or power
herein conferred upon the Company;
(e) to evidence the succession of another corporation to the
Company, and the assumption by any such successor of the covenants of the
Company herein and in the Debentures contained;
(f) to convey, transfer, assign, mortgage or pledge to or with the
Trustee any property or assets which the Company may desire to convey,
transfer, assign, mortgage or pledge;
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(g) to add to, delete from, or revise the conditions, limitations,
and restrictions on the authorized amount, terms, or purposes of issue,
authentication and delivery of Debentures, as herein set forth;
(h) to make any change that does not adversely affect the rights
of any Debentureholder in any material respect;
(i) to provide for the issuance of and establish the form and
terms and conditions of the Debentures, to establish the form of any
certifications required to be furnished pursuant to the terms of this Indenture
or of the Debentures or to add to the rights of the holders of the Debentures;
or
(j) to qualify or maintain the qualification of this Indenture
under the Trust Indenture Act.
The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into any such supplemental indenture
that affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise. Any supplemental indenture authorized by the
provisions of this Section may be executed by the Company and the Trustee
without the consent of the holders of any of the Debentures at the time
Outstanding, notwithstanding any of the provisions of SECTION 11.2.
SECTION 11.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF DEBENTUREHOLDERS.
With the consent (evidenced as provided in SECTION 10.1) of the
holders of not less than a majority in aggregate principal amount of the
Debentures at the time Outstanding, the Company, when authorized by Board
Resolutions, and the Trustee may from time to time and at any time enter into
an indenture or indentures supplemental hereto (which shall conform to the
provisions of the Trust Indenture Act as then in effect) for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of any supplemental indenture or of modifying
in any manner not covered by SECTION 11.1 the rights of the holders of the
Debentures under this Indenture; provided, however, that no such supplemental
indenture shall without the consent of the holders of each Debenture then
Outstanding and affected thereby, (i) extend the fixed maturity of any
Debentures, reduce the principal amount thereof or reduce the rate or extend
the time of payment of interest thereon (other than the Company's right to
defer interest pursuant to this Indenture); or (ii) reduce the aforesaid
percentage of Debentures, the holders of which are required to consent to any
such supplemental indenture; provided further, that if the Debentures are held
by the Trust or a trustee of the Trust, such supplemental indenture shall not
be effective until the holders of a majority in liquidation preference of Trust
Securities of the Trust shall have consented to such supplemental indenture;
provided further, that if the consent of the holder of each Outstanding
Debenture is required, such supplemental indenture shall not be effective until
each holder of the Trust Securities of the Trust shall have consented to such
supplemental indenture. It shall not be necessary for the consent of the
Debentureholders affected thereby under this Section to approve the particular
form of any proposed supplemental indenture, but it shall be sufficient if such
consent shall approve the substance thereof.
SECTION 11.3 EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture pursuant to the
provisions of this Article, this Indenture shall be and be deemed to be
modified and amended in accordance therewith and the respective rights,
limitations of rights, obligations, duties and immunities under this Indenture
of the Trustee, the Company and the holders of Debentures shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
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supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 11.4 DEBENTURES AFFECTED BY SUPPLEMENTAL INDENTURES.
Debentures affected by a supplemental indenture, authenticated and
delivered after the execution of such supplemental indenture pursuant to the
provisions of this Article, may bear a notation in form approved by the
Company, provided such form meets the requirements of any exchange upon which
the Debentures may be listed, as to any matter provided for in such
supplemental indenture. If the Company shall so determine, new Debentures so
modified as to conform, in the opinion of the Board of Directors of the
Company, to any modification of this Indenture contained in any such
supplemental indenture may be prepared by the Company, authenticated by the
Trustee and delivered in exchange for the Debentures then Outstanding.
SECTION 11.5 EXECUTION OF SUPPLEMENTAL INDENTURES.
(a) Upon the request of the Company, accompanied by their Board
Resolutions authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of Debentureholders
required to consent thereto as aforesaid, the Trustee shall join with the
Company in the execution of such supplemental indenture unless such
supplemental indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion but shall not be obligated to enter into such supplemental
indenture. The Trustee, subject to the provisions of SECTION 9.1, may receive
an Opinion of Counsel as conclusive evidence that any supplemental indenture
executed pursuant to this Article is authorized or permitted by, and conforms
to, the terms of this Article and that it is proper for the Trustee under the
provisions of this Article to join in the execution thereof.
(b) Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of this Section, the
Trustee shall transmit by mail, first class postage prepaid, a notice, setting
forth in general terms the substance of such supplemental indenture, to the
Debentureholders as their names and addresses appear upon the Debenture
Register. Any failure of the Trustee to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such supplemental indenture.
ARTICLE XII
SUCCESSOR CORPORATION
SECTION 12.1 COMPANY MAY CONSOLIDATE, ETC.
Nothing contained in this Indenture or in any of the Debentures shall
prevent any consolidation or merger of the Company with or into any other
corporation or corporations (whether or not affiliated with the Company, as the
case may be), or successive consolidations or mergers in which the Company, as
the case may be, or its successor or successors shall be a party or parties, or
shall prevent any sale, conveyance, transfer or other disposition of the
property of the Company, as the case may be, or its successor or successors as
an entirety, or substantially as an entirety, to any other corporation (whether
or not affiliated with the Company, as the case may be, or its successor or
successors) authorized to acquire and operate the same; provided, however, the
Company hereby covenants and agrees that, (i) upon any such consolidation,
merger, sale, conveyance, transfer or other disposition, the due and punctual
payment, in the case of the Company, of the principal of and interest on all of
the Debentures, according to their tenor and the due and punctual performance
and observance of all the covenants and conditions of this Indenture to be kept
or performed by
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the Company as the case may be, shall be expressly assumed, by supplemental
indenture (which shall conform to the provisions of the Trust Indenture Act, as
then in effect) satisfactory in form to the Trustee executed and delivered to
the Trustee by the entity formed by such consolidation, or into which the
Company, as the case may be, shall have been merged, or by the entity which
shall have acquired such property; (ii) in case the Company consolidates with
or merges into another Person or conveys or transfers its properties and assets
substantially then as an entirety to any Person, the successor Person is
organized under the laws of the United States or any state or the District of
Columbia; and (iii) immediately after giving effect thereto, no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have occurred and be continuing.
SECTION 12.2 SUCCESSOR CORPORATION SUBSTITUTED.
(a) In case of any such consolidation, merger, sale, conveyance,
transfer or other disposition and upon the assumption by the successor
corporation, by supplemental indenture, executed and delivered to the Trustee
and satisfactory in form to the Trustee, of, in the case of the Company, the
due and punctual payment of the principal of and interest on all of the
Debentures Outstanding and the due and punctual performance of all of the
covenants and conditions of this Indenture to be performed by the Company, as
the case may be, such successor corporation shall succeed to and be substituted
for the Company, with the same effect as if it had been named as the Company
herein, and thereupon the predecessor corporation shall be relieved of all
obligations and covenants under this Indenture and the Debentures.
(b) In case of any such consolidation, merger, sale, conveyance,
transfer or other disposition such changes in phraseology and form (but not in
substance) may be made in the Debentures thereafter to be issued as may be
appropriate.
(c) Nothing contained in this Indenture or in any of the
Debentures shall prevent the Company from merging into itself or acquiring by
purchase or otherwise all or any part of the property of any other Person
(whether or not affiliated with the Company).
SECTION 12.3 EVIDENCE OF CONSOLIDATION, ETC. TO TRUSTEE.
The Trustee, subject to the provisions of SECTION 9.1, may obtain an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale, conveyance, transfer or other disposition, and any such assumption,
comply with the provisions of this Article.
ARTICLE XIII
SATISFACTION AND DISCHARGE
SECTION 13.1 SATISFACTION AND DISCHARGE OF INDENTURE.
If at any time: (a) the Company shall have delivered to the Trustee
for cancellation all Debentures theretofore authenticated (other than any
Debentures that shall have been destroyed, lost or stolen and that shall have
been replaced or paid as provided in SECTION 2.8) and Debentures for whose
payment money or Governmental Obligations have theretofore been deposited in
trust or segregated and held in trust by the Company (and thereupon repaid to
the Company or discharged from such trust, as provided in SECTION 13.5); or (b)
all such Debentures not theretofore delivered to the Trustee for cancellation
shall have become due and payable, or are by their terms to become due and
payable within one year or are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of notice of
redemption, and the
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Company shall deposit or cause to be deposited with the Trustee as trust funds
the entire amount in moneys or Governmental Obligations, or a combination
thereof, sufficient in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay at maturity or upon redemption all Debentures
not theretofore delivered to the Trustee for cancellation, including principal
and interest due or to become due to such date of maturity or date fixed for
redemption, as the case may be, and if the Company shall also pay or cause to
be paid all other sums payable hereunder by the Company; then this Indenture
shall thereupon cease to be of further effect except for the provisions of
SECTIONS 2.3, 2.6, 2.8, 5.1, 5.2, 5.3 and 9.10, that shall survive until the
date of maturity or redemption date, as the case may be, and SECTIONS 9.7 and
13.5, that shall survive to such date and thereafter, and the Trustee, on
demand of the Company and at the cost and expense of the Company, shall execute
proper instruments acknowledging satisfaction of and discharging this
Indenture.
SECTION 13.2 DISCHARGE OF OBLIGATIONS.
If at any time all Debentures not heretofore delivered to the Trustee
for cancellation or that have not become due and payable as described in
SECTION 13.1 shall have been paid by the Company by depositing irrevocably with
the Trustee as trust funds moneys or an amount of Governmental Obligations
sufficient to pay at maturity or upon redemption all Debentures not theretofore
delivered to the Trustee for cancellation, including principal and interest due
or to become due to such date of maturity or date fixed for redemption, as the
case may be, and if the Company shall also pay or cause to be paid all other
sums payable hereunder by the Company, then after the date such moneys or
Governmental Obligations, as the case may be, are deposited with the Trustee,
the obligations of the Company under this Indenture shall cease to be of
further effect except for the provisions of SECTIONS 2.3, 2.6, 2.8, 5.1, 5.2,
5.3, 9.7, 9.10 and 13.5 hereof that shall survive until such Debentures shall
mature and be paid. Thereafter, SECTIONS 9.7 and 13.5 shall survive.
SECTION 13.3 DEPOSITED MONEYS TO BE HELD IN TRUST.
All moneys or Governmental Obligations deposited with the Trustee
pursuant to SECTIONS 13.1 or 13.2 shall be held in trust and shall be available
for payment as due, either directly or through any paying agent (including the
Company acting as its own paying agent), to the holders of the Debentures for
the payment or redemption of which such moneys or Governmental Obligations have
been deposited with the Trustee.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the Government Obligations
deposited pursuant to SECTION 13.1 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is
for the account of the holders of Outstanding Debentures.
SECTION 13.4 PAYMENT OF MONEYS HELD BY PAYING AGENTS.
In connection with the satisfaction and discharge of this Indenture,
all moneys or Governmental Obligations then held by any paying agent under the
provisions of this Indenture shall, upon demand of the Company, be paid to the
Trustee and thereupon such paying agent shall be released from all further
liability with respect to such moneys or Governmental Obligations.
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SECTION 13.5 REPAYMENT TO COMPANY.
Any moneys or Governmental Obligations deposited with any paying agent
or the Trustee, or then held by the Company in trust, for payment of principal
of or interest on the Debentures that are not applied but remain unclaimed by
the holders of such Debentures for at least two years after the date upon which
the principal of or interest on such Debentures shall have respectively become
due and payable, shall be repaid to the Company, as the case may be, on June 30
of each year or (if then held by the Company) shall be discharged from such
trust; and thereupon the paying agent and the Trustee shall be released from
all further liability, with respect to such moneys or Governmental Obligations,
and the holder of any of the Debentures entitled to receive such payment shall
thereafter, as an unsecured general creditor, look only to the Company for the
payment thereof.
ARTICLE XIV
IMMUNITY OF INCORPORATORS, SHAREHOLDERS,
OFFICERS AND DIRECTORS
SECTION 14.1 NO RECOURSE.
No recourse under or upon any obligation, covenant or agreement of
this Indenture, or of the Debentures, or for any claim based thereon or
otherwise in respect thereof, shall be had against any incorporator,
shareholder, officer or director, past, present or future as such, of the
Company or of any predecessor or successor corporation, either directly or
through the Company or any such predecessor or successor corporation, whether
by virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise; it being expressly understood that this
Indenture and the obligations issued hereunder are solely corporate
obligations, and that no such personal liability whatever shall attach to, or
is or shall be incurred by, the incorporators, shareholders, officers or
directors as such, of the Company or of any predecessor or successor
corporation, or any of them, because of the creation of the indebtedness hereby
authorized, or under or by reason of the obligations, covenants or agreements
contained in this Indenture or in any of the Debentures or implied therefrom;
and that any and all such personal liability of every name and nature, either
at common law or in equity or by constitution or statute, of, and any and all
such rights and claims against, every such incorporator, shareholder, officer
or director as such, because of the creation of the indebtedness hereby
authorized, or under or by reason of the obligations, covenants or agreements
contained in this Indenture or in any of the Debentures or implied therefrom,
are hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issuance of such
Debentures.
ARTICLE XV
MISCELLANEOUS PROVISIONS
SECTION 15.1 EFFECT ON SUCCESSORS AND ASSIGNS.
All the covenants, stipulations, promises and agreements in this
Indenture contained by or on behalf of the Company shall bind their respective
successors and assigns, whether so expressed or not.
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SECTION 15.2 ACTIONS BY SUCCESSOR.
Any act or proceeding by any provision of this Indenture authorized or
required to be done or performed by any board, committee or officer of the
Company shall and may be done and performed with like force and effect by the
corresponding board, committee or officer of any corporation that shall at the
time be the lawful sole successor of the Company.
SECTION 15.3 SURRENDER OF COMPANY POWERS.
The Company by instrument in writing executed by appropriate authority
of its Board of Directors and delivered to the Trustee may surrender any of the
powers reserved to the Company, and thereupon such power so surrendered shall
terminate both as to the Company, as the case may be, and as to any successor
corporation.
SECTION 15.4 NOTICES.
Except as otherwise expressly provided herein any notice or demand
that by any provision of this Indenture is required or permitted to be given or
served by the Trustee or by the holders of Debentures to or on the Company may
be given or served by being deposited first class postage prepaid in a
post-office letter box addressed (until another address is filed in writing by
the Company with the Trustee), as follows: Southside Bancshares, Inc., 1201 S.
Beckham, Tyler, Texas 75701, Attention: Lee Gibson, Executive Vice President.
Any notice, election, request or demand by the Company or any Debentureholder
to or upon the Trustee shall be deemed to have been sufficiently given or made,
for all purposes, if given or made in writing at the Corporate Trust Office of
the Trustee.
SECTION 15.5 GOVERNING LAW.
This Indenture and each Debenture shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without regard to conflicts
of laws principles.
SECTION 15.6 TREATMENT OF DEBENTURES AS DEBT.
It is intended that the Debentures shall be treated as indebtedness
and not as equity for federal income tax purposes. The provisions of this
Indenture shall be interpreted to further this intention.
SECTION 15.7 COMPLIANCE CERTIFICATES AND OPINIONS.
(a) Upon any application or demand by the Company to the Trustee
to take any action under any of the provisions of this Indenture, the Company
shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent have been complied with,
except that in the case of any such application or demand as to which the
furnishing of such documents is specifically required by any provision of this
Indenture relating to such particular application or demand, no additional
certificate or opinion need be furnished.
(b) Each certificate or opinion of the Company provided for in
this Indenture and delivered to the Trustee with respect to compliance with a
condition or covenant in this Indenture shall include (i) a
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statement that the Person making such certificate or opinion has read such
covenant or condition; (ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based; (iii) a statement that, in the opinion
of such Person, he has made such examination or investigation as, in the
opinion of such Person, is necessary to enable him to express an informed
opinion as to whether or not such covenant or condition has been complied with;
and (iv) a statement as to whether or not, in the opinion of such Person, such
condition or covenant has been complied with.
SECTION 15.8 PAYMENTS ON BUSINESS DAYS.
In any case where the date of maturity of interest or principal of any
Debenture or the date of redemption of any Debenture shall not be a Business
Day, then payment of interest or principal may (subject to SECTION 2.4) be made
on the next succeeding Business Day with the same force and effect as if made
on the nominal date of maturity or redemption, and no interest shall accrue for
the period after such nominal date.
SECTION 15.9 CONFLICT WITH TRUST INDENTURE ACT.
If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
SECTION 15.10 COUNTERPARTS.
This Indenture may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute but
one and the same instrument.
SECTION 15.11 SEVERABILITY.
In case any one or more of the provisions contained in this Indenture
or in the Debentures shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Indenture or of the Debentures,
but this Indenture and the Debentures shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein or therein.
SECTION 15.12 ASSIGNMENT.
The Company shall have the right at all times to assign any of its
respective rights or obligations under this Indenture to a direct or indirect
wholly owned Subsidiary of the Company, provided that, in the event of any such
assignment, the Company shall remain liable for all such obligations. Subject
to the foregoing, this Indenture is binding upon and inures to the benefit of
the parties hereto and their respective successors and assigns. This Indenture
may not otherwise be assigned by the parties hereto.
SECTION 15.13 ACKNOWLEDGMENT OF RIGHTS.
The Company acknowledges that, with respect to any Debentures held by
the Trust or a trustee of the Trust, if the Property Trustee fails to enforce
its rights under this Indenture as the holder of the Debentures held as the
assets of the Trust, any holder of Preferred Securities may institute legal
proceedings directly against the Company to enforce such Property Trustee's
rights under this Indenture without first instituting any legal proceedings
against such Property Trustee or any other person or entity. Notwithstanding
the foregoing,
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if an Event of Default has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest or principal on the
Debentures on the date such interest or principal is otherwise payable (or in
the case of redemption, on the redemption date), the Company acknowledges that
a holder of Preferred Securities may directly institute a proceeding for
enforcement of payment to such holder of the principal of or interest on the
Debentures having a principal amount equal to the aggregate liquidation amount
of the Preferred Securities of such holder on or after the respective due date
specified in the Debentures.
ARTICLE XVI
SUBORDINATION OF DEBENTURES
SECTION 16.1 AGREEMENT TO SUBORDINATE.
The Company covenants and agrees, and each holder of Debentures, by
such holder's acceptance thereof, likewise covenants and agrees that all
Debentures shall be issued subject to the provisions of this Article; and each
holder of a Debenture, whether upon original issue or upon transfer or
assignment thereof, accepts and agrees to be bound by such provisions. The
payment by the Company of the principal of and interest on all Debentures
issued hereunder shall, to the extent and in the manner hereinafter set forth,
be subordinated and junior in right of payment to the prior payment in full of
all Senior Debt and Subordinated Debt (collectively, "Senior Indebtedness") to
the extent provided herein, whether outstanding at the date of this Indenture
or thereafter incurred. No provision of this Article shall prevent the
occurrence of any default or Event of Default hereunder.
SECTION 16.2 DEFAULT ON SENIOR DEBT OR SUBORDINATED DEBT.
In the event and during the continuation of any default by the Company
in the payment of principal, premium, interest or any other payment due on any
Senior Indebtedness of the Company, or in the event that the maturity of any
Senior Indebtedness of the Company has been accelerated because of a default,
then, in either case, no payment shall be made by the Company with respect to
the principal (including redemption payments) of or interest on the Debentures.
In the event that, notwithstanding the foregoing, any payment shall be received
by the Trustee when such payment is prohibited by the preceding sentence of
this Section, such payment shall be held in trust for the benefit of, and shall
be paid over or delivered to, the holders of Senior Indebtedness or their
respective representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Senior Indebtedness may have been issued, as
their respective interests may appear, but only to the extent that the holders
of the Senior Indebtedness (or their representative or representatives or a
trustee) notify the Company or the Trustee in writing within 90 days of such
payment of the amounts then due and owing on the Senior Indebtedness and only
the amounts specified in such notice to the Trustee shall be paid to the
holders of Senior Indebtedness.
SECTION 16.3 LIQUIDATION; DISSOLUTION; BANKRUPTCY.
(a) Upon any payment by the Company or distribution of assets of
the Company of any kind or character, whether in cash, property or securities,
to creditors upon any liquidation, dissolution or winding-up, reorganization,
assignment for the benefit of creditors, marshaling of assets or any
bankruptcy, insolvency, debt restructuring or similar proceedings in connection
with any insolvency or bankruptcy proceeding of the Company, all amounts due
upon all Senior Indebtedness of the Company shall first be paid in full, or
payment thereof provided for in money in accordance with its terms, before any
payment is made by the Company on account of the principal or interest on the
Debentures; and upon any such liquidation, dissolution, winding-up,
reorganization, assignment for the benefit of creditors, marshaling of assets,
any payment by the Company
45
<PAGE> 53
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to which the holders of the Debentures or the
Trustee would be entitled to receive from the Company, except for the
provisions of this Article, shall be paid by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other Person making such
payment or distribution, or by the holders of the Debentures or by the Trustee
under this Indenture if received by them or it, directly to the holders of
Senior Indebtedness of the Company (pro rata to such holders on the basis of
the respective amounts of Senior Indebtedness held by such holders, as
calculated by the Company) or their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any instruments
evidencing such Senior Indebtedness may have been issued, as their respective
interests may appear, to the extent necessary to pay such Senior Indebtedness
in full, in money or money's worth, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Indebtedness,
before any payment or distribution is made to the holders of Debentures or
to the Trustee.
(b) In the event that, notwithstanding the foregoing, any payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, prohibited by the foregoing, shall be received by
the Trustee before all Senior Indebtedness of the Company is paid in full, or
provision is made for such payment in money in accordance with its terms, such
payment or distribution shall be held in trust for the benefit of and shall be
paid over or delivered to the holders of such Senior Indebtedness or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Indebtedness
may have been issued, as their respective interests may appear, as calculated
by the Company, for application to the payment of all Senior Indebtedness of
the Company, as the case may be, remaining unpaid to the extent necessary to
pay such Senior Indebtedness in full in money in accordance with its terms,
after giving effect to any concurrent payment or distribution to or for the
benefit of the holders of such Senior Indebtedness.
(c) For purposes of this Article, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated at least to the extent provided in this
Article with respect to the Debentures to the payment of all Senior
Indebtedness of the Company, as the case may be, that may at the time be
outstanding, provided that (i) such Senior Indebtedness is assumed by the new
corporation, if any, resulting from any such reorganization or readjustment;
and (ii) the rights of the holders of such Senior Indebtedness are not, without
the consent of such holders, altered by such reorganization or readjustment.
The consolidation of the Company with, or the merger of the Company into,
another corporation or the liquidation or dissolution of the Company following
the conveyance or transfer of its property as an entirety, or substantially as
an entirety, to another corporation upon the terms and conditions provided for
in ARTICLE XII shall not be deemed a dissolution, winding-up, liquidation or
reorganization for the purposes of this Section if such other corporation
shall, as a part of such consolidation, merger, conveyance or transfer, comply
with the conditions stated in ARTICLE XII. Nothing in SECTION 16.2 or in this
Section shall apply to claims of, or payments to, the Trustee under or pursuant
to SECTION 9.7.
SECTION 16.4 SUBROGATION.
(a) Subject to the payment in full of all Senior Indebtedness of
the Company, the rights of the holders of the Debentures shall be subrogated to
the rights of the holders of such Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company, as the case may
be, applicable to such Senior Indebtedness until the principal of and interest
on the Debentures shall be paid in full; and for the purposes of such
subrogation, no payments or distributions to the holders of such Senior
46
<PAGE> 54
Indebtedness of any cash, property or securities to which the holders of the
Debentures or the Trustee would be entitled except for the provisions of this
Article, and no payment over pursuant to the provisions of this Article to or
for the benefit of the holders of such Senior Indebtedness by holders of the
Debentures or the Trustee, shall, as between the Company, its creditors (other
than holders of Senior Indebtedness of the Company) and the holders of the
Debentures, be deemed to be a payment by the Company to or on account of such
Senior Indebtedness. It is understood that the provisions of this Article are
and are intended solely for the purposes of defining the relative rights of the
holders of the Debentures, on the one hand, and the holders of such Senior
Indebtedness on the other hand.
(b) Nothing contained in this Article or elsewhere in this
Indenture or in the Debentures is intended to or shall impair, as between the
Company, its creditors (other than the holders of Senior Indebtedness of the
Company) and the holders of the Debentures, the obligation of the Company,
which is absolute and unconditional, to pay to the holders of the Debentures
the principal of and interest on the Debentures as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the holders of the Debentures and creditors
of the Company, as the case may be, other than the holders of Senior
Indebtedness of the Company, nor shall anything herein or therein prevent the
Trustee or the holder of any Debenture from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article of the holders of such Senior Indebtedness
in respect of cash, property or securities of the Company, as the case may be,
received upon the exercise of any such remedy.
(c) Upon any payment or distribution of assets of the Company
referred to in this Article, the Trustee, subject to the provisions of ARTICLE
IX, and the holders of the Debentures shall be entitled to conclusively rely
upon any order or decree made by any court of competent jurisdiction in which
such dissolution, winding-up, liquidation or reorganization proceedings are
pending, or a certificate of the receiver, trustee in bankruptcy, liquidation
trustee, agent or other Person making such payment or distribution, delivered
to the Trustee or to the holders of the Debentures, for the purposes of
ascertaining the Persons entitled to participate in such distribution, the
holders of Senior Indebtedness and other indebtedness of the Company, as the
case may be, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this
Article.
SECTION 16.5 TRUSTEE TO EFFECTUATE SUBORDINATION.
Each holder of Debentures by such holder's acceptance thereof
authorizes and directs the Trustee on such holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article and appoints the Trustee such holder's attorney-in-fact for any
and all such purposes.
SECTION 16.6 NOTICE BY THE COMPANY.
(a) The Company shall give prompt written notice to a Responsible
Officer of the Trustee of any fact known to the Company that would prohibit the
making of any payment of moneys to or by the Trustee in respect of the
Debentures pursuant to the provisions of this Article. Notwithstanding the
provisions of this Article or any other provisions of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts that
would prohibit the making of any payment of moneys to or by the Trustee in
respect of the Debentures pursuant to the provisions of this Article, unless
and until a Responsible Officer of the Trustee shall have received written
notice thereof from the Company or a holder or holders of Senior Indebtedness
or from any trustee therefor, and before the receipt of any such written
notice, the Trustee, subject to the provisions of SECTION 9.1, shall be
entitled in all respects to assume that no such facts exist;
47
<PAGE> 55
provided, however, that if the Trustee shall not have received the notice
provided for in this Section at least two Business Days prior to the date upon
which by the terms hereof any money may become payable for any purpose
(including, without limitation, the payment of the principal of or interest on
any Debenture), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive
such money and to apply the same to the purposes for which they were received,
and shall not be affected by any notice to the contrary that may be received by
it within two Business Days prior to such date.
(b) The Trustee, subject to the provisions of SECTION 9.1, shall
be entitled to conclusively rely on the delivery to it of a written notice by a
Person representing himself to be a holder of Senior Indebtedness of the
Company (or a trustee on behalf of such holder) to establish that such notice
has been given by a holder of such Senior Indebtedness or a trustee on behalf
of any such holder or holders. In the event that the Trustee determines in
good faith that further evidence is required with respect to the right of any
Person as a holder of such Senior Indebtedness to participate in any payment or
distribution pursuant to this Article, the Trustee may request that such Person
furnish evidence to the reasonable satisfaction of the Trustee as to the amount
of such Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article, and, if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
SECTION 16.7 RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS.
(a) The Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article in respect of any Senior Indebtedness
at any time held by it, to the same extent as any other holder of Senior
Indebtedness and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. The Trustee's right to compensation and
reimbursement of expenses as set forth in SECTION 9.7 shall not be subject to
the subordination provisions of this Article.
(b) With respect to the holders of Senior Indebtedness of the
Company, the Trustee undertakes to perform or to observe only such of its
covenants and obligations as are specifically set forth in this Article, and no
implied covenants or obligations with respect to the holders of such Senior
Indebtedness shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to have any fiduciary duty to the holders of such
Senior Indebtedness and, subject to the provisions of SECTION 9.1, the Trustee
shall not be liable to any holder of such Senior Indebtedness if it shall in
good faith mistakenly pay over or deliver to holders of Debentures, the Company
or any other Person money or assets to which any holder of such Senior
Indebtedness shall be entitled by virtue of this Article or otherwise.
SECTION 16.8 SUBORDINATION MAY NOT BE IMPAIRED.
(a) No right of any present or future holder of any Senior
Indebtedness of the Company to enforce subordination as herein provided shall
at any time in any way be prejudiced or impaired by any act or failure to act
on the part of the Company or by any act or failure to act, in good faith, by
any such holder, or by any noncompliance by the Company with the terms,
provisions and covenants of this Indenture, regardless of any knowledge thereof
that any such holder may have or otherwise be charged with.
(b) Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness of the Company may, at any time
and from time to time, without the consent of or notice to the Trustee or the
holders of the Debentures, without incurring responsibility to the holders of
the Debentures and without impairing or releasing the subordination provided in
this Article or the obligations hereunder of the
48
<PAGE> 56
holders of the Debentures to the holders of such Senior Indebtedness, do any
one or more of the following: (i) change the manner, place or terms of payment
or extend the time of payment of, or renew or alter, such Senior Indebtedness,
or otherwise amend or supplement in any manner such Senior Indebtedness or any
instrument evidencing the same or any agreement under which such Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing such Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of such Senior Indebtedness; and (iv) exercise or refrain from exercising any
rights against the Company and any other Person.
49
<PAGE> 57
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed all as of the day and year first above written.
SOUTHSIDE BANCSHARES, INC.
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
U.S. TRUST COMPANY OF TEXAS, N.A., AS TRUSTEE
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
50
<PAGE> 58
EXHIBIT A
FACE OF DEBENTURE
NO.______ $__________
CUSIP NO. ________
SOUTHSIDE BANCSHARES, INC.
____% SUBORDINATED DEFERRABLE INTEREST DEBENTURE
DUE JUNE 30, 2028
[TO BE INCLUDED ONLY ON A DEBENTURE WHICH IS A GLOBAL SECURITY. THIS
SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A
DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE
NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE
DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY, EXCEPT IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.]
SOUTHSIDE BANCSHARES, INC., a Texas corporation (the "Company," which
term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to U.S. Trust Company
of Texas, N.A., as Property Trustee for Southside Capital Trust I, or
registered assigns, the principal sum of __________________________ Dollars
($________) on June 30, 2028 (the "Stated Maturity"), and to pay interest on
said principal sum from June 30, 1998, or from the most recent interest payment
date (each such date, an "Interest Payment Date") to which interest has been
paid or duly provided for, quarterly (subject to deferral as set forth herein)
in arrears on March 31, June 30, September 30 and December 31 of each year
commencing June 30, 1998, at the rate of ____% per annum until the principal
hereof shall have become due and payable, and on any overdue principal and
(without duplication) on any overdue installment of interest (to the extent
permitted under applicable law) at the rate of ___% per annum compounded
quarterly. The amount of interest payable on any Interest Payment Date shall
be computed on the basis of a 360-day year of twelve 30-day months. In the
event that any date on which interest is payable on this Debenture is not a
Business Day (as defined in the Indenture), then payment of interest payable on
such date shall be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the preceding Business Day, in each case with the same
force and effect as if made on such date. The interest installment so payable,
and punctually, paid or duly provided for, on any Interest Payment Date shall,
as provided in the Indenture, be paid to the person in whose name this
Debenture (or one or more Predecessor Debentures, as defined in said Indenture)
is registered at the close of business on the regular record date for such
interest installment, which shall be the close of business on the Business Day
next preceding such Interest Payment Date unless otherwise provided in the
Indenture. Any such interest installment not punctually paid or duly provided
for shall forthwith cease to be payable to the registered holders on such
regular record date and may be paid to the Person in whose name this Debenture
(or one or more Predecessor Debentures) is registered at the close of business
on a special record date to be fixed by the Trustee (as defined in the
Indenture) for the payment of such defaulted interest, notice whereof shall be
given to the registered holders of the Debentures not less than 10 days prior
to such special record date, or may be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Debentures may be listed, and upon such notice as may be required by
such exchange, all as
<PAGE> 59
more fully provided in the Indenture. The principal of and the interest on
this Debenture shall be payable at the office or agency of the Trustee
maintained for that purpose in any coin or currency of the United States of
America that at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
option of the Company by check mailed to the registered holder at such address
as shall appear in the Debenture Register (as defined in the Indenture) or by
wire transfer to an account maintained by the holder as specified in the
Debenture Register. Notwithstanding the foregoing, so long as the holder of
this Debenture is the Property Trustee, the payment of the principal of and
interest on this Debenture shall be made at such place and to such account as
may be designated by the Trustee.
The indebtedness evidenced by this Debenture is, to the extent
provided in the Indenture, subordinate and junior in right of payment to the
prior payment in full of all Senior Indebtedness (as defined in the Indenture),
and this Debenture is issued subject to the provisions of the Indenture with
respect thereto. Each holder of this Debenture, by accepting the same, (a)
agrees to and shall be bound by such provisions; (b) authorizes and directs the
Trustee on his or her behalf to take such action as may be necessary or
appropriate to acknowledge or effectuate the subordination so provided; and (c)
appoints the Trustee his or her attorney-in-fact for any and all such purposes.
Each holder hereof, by his or her acceptance hereof, hereby waives all notice
of the acceptance of the subordination provisions contained herein and in the
Indenture by each holder of Senior Indebtedness, whether now outstanding or
hereafter incurred, and waives reliance by each such holder upon said
provisions.
This Debenture shall not be entitled to any benefit under the
Indenture hereinafter referred to, be valid or become obligatory for any
purpose until the Certificate of Authentication hereon shall have been signed
by or on behalf of the Trustee.
This Debenture shall be deemed to be a contract made under the laws of
the State of New York and for all purposes shall be construed in accordance
with the laws of the State of New York without regard to conflicts of laws
principles.
The provisions of this Debenture are continued on the reverse side
hereof and such continued provisions shall for all purposes have the same
effect as though fully set forth at this place.
2
<PAGE> 60
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed as of the _____ day of _____________, 1998.
SOUTHSIDE BANCSHARES, INC.
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
Attest:
-------------------------------
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
<PAGE> 61
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures described in the within-mentioned
Indenture. Dated:
U.S. Trust Company of Texas, or Authentication Agent
N.A. as Trustee
By: By:
------------------------------- ------------------------------
Authorized Signatory Title:
---------------------------
2
<PAGE> 62
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Security
certificate to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
agent to transfer
- ----------------------------------------------------------
this Security certificate on the books of the Company. The agent may substitute
another to act for him or her.
Date:
---------------------------------------------
Signature:
----------------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee(1):
---------------------------------------------------------
- ---------------
1. Signature must be guaranteed by an "eligible guarantor institution"
that is a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature guarantee
program" as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities and
Exchange Act of 1934, as amended.
3
<PAGE> 63
REVERSE OF DEBENTURE
____% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE
(CONTINUED)
This Debenture is one of the subordinated debentures of the Company
(herein sometimes referred to as the "Debentures"), specified in the Indenture,
all issued or to be issued under and pursuant to an Indenture dated as of May
__, 1998 (the "Indenture") duly executed and delivered between the Company and
U.S. Trust Company of Texas, N.A., as Trustee (the "Trustee"), to which
Indenture reference is hereby made for a description of the rights, limitations
of rights, obligations, duties and immunities thereunder of the Trustee, the
Company and the holders of the Debentures. The Debentures are limited in
aggregate principal amount as specified in the Indenture.
The Company has the right to redeem this Debenture at the option of
the Company, without premium or penalty (i) at any time on or after June 30,
2003 in whole or in part, or (ii) at any time in certain circumstances in whole
(but not in part) upon the occurrence of a Special Event (as defined in the
Indenture), in each case at a redemption price equal to 100% of the principal
amount plus any accrued but unpaid interest, to the date of such redemption
(the "Redemption Price"). The Redemption Price shall be paid prior to 12:00
noon, New York City time, on the date of such redemption or at such earlier
time as the Company determines. Any redemption pursuant to this paragraph
shall be made upon not less than 30 days nor more than 60 days notice, at the
Redemption Price. If the Debentures are only partially redeemed by the
Company, the Debentures shall be redeemed pro rata or by lot or by any other
method utilized by the Trustee.
In the event of redemption of this Debenture in part only, a new
Debenture or Debentures for the unredeemed portion hereof shall be issued in
the name of the holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the
Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Debentures at the time Outstanding (as
defined in the Indenture) to execute supplemental indentures for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or of any supplemental indenture or of modifying in
any manner the rights of the holders of the Debentures; provided, however, that
no such supplemental indenture shall (i) extend the fixed maturity of the
Debentures except as provided in the Indenture, or reduce the principal amount
thereof, or reduce the rate or extend the time of payment of interest thereon
<PAGE> 64
(except for deferrals of interest as described below), without the consent of
the holder of each Debenture so affected; or (ii) reduce the aforesaid
percentage of Debentures, the holders of which are required to consent to any
such supplemental indenture, without the consent of the holders of each
Debenture then outstanding and affected thereby. The Indenture also contains
provisions permitting the holders of a majority in aggregate principal amount
of the Debentures at the time outstanding, on behalf of all of the holders of
the Debentures, to waive any past default in the performance of any of the
covenants contained in the Indenture, or established pursuant to the Indenture,
and its consequences, except a default in the payment of the principal of or
interest on any of the Debentures. Any such consent or waiver by the
registered holder of this Debenture (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such holder and upon all future
holders and owners of this Debenture and of any Debenture issued in exchange
therefor or in place thereof (whether by registration of transfer or otherwise
or whether any notation of such consent or waiver is made upon this Debenture).
No reference herein to the Indenture and no provision of this
Debenture or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal and interest
on this Debenture at the time and place and at the rate and in the money herein
prescribed.
So long as no Event of Default (as defined in the Indenture) has
occurred and is continuing, the Company shall have the right at any time during
the term of the Debentures and from time to time to extend the interest payment
period of such Debentures for up to 20 consecutive quarters (each, an "Extended
Interest Payment Period"), at the end of which period the Company shall pay all
interest then accrued and unpaid (together with interest thereon at the rate
specified for the Debentures to the extent that payment of such interest is
permitted under applicable law). Before the termination of any such Extended
Interest Payment Period, the Company may further extend such Extended Interest
Payment Period, provided that such Extended Interest Payment Period together
with all such further extensions thereof shall not exceed 20 consecutive
quarters. At the termination of any such Extended Interest Payment Period and
upon the payment of all accrued and unpaid interest and any additional amounts
then due, the Company may commence a new Extended Interest Payment Period.
As provided in the Indenture and subject to certain limitations
therein set forth, this Debenture is transferable by the registered holder
hereof on the Debenture Register of the Company, upon surrender of this
Debenture for registration of transfer at the office or agency of the Trustee
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company or the Trustee duly executed by the registered
holder hereof or his or her attorney duly authorized in writing, and thereupon
one or more new Debentures of authorized denominations and for the same
aggregate principal amount shall be issued to the designated transferee or
transferees. No service charge shall be made for any such transfer but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in relation thereto.
2
<PAGE> 65
Prior to due presentment for registration of transfer of this
Debenture, the Company, the Trustee, any paying agent and the Debenture
Registrar (as defined in the Indenture) may deem and treat the registered
holder hereof as the absolute owner hereof (whether or not this Debenture shall
be overdue and notwithstanding any notice of ownership or writing hereon made
by anyone other than the Debenture Registrar) for the purpose of receiving
payment of or on account of the principal hereof and interest due hereon and
for all other purposes, and neither the Company nor the Trustee nor any paying
agent nor any Debenture Registrar shall be affected by any notice to the
contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect of the Indenture, against any incorporator, shareholder, officer or
director, past, present or future, as such, of the Company or any predecessor
or successor corporation, whether by virtue of any constitution, statute or
rule of law, or by the enforcement of any assessment or penalty or otherwise,
all such liability being, by the acceptance hereof and as part of the
consideration for the issuance hereof, expressly waived and released. The
Debentures are issuable only in registered form without coupons in
denominations of $10 and any integral multiple thereof.
All terms used but not otherwise defined in this Debenture that are
defined in the Indenture shall have the meanings assigned to them in the
Indenture.
The Note is unsecured by any collateral, including the assets of the
Company or any of its subsidiaries or other affiliates.
3
<PAGE> 1
EXHIBIT 4.5
AMENDED AND RESTATED TRUST AGREEMENT
AMONG
SOUTHSIDE BANCSHARES, INC., AS DEPOSITOR
U.S. TRUST COMPANY OF TEXAS, N.A., AS PROPERTY TRUSTEE
WILMINGTON TRUST COMPANY, AS DELAWARE TRUSTEE
AND
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
DATED AS OF MAY ___, 1998
SOUTHSIDE CAPITAL TRUST I
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 101. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II - ESTABLISHMENT OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 201. Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 202. Office of the Delaware Trustee; Principal Place of Business. . . . . . . . . . . . . . . . 10
Section 203. Initial Contribution of Trust Property; Organizational Expenses. . . . . . . . . . . . . . 10
Section 204. Issuance of the Preferred Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 205. Issuance of the Common Securities; Subscription And Purchase of Debentures. . . . . . . . . 11
Section 206. Declaration of Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 207. Authorization to Enter Into Certain Transactions. . . . . . . . . . . . . . . . . . . . . . 12
Section 208. Assets of Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 209. Title to Trust Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE III - PAYMENT ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 301. Payment Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE IV - DISTRIBUTIONS; REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 401. Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 402. Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 403. Subordination of Common Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 404. Payment Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 405. Tax Returns And Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 406. Payment of Taxes, Duties, Etc. of The Trust. . . . . . . . . . . . . . . . . . . . . . . . 20
Section 407. Payments Under Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE V - TRUST SECURITIES CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 501. Initial Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 502. The Trust Securities Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 503. Execution And Delivery of Trust Securities Certificates. . . . . . . . . . . . . . . . . . 21
Section 503A. Global Preferred Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 504. Registration of Transfer and Exchange of Preferred Securities Certificates . . . . . . . . 23
Section 505. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates. . . . . . . . . . . . . 24
Section 506. Persons Deemed Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 507. Access to List of Securityholders' Names And Addresses. . . . . . . . . . . . . . . . . . . 25
Section 508. Maintenance of Office or Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 509. Appointment of Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 510. Ownership of Common Securities by Depositor. . . . . . . . . . . . . . . . . . . . . . . . 26
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Section 511. Notices to Clearing Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 511A. Definitive Preferred Securities Certificate And Temporary Preferred
Securities Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 512. Rights of Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 513. CUSIP Numbers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VI - ACTS OF SECURITYHOLDERS; MEETINGS; VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 601. Limitations on Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 602. Notice of Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 603. Meetings of Preferred Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 604. Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 605. Proxies, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 606. Securityholder Action by Written Consent. . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 607. Record Date For Voting And Other Purposes. . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 608. Acts of Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 609. Inspection of Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VII - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 701. Representations And Warranties of The Property Trustee And The Delaware Trustee. . . . . . 33
Section 702. Representations And Warranties of Depositor. . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VIII - TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 801. Certain Duties and Responsibilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 802. Certain Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 803. Certain Rights of Property Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 804. Not Responsible For Recitals or Issuance of Securities. . . . . . . . . . . . . . . . . . . 39
Section 805. May Hold Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 806. Compensation; Indemnity; Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 807. Corporate Property Trustee Required; Eligibility of Trustees. . . . . . . . . . . . . . . . 40
Section 808. Conflicting Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 809. Co-trustees And Separate Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 810. Resignation And Removal; Appointment of Successor. . . . . . . . . . . . . . . . . . . . . 42
Section 811. Acceptance of Appointment by Successor. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 812. Merger, Conversion, Consolidation or Succession to Business. . . . . . . . . . . . . . . . 44
Section 813. Preferential Collection of Claims Against Depositor or Trust. . . . . . . . . . . . . . . . 44
Section 814. Reports by Property Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 815. Reports to The Property Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 816. Evidence of Compliance With Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . 45
Section 817. Number of Trustees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 818. Delegation of Power. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 819. Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
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ARTICLE IX - DISSOLUTION, LIQUIDATION AND MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 901. Dissolution Upon Dissolution Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 902. Early Dissolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 903. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 904. Liquidation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 905. Mergers, Consolidations or Replacements of The Trust . . . . . . . . . . . . . . . . . . . 48
ARTICLE X - MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 1001. Limitation of Rights of Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 1002. Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 1003. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 1004. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 1005. Payments Due on Non-business Day. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 1006. Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 1007. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 1008. Reports, Notices And Demands. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 1009. Agreement Not to Petition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 1010. Trust Indenture Act; Conflict With Trust Indenture Act. . . . . . . . . . . . . . . . . . . 52
Section 1011. Acceptance of Terms of Trust Agreement, Guarantee And Indenture. . . . . . . . . . . . . . 53
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Exhibit A Form of Certificate of Trust
Exhibit B Form of Certificate Depository Agreement
Exhibit C Form of Common Securities Certificate
Exhibit D Form of Expense Agreement
Exhibit E Form of Trust Agreement
Exhibit F Form of Preferred Securities Certificate
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<PAGE> 6
AMENDED AND RESTATED TRUST AGREEMENT
AMENDED AND RESTATED TRUST AGREEMENT, dated as of May___, 1998, among
(i) Southside Bancshares, Inc., a Texas corporation (including any successors
or assigns, the "Depositor"), (ii) U.S. Trust Company of Texas, N.A., a trust
company organized under the laws of the United States, as property trustee (in
such capacity, the "Property Trustee" and, in its separate corporate capacity
and not in its capacity as Property Trustee, "U.S. Trust"), (iii) Wilmington
Trust Company, a Delaware trust company, as Delaware Trustee (the "Delaware
Trustee"), (iv) Sam Dawson, an individual, and Lee A. Gibson, an individual,
each of whose address is c/o Southside Bancshares, Inc., 1201 S. Beckham,
Tyler, Texas 75701 (each an "Administrative Trustee" and collectively the
"Administrative Trustees") (the Property Trustee, the Delaware Trustee and the
Administrative Trustees referred to collectively as the "Trustees"), and (v)
the several Holders (as hereinafter defined).
RECITALS
WHEREAS, the Depositor, the Property Trustee and the Delaware Trustee
have heretofore duly declared and established a business trust, Southside
Capital Trust I, pursuant to the Delaware Business Trust Act by the entering
into of that certain Trust Agreement, dated as of April 9, 1998 (the "Original
Trust Agreement"), and by the execution and filing by the Delaware Trustee, the
Depositor and the Administrative Trustees with the Secretary of State of the
State of Delaware of the Certificate of Trust, filed on April 9, 1998, the form
of which is attached as EXHIBIT A; and
WHEREAS, the Depositor and the Trustees desire to amend and restate
the Original Trust Agreement in its entirety as set forth herein to provide
for, among other things, (i) the issuance of the Common Securities (as defined
herein) by the Trust (as defined herein) to the Depositor; (ii) the issuance
and sale of the Preferred Securities (as defined herein) by the Trust pursuant
to the Underwriting Agreement (as defined herein); and (iii) the acquisition by
the Trust from the Depositor of all of the right, title and interest in the
Debentures (as defined herein).
NOW THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each party for the benefit of the
other parties and for the benefit of the Securityholders (as defined herein)
hereby amends and restates the Original Trust Agreement in its entirety and
agrees as follows.
<PAGE> 7
ARTICLE I
DEFINED TERMS
SECTION 101. DEFINITIONS.
For all purposes of this Trust Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the singular;
(b) all other terms used herein that are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may be,
of this Trust Agreement; and
(d) the words "herein", "hereof " and "hereunder" and other words
of similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision.
"Act" has the meaning specified in SECTION 608.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or a given period, the amount of additional interest
accrued on interest in arrears and paid by the Depositor on a Like Amount of
Debentures for such period.
"Additional Interest" has the meaning specified in SECTION 1.1 of the
Indenture.
"Administrative Trustee" means each of the Persons identified as an
"Administrative Trustee" in the preamble to this Trust Agreement solely in such
Person's capacity as Administrative Trustee of the Trust formed and continued
hereunder and not in such Person's individual capacity, or such Administrative
Trustee's successor in interest in such capacity, or any successor trustee
appointed as herein provided.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities or other ownership interests of the
specified Person; (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person; (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person; (d) a partnership in which the specified Person is a
general partner; (e) any officer or director of the specified Person; and (f)
if the specified Person is an individual, any entity of which the specified
Person is an executive officer, director or general partner.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Preferred Security or beneficial interest
therein, the rules and procedures of the Depositary for such
<PAGE> 8
Preferred Security, in each case to the extent applicable to such transaction
and as in effect from time to time.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction
in the premises adjudging such Person a bankrupt or insolvent, or approving as
properly filed a petition seeking liquidation or reorganization of or in
respect of such Person under the United States Bankruptcy Code of 1978, as
amended, or any other similar applicable federal or state law, and the
continuance of any such decree or order unvacated and unstayed for a period of
90 days; or the commencement of an involuntary case under the United States
Bankruptcy Code of 1978, as amended, in respect of such Person, which shall
continue undismissed for a period of 90 days or entry of an order for relief in
such case; or the entry of a decree or order of a court having jurisdiction in
the premises for the appointment on the ground of insolvency or bankruptcy of a
receiver, custodian, liquidator, trustee or assignee in bankruptcy or
insolvency of such Person or of its property, or for the winding up or
liquidation of its affairs, and such decree or order shall have remained in
force unvacated and unstayed for a period of 60 days; or
(b) the institution by such Person of proceedings to be
adjudicated a voluntary bankrupt, or the consent by such Person to the filing
of a bankruptcy proceeding against it, or the filing by such Person of a
petition or answer or consent seeking liquidation or reorganization under the
United States Bankruptcy Code of 1978, as amended, or other similar applicable
federal or state law, or the consent by such Person to the filing of any such
petition or to the appointment on the ground of insolvency or bankruptcy of a
receiver or custodian or liquidator or trustee or assignee in bankruptcy or
insolvency of such Person or of its property, or the making by such Person of a
general assignment for the benefit of its creditors.
"Bankruptcy Laws" has the meaning specified in SECTION 1009.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Depositor to have been duly adopted
by the Depositor's Board of Directors, or such committee of the Board of
Directors or officers of the Depositor to which authority to act on behalf of
the Board of Directors has been delegated, and to be in full force and effect
on the date of such certification, and delivered to the appropriate Trustee.
"Business Day" means a day other than a Saturday or a Sunday or a day
on which federal or state banking institutions in the Borough of Manhattan, The
City of New York, or the State of Delaware are authorized or required by law,
executive order or regulation to close, or a day on which the Corporate Trust
Office of the Debenture Trustee or the Property Trustee is closed for business.
"Capital Treatment Event" has the meaning specified in SECTION 1.1 of
the Indenture.
"Certificate Depositary Agreement" means the agreement among the
Trust, the Depositor and DTC, as the initial Clearing Agency, dated as of the
Closing Date, substantially in the form attached as Exhibit B, as the same may
be amended and supplemented from time to time.
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<PAGE> 9
"Certificate of Trust" means the certificate of trust filed with the
Secretary of State of the State of Delaware with respect to the Trust, as
amended or restated from time to time.
"Change in 1940 Act Law" shall have the meaning set forth in the
definition of "Investment Company Event."
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act. DTC shall be the initial
Clearing Agency.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time the Clearing
Agency effects book-entry transfers and pledges of securities deposited with
the Clearing Agency.
"Closing Date" means the date of execution and delivery of this Trust
Agreement.
"Code" means the Internal Revenue Code of 1986, or any successor
statute, in each case as amended from time to time.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
"Common Security" means an undivided beneficial interest in the assets
of the Trust, having a Liquidation Amount of $10 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein. Common Securities rank pari
passu with the Preferred Securities; provided, however, that upon the
occurrence of an Event of Default, the right of holders of Common Securities to
payment in respect of (i) Distributions, and (ii) payments upon liquidation,
redemption and otherwise are subordinated to the right of holders of Preferred
Securities.
"Common Securities Certificate" means a certificate evidencing
ownership of Common Securities, substantially in the form attached as EXHIBIT
C.
"Corporate Trust Office" means (i) when used with respect to the
Property Trustee, the principal corporate trust office of the Property Trustee
located in Delaware, and (ii) when used with respect to the Debenture Trustee,
the principal corporate trust office of the Debenture Trustee located in
Dallas, Texas.
"Debenture Event of Default" means an "Event of Default" as defined in
SECTION 7.1 of the Indenture.
"Debenture Redemption Date" means, with respect to any Debentures to
be redeemed under the Indenture, the date fixed for redemption under the
Indenture.
"Debenture Tax Event" means a "Tax Event" as specified in SECTION 1.1
of the Indenture.
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<PAGE> 10
"Debenture Trustee" means U.S. Trust Company of Texas, N.A., a trust
company organized under the laws of the United States, and any successor
thereto, as trustee under the Indenture.
"Debentures" means the aggregate principal amount of the Depositor's
______% Junior Subordinated Deferrable Interest Debentures due June 30, 2028
issued pursuant to the Indenture.
"Definitive Preferred Securities Certificates" means the Preferred
Securities Certificates issued in certificated, fully registered form
(non-global) as provided in SECTION 503A.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Delaware Code Sections 3801 et seq., as it may be amended
from time to time.
"Delaware Trustee" means the Person identified as the "Delaware
Trustee" in the Preamble to this Trust Agreement solely in its capacity as
Delaware Trustee of the Trust and not in its individual capacity, or its
successor in interest in such capacity, or any successor Trustee appointed as
herein provided.
"Depositor" has the meaning specified in the Preamble to this Trust
Agreement.
"Dissolution Date" has the meaning specified in SECTION 901.
"Distribution Date" has the meaning specified in SECTION 401(a).
"Distributions" means amounts payable in respect of the Trust
Securities as provided in SECTION 401(b).
"DTC" means The Depository Trust Company.
"Early Dissolution Event" has the meaning specified in SECTION 902.
"Event of Default" means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) the occurrence of a Debenture Event of Default; or
(b) default by the Trust or the Property Trustee in the payment of
any Distribution when it becomes due and payable, and continuation of such
default for a period of 30 days; or
(c) default by the Trust or the Property Trustee in the payment of
any Redemption Price of any Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any material
respect, of any covenant or warranty of the Trustees in this Trust Agreement
(other than a covenant or warranty a default in the performance of which or the
breach of which is dealt with in clause (b) or (c), above) and
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<PAGE> 11
continuation of such default or breach for a period of 60 days after there has
been given, by registered or certified mail, to the defaulting Trustee or
Trustees by the Holders of at least 25% in aggregate liquidation preference of
the Outstanding Preferred Securities a written notice specifying such default
or breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder; or
(e) the occurrence of a Bankruptcy Event with respect to the
Property Trustee and the failure by the Depositor to appoint a successor
Property Trustee within 60 days thereof.
"Exchange Act" means the Securities Exchange Act of 1934, or any
successor statute, in each case as amended from time to time.
"Expense Agreement" means the Agreement as to Expenses and Liabilities
between the Depositor and the Trust, substantially in the form attached as
Exhibit D, as the same may be amended from time to time.
"Extended Interest Payment Period" has the meaning specified in
SECTION 4.1 of the Indenture.
"Global Preferred Securities Certificate" means a Preferred Securities
Certificate evidencing ownership of Global Preferred Securities.
"Global Preferred Security" means a Preferred Security, the ownership
and transfers of which shall be made through book entries by a Clearing Agency
as described in SECTION 503A.
"Guarantee" means the Preferred Securities Guarantee Agreement
executed and delivered by the Depositor, as guarantor, and U.S. Trust Company
of Texas, N.A., as guarantee trustee, contemporaneously with the execution and
delivery of this Trust Agreement, for the benefit of the Holders of the
Preferred Securities, as amended from time to time.
"Indenture" means the Indenture, dated as of May __, 1998 between the
Depositor and the Debenture Trustee, as trustee, as amended or supplemented
from time to time.
"Investment Company Act," means the Investment Company Act of 1940, or
any successor statute, in each case as amended from time to time.
"Investment Company Event" has the meaning specified in SECTION 1.1 of
the Indenture.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Debentures to be contemporaneously redeemed in accordance with the
Indenture and the proceeds of which shall be used to pay the Redemption Price
of such Trust Securities; and (b) with respect to a distribution of Debentures
to
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<PAGE> 12
Holders of Trust Securities in connection with a termination or liquidation of
the Trust, Debentures having a principal amount equal to the Liquidation Amount
of the Trust Securities of the Holder to whom such Debentures are distributed.
Each Debenture distributed pursuant to clause (b) above shall carry with it
accumulated interest in an amount equal to the accumulated and unpaid interest
then due on such Debentures.
"Liquidation Amount" means the stated amount of $10 per Trust
Security.
"Liquidation Date" means the date on which Debentures are to be
distributed to Holders of Trust Securities in connection with a dissolution and
liquidation of the Trust pursuant to SECTION 904(a).
"Liquidation Distribution" has the meaning specified in SECTION
904(d).
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, Chief Executive Officer, President or a Vice President and by the
Chief Financial Officer, the Treasurer or an Assistant Treasurer or the
Controller or an Assistant Controller or the Secretary or an Assistant
Secretary, of the Depositor, and delivered to the appropriate Trustee. One of
the officers signing an Officers' Certificate given pursuant to SECTION 816
shall be the principal executive, financial or accounting officer of the
Depositor. Any Officers' Certificate delivered with respect to compliance with
a condition or covenant provided for in this Trust Agreement shall include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the definitions relating
thereto;
(b) a brief statement of the nature and scope of the examination
or investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each such officer has made such examination
or investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"Opinion of Counsel" means an opinion in writing of legal counsel, who
may be counsel for the Trust, the Property Trustee or the Depositor, but not an
employee of any thereof, and who shall be reasonably acceptable to the Property
Trustee.
"Original Trust Agreement" has the meaning specified in the Recitals
to this Trust Agreement.
"Outstanding", when used with respect to Preferred Securities, means,
as of the date of determination, all Preferred Securities theretofore executed
and delivered under this Trust Agreement, except:
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(a) Preferred Securities theretofore canceled by the Property
Trustee or delivered to the Property Trustee for cancellation;
(b) Preferred Securities for whose payment or redemption money in
the necessary amount has been theretofore deposited with the Property Trustee
or any Paying Agent for the Holders of such Preferred Securities; provided
that, if such Preferred Securities are to be redeemed, notice of such
redemption has been duly given pursuant to this Trust Agreement; and
(c) Preferred Securities which have been paid or in exchange for
or in lieu of which other Preferred Securities have been executed and delivered
pursuant to SECTIONS 504, 505 and 511A; provided, however, that in determining
whether the Holders of the requisite Liquidation Amount of the Outstanding
Preferred Securities have given any request, demand, authorization, direction,
notice, consent or waiver hereunder, Preferred Securities owned by the
Depositor, any Trustee or any Affiliate of the Depositor or any Trustee shall
be disregarded and deemed not to be Outstanding, except that (a) in determining
whether any Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Preferred
Securities that such Trustee actually knows to be so owned shall be so
disregarded and (b) the foregoing shall not apply at any time when all of the
outstanding Preferred Securities are owned by the Depositor, one or more of the
Trustees and/or any such Affiliate. Preferred Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Administrative Trustees the pledgee's
right so to act with respect to such Preferred Securities and that the pledgee
is not the Depositor or any Affiliate of the Depositor.
"Owners" means each Person who is the beneficial owner of a beneficial
interest in a Global Preferred Security as reflected in the records of the
Clearing Agency or, if a Clearing Agency participant is not the Owner, then as
reflected in the records of a Person maintaining an account with the Clearing
Agency (directly or indirectly, in accordance with the rules of the Clearing
Agency).
"Paying Agent" means any paying agent or co-paying agent appointed
pursuant to SECTION 509 and shall initially be U.S. Trust.
"Payment Account" means a segregated non-interest-bearing corporate
trust account maintained by the Property Trustee with U.S. Trust in its trust
department for the benefit of the Securityholders in which all amounts paid in
respect of the Debentures shall be held and from which the Property Trustee
shall make payments to the Securityholders in accordance with SECTIONS 401 and
402.
"Person" means any individual, corporation, partnership, joint
venture, trust, limited liability company or corporation, unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Security" means an undivided beneficial interest in the
assets of the Trust, having a Liquidation Amount of $10 and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution as provided herein.
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"Preferred Securities Certificate", means a certificate evidencing
ownership of Preferred Securities, substantially in the form attached as
EXHIBIT E.
"Property Trustee" means the Person identified as the "Property
Trustee," in the Preamble to this Trust Agreement solely in its capacity as
Property Trustee of the Trust and not in its individual capacity, or its
successor in interest in such capacity, or any successor property trustee
appointed as herein provided.
"Redemption Date" means, with respect to any Trust Security to be
redeemed, the date fixed for such redemption by or pursuant to this Trust
Agreement; provided that each Debenture Redemption Date and the stated maturity
of the Debentures shall be a Redemption Date for a Like Amount of Trust
Securities.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, paid by the Depositor upon the concurrent
redemption of a Like Amount of Debentures, allocated on a pro rata basis (based
on Liquidation Amounts) among the Trust Securities.
"Relevant Trustee" shall have the meaning specified in SECTION 810.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in SECTION 504.
"Securityholder" or "Holder" means a Person in whose name a Trust
Security or Securities is registered in the Securities Register; any such
Person is a beneficial owner within the meaning of the Delaware Business Trust
Act.
"Temporary Preferred Securities Certificates" shall have the meaning
specified in SECTION 511A.
"Trust" means Southside Capital Trust I, a Delaware business trust
created and continued hereby.
"Trust Agreement" means this Amended and Restated Trust Agreement, as
the same may be modified, amended or supplemented in accordance with the
applicable provisions hereof, including all exhibits hereto, including, for all
purposes of this Trust Agreement and any such modification, amendment or
supplement, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this Trust Agreement and any such modification, amendment or
supplement, respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, as in force at the date as of which this instrument was executed;
provided, however, that in the event the Trust Indenture Act of 1939, as
amended, is amended after such date, "Trust Indenture Act" means, to the extent
required by any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trust Property" means (a) the Debentures; (b) any cash on deposit in,
or owing to, the Payment Account; and (c) all proceeds and rights in respect of
the foregoing and any other property
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and assets for the time being held or deemed to be held by the Property Trustee
pursuant to the trusts of this Trust Agreement.
"Trust Security" means any one of the Common Securities or the
Preferred Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Preferred Securities Certificates.
"Trustees" means, collectively, the Property Trustee, the Delaware
Trustee and the Administrative Trustees.
"Underwriting Agreement" means the Underwriting Agreement, dated as of
May ___, 1998, including exhibits, among the Trust, the Depositor and the
Underwriter named therein.
"U.S. Trust" has the meaning specified in the Preamble to this Trust
Agreement.
ARTICLE II
ESTABLISHMENT OF THE TRUST
SECTION 201. NAME.
The Trust created and continued hereby shall be known as "Southside
Capital Trust I," as such name may be modified from time to time by the
Administrative Trustees following written notice to the Holders of Trust
Securities and the other Trustees, in which name the Trustees may engage in the
transactions contemplated hereby, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
SECTION 202. OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF BUSINESS.
The address of the Delaware Trustee in the State of Delaware is c/o
_______________________________________________________, Attention: Corporate
Trust Department, or such other address in the State of Delaware as the
Delaware Trustee may designate by written notice to the Securityholders and the
Depositor. The principal executive office of the Trust is c/o Southside
Bancshares, Inc., 1201 S. Beckham, Tyler, Texas 75701.
SECTION 203. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL
EXPENSES.
The Trustees acknowledge receipt in trust from the Depositor in
connection with the Original Trust Agreement of the sum of $10.00, which
constituted the initial Trust Property. The Depositor shall pay organizational
expenses of the Trust as they arise or shall, upon request of any Trustee,
promptly reimburse such Trustee for any such expenses paid by such Trustee. The
Depositor shall make no claim upon the Trust Property for the payment of such
expenses.
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SECTION 204. ISSUANCE OF THE PREFERRED SECURITIES.
The Depositor, on behalf of the Trust and pursuant to the Original
Trust Agreement, executed and delivered the Underwriting Agreement.
Contemporaneously with the execution and delivery of this Trust Agreement, an
Administrative Trustee, on behalf of the Trust, shall execute in accordance
with SECTIONS 502, 503 and 503A and deliver in accordance with the Underwriting
Agreement, Preferred Securities Certificates, registered in the name of the
Persons entitled thereto, in an aggregate amount of __________________
Preferred Securities having an aggregate Liquidation Amount of________
______________ against receipt of the aggregate purchase price of such
Preferred Securities of ________________, which amount such Administrative
Trustee shall promptly deliver to the Property Trustee. If the underwriters
exercise their Option and there is an Option Closing Date (as such terms are
defined in the Underwriting Agreement), then an Administrative Trustee, on
behalf of the Trust, shall execute in accordance with SECTIONS 502, 503 and
503A and deliver in accordance with the Underwriting Agreement, additional
Preferred Securities Certificates, registered in the name of the Persons
entitled thereto, in an aggregate amount of up to _______________ Preferred
Securities having an aggregate Liquidation Amount of up to _______________
against receipt of the aggregate purchase price of such Preferred Securities of
________________, which amount such Administrative Trustee shall promptly
deliver to the Property Trustee.
SECTION 205. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND PURCHASE
OF DEBENTURES.
(a) Contemporaneously with the execution and delivery of this
Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall
execute in accordance with SECTION 502 and deliver to the Depositor Common
Securities Certificates, registered in the name of the Depositor in an
aggregate amount of __________ Common Securities having an aggregate
Liquidation Amount of ____________ against payment by the Depositor of such
amount, which amount such Administrative Trustee shall promptly deliver to the
Property Trustee. Contemporaneously therewith, an Administrative Trustee on
behalf of the Trust, shall subscribe to and purchase from the Depositor
corresponding amounts of Debentures, registered in the name of the Property
Trustee on behalf of the Trust and having an aggregate principal amount equal
to __________________ (being the sum of the amounts delivered to the Property
Trustee pursuant to (i) the second sentence of SECTION 204; and (ii) the first
sentence of SECTION 205(A)), and, in satisfaction of the purchase price for
such Debentures, the Property Trustee, on behalf of the Trust, shall deliver to
the Depositor the sum of _________________.
(b) If the underwriters exercise the Option and there is an Option
Closing Date, then an Administrative Trustee, on behalf of the Trust, shall
execute in accordance with SECTION 502 and deliver to the Depositor Common
Securities Certificates, registered in the name of the Depositor, in an
aggregate amount of __________ Common Securities having an aggregate
Liquidation Amount of up to ____________ against payment by the Depositor of
such amount. Contemporaneously therewith, an Administrative Trustee, on behalf
of the Trust, shall subscribe to and purchase from the Depositor corresponding
amounts of Debentures, registered in the name of the Trust and having an
aggregate principal amount of up to ______________, and, in satisfaction of the
purchase price of such Debentures, the Property Trustee, on behalf of the
Trust, shall deliver to the Depositor the amount received from one of the
Administrative Trustees pursuant to the last sentence of SECTION 204
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(being the sum of the amounts delivered to the Property Trustee pursuant to (i)
the third sentence of SECTION 204; and (ii) the first sentence of subsection
(b) of this Section.
SECTION 206. DECLARATION OF TRUST.
The exclusive purposes and functions of the Trust are (a) to issue and
sell Trust Securities and use the proceeds from such sale to acquire the
Debentures; and (b) to engage in those activities necessary, convenient or
incidental thereto. The Depositor hereby appoints the Trustees as trustees of
the Trust, to have all the rights, powers and duties to the extent set forth
herein, and the Trustees hereby accept such appointment. The Property Trustee
hereby declares that it shall hold the Trust Property in trust upon and subject
to the conditions set forth herein for the benefit of the Securityholders. The
Administrative Trustees shall have all rights, powers and duties set forth
herein and in accordance with applicable law with respect to accomplishing the
purposes of the Trust. The Delaware Trustee shall be one of the Trustees of
the Trust for the sole and limited purpose of fulfilling the requirements of
Section 3807 of the Delaware Business Trust Act.
SECTION 207. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS.
(a) The Trustees shall conduct the affairs of the Trust in
accordance with the terms of this Trust Agreement. Subject to the limitations
set forth in paragraph (b) of this Section and ARTICLE VIII, and in accordance
with the following provisions (i) and (ii), the Administrative Trustees shall
have the authority to enter into all transactions and agreements determined by
the Administrative Trustees to be appropriate in exercising the authority,
express or implied, otherwise granted to the Administrative Trustees under this
Trust Agreement, and to perform all acts in furtherance thereof, including
without limitation, the following:
(i) As among the Trustees, each Administrative Trustee
shall have the power and authority to act on behalf of the Trust with respect
to the following matters:
(A) the issuance and sale of the Trust
Securities;
(B) to cause the Trust to enter into, and to
execute, deliver and perform on behalf of the Trust, the Expense Agreement, the
Certificate Depositary Agreement and such other agreements or documents as may
be necessary or desirable in connection with the purposes and function of the
Trust;
(C) assisting in the registration of the
Preferred Securities under the Securities Act of 1933, as amended, and under
state securities or blue sky laws, and the qualification of this Trust
Agreement as a trust indenture under the Trust Indenture Act;
(D) assisting in the listing of the Preferred
Securities upon The Nasdaq Stock Market's National Market or such securities
exchange or exchanges as shall be determined by the Depositor and the
registration of the Preferred Securities under the Exchange Act, and the
preparation and filing of all periodic and other reports and other documents
pursuant to the foregoing;
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(E) the sending of notices (other than notices of
default) and other information regarding the Trust Securities and the
Debentures to the Securityholders in accordance with this Trust Agreement;
(F) the appointment of a Paying Agent,
authenticating agent and Securities Registrar in accordance with this Trust
Agreement;
(G) to the extent provided in this Trust
Agreement, the winding up of the affairs of and liquidation of the Trust and
the preparation, execution and filing of the certificate of cancellation with
the Secretary of State of the State of Delaware;
(H) to take all action that may be necessary or
appropriate for the preservation and the continuation of the Trust's valid
existence, rights, franchises and privileges as a statutory business trust
under the laws of the State of Delaware and of each other jurisdiction in which
such existence is necessary to protect the limited liability of the Holders of
the Preferred Securities or to enable the Trust to effect the purposes for
which the Trust was created;
(I) assisting in the registration or listing of
the Preferred Securities with DTC or upon such other trading facilities or
exchanges as shall be determined by the Depositor and the preparation and
filing of all periodic and other reports and other documents pursuant to the
foregoing; and
(J) the taking of any action incidental to the
foregoing as the Administrative Trustees may from time to time determine is
necessary or advisable to give effect to the terms of this Trust Agreement for
the benefit of the Securityholders (without consideration of the effect of any
such action on any particular Securityholder).
(ii) As among the Trustees, the Property Trustee shall
have the power, duty and authority to act on behalf of the Trust with respect
to the following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Debentures;
(C) the collection of interest, principal and any
other payments made in respect of the Debentures in the Payment Account;
(D) the distribution of amounts owed to the
Securityholders in respect of the Trust Securities in accordance with the terms
of this Trust Agreement;
(E) the exercise of all of the rights, powers and
privileges of a holder of the Debentures;
(F) the sending of notices of default and other
information regarding the Trust Securities and the Debentures to the
Securityholders in accordance with this Trust Agreement;
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(G) the distribution of the Trust Property in
accordance with the terms of this Trust Agreement;
(H) to the extent provided in this Trust
Agreement, the winding up of the affairs of and liquidation of the Trust and
the execution of the certificate of cancellation with the Secretary of State of
the State of Delaware;
(I) after an Event of Default, the taking of any
action incidental to the foregoing as the Property Trustee may from time to
time determine is necessary or advisable to give effect to the terms of this
Trust Agreement and protect and conserve the Trust Property for the benefit of
the Securityholders (without consideration of the effect of any such action on
any particular Securityholder); and
(J) registering transfers of the Trust Securities
in accordance with this Trust Agreement.
Except as otherwise provided in subsection (a)(ii) of this
Section, the Property Trustee shall have none of the duties, liabilities,
powers or the authority of the Administrative Trustees set forth in SECTION
207(a)(I).
(b) So long as this Trust Agreement remains in effect, the Trust
(or the Trustees acting on behalf of the Trust) shall not undertake any
business, activities or transaction except as expressly provided herein or
contemplated hereby. In particular, the Trustees shall not (i) acquire any
investments or engage in any activities not authorized by this Trust Agreement;
(ii) sell, assign, transfer, exchange, mortgage, pledge, setoff or otherwise
dispose of any of the Trust Property or interests therein, including to
Securityholders, except as expressly provided herein; (iii) take any action
that would cause the Trust to fail or cease to qualify as a "grantor trust" for
United States federal income tax purposes; (iv) incur any indebtedness for
borrowed money or issue any other debt; or (v) take or consent to any action
that would result in the placement of a Lien on any of the Trust Property. The
Administrative Trustees shall defend all claims and demands of all Persons at
any time claiming any Lien on any of the Trust Property adverse to the interest
of the Trust or the Securityholders in their capacity as Securityholders.
(c) In connection with the issuance and sale of the Preferred
Securities, the Depositor shall have the right and responsibility to assist the
Trust with respect to, or effect on behalf of the Trust, the following (and any
actions taken by the Depositor in furtherance of the following prior to the
date of this Trust Agreement are hereby ratified and confirmed in all
respects):
(i) the preparation and filing by the Trust with the
Commission and the execution on behalf of the Trust of a registration statement
on the appropriate form in relation to the Preferred Securities, including any
amendments thereto;
(ii) the determination of the states in which to take
appropriate action to qualify or register for sale all or part of the Preferred
Securities and to do any and all such acts, other than actions which must be
taken by or on behalf of the Trust, and advise the Trustees of actions they
must take on behalf of the Trust, and prepare for execution and filing any
documents to be executed and
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filed by the Trust or on behalf of the Trust, as the Depositor deems necessary
or advisable in order to comply with the applicable laws of any such States;
(iii) the preparation for filing by the Trust and execution
on behalf of the Trust of an application to The Nasdaq Stock Market's National
Market or a national stock exchange or other organizations for listing upon
notice of issuance of any Preferred Securities and to file or cause an
Administrative Trustee to file thereafter with such exchange or organization
such notifications and documents as may be necessary from time to time;
(iv) the preparation for filing by the Trust with the
Commission and the execution on behalf of the Trust of a registration statement
on Form 8-A relating to the registration of the Preferred Securities under
Section 12(b) or 12(g) of the Exchange Act, including any amendments thereto;
(v) the execution and delivery of, the Underwriting
Agreement providing for the sale of the Preferred Securities; and
(vi) the taking of any other actions necessary or
desirable to carry out any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the
Administrative Trustees are authorized and directed to conduct the affairs of
the Trust and to operate the Trust so that the Trust shall not be deemed to be
an "investment company" required to be registered under the Investment Company
Act, so that the Trust shall be classified as a "grantor trust" and not as an
association taxable as a corporation for United States federal income tax
purposes and so that the Debentures shall be treated as indebtedness of the
Depositor for United States federal income tax purposes. In this connection,
subject to SECTION 1002, the Depositor and the Administrative Trustees are
authorized to take any action, not inconsistent with applicable law or this
Trust Agreement, that each of the Depositor and the Administrative Trustees
determines in their discretion to be necessary or desirable for such purposes.
SECTION 208. ASSETS OF TRUST.
The assets of the Trust shall consist of the Trust Property.
SECTION 209. TITLE TO TRUST PROPERTY.
Legal title to all Trust Property shall be vested at all times in the
Property Trustee (in its capacity as such) and shall be held and administered
by the Property Trustee for the benefit of the Securityholders in accordance
with this Trust Agreement.
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ARTICLE III
PAYMENT ACCOUNT
SECTION 301. PAYMENT ACCOUNT.
(a) On or prior to the Closing Date, the Property Trustee shall
establish the Payment Account. The Property Trustee and any agent of the
Property Trustee shall have exclusive control and sole right of withdrawal with
respect to the Payment Account for the purpose of making deposits and
withdrawals from the Payment Account in accordance with this Trust Agreement.
All monies and other property deposited or held from time to time in the
Payment Account shall be held by the Property Trustee in the Payment Account
for the exclusive benefit of the Securityholders and for distribution as herein
provided, including (and subject to) any priority of payments provided for
herein.
(b) The Property Trustee shall deposit in the Payment Account,
promptly upon receipt, all payments of principal of or interest on, and any
other payments or proceeds with respect to, the Debentures. Amounts held in the
Payment Account shall not be invested by the Property Trustee pending
distribution thereof.
ARTICLE IV
DISTRIBUTIONS; REDEMPTION
SECTION 401. DISTRIBUTIONS.
The Trust Securities represent undivided beneficial interests in the
Trust Property, and Distributions (including Additional Amounts) will be made
on the Trust Securities at the rate and on the dates that payments of interest
(including of Additional Interest, as defined in the Indenture) are made on the
Debentures. Accordingly:
(a) Distributions on the Trust Securities shall be cumulative, and
shall accumulate whether or not there are funds of the Trust available for the
payment of Distributions. Distributions shall accumulate from ___________, 1998
and, except during any Extended Interest Payment Period with respect to the
Debentures, shall be payable quarterly in arrears on March 31, June 30,
September 30 and December 31 each year, commencing on June 30, 1998. If any
date on which a Distribution is otherwise payable on the Trust Securities is
not a Business Day, then the payment of such Distribution shall be made on the
next succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay) except that, if such Business Day is in
the next succeeding calendar year, payment of such Distribution shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such date (each date on which Distributions are payable in
accordance with subsection (a) of this Section, a "Distribution Date").
(b) Assuming payments of interest on the Debentures are made when
due (and before giving effect to Additional Amounts, if applicable),
Distributions on the Trust Securities shall be payable at a rate of ______% per
annum of the Liquidation Amount of the Trust Securities. The amount of
Distributions payable for any full period shall be computed on the basis of a
360-day year
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of twelve 30-day months. The amount of Distributions for any partial period
shall be computed on the basis of the number of days elapsed in a 360-day year
of twelve 30-day months. During any Extended Interest Payment Period with
respect to the Debentures, Distributions on the Preferred Securities shall be
deferred for a period equal to the Extended Interest Payment Period. The amount
of Distributions payable for any period shall include the Additional Amounts,
if any.
(c) Distributions on the Trust Securities shall be made by the
Property Trustee solely from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Trust has funds then on hand and
immediately available in the Payment Account for the payment of such
Distributions.
(d) Distributions on the Trust Securities with respect to a
Distribution Date shall be payable to the recordholders thereof as they appear
on the Securities Register for the Trust Securities on the relevant record
date, which shall be one Business Day prior to the relevant Distribution Date;
provided, however, in the event that the Trust Securities do not remain in
book-entry form, the relevant record date shall be the date 15 days prior to
the relevant Distribution Date.
SECTION 402. REDEMPTION.
(a) On each Debenture Redemption Date and at the stated maturity
of the Debentures the Trust shall be required to redeem a Like Amount of Trust
Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee in
the name of and at the expense of the Trust by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date to each Holder of Trust Securities to be redeemed, at such Holder's
address appearing in the Securities Register. The Property Trustee shall have
no responsibility for the accuracy of any CUSIP number contained in such
notice. All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the CUSIP number;
(iv) if less than all the Outstanding Trust Securities are
to be redeemed, the identification and the aggregate Liquidation Amount of the
particular Trust Securities to be redeemed;
(v) that, on the Redemption Date, the Redemption Price
shall become due and payable upon each such Trust Security to be redeemed and
that Distributions thereon shall cease to accumulate on and after said date
with respect to each such Trust Security; and
(vi) the place or places where the Trust Securities are to
be surrendered for the payment of the Redemption Price.
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(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption of a Like Amount of Debentures. Redemptions of the Trust Securities
shall be made and the Redemption Price shall be payable on each Redemption Date
only to the extent that the Trust has immediately available funds then on hand
and available in the Payment Account for the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in
respect of any Preferred Securities, then, by 10:00 a.m., New York City time,
on the Redemption Date, subject to SECTION 402(C), the Property Trustee will,
so long as the Preferred Securities are in book-entry-only form, irrevocably
deposit with the Clearing Agency for the Preferred Securities funds sufficient
to pay the applicable Redemption Price and will give the Clearing Agency
irrevocable instructions and authority to pay the Redemption Price to the
Holders thereof. If the Preferred Securities are no longer in book-entry-only
form, the Property Trustee, subject to SECTION 402(C), will irrevocably deposit
with the Paying Agent for the Preferred Securities funds sufficient to pay the
applicable Redemption Price and will provide the Paying Agent with irrevocable
instructions and authority to pay the Redemption Price to the Holders thereof
upon surrender of their Preferred Securities Certificates. Notwithstanding the
foregoing, Distributions payable on or prior to the Redemption Date for any
Trust Securities called for redemption shall be payable to the Holders of such
Trust Securities as they appear on the Securities Register for the Trust
Securities on the relevant record dates for the related Distribution Dates. If
notice of redemption shall have been given and funds deposited as required,
then upon the date of such deposit, all rights of Securityholders holding Trust
Securities so called for redemption shall cease, except the right of such
Securityholders to receive the Redemption Price and any Distribution payable on
or prior to the Redemption Date (but without interest thereon) and such
Securities shall cease to be Outstanding. In the event that any date on which
any Redemption Price is payable is not a Business Day, then payment of the
Redemption Price payable on such date shall be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day falls in the next calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case, with the same force and effect as if made on such date. In the event
that payment of the Redemption Price in respect of any Trust Securities called
for redemption is improperly withheld or refused and not paid either by the
Trust or by the Depositor pursuant to the Guarantee, Distributions on such
Trust Securities shall continue to accumulate, at the then applicable rate,
from the Redemption Date originally established by the Trust for such Trust
Securities to the date such Redemption Price is actually paid, in which case
the actual payment date shall be the date fixed for redemption for purposes of
calculating the Redemption Price.
(e) Payment of the Redemption Price on the Trust Securities shall
be made to the record holders thereof as they appear on the Securities Register
for the Trust Securities on the relevant record date, which shall be one
Business Day prior to the relevant Redemption Date; provided, however, in the
event that the Preferred Securities do not remain in book-entry form, the
relevant record date shall be the date 15 days prior to the relevant Redemption
Date.
(f) Subject to SECTION 403(A), if less than all the Outstanding
Trust Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated on a
pro rata basis (based on Liquidation Amounts) among the Common Securities and
the Preferred Securities. The particular Preferred Securities to be redeemed
shall be
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selected not more than 60 days prior to the Redemption Date by the Property
Trustee from the Outstanding Preferred Securities not previously called for
redemption, by such method (including, without limitation, by lot) as the
Property Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions (equal to $10 or an integral multiple
thereof), of the Liquidation Amount of Preferred Securities of a denomination
larger than $10. The Property Trustee shall promptly notify the Securities
Registrar in writing of the Preferred Securities selected for redemption and,
in the case of any Preferred Securities selected for partial redemption, the
Liquidation Amount thereof to be redeemed. For all purposes of this Trust
Agreement, unless the context otherwise requires, all provisions relating to
the redemption of Preferred Securities shall relate, in the case of any
Preferred Securities redeemed or to be redeemed only in part, to the portion of
the Liquidation Amount of Preferred Securities which has been or is to be
redeemed.
SECTION 403. SUBORDINATION OF COMMON SECURITIES.
(a) Payment of Distributions (including Additional Amounts, if
applicable) on, and the Redemption Price of, the Trust Securities, as
applicable, shall be made, subject to SECTION 402(F), pro rata among the Common
Securities and the Preferred Securities based on the Liquidation Amount of the
Trust Securities, provided, however, that if on any Distribution Date or
Redemption Date any Event of Default resulting from a Debenture Event of
Default shall have occurred and be continuing, no payment of any Distribution
(including Additional Amounts, if applicable) on, or Redemption Price of, any
Common Security, and no other payment on account of the redemption, liquidation
or other acquisition of Common Securities, shall be made unless payment in full
in cash of all accumulated and unpaid Distributions (including Additional
Amounts, if applicable) on all Outstanding Preferred Securities for all
Distribution periods terminating on or prior thereto, or in the case of payment
of the Redemption Price the full amount of such Redemption Price on all
Outstanding Preferred Securities then called for redemption, shall have been
made or provided for, and all funds immediately available to the Property
Trustee shall first be applied to the payment in full in cash of all
Distributions (including Additional Amounts, if applicable) on, or the
Redemption Price of, Preferred Securities then due and payable.
(b) In the case of the occurrence of any Event of Default
resulting from a Debenture Event of Default, the Holder of Common Securities
shall be deemed to have waived any right to act with respect to any such Event
of Default under this Trust Agreement until the effect of all such Events of
Default with respect to the Preferred Securities shall have been cured, waived
or otherwise eliminated. Until any such Event of Default under this Trust
Agreement with respect to the Preferred Securities shall have been so cured,
waived or otherwise eliminated, the Property Trustee shall act solely on behalf
of the Holders of the Preferred Securities and not the Holder of the Common
Securities, and only the Holders of the Preferred Securities shall have the
right to direct the Property Trustee to act on their behalf.
SECTION 404. PAYMENT PROCEDURES.
Payments of Distributions (including Additional Amounts, if
applicable) in respect of the Preferred Securities shall be made by check
mailed to the address of the Person entitled thereto as such address shall
appear on the Securities Register or, if the Preferred Securities are held by a
Clearing Agency, such Distributions shall be made in immediately available
funds to the Clearing
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Agency, which will credit the relevant accounts on the applicable Distribution
Dates. Payments in respect of the Common Securities shall be made in such
manner as shall be mutually agreed between the Property Trustee and the Holder
of the Common Securities.
SECTION 405. TAX RETURNS AND REPORTS.
The Administrative Trustees shall prepare (or cause to be prepared),
at the Depositor's expense, and file all United States federal, state and local
tax and information returns and reports required to be filed by or in respect
of the Trust. In this regard, the Administrative Trustees shall (a) prepare and
file (or cause to be prepared and filed) the appropriate Internal Revenue
Service Form required to be filed in respect of the Trust in each taxable year
of the Trust; and (b) prepare and furnish (or cause to be prepared and
furnished) to each Securityholder the appropriate Internal Revenue Service form
required to be furnished to such Securityholder or the information required to
be provided on such form. The Administrative Trustees shall provide the
Depositor with a copy of all such returns and reports promptly after such
filing or furnishing. The Property Trustee shall comply with United States
federal withholding and backup withholding tax laws and information reporting
requirements with respect to any payments to Securityholders under the Trust
Securities.
SECTION 406. PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST.
Upon receipt under the Debentures of Additional Interest, the Property
Trustee, at the written direction of an Administrative Trustee or the
Depositor, shall promptly pay any taxes, duties or governmental charges of
whatsoever nature (other than withholding taxes) imposed on the Trust by the
United States or any other taxing authority.
SECTION 407. PAYMENTS UNDER INDENTURE.
Any amount payable hereunder to any Holder of Preferred Securities
shall be reduced by the amount of any corresponding payment such Holder (or any
related Owner) has directly received under the Indenture pursuant to SECTION
512(b) or (c) hereof.
ARTICLE V
TRUST SECURITIES CERTIFICATES
SECTION 501. INITIAL OWNERSHIP.
Upon the creation of the Trust and the contribution by the Depositor
pursuant to SECTION 203 and until the issuance of the Trust Securities, and at
any time during which no Trust Securities are outstanding, the Depositor shall
be the sole beneficial owner of the Trust.
SECTION 502. THE TRUST SECURITIES CERTIFICATES.
(a) The Preferred Securities Certificates shall be issued in
minimum denominations of $10 Liquidation Amount and integral multiples thereof,
and the Common Securities Certificates shall be issued in denominations of $10
Liquidation Amount and integral multiples thereof. The Trust Securities
Certificates shall be executed on behalf of the Trust by manual, facsimile or
imprinted
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signature of at least one Administrative Trustee, and the Property Trustee
shall authenticate and register the Preferred Securities Certificates. Trust
Securities Certificates bearing the signatures of individuals who were, at the
time when such signatures were affixed, authorized to sign on behalf of the
Trust, shall be validly issued and entitled to the benefits of this Trust
Agreement, notwithstanding that such individuals or any of them shall have
ceased to be so authorized prior to the delivery of such Trust Securities
Certificates or did not hold such offices at the date of delivery of such Trust
Securities Certificates. A transferee of a Trust Securities Certificate shall
become a Securityholder, and shall be entitled to the rights and subject to the
obligations of a Securityholder hereunder, upon due registration of such Trust
Securities Certificate in such transferee's name pursuant to SECTIONS 504 and
511A.
(b) Upon their original issuance, Preferred Securities
Certificates shall be issued in the form of one or more fully registered Global
Preferred Securities Certificates which will be deposited with or on behalf of
the Depositary and registered in the name of the Depositary's nominee. Unless
and until it is exchangeable in whole or in part for the Preferred Securities
in definitive form, a Global Preferred Security may not be transferred except
as a whole by the Depositary to a nominee of the Depositary or by a nominee of
the Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor of such Depositary or a nominee
of such successor.
(c) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.
SECTION 503. EXECUTION AND DELIVERY OF TRUST SECURITIES CERTIFICATES.
On the Closing Date and on the date on which the Underwriters exercise
the option to purchase additional Preferred Securities, as applicable (the
"Option Closing Date"), the Administrative Trustees shall cause Trust
Securities Certificates, in an aggregate Liquidation Amount as provided in
SECTIONS 204 and 205, to be executed on behalf of the Trust by manual,
facsimile or imprinted signature of at least one of the Administrative Trustees
and delivered to the Property Trustee and upon such delivery, the Property
Trustee shall authenticate and register the Preferred Securities Certificates
and make available for delivery such Preferred Securities Certificates upon the
written order of the Depositor, executed by its Chairman of the Board, Chief
Executive Officer or President or any Vice President and the Chief Financial
Officer, Treasurer or an Assistant Treasurer or Secretary or Assistant
Secretary without further corporate action by the Depositor, in authorized
denominations.
SECTION 503A. GLOBAL PREFERRED SECURITIES.
(a) Each Global Preferred Security issued under this Trust
Agreement shall be registered in the name of the Clearing Agency designated by
the Depositor for the related Global Preferred Securities or a nominee thereof
and delivered to such Clearing Agency or a nominee thereof or custodian
therefor.
(b) Notwithstanding any other provision in this Trust Agreement,
no Global Preferred Securities may be exchanged in whole or in part for
Preferred Securities registered, and no transfer
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of Global Preferred Securities in whole or in part may be registered, in the
name of any Person other than the Clearing Agency for such Global Preferred
Securities or a nominee thereof unless (a) the Clearing Agency advises the
Property Trustee in writing that the Clearing Agency is no longer willing or
able to properly discharge its responsibilities with respect to the Global
Preferred Securities, and the Administrative Trustees are unable to locate a
qualified successor, (b) the Trust at its option advises the Clearing Agency in
writing that it elects to eliminate the global system through the Clearing
Agency, (c) after the occurrence of a Debenture Event of Default or (d)
pursuant to the following sentence. All or any portion of a Global Preferred
Security may be exchanged for a Preferred Security that has a like aggregate
principal amount and is not a Global Preferred Security upon 20 days' prior
written request made by the Clearing Agency or its authorized representative to
the Property Trustee. Upon the occurrence of any event specified in clause
(a), (b) or (c) above, the Administrative Trustees shall notify the Clearing
Agency and the Clearing Agency shall notify all Owners of beneficial interests
in Global Preferred Securities, the Delaware Trustee, the Property Trustee and
the Administrative Trustees of the occurrence of such event and of the
availability of the Definitive Preferred Securities to such Owners requesting
the same; provided, however, that no Definitive Preferred Securities shall be
issued in an amount representing less than $10 in aggregate Liquidation Amount
of Preferred Securities. Upon surrender to the Administrative Trustees of the
typewritten Preferred Securities Certificate or certificates representing the
Global Preferred Securities held by the Clearing Agency, accompanied by
registration instructions, the Administrative Trustees, or any one of them,
shall execute a Definitive Preferred Securities Certificate in accordance with
the instructions of the Clearing Agency. Neither the Securities Registrar nor
the Trustees shall be liable for any delay in delivery of such instructions and
may conclusively rely on, and shall be protected in relying on, such
instructions. Upon the issuance of the Definitive Preferred Securities
Certificate, the Trustees shall recognize the Holder of a Definitive Preferred
Securities Certificate as a Securityholder. Definitive Preferred Securities
Certificates shall be printed, lithographed or engraved or may be produced in
any other manner as is reasonably acceptable to the Administrative Trustees, as
evidenced by the execution thereof by the Administrative Trustees or any one of
them.
(c) If any Global Preferred Security is to be exchanged for
Definitive Preferred Securities Certificates or canceled in part, or if
Definitive Preferred Securities Certificates are to be exchanged in whole or in
part for a Global Preferred Security, then either (i) such Global Preferred
Security shall be so surrendered for exchange or cancellation as provided in
this Article or (ii) the aggregate Liquidation Amount represented by such
Global Preferred Security shall be reduced, subject to SECTION 502, or
increased, by an amount equal to the Liquidation Amount represented by that
portion of the Global Preferred Security to be so exchanged or canceled, or
equal to the Liquidation Amount represented by such Definitive Preferred
Securities Certificates to be so exchanged for beneficial interests in the
Global Preferred Security represented thereby, as the case may be, by means of
an appropriate adjustment made on the records of the Securities Registrar,
whereupon the Property Trustee, in accordance with the Applicable Procedures,
shall instruct the Clearing Agency or its authorized representative to make a
corresponding adjustment to its records. Upon surrender to the Administrative
Trustees or the Securities Registrar of the Global Preferred Security by the
Clearing Agency, accompanied by registration instructions, the Administrative
Trustees, or any one of them, shall execute the Definitive Preferred Securities
Certificates in accordance with the instructions of the Clearing Agency and
SECTION 502; provided, however, that no Definitive Preferred Securities
Certificates shall be issued in an amount representing less than $100,000 in
aggregate Liquidation Amount of Preferred Securities. None of the Securities
Registrar, the Trustees or the Administrative
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Trustees shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Preferred Securities Certificates, the Trustees
shall recognize the Holders of the Definitive Preferred Securities Certificates
as Securityholders. The Definitive Preferred Securities Certificates shall be
printed, lithographed or engraved or may be produced in any other manner as is
reasonably acceptable to the Administrative Trustees, as evidenced by the
execution thereof by the Administrative Trustees or any one of them.
(d) Every Definitive Preferred Security executed and delivered
upon registration of, transfer of, or in exchange for or in lieu of, a Global
Preferred Security or any portion thereof, whether pursuant to this Article or
ARTICLE IV or otherwise, shall be executed and delivered in the form of, and
shall be, a Global Preferred Security, unless such Definitive Preferred
Security is registered in the name of a Person other than the Clearing Agency
for such Global Preferred Security or a nominee thereof.
(e) The Clearing Agency or its nominee, as registered owner of a
Global Preferred Security, shall be the Holder of such Global Preferred
Security for all purposes under this Trust Agreement and the Global Preferred
Security, and Owners with respect to a Global Preferred Security shall hold
such interests pursuant to the Applicable Procedures. The Securities Registrar
and the Trustees shall be entitled to deal with the Clearing Agency for all
purposes of this Trust Agreement relating to the Global Preferred Securities
(including the payment of the Liquidation Amount of and Distributions on the
beneficial interests in Global Preferred Securities represented thereby and the
giving of instructions or directions to Owners of Global Preferred Securities
represented thereby) as the sole Holder of the Global Preferred Securities
represented thereby and shall have no obligations to the Owners thereof.
Neither the Property Trustee nor the Securities Registrar shall have any
liability in respect of any transfers effected by the Clearing Agency.
The rights of the Owners of the Global Preferred Securities shall be
exercised only through the Clearing Agency and shall be limited to those
established by law, the Applicable Procedures and agreements between such
Owners and the Clearing Agency and/or the Clearing Agency Participants.
Pursuant to the Certificate Depository Agreement, unless and until Definitive
Preferred Securities Certificate are issued pursuant to SECTION 503A(b), the
Clearing Agency will make global transfers among the Clearing Agency
Participants and receive and transmit payments on the Preferred Securities to
such Clearing Agency Participants.
SECTION 504. REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED SECURITIES
CERTIFICATES
(a) The Property Trustee shall keep or cause to be kept, at the
office or agency maintained pursuant to SECTION 508, a register or registers
for the purpose of registering Trust Securities Certificates and transfers and
exchanges of Preferred Securities Certificates (herein referred to as the
"Securities Register") in which the registrar and transfer agent (the
"Securities Registrar"), subject to such reasonable regulations as it may
prescribe, shall provide for the registration of Preferred Securities
Certificates and Common Securities Certificates (subject to SECTION 510 in the
case of the Common Securities Certificates) and registration of transfers and
exchanges of Preferred Securities Certificates as herein provided. The Property
Trustee shall be the initial Securities Registrar.
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Upon surrender for registration of transfer of any Preferred
Securities Certificate at the office or agency maintained pursuant to SECTION
508, the Administrative Trustees or any one of them shall execute and the
Property Trustee shall authenticate and make available for delivery, in the
name of the designated transferee or transferees, one or more new Preferred
Securities Certificates in authorized denominations of a like aggregate
Liquidation Amount dated the date of execution by such Administrative Trustee
or Trustees. At the option of a Holder, Preferred Securities Certificates may
be exchanged for other Preferred Securities Certificates in authorized
denominations of the same class and of a like aggregate Liquidation Amount upon
surrender of the Preferred Securities Certificates to be exchanged at the
office or agency maintained pursuant to SECTION 508.
Every Preferred Securities Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Property Trustee and the
Securities Registrar duly executed by the Holder or his attorney duly
authorized in writing. Each Preferred Securities Certificate surrendered for
registration of transfer or exchange shall be canceled and subsequently
disposed of by the Property Trustee in accordance with its customary practice.
The Trust shall not be required to (i) issue, register the transfer of, or
exchange any Preferred Securities during a period beginning at the opening of
business 15 calendar days before the date of mailing of a notice of redemption
of any Preferred Securities called for redemption and ending at the close of
business on the day of such mailing; or (ii) register the transfer of or
exchange of any Preferred Securities so selected for redemption, in whole or in
part, except the unredeemed portion of any such Preferred Securities being
redeemed in part.
No service charge shall be made for any registration of transfer or
exchange of Preferred Securities Certificates, but the Securities Registrar may
require payment of a sum sufficient to cover any tax or governmental charge
that may be imposed in connection with any transfer or exchange of Preferred
Securities Certificates.
(b) Trust Securities may only be transferred, in whole or in part,
in accordance with the terms and conditions set forth in this Trust Agreement.
To the fullest extent permitted by law, any transfer or purported transfer of
any Trust Security not made in accordance with this Trust Agreement shall be
null and void.
(i) A Trust Security that is not a Global Preferred
Security may be transferred, in whole or in part, to a Person who takes
delivery in the form of another Trust Security that is not a Global Security as
provided in SECTION 504(a).
(ii) Subject to this Section, Preferred Securities shall
be freely transferable.
(iii) A beneficial interest in Global Preferred Security
may be exchanged for a Preferred Security that is not a Global Preferred
Security as provided in SECTION 503A.
SECTION 505. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES
CERTIFICATES.
If (a) any mutilated Trust Securities Certificate shall be surrendered
to the Securities Registrar, or if the Securities Registrar shall receive
evidence to its satisfaction of the destruction, loss or theft of any Trust
Securities Certificate, and (b) there shall be delivered to the Securities
Registrar
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and the Administrative Trustees such security or indemnity as may be required
by them to save each of them harmless, then in the absence of notice that such
Trust Securities Certificate shall have been acquired by a bona fide purchaser,
the Administrative Trustees, or any one of them, on behalf of the Trust shall
execute by manual, facsimile or imprinted signature and the Property Trustee in
the case of a Preferred Securities Certificate shall authenticate and make
available for delivery, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities
Certificate of like class, tenor and denomination. In connection with the
issuance of any new Trust Securities Certificate under this Section, the
Administrative Trustees or the Securities Registrar may require the payment of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith. Any duplicate Trust Securities Certificate
issued pursuant to this Section shall constitute conclusive evidence of an
undivided beneficial interest in the assets of the Trust, as if originally
issued, whether or not the lost, stolen or destroyed Trust Securities
Certificate shall be found at any time.
SECTION 506. PERSONS DEEMED SECURITYHOLDERS.
The Trustees, the Paying Agent, the Securities Registrar and Depositor
shall treat any Persons in whose name any Trust Securities are issued as the
owner of such Trust Securities for the purpose of receiving Distributions and
for all other purposes whatsoever, and neither the Trust, the Trustees, the
Securities Registrar nor the Depositor shall be bound by any notice to the
contrary.
SECTION 507. ACCESS TO LIST OF SECURITYHOLDERS' NAMES AND ADDRESSES.
At any time when the Property Trustee is not also acting as the
Securities Registrar, the Administrative Trustees or the Depositor shall
furnish or cause to be furnished to the Property Trustee a list, in such form
as the Property Trustee may reasonably require, of the names and addresses of
the Securityholders as of the most recent record date (a) within one Business
Day after January 1 and June 30 of each year; and (b) promptly after receipt by
any Administrative Trustee or the Depositor of a request therefor from the
Property Trustee in order to enable the Property Trustee to discharge its
obligations under this Trust Agreement, in each case to the extent such
information is in the possession or control of the Administrative Trustees or
the Depositor and is not identical to a previously supplied list or has not
otherwise been received by the Property Trustee in its capacity as Securities
Registrar. The rights of Securityholders to communicate with other
Securityholders with respect to their rights under this Trust Agreement or
under the Trust Securities, and the corresponding rights of the Trustee shall
be as provided in the Trust Indenture Act. Each Holder and each Owner shall be
deemed to have agreed not to hold the Depositor, the Property Trustee or the
Administrative Trustees accountable by reason of the disclosure of its name and
address, regardless of the source from which such information was derived.
SECTION 508. MAINTENANCE OF OFFICE OR AGENCY.
The Property Trustee shall designate, with the consent of the
Administrative Trustees, which consent shall not be unreasonably withheld, an
office or offices or agency or agencies where Preferred Securities Certificates
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Trustees in respect of the Trust Securities
Certificates may be served. The Property Trustee initially designates its
corporate trust office at 2001 Ross Avenue, Suite 2700,
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Dallas, Texas 75201, Attn: Corporate Trust Trustee Administration, as the
principal corporate trust office for such purposes. The Property Trustee shall
give prompt written notice to the Depositor, the Administrative Trustees and to
the Securityholders of any change in the location of the Securities Register or
any such office or agency.
SECTION 509. APPOINTMENT OF PAYING AGENT.
The Paying Agent shall make Distributions to Securityholders from the
Payment Account and shall report the amounts of such Distributions to the
Property Trustee and the Administrative Trustees. Any Paying Agent shall have
the revocable power to withdraw funds from the Payment Account for the purpose
of making the Distributions referred to above. The Property Trustee may revoke
such power and remove the Paying Agent if such Trustee determines in its sole
discretion that the Paying Agent shall have failed to perform its obligation
under this Trust Agreement in any material respect. The Paying Agent shall
initially be U.S. Trust, and any co-paying agent chosen by the Property
Trustee, and acceptable to the Administrative Trustees and the Depositor. Any
Person acting as Paying Agent shall be permitted to resign as Paying Agent upon
30 days' written notice to the Administrative Trustees and the Property
Trustee. In the event that the Property Trustee shall no longer be the Paying
Agent or a successor Paying Agent shall resign or its authority to act be
revoked, the Property Trustee shall appoint a successor that is reasonably
acceptable to the Administrative Trustees to act as Paying Agent to execute and
deliver to the Trustees an instrument in which such successor Paying Agent or
additional Paying Agent shall agree with the Trustees that as Paying Agent,
such successor Paying Agent or additional Paying Agent shall hold all sums, if
any, held by it for payment to the Securityholders in trust for the benefit of
the Securityholders entitled thereto until such sums shall be paid to such
Securityholders. The Paying Agent shall return all unclaimed funds to the
Property Trustee and, upon removal of a Paying Agent, such Paying Agent shall
also return all funds in its possession to the Property Trustee. The provisions
of SECTIONS 801, 803 and 806 shall apply to U.S. Trust also in its role as
Paying Agent, for so long as U.S. Trust shall act as Paying Agent and, to the
extent applicable, to any other paying agent appointed hereunder. Any reference
in this Trust Agreement to the Paying Agent shall include any co-paying agent
unless the context requires otherwise.
SECTION 510. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR.
On the Closing Date, the Depositor shall acquire and retain beneficial
and record ownership of the Common Securities. To the fullest extent permitted
by law, any attempted transfer of the Common Securities (other than a transfer
pursuant to SECTION 12.1 of the Indenture) shall be void. The Administrative
Trustees shall cause each Common Securities Certificate issued to the Depositor
to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT TO A
SUCCESSOR IN INTEREST TO THE DEPOSITOR IN COMPLIANCE WITH APPLICABLE LAW AND
SECTION 510 OF THIS TRUST AGREEMENT."
SECTION 511. NOTICES TO CLEARING AGENCY.
To the extent that a notice or other communication to the Holders is
required under this Trust Agreement, for so long as Preferred Securities are
represented by a Global Preferred Securities
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Certificate, the Trustees shall give all such notices and communications
specified herein to be given to the Clearing Agency, and shall have no
obligations to the Owners.
SECTION 511A. DEFINITIVE PREFERRED SECURITIES CERTIFICATE AND TEMPORARY
PREFERRED SECURITIES CERTIFICATES.
(a) If (a) the Clearing Agency advises the Trustees in writing
that the Clearing Agency is no longer willing or able to discharge properly its
responsibilities with respect to the Preferred Securities, and the Depositor is
unable to locate a qualified successor, (b) the Trust at its option advises the
Trustees in writing that it elects to terminate the book-entry system through
the Clearing Agency or (c) after the occurrence of a Debenture Event of
Default, Holders of at least a majority of the Liquidation Amount of the
Preferred Securities then Outstanding advise the Administrative Trustees in
writing that the continuation of a book-entry system though the Clearing Agency
is no longer in the best interest of the Holders of Preferred Securities, then
the Administrative Trustees shall notify the Clearing Agency and the Clearing
Agency shall notify the Holders of Preferred Securities and the other Trustees
of the occurrence of such event and of the availability of Definitive
Preferred Securities to Holders of such class requesting the same.
(b) Pending the preparation of permanent Definitive Preferred
Securities Certificates, an Administrative Trustee may cause to be executed and
delivered on behalf of the Trust temporary Preferred Securities Certificates
(the "Temporary Preferred Securities Certificates"), which Temporary Preferred
Securities Certificates are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the Definitive Preferred Securities Certificates in lieu of which they are
issued and with such appropriate insertions, omissions, substitutions and other
variations of the officers executing such Temporary Preferred Securities
Certificates may determine, as evidenced by their execution thereof.
If Temporary Preferred Securities are issued, an Administrative
Trustee will cause Definitive Preferred Securities Certificates to be prepared
without unreasonable delay. After the preparation of the Definitive Preferred
Securities Certificates, the Temporary Preferred Securities Certificates shall
be exchangeable for Definitive Preferred Securities Certificates upon surrender
of the Temporary Preferred Securities Certificates at any office or agency of
the Depositor designated herein, without charge to the Holder. Upon surrender
for cancellation of any one or more Temporary Preferred Securities
Certificates, at least one Administrative Trustee shall execute by manual,
facsimile or imprinted signature and the Property Trustee shall authenticate,
register and make available for delivery in exchange therefor a like principal
amount of Definitive Preferred Securities Certificates of authorized
denominations. Until so exchanged the Temporary Preferred Securities
Certificates shall in all respects be entitled to the same benefits as
Definitive Preferred Securities Certificates.
SECTION 512. RIGHTS OF SECURITYHOLDERS.
(a) The legal title to the Trust Property is vested exclusively in
the Property Trustee (in its capacity as such) in accordance with SECTION 209,
and the Securityholders shall not have any right or title therein other than
the undivided beneficial interest in the assets of the Trust conferred by their
Trust Securities and they shall have no right to call for any partition or
division of property, profits or rights of the Trust except as described below.
The Trust Securities shall be personal property
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giving only the rights specifically set forth therein and in this Trust
Agreement. The Trust Securities shall have no preemptive or similar rights.
When issued and delivered to Holders of the Trust Securities against payment of
the purchase price therefor, the Trust Securities shall be fully paid and
nonassessable, undivided beneficial interests in the assets of the Trust. The
Holders of the Trust Securities, in their capacities as such, shall be entitled
to the same limitation of personal liability extended to stockholders of
private corporations for profit organized under the General Corporation Law of
the State of Delaware.
(b) For so long as any Preferred Securities remain Outstanding,
if, upon a Debenture Event of Default, the Debenture Trustee fails or the
holders of not less than 25% in principal amount of the outstanding Debentures
fail to declare the principal of all of the Debentures to be immediately due
and payable, the Holders of at least 25% in Liquidation Amount of the Preferred
Securities then Outstanding shall have the right to make such declaration by a
notice in writing to the Depositor, the Property Trustee and the Debenture
Trustee; and upon any such declaration such principal amount of and the accrued
interest on all of the Debentures shall become immediately due and payable,
provided that the payment of principal and interest on such Debentures shall
remain subordinated to the extent provided in the Indenture.
At any time after such declaration of acceleration with respect to the
Debentures has been made and before a judgment or decree for payment of the
money due has been obtained by the Debenture Trustee as provided in the
Indenture, the Holders of a majority in Liquidation Amount of the Preferred
Securities, by written notice to the Property Trustee, the Depositor and the
Debenture Trustee, may rescind and annul such declaration and its consequences
if:
(i) the Depositor has paid or deposited with the
Debenture Trustee a sum sufficient to pay
(A) all overdue installments of interest on all
of the Debentures,
(B) any accrued Additional Interest on all of the
Debentures,
(C) the principal of (and premium, if any, on)
any Debentures which have become due otherwise than by such declaration of
acceleration and interest and Additional Interest thereon at the rate borne by
the Debentures, and
(D) all sums paid or advanced by the Debenture
Trustee under the Indenture and the reasonable compensation, expenses,
disbursements and advances of the Debenture Trustee and the Property Trustee,
their agents and counsel; and
(ii) all Events of Default with respect to the Debentures,
other than the non-payment of the principal of the Debentures which has become
due solely by such acceleration, have been cured or waived as provided in the
Indenture.
If the Property Trustee fails to annul any such declaration and waive
such default, the Holders of at least a majority in Liquidation Amount of the
Preferred Securities shall also have the right to rescind and annul such
declaration and its consequences by written notice to the Depositor, the
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Property Trustee and the Debenture Trustee, subject to the satisfaction of the
conditions set forth in clause (i) and (ii) of this Section.
The Holders of at least a majority in Liquidation Amount of the
Preferred Securities may, on behalf of the Holders of all the Preferred
Securities, waive any past Debenture Event of Default, except a default in the
payment of principal or interest (unless such default has been cured and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee)
or a default in respect of a covenant or provision which under the Indenture
cannot be modified or amended without the consent of the holder of each
outstanding Debenture. No such rescission shall affect any subsequent default
or impair any right consequent thereon.
Upon receipt by the Property Trustee of written notice declaring such
an acceleration, or rescission and annulment thereof, by Holders of the
Preferred Securities all or part of which is represented by Global Preferred
Securities, a record date shall be established for determining Holders of
Outstanding Preferred Securities entitled to join in such notice, which record
date shall be at the close of business on the day the Property Trustee receives
such notice. The Holders on such record date, or their duly designated
proxies, and only such Persons, shall be entitled to join in such notice,
whether or not such Holders remain Holders after such record date; provided,
that, unless such declaration of acceleration, or rescission or annulment, as
the case may be, shall have become effective by virtue of the requisite
percentage having joined in such notice prior to the day which is 90 days after
the record date, such notice of declaration of acceleration, or rescission and
annulment, as the case may be, shall automatically and without further action
by any Holder be canceled and of no further effect. Nothing in this paragraph
shall prevent a Holder, or a proxy of a Holder, from giving, after expiration
of such 90-day period, a new written notice of declaration of acceleration, or
rescission and annulment thereof, as the case may be, that is identical to a
written notice which has been canceled pursuant to the proviso to the preceding
sentence, in which event a new record date shall be established pursuant to the
provisions of this Section.
(c) For so long as any Preferred Securities remain Outstanding,
if, upon a Debenture Event of Default arising from the failure to pay interest
or principal on the Debentures, any Holders of Preferred Securities then
Outstanding shall, to the fullest extent permitted by law and subject to the
terms of this Trust Agreement and the Indenture, have the right to institute a
proceeding directly against the Depositor for enforcement of payment to such
Holder of principal of or interest on the Debentures having a principal amount
equal to the Liquidation Amount of the Preferred Securities of such Holder.
SECTION 513. CUSIP NUMBERS.
The Depositor in issuing the Debentures may use "CUSIP" numbers (if
then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in
notices of redemption as a convenience to holders; provided that any such
notice may state that no representation is made as to the correctness of such
numbers either as printed on the Debentures or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Debentures, and any such redemption shall not be
affected by any defect in or omission of such numbers. The Depositor will
promptly notify the Property Trustee of any change in the CUSIP numbers.
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ARTICLE VI
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
SECTION 601. LIMITATIONS ON VOTING RIGHTS.
(a) Except as provided in this Section, in SECTIONS 512, 810 and
1002 and in the Indenture and as otherwise required by law, no Holder of
Preferred Securities shall have any right to vote or in any manner otherwise
control the administration, operation and management of the Trust or the
obligations of the parties hereto, nor shall anything herein set forth, or
contained in the terms of the Trust Securities Certificates, be construed so as
to constitute the Securityholders from time to time as partners or members of
an association.
(b) So long as any Debentures are held by the Property Trustee,
the Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or executing any
trust or power conferred on the Property Trustee with respect to such
Debentures; (ii) waive any past default which is waivable under ARTICLE VII of
the Indenture; (iii) exercise any right to rescind or annul a declaration that
the principal of all the Debentures shall be due and payable; or (iv) consent
to any amendment, modification or termination of the Indenture or the
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of at least a majority in
Liquidation Amount of all Outstanding Preferred Securities; provided, however,
that where a consent under the Indenture would require the consent of each
Holder of Outstanding Debentures affected thereby, no such consent shall be
given by the Property Trustee without the prior written consent of each Holder
of Preferred Securities. The Trustees shall not revoke any action previously
authorized or approved by a vote of the Holders of the Outstanding Preferred
Securities, except by a subsequent vote of the Holders of the Outstanding
Preferred Securities. The Property Trustee shall notify each Holder of
Outstanding Preferred Securities of any notice of default received from the
Debenture Trustee with respect to the Debentures. In addition to obtaining the
foregoing approvals of the Holders of the Preferred Securities, prior to taking
any of the foregoing actions, the Administrative Trustees shall provide to the
Property Trustee, at the expense of the Depositor, an Opinion of Counsel to the
effect that the Trust shall continue to be classified as a grantor trust and
not as an association taxable as a corporation for United States federal income
tax purposes on account of such action.
(c) If any proposed amendment to the Trust Agreement provides for,
or the Trustees otherwise propose to effect, (i) any action that would
adversely affect in any material respect the powers, preferences or special
rights of the Preferred Securities, whether by way of amendment to the Trust
Agreement or otherwise; or (ii) the liquidation, winding-up or termination of
the Trust, other than pursuant to the terms of this Trust Agreement, then the
Holders of Outstanding Preferred Securities as a class shall be entitled to
vote on such amendment or proposal and such amendment or proposal shall not be
effective except with the approval of the Holders of at least a majority in
Liquidation Amount of the Outstanding Preferred Securities. No amendment to
this Trust Agreement may be made if, as a result of such amendment, the Trust
would cease to be classified as a grantor trust or would be classified as an
association taxable as a corporation for United States federal income tax
purposes.
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SECTION 602. NOTICE OF MEETINGS.
Notice of all meetings of the Holders of Preferred Securities, stating
the time, place and purpose of the meeting, shall be given by the Property
Trustee pursuant to SECTION 1008 to each Holder of record of Preferred
Securities, at his registered address, at least 15 days and not more than 90
days before the meeting. At any such meeting, any business properly before the
meeting may be so considered whether or not stated in the notice of the
meeting. Any adjourned meeting may be held as adjourned without further notice.
SECTION 603. MEETINGS OF PREFERRED SECURITYHOLDERS.
(a) No annual meeting of Securityholders is required to be held.
The Administrative Trustees, however, shall call a meeting of Securityholders
to vote on any matter in respect of which Preferred Securityholders are
entitled to vote upon the written request of the Holders of 25% of the
Outstanding Preferred Securities (based upon their aggregate Liquidation
Amount) and the Administrative Trustees or the Property Trustee may, at any
time in their discretion, call a meeting of Preferred Securityholders to vote
on any matters as to which the Securityholders are entitled to vote.
(b) Holders of record of 50% of the Outstanding Preferred
Securities (based upon their aggregate Liquidation Amount), present in person
or by proxy shall constitute a quorum at any meeting of Securityholders.
(c) If a quorum is present at a meeting, an affirmative vote by
the Holders of record of more than a majority of the Preferred Securities
(based upon their aggregate Liquidation Amount) present, either in person or by
proxy, at such meeting shall constitute the action of the Securityholders
unless this Trust Agreement requires a greater number of affirmative votes.
SECTION 604. VOTING RIGHTS.
Securityholders shall be entitled to one vote for each $10 of
Liquidation Amount represented by their Trust Securities in respect of any
matter as to which such Securityholders are entitled to vote.
SECTION 605. PROXIES, ETC.
At any meeting of Securityholders, any Securityholder entitled to vote
thereat may vote by proxy, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Administrative Trustees, or
with such other officer or agent of the Trust as the Administrative Trustees
may direct, for verification prior to the time at which such vote shall be
taken. When Trust Securities are held jointly by several Persons, any one of
them may vote at any meeting in person or by proxy in respect of such Trust
Securities, but if more than one of them shall be present at such meeting in
person or by proxy, and such joint owners or their proxies so present disagree
as to any vote to be cast, such vote shall not be received in respect of such
Trust Securities. A proxy purporting to be executed by or on behalf of a
Securityholder shall be deemed valid unless challenged at or prior to its
exercise, and the burden of proving invalidity shall rest on the challenger. No
proxy shall be valid more than three years after its date of execution.
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SECTION 606. SECURITYHOLDER ACTION BY WRITTEN CONSENT.
Any action which may be taken by Securityholders at a meeting may be
taken without a meeting if Securityholders holding a majority of all
Outstanding Trust Securities (based upon their aggregate Liquidation Amount)
entitled to vote in respect of such action (or such larger proportion thereof
as shall be required by any express provision of this Trust Agreement) shall
consent to the action in writing.
SECTION 607. RECORD DATE FOR VOTING AND OTHER PURPOSES.
For the purposes of determining the Securityholders who are entitled
to notice of and to vote at any meeting or by written consent, or to
participate in any Distribution on the Trust Securities in respect of which a
record date is not otherwise provided for in this Trust Agreement, or for the
purpose of any other action, the Administrative Trustees may from time to time
fix a date, not more than 90 days prior to the date of any meeting of
Securityholders or the payment of any Distribution or other action as the case
may be, as a record date for the determination of the identity of the
Securityholders of record for such purposes.
SECTION 608. ACTS OF SECURITYHOLDERS.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided or permitted by this Trust Agreement
to be given, made or taken by Securityholders may be embodied in and evidenced
by one or more instruments of substantially similar tenor signed by such
Securityholders in person or by an agent duly appointed in writing, and, except
as otherwise expressly provided herein, such action shall become effective when
such instrument or instruments are delivered to an Administrative Trustee. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Securityholders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for
any purpose of this Trust Agreement and (subject to SECTION 801) conclusive in
favor of the Trustees, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which any Trustee receiving the same deems sufficient.
(c) The ownership of Preferred Securities shall be proved by the
Securities Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Trust Security shall bind
every future Holder of the same Trust Security and the Securityholder of every
Trust Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustees
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or the Trust in reliance thereon, whether or not notation of such action is
made upon such Trust Security.
(e) Without limiting the foregoing, a Securityholder entitled
hereunder to take any action hereunder with regard to any particular Trust
Security may do so with regard to all or any part of the Liquidation Amount of
such Trust Security or by one or more duly appointed agents each of which may
do so pursuant to such appointment with regard to all or any part of such
Liquidation Amount.
SECTION 609. INSPECTION OF RECORDS.
Upon reasonable notice to the Administrative Trustees and the Property
Trustee, the records of the Trust shall be open to inspection and copying by
Securityholders and their authorized representatives during normal business
hours for any purpose reasonably related to such Securityholder's interest as a
Securityholder.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
SECTION 701. REPRESENTATIONS AND WARRANTIES OF THE PROPERTY TRUSTEE AND THE
DELAWARE TRUSTEE.
The Property Trustee and the Delaware Trustee, each severally on
behalf of and as to itself, as of the date hereof, hereby represents and
warrants for the benefit of the Depositor and the Securityholders that:
(a) the Property Trustee is a trust company, duly organized,
validly existing and in good standing under the laws of the United States,
(b) the Property Trustee has full corporate power, authority and
legal right to execute, deliver and perform its obligations under this Trust
Agreement and has taken all necessary action to authorize the execution,
delivery and performance by it of this Trust Agreement;
(c) the Delaware Trustee is a trust company, duly organized,
validly existing and in good standing in the State of Delaware;
(d) the Delaware Trustee has full corporate power, authority and
legal right to execute, deliver and perform its obligations under this Trust
Agreement and has taken all necessary action to authorize the execution,
delivery and performance by it of this Trust Agreement;
(e) this Trust Agreement has been duly authorized, executed and
delivered by the Property Trustee and the Delaware Trustee and constitutes the
valid and legally binding agreement of the Property Trustee and the Delaware
Trustee enforceable against each of them in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors rights
and to general equity principles;
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(f) the execution, delivery and performance by the Property
Trustee and the Delaware Trustee of this Trust Agreement does not require any
approval of stockholders of the Property Trustee or the Delaware Trustee and
such execution delivery and performance shall not (i) violate the charter or
by-laws of the Property Trustee or the Delaware Trustee; (ii) violate any
provision of, or constitute, with or without notice or lapse of time, a default
under, or result in the creation or imposition of, any Lien on any properties
included in the Trust Property pursuant to the provisions of any indenture,
mortgage, credit agreement, license or other agreement or instrument to which
the Property Trustee or the Delaware Trustee is a party or by which it is
bound; or (iii) violate any law, governmental rule or regulation of the United
States or the State of Delaware, as the case may be, governing the banking or
trust powers of the Property Trustee or the Delaware Trustee (as appropriate in
context) or any order, judgment or decree applicable to the Property Trustee or
the Delaware Trustee;
(g) neither the authorization, execution or delivery by the
Property Trustee or the Delaware Trustee of this Trust Agreement nor the
consummation of any of the transactions by the Property Trustee or the Delaware
Trustee contemplated herein requires the consent or approval of, the giving of
notice to, the registration with or the taking of any other action with respect
to any governmental authority or agency under any existing United States
federal or Delaware law governing the banking or trust powers of the Property
Trustee or the Delaware Trustee, as the case may be; and
(h) there are no proceedings pending or, to the best of each of
the Property Trustee's and the Delaware Trustee's knowledge, threatened against
or affecting the Property Trustee or the Delaware Trustee in any court or
before any governmental authority, agency or arbitration board or tribunal
which, individually or in the aggregate, would materially and adversely affect
the Trust or would question the right, power and authority of the Property
Trustee or the Delaware Trustee , as the case may be, to enter into or perform
its obligations as one of the Trustees under this Trust Agreement.
SECTION 702. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR.
The Depositor hereby represents and warrants for the benefit of the
Securityholders that:
(a) the Trust Securities Certificates issued on the Closing Date
or the Option Closing Date, if applicable, on behalf of the Trust have been
duly authorized and, when so issued, will be duly and validly executed, issued
and delivered by at least one of the Administrative Trustees pursuant to the
terms and provisions of, and in accordance with the requirements of, this Trust
Agreement and the Securityholders shall be, as of such date, entitled to the
benefits of this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable
by the Trust (or the Trustees on behalf of the Trust) under the laws of the
State of Delaware or any political subdivision thereof in connection with the
execution, delivery and performance by U.S. Trust, the Delaware Trustee or the
Property Trustee, as the case may be, of this Trust Agreement.
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ARTICLE VIII
TRUSTEES
SECTION 801. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The duties and responsibilities of the Trustees shall be as
provided by this Trust Agreement and, in the case of the Property Trustee, by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Trust Agreement shall require any 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. No
Administrative Trustee shall be liable for its act or omissions hereunder
except as a result of its own gross negligence or bad faith or willful
misconduct. The Property Trustee's liability shall be determined under the
Trust Indenture Act. Whether or not therein expressly so provided, every
provision of this Trust Agreement relating to the conduct or affecting the
liability of or affording protection to the Trustees shall be subject to the
provisions of this Section. To the extent that, at law or in equity, an
Administrative Trustee has duties (including fiduciary duties) and liabilities
relating thereto to the Trust or to the Securityholders, such Administrative
Trustee shall not be liable to the Trust or to any Securityholder for such
Trustee's good faith reliance on the provisions of this Trust Agreement. The
provisions of this Trust Agreement, to the extent that they restrict the duties
and liabilities of the Administrative Trustees otherwise existing at law or in
equity, are agreed by the Depositor and the Securityholders to replace such
other duties and liabilities of the Administrative Trustees.
(b) All payments made by the Property Trustee or a Paying Agent in
respect of the Trust Securities shall be made only from the revenue and
proceeds from the Trust Property and only to the extent that there shall be
sufficient revenue or proceeds from the Trust Property to enable the Property
Trustee or a Paying Agent to make payments in accordance with the terms hereof.
With respect to the relationship of each Securityholder and the Trustee, each
Securityholder, by its acceptance of a Trust Security, agrees that it shall
look solely to the revenue and proceeds from the Trust Property to the extent
legally available for distribution to it as herein provided and that the
Trustees are not personally liable to it for any amount distributable in
respect of any Trust Security or for any other liability in respect of any
Trust Security. This subsection does not limit the liability of the Trustees
expressly set forth elsewhere in this Trust Agreement or, in the case of the
Property Trustee, in the Trust Indenture Act.
(c) No provision of this Trust Agreement shall be construed to
relieve the Property Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(i) the Property Trustee shall not be liable for any
error of judgment made in good faith by an authorized officer of the Property
Trustee, unless it shall be proved that the Property Trustee was negligent in
ascertaining the pertinent facts;
(ii) the Property Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in good faith in accordance
with the direction of the Holders of not less than
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a majority in Liquidation Amount of the Trust Securities relating to the time,
method and place of conducting any proceeding for any remedy available to the
Property Trustee, or exercising any trust or power conferred upon the Property
Trustee under this Trust Agreement;
(iii) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Debentures and the
Payment Account shall be to deal with such Property in a similar manner as the
Property Trustee deals with similar property for its own account, subject to
the protections and limitations on liability afforded to the Property Trustee
under this Trust Agreement and the Trust Indenture Act;
(iv) the Property Trustee shall not be liable for any
interest on any money received by it except as it may otherwise agree in
writing with the Depositor, and money held by the Property Trustee need not be
segregated from other funds held by it except in relation to the Payment
Account maintained by the Property Trustee pursuant to SECTION 301 and except
to the extent otherwise required by law; and
(v) the Property Trustee shall not be responsible for
monitoring the compliance by the Administrative Trustees or the Depositor with
their respective duties under this Trust Agreement, nor shall the Property
Trustee be liable for the negligence, default or misconduct of the
Administrative Trustees or the Depositor.
SECTION 802. CERTAIN NOTICES.
(a) Within 90 days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit, in
the manner and to the extent provided in SECTION 1008, notice of such Event of
Default to the Securityholders, the Administrative Trustees and the Depositor,
unless such Event of Default shall have been cured or waived.
(b) The Administrative Trustees shall transmit, to the
Securityholders and the Property Trustee in the manner and to the extent
provided in SECTION 1008, notice of the Depositor's election to begin or
further extend an Extended Interest Payment Period on the Debentures (unless
such election shall have been revoked) within the time specified for
transmitting such notice to the holders of the Debentures pursuant to the
Indenture as originally executed.
SECTION 803. CERTAIN RIGHTS OF PROPERTY TRUSTEE.
Subject to the provisions of SECTION 801:
(a) the Property Trustee may conclusively rely and shall be
protected in acting or refraining from acting in good faith upon any
resolution, Opinion of Counsel, certificate, written representation of a Holder
or transferee, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties;
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(b) if (i) in performing its duties under this Trust Agreement the
Property Trustee is required to decide between alternative courses of action;
or (ii) in construing any of the provisions of this Trust Agreement the
Property Trustee finds the same ambiguous or inconsistent with other provisions
contained herein; or (iii) the Property Trustee is unsure of the application of
any provision of this Trust Agreement, then, except as to any matter as to
which the Preferred Securityholders are entitled to vote under the terms of
this Trust Agreement, the Property Trustee shall deliver a notice to the
Depositor requesting written instructions of the Depositor as to the course of
action to be taken, and the Property Trustee shall take such action, or refrain
from taking such action, as the Property Trustee shall be instructed in writing
to take, or to refrain from taking, by the Depositor, provided, however, that
if the Property Trustee does not receive such instructions of the Depositor
within 10 Business Days after it has delivered such notice, or such reasonably
shorter period of time set forth in such notice (which to the extent
practicable shall not be less than 2 Business Days), it may, but shall be under
no duty to, take or refrain from taking such action not inconsistent with this
Trust Agreement as it shall deem advisable and in the best interests of the
Securityholders, in which event the Property Trustee shall have no liability
except for its own bad faith, negligence or willful misconduct;
(c) any direction or act of the Depositor or the Administrative
Trustees contemplated by this Trust Agreement shall be sufficiently evidenced
by an Officers' Certificate;
(d) whenever in the administration of this Trust Agreement, the
Property Trustee shall deem it desirable that a matter be established before
undertaking, suffering or omitting any action hereunder, the Property Trustee
(unless other evidence is herein specifically prescribed) may, in the absence
of bad faith on its part, request and conclusively rely upon an Officers'
Certificate which, upon receipt of such request, shall be promptly delivered by
the Depositor or the Administrative Trustees;
(e) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any financing or
continuation statement) or any filing under tax or securities laws or any re-
recording, refiling, or reregistration thereof;
(f) the Property Trustee may consult with counsel of its choice
(which counsel may be counsel to the Depositor or any of its Affiliates) and
the advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon and in accordance with such advice, the
Property Trustee shall have the right at any time to seek instructions
concerning the administration of this Trust Agreement from any court of
competent jurisdiction;
(g) the Property Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Trust Agreement at the request
or direction of any of the Securityholders pursuant to this Trust Agreement,
unless such Securityholders shall have offered to the Property Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or direction;
(h) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request,
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consent, order, approval, bond, debenture, note or other evidence of
indebtedness or other paper or document, unless requested in writing to do so
by one or more Securityholders, but the Property Trustee may make such further
inquiry or investigation into such facts or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through its
agents or attorneys, provided that the Property Trustee shall be responsible
for its own negligence or recklessness with respect to selection of any agent
or attorney appointed by it hereunder;
(j) whenever in the administration of this Trust Agreement the
Property Trustee shall deem it desirable to receive instructions with respect
to enforcing any remedy or right or taking any other action hereunder the
Property Trustee (i) may request written instructions from the Holders of the
Trust Securities which written instructions may only be given by the Holders of
the same proportion in Liquidation Amount of the Trust Securities as would be
entitled to direct the Property Trustee under the terms of the Trust Securities
in respect of such remedy, right or action; (ii) may refrain from enforcing
such remedy or right or taking such other action until such instructions are
received; and (iii) shall be protected in acting in accordance with such
written instructions; and
(k) except as otherwise expressly provided by this Trust
Agreement, the Property Trustee shall not be under any obligation to take any
action that is discretionary under the provisions of this Trust Agreement. No
provision of this Trust Agreement shall be deemed to impose any duty or
obligation on the Property Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Property Trustee
shall be construed to be a duty.
SECTION 804. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The Recitals contained herein and in the Trust Securities Certificates
shall be taken as the statements of the Trust, and the Trustees do not assume
any responsibility for their correctness. The Trustees shall not be accountable
for the use or application by the Depositor of the proceeds of the Debentures.
SECTION 805. MAY HOLD SECURITIES.
Any Trustee or any other agent of any Trustee or the Trust, in its
individual or any other capacity, may become the owner or pledgee of Trust
Securities and, subject to SECTIONS 808 and 813 and except as provided in the
definition of the term "Outstanding" in ARTICLE I, may otherwise deal with the
Trust with the same rights it would have if it were not a Trustee or such other
agent.
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SECTION 806. COMPENSATION; INDEMNITY; FEES.
The Depositor agrees:
(a) to pay to the Trustees from time to time such compensation as
the Trustees and the Depositor may agree in writing for all services rendered
by them hereunder (which compensation shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse
the Trustees upon request made by the Trustees in accordance with any provision
of this Trust Agreement (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to such Trustee's negligence,
bad faith or willful misconduct (or, in the case of the Administrative
Trustees, any such expense, disbursement or advance as may be attributable to
its, his or her gross negligence, bad faith or willful misconduct); and
(c) to indemnify each of the Trustees or any predecessor Trustee
for, and to hold the Trustees harmless against, any and all loss, damage,
claim, liability, penalty or expense, including taxes (other than taxes based
on the income of the Trustee) incurred without negligence or willful misconduct
on its part, arising out of or in connection with the acceptance or
administration of this Trust Agreement, including the costs and expenses of
defending itself against any claim or liability in connection with the
acceptance, exercise or performance of any of its powers or duties hereunder,
except any such expense, disbursement or advance as may be attributable to such
Trustee's negligence, bad faith or willful misconduct (or, in the case of the
Administrative Trustees, any such expense, disbursement or advance as may be
attributable to its, his or her gross negligence, bad faith or willful
misconduct).
The provisions of this Section shall survive the termination of this
Trust Agreement or the earlier resignations or removal of any Trustee.
No Trustee may claim any Lien or charge on any Trust Property as a
result of any amount due pursuant to this Section.
When any Trustee incurs expenses or renders services in connection
with an Event of Default specified in SECTION 7.1(A)(IV), SECTION 7.1(A)(V) OR
7.1(A)(VI) of the Indenture, the expenses (including reasonable charges and
expenses of its counsel) and the compensation for the services are intended to
constitute expenses of administration under any applicable Bankruptcy Law.
SECTION 807. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF TRUSTEES.
(a) There shall at all times be a Property Trustee hereunder with
respect to the Trust Securities. The Property Trustee shall be a Person that is
eligible pursuant to the Trust Indenture Act to act as such and has a combined
capital and surplus of at least $50,000,000. If any such Person publishes
reports of condition at least annually, pursuant to law or to the requirements
of its supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such Person shall be deemed to be
its combined capital and surplus as set forth in its most
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recent report of condition so published. If at any time the Property Trustee
with respect to the Trust Securities shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
(b) There shall at all times be one or more Administrative
Trustees hereunder with respect to the Trust Securities. Each Administrative
Trustee shall be either a natural person who is at least 21 years of age or a
legal entity that shall act through one or more persons authorized to bind that
entity.
(c) There shall at all times be a Delaware Trustee with respect to
the Trust Securities. The Delaware Trustee shall either be (i) a natural person
who is at least 21 years of age and a resident of the State of Delaware; or
(ii) a legal entity with its principal place of business in the State of
Delaware and that otherwise meets the requirements of applicable Delaware law
that shall act through one or more persons authorized to bind such entity.
SECTION 808. CONFLICTING INTERESTS.
If the Property Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Property Trust shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Trust
Agreement.
SECTION 809. CO-TRUSTEES AND SEPARATE TRUSTEE.
(a) Unless an Event of Default shall have occurred and be
continuing, at any time or from time to time, for the purpose of meeting the
legal requirements of the Trust Indenture Act or of any jurisdiction in which
any part of the Trust Property may at the time be located, the Depositor shall
have power to appoint, and upon the written request of the Property Trustee,
the Depositor shall for such purpose join with the Property Trustee in the
execution, delivery and performance of any instruments and agreements necessary
or proper to appoint, one or more Persons approved by the Property Trustee
either to act as co-trustee, jointly with the Property Trustee, of all or any
part of such Trust Property, or to the extent required by law to act as
separate trustee of any such property, in either case with such powers as may
be provided in the instrument of appointment, and to vest in such Person or
Persons in the capacity aforesaid, any property, title, right or power deemed
necessary or desirable, subject to the other provisions of this Section. If the
Depositor does not join in such appointment within 15 days after the receipt by
it of a request so to do, or in case a Debenture Event of Default has occurred
and is continuing, the Property Trustee alone shall have power to make such
appointment. Any co-trustee or separate trustee appointed pursuant to this
Section shall either be (i) a natural person who is at least 21 years of age
and a resident of the United States; or (ii) a legal entity with its principal
place of business in the United States that shall act through one or more
persons authorized to bind such entity.
(b) Should any written instrument from the Depositor be required
by any co-trustee or separate trustee so appointed for more fully confirming to
such co-trustee or separate trustee such property, title, right or power, any
and all such instruments shall, on request, be executed, acknowledged and
delivered by the Depositor.
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(c) Every co-trustee or separate trustee shall, to the extent
permitted by law, but to such extent only, be appointed subject to the
following terms, namely:
(i) The Trust Securities shall be executed and delivered
and all rights, powers, duties and obligations hereunder in respect of the
custody of securities, cash and other personal property held by, or required to
be deposited or pledged with, the Trustees specified hereunder, shall be
exercised, solely by such Trustees and not by such co-trustee or separate
trustee.
(ii) The rights, powers, duties and obligations hereby
conferred or imposed upon the Property Trustee in respect of any property
covered by such appointment shall be conferred or imposed upon and exercised or
performed by the Property Trustee or by the Property Trustee and such
co-trustee or separate trustee jointly, as shall be provided in the instrument
appointing such co-trustee or separate trustee, except to the extent that under
any law of any jurisdiction in which any particular act is to be performed, the
Property Trustee shall be incompetent or unqualified to perform such act, in
which event such rights, powers, duties and obligations shall be exercised and
performed by such co-trustee or separate trustee.
(iii) The Property Trustee at any time, by an instrument in
writing executed by it, with the written concurrence of the Depositor, may
accept the resignation of or remove any co-trustee or separate trustee
appointed under this Section, and, in case a Debenture Event of Default has
occurred and is continuing, the Property Trustee shall have the power to accept
the resignation of, or remove, any such co-trustee or separate trustee without
the concurrence of the Depositor. Upon the written request of the Property
Trustee, the Depositor shall join with the Property Trustee in the execution,
delivery and performance of all instruments necessary or proper to effectuate
such resignation or removal. A successor to any co-trustee or separate trustee
so resigned or removed may be appointed in the manner provided in this Section.
(iv) No co-trustee or separate trustee hereunder shall be
personally liable by reason of any act or omission of the Property Trustee or
any other trustee hereunder.
(v) The Property Trustee shall not be liable by reason of
any act of a co-trustee or separate trustee.
(vi) Any Act of Holders delivered to the Property Trustee
shall be deemed to have been delivered to each such co-trustee and separate
trustee.
SECTION 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of any Trustee (the "Relevant
Trustee") and no appointment of a successor Trustee pursuant to this Article
shall become effective until the acceptance of appointment by the successor
Trustee in accordance with the applicable requirements of SECTION 811.
(b) Subject to the immediately preceding paragraph, the Relevant
Trustee may resign at any time with respect to the Trust Securities by giving
written notice thereof to the Securityholders. If the instrument of acceptance
by the successor Trustee required by SECTION 811 shall not have been
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delivered to the Relevant Trustee within 30 days after the giving of such
notice of resignation, the Relevant Trustee may petition, at the expense of the
Depositor, any court of competent jurisdiction for the appointment of a
successor Relevant Trustee with respect to the Trust Securities.
(c) Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by the Holder of the Common
Securities. If a Debenture Event of Default shall have occurred and be
continuing, the Property Trustee or the Delaware Trustee, or both of them, may
be removed at such time by Act of the Holders of a majority in Liquidation
Amount of the Preferred Securities, delivered to the Relevant Trustee (in its
individual capacity and on behalf of the Trust). An Administrative Trustee may
be removed by the Holder of the Common Securities at any time. In no event will
the Holders of the Preferred Securities have the right to vote to appoint,
remove or replace the Administrative Trustees, which voting rights are vested
exclusively in the Holder of the Common Securities. If an instrument of
acceptance by a Successor Trustee required by SECTION 811 shall not have been
delivered to the Relevant Trustee within 30 days after the giving of such
notice of removal, the Relevant Trustee may petition, at the expense of the
Depositor, any court of competent jurisdiction for the appointment of a
successor Relevant Trustee with respect to the Trust Securities.
(d) If any Trustee shall resign, be removed or become incapable of
acting as Trustee, or if a vacancy shall occur in the office of any Trustee for
any cause, at a time when no Debenture Event of Default shall have occurred and
be continuing, the Holder of the Common Securities, by act delivered to the
retiring Trustee, shall promptly appoint a successor Trustee or Trustees with
respect to the Trust Securities and the Trust, and the successor Trustee shall
comply with the applicable requirements of SECTION 811. If the Property Trustee
or the Delaware Trustee, as the case may be, shall resign, be removed or become
incapable of continuing to act as the Property Trustee at a time when a
Debenture Event of Default shall have occurred and is continuing, the Holders
of the Preferred Securities, by Act of the Holders of a majority in Liquidation
Amount of the Preferred Securities then Outstanding delivered to the retiring
Relevant Trustee, shall promptly appoint a successor Relevant Trustee or
Trustees with respect to the Trust Securities and the Trust, and each such
successor Trustee shall comply with the applicable requirements of SECTION 811.
If an Administrative Trustee shall resign, be removed or become incapable of
acting as Administrative Trustee, at a time when a Debenture Event of Default
shall have occurred and be continuing, the Holder of the Common Securities, by
act delivered to an Administrative Trustee, shall promptly appoint a successor
Administrative Trustee or Administrative Trustees with respect to the Trust
Securities and the Trust, and each such successor Administrative Trustee shall
comply with the applicable requirements of SECTION 811. If no successor
Relevant Trustee with respect to the Trust Securities shall have been so
appointed by the Holders of the Common Securities or the Holders of the
Preferred Securities and accepted appointment in the manner required by SECTION
811, any Securityholder on behalf of himself and all others similarly situated
may petition a court of competent jurisdiction for the appointment of a
successor Trustee with respect to the Trust Securities.
(e) The Administrative Trustees shall give notice of each
resignation and each removal of a Trustee and each appointment of a successor
Trustee to all Securityholders in the manner provided in SECTION 1008 and shall
give notice to the Depositor. Each notice shall include the name of the
successor Relevant Trustee and the address of its Corporate Trust Office if it
is the Property Trustee.
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(f) Notwithstanding the foregoing or any other provision of this
Trust Agreement, in the event any Administrative Trustee who is a natural
person dies or becomes, in the opinion of the Depositor, incompetent or
incapacitated, the vacancy created by such death, incompetence or incapacity
may be filled by (a) the unanimous act of the remaining Administrative Trustees
if there are at least two of them; or (b) otherwise by the Depositor (with the
successor in each case being a Person who satisfies the eligibility requirement
for Administrative Trustees as forth in SECTION 807).
SECTION 811. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor Relevant
Trustee with respect to the Trust Securities and the Trust, the retiring
Relevant Trustee and each successor Relevant Trustee with respect to the Trust
Securities shall execute and deliver an instrument hereto wherein each
successor Relevant Trustee shall accept such appointment and which shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Relevant Trustee all the rights,
powers, trusts and duties of the retiring Relevant Trustee with respect to the
Trust Securities and the Trust and, upon the execution and delivery of such
instrument, the resignation or removal of the retiring Relevant Trustee shall
become effective to the extent provided therein and each such successor
Relevant Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring Relevant
Trustee with respect to the Trust Securities and the Trust, but, on request of
the Trust or any successor Relevant Trustee, such retiring Relevant Trustee
shall upon payment of its charges hereunder, duly assign, transfer and deliver
to such successor Relevant Trustee all Trust Property, all proceeds thereof and
money held by such retiring Relevant Trustee hereunder with respect to the
Trust Securities and the Trust.
(b) Upon request of any such successor Relevant Trustee, the Trust
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Relevant Trustee all such rights, powers and
trusts referred to in the immediately preceding paragraph, as the case may be.
(c) No successor Relevant Trustee shall accept its appointment
unless at the time of such acceptance such successor Relevant Trustee shall be
qualified and eligible under this Article.
SECTION 812. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any Person into which the Property Trustee or the Delaware Trustee may
be merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Relevant
Trustee shall be a party, or any corporation succeeding to all or substantially
all the corporate trust business of such Relevant Trustee, shall be the
successor of such Relevant Trustee hereunder, provided such Person shall be
otherwise qualified and eligible under this Article, without the execution or
filing of any paper or any further act on the part of any of the parties
hereto.
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SECTION 813. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR TRUST.
If and when the Property Trustee shall be or become a creditor of the
Depositor or the Trust (or any other obligor upon the Debentures or the Trust
Securities), the Property Trustee shall be subject to and shall take all
actions necessary in order to comply with the provisions of the Trust Indenture
Act regarding the collection of claims against the Depositor or Trust (or any
such other obligor).
SECTION 814. REPORTS BY PROPERTY TRUSTEE.
(a) The Property Trustee shall transmit to Securityholders such
reports concerning the Property Trustee and its actions under this Trust
Agreement as may be required pursuant to the Trust Indenture Act at the times
and in the manner provided pursuant thereto. If required by Section 313(a) of
the Trust Indenture Act, the Property Trustee shall, within sixty days after
each May 15 following the date of the Trust Agreement, deliver to
Securityholders a brief report, dated as of such May 15, which complies with
the provisions of such Section 313(a).
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Property Trustee with The Nasdaq Stock
Market's National Market, and each national securities exchange or other
organization upon which the Trust Securities are listed, and also with the
Commission so long as the Preferred Securities are registered under the
Exchange Act, and with the Depositor.
SECTION 815. REPORTS TO THE PROPERTY TRUSTEE.
The Depositor and the Administrative Trustees on behalf of the Trust
shall provide to the Property Trustee such documents, reports and information
as required by Section 314 of the Trust Indenture Act (if any) and the
compliance certificate required by Section 314(a) of the Trust Indenture Act in
the form in the manner and at the times required by Section 314 of the Trust
Indenture Act.
Delivery of such reports, information and documents to the Property
Trustee is for information purposes only and the Property Trustee's receipt of
such shall not constitute constructive notice of any information contained
therein or determinable from information contained therein, including the
Depositor's compliance with any of its covenants hereunder (as to which the
Property Trustee is entitled to rely exclusively on Officers' Certificates).
SECTION 816. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
Each of the Depositor and the Administrative Trustees on behalf of the
Trust shall provide to the Property Trustee such evidence of compliance with
any conditions precedent, if any, provided for in this Trust Agreement that
relate to any of the matters set forth in Section 314(c) of the Trust Indenture
Act. Any certificate or opinion required to be given by an officer pursuant to
Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an
Officers' Certificate.
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Upon any application or demand by the Company to the Trustee to take
any action under any of the provisions of this Trust Agreement, the Company
shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent provided for in this Trust Agreement relating to the
proposed action have been complied with and an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent have been complied
with, except that in the case of any such application or demand as to which the
furnishing of such documents is specifically required by any provision of this
Trust Agreement relating to such particular application or demand, no
additional certificate or opinion need be furnished.
SECTION 817. NUMBER OF TRUSTEES.
(a) The number of Trustees shall be four, provided that the Holder
of all of the Common Securities by written instrument may increase or decrease
the number of Administrative Trustees. The Property Trustee and the Delaware
Trustee may be the same Person.
(b) If a Trustee ceases to hold office for any reason and the
number of Administrative Trustees is not reduced pursuant to SECTION 817(a), or
if the number of Trustees is increased pursuant to SECTION 817(a), a vacancy
shall occur. The vacancy shall be filled with a Trustee appointed in accordance
with SECTION 810.
(c) The death, resignation, retirement, removal, bankruptcy,
incompetence or incapacity to perform the duties of a Trustee shall not operate
to dissolve, terminate or annul the Trust. Whenever a vacancy in the number of
Administrative Trustees shall occur, until such vacancy is filled by the
appointment of an Administrative Trustee in accordance with SECTION 810, the
Administrative Trustees in office, regardless of their number (and
notwithstanding any other provision of this Agreement), shall have all the
powers granted to the Administrative Trustees and shall discharge all the
duties imposed upon the Administrative Trustees by this Trust Agreement.
SECTION 818. DELEGATION OF POWER.
(a) Any Administrative Trustee may, by power of attorney
consistent with applicable law, delegate to any other natural person over the
age of 21 his or her power for the purpose of executing any documents
contemplated in SECTION 207(a); and
(b) The Administrative Trustees shall have power to delegate from
time to time to such of their number or to the Depositor the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Administrative Trustees or otherwise as the Administrative
Trustees may deem expedient, to the extent such delegation is not prohibited by
applicable law or contrary to the provisions of the Trust, as set forth herein.
SECTION 819. VOTING.
Except as otherwise provided in this Trust Agreement, the consent or
approval of the Administrative Trustees shall require consent or approval by
not less than a majority of the Administrative Trustees, unless there are only
two, in which case both must consent.
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ARTICLE IX
DISSOLUTION, LIQUIDATION AND MERGER
SECTION 901. DISSOLUTION UPON DISSOLUTION DATE.
Unless earlier dissolved, the Trust shall automatically dissolve on
June 30, 2028 (the "Dissolution Date") subject to distribution of the Trust
Property in accordance with SECTION 904.
SECTION 902. EARLY DISSOLUTION.
The first to occur of any of the following events is an "Early
Dissolution Event" upon the occurrence of which the Trust shall be dissolved:
(a) the occurrence of a Bankruptcy Event in respect of, or the
dissolution or liquidation of, the Depositor;
(b) delivery of written direction to the Property Trustee by the
Depositor at any time (which direction is wholly optional and within the
discretion of the Depositor) to dissolve the Trust and distribute the
Debentures to Securityholders in exchange for the Trust Securities in
accordance with SECTION 904;
(c) the redemption of all of the Trust Securities in connection
with the redemption of all of the Debentures; and
(d) an order for dissolution of the Trust shall have been entered
by a court of competent jurisdiction.
SECTION 903. TERMINATION.
The respective obligations and responsibilities of the Trustees and
the Trust created and continued hereby shall terminate upon the latest to occur
of the following: (a) the distribution by the Property Trustee to
Securityholders upon the liquidation of the Trust pursuant to SECTION 904, or
upon the redemption of all of the Trust Securities pursuant to SECTION 402, of
all amounts required to be distributed hereunder upon the final payment of the
Trust Securities; (b) the payment of any expenses owed by the Trust; (c) the
discharge of all administrative duties of the Administrative Trustees,
including the performance of any tax reporting obligations with respect to the
Trust or the Securityholders; and (d) the filing of a Certificate of
Cancellation by the Administrative Trustees under the Delaware Business Trust
Act.
SECTION 904. LIQUIDATION.
(a) If an Early Dissolution Event specified in clause (a), (b), or
(d) of SECTION 902 occurs or upon the Dissolution Date, the Trust shall be
liquidated by the Trustees as expeditiously as the Trustees determine to be
possible by distributing, after satisfaction of liabilities to creditors of the
Trust as provided by applicable law, to each Securityholder a Like Amount of
Debentures, subject to SECTION 904(D). Notice of liquidation shall be given by
the Property Trustee by first-class mail,
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postage prepaid, mailed not later than 30 nor more than 60 days prior to the
Liquidation Date to each Holder of Trust Securities at such Holder's address
appearing in the Securities Register. All notices of liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the
Trust Securities shall no longer be deemed to be Outstanding and any Trust
Securities Certificates not surrendered for exchange shall be deemed to
represent a Like Amount of Debentures;
(iii) provide such information with respect to the
mechanics by which Holders may exchange Trust Securities Certificates for
Debentures, or, if SECTION 904(D) applies, receive a Liquidation Distribution,
as the Administrative Trustees shall deem appropriate;
(iv) state the CUSIP number; and
(v) state the office or agency of the Trust where
Securities should be surrendered.
(b) Except where SECTION 902(C) or 904(D) applies, in order to
effect the liquidation of the Trust and distribution of the Debentures to
Securityholders, the Property Trustee shall establish a record date for such
distribution (which shall be not more than 45 days prior to the Liquidation
Date) and, either itself acting as exchange agent or through the appointment of
a separate exchange agent, shall establish such procedures as it shall deem
appropriate to effect the distribution of Debentures in exchange for the
Outstanding Trust Securities Certificates.
(c) Except where SECTION 902(C) or 904(D) applies, after the
Liquidation Date, (i) the Trust Securities shall no longer be deemed to be
Outstanding; (ii) certificates representing a Like Amount of Debentures shall
be issued to Holders of Trust Securities Certificates upon surrender of such
certificates to the Administrative Trustees or their agent for exchange; (iii)
the Depositor shall use its reasonable efforts to have the Debentures listed on
The Nasdaq Stock Market's National Market or on such other securities exchange
or other organization as the Preferred Securities are then listed or traded;
(iv) any Trust Securities Certificates not so surrendered for exchange shall be
deemed to represent a Like Amount of Debentures, accruing interest at the rate
provided for in the Debentures from the last Distribution Date on which a
Distribution was made on such Trust Securities Certificates until such
certificates are so surrendered (and until such certificates are so
surrendered, no payments of interest or principal shall be made to Holders of
Trust Securities Certificates with respect to such Debentures): and (v) all
rights of Securityholders holding Trust Securities shall cease, except the
right of such Securityholders to receive Debentures upon surrender of Trust
Securities Certificates.
(d) In the event that, notwithstanding the other provisions of
this Section, whether because of an order for dissolution entered by a court of
competent jurisdiction or otherwise, distribution of the Debentures in the
manner provided herein is determined by the Administrative Trustees not to be
practical, the Trust Property shall be liquidated, and the Trust shall be
wound-up or terminated, by the Property Trustee in such manner as the Property
Trustee determines. In such event, Securityholders shall be entitled to receive
out of the assets of the Trust available for
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distribution to Securityholders, after satisfaction of liabilities to creditors
of the Trust as provided by applicable law, an amount equal to the Liquidation
Amount per Trust Security plus accumulated and unpaid Distributions thereon to
the date of payment (such amount being the "Liquidation Distribution"). If,
upon any such winding-up or termination, the Liquidation Distribution can be
paid only in part because the Trust has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then, subject to the next
succeeding sentence, the amounts payable by the Trust on the Trust Securities
shall be paid on a pro rata basis (based upon Liquidation Amounts). The Holder
of the Common Securities shall be entitled to receive Liquidation Distributions
upon any such winding-up or termination pro rata (determined as aforesaid) with
Holders of Preferred Securities, except that, if a Debenture Event of Default
has occurred and is continuing, the Preferred Securities shall have a priority
over the Common Securities.
SECTION 905. MERGERS, CONSOLIDATIONS OR REPLACEMENTS OF THE TRUST.
The Trust may not merge or consolidate with or into, or be replaced
by, or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, except pursuant to this Section or SECTION 904. At the
request of the Depositor, with the consent of the Administrative Trustees and
without the consent of the Holders of the Preferred Securities, the Property
Trustee or the Delaware Trustee, the Trust may merge or consolidate with or
into, be replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to a trust organized as such under the laws of any
state; provided, that (i) such successor entity either (a) expressly assumes
all of the obligations of the Trust with respect to the Preferred Securities or
(b) substitutes for the Preferred Securities other securities having
substantially the same terms as the Preferred Securities (the "Successor
Securities") so long as the Successor Securities rank the same as the Preferred
Securities rank in priority with respect to distributions and payments upon
liquidation, redemption and otherwise; (ii) the Depositor expressly appoints a
trustee of such successor entity possessing the same powers and duties as the
Property Trustee as the holder of the Debentures; (iii) the Successor
Securities are registered or listed, or any Successor Securities shall be
registered or listed upon notification of issuance, on any national securities
exchange or other organization on which the Preferred Securities are then
registered or listed (including, if applicable, the Nasdaq Stock Market's
National Market), if any; (iv) such merger, consolidation, replacement,
conveyance, transfer or lease does not cause the Preferred Securities
(including any Successor Securities) to be downgraded by any nationally
recognized statistical rating organization, (v) such merger, consolidation,
replacement, conveyance, transfer or lease does not adversely affect the
rights, preferences and privileges of the Holders of the Preferred Securities
(including any Successor Securities) in any material respect; (vi) such
successor entity has a purpose substantially identical to that of the Trust,
(vii) prior to such merger, consolidation, replacement, conveyance, transfer or
lease, the Depositor has received an Opinion of Counsel to the effect that (a)
such merger, consolidation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the Holders of the
Preferred Securities (including any Successor Securities) in any material
respect: and (b) following such merger, consolidation, replacement, conveyance,
transfer or lease, neither the Trust nor such successor entity shall be
required to register as an "investment company" under the Investment Company
Act, and (viii) the Depositor or any permitted successor or assignee owns all
of the common securities of such successor entity and guarantees the
obligations of such successor entity under the Successor Securities at least to
the extent provided by the Guarantee. Notwithstanding the foregoing, the Trust
shall not, except with the consent of Holders of 100% in Liquidation Amount
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of the Preferred Securities, merge or consolidate with or into, be replaced by
or convey, transfer or lease its properties and assets substantially as an
entirety to any other Person or permit any other Person to merge or consolidate
with or into the Trust if such consolidation, merger, replacement, conveyance,
transfer or lease would cause the Trust or the successor entity to be
classified as other than a grantor trust for United States federal income tax
purposes.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 1001. LIMITATION OF RIGHTS OF SECURITYHOLDERS.
The death, incapacity, dissolution, bankruptcy or termination of any
Person having an interest, beneficial or otherwise, in Trust Securities shall
not operate to terminate this Trust Agreement, nor dissolve, terminate or annul
the Trust, nor entitle the legal representatives or heirs of such Person or any
Securityholder for such Person, to claim an accounting, take any action or
bring any proceeding in any court for a partition or winding-up of the
arrangements contemplated hereby, nor otherwise affect the rights, obligations
and liabilities of the parties hereto or any of them.
SECTION 1002. AMENDMENT.
(a) This Trust Agreement may be amended from time to time by the
Trustees and the Depositor, without the consent of any Securityholders, (i) as
provided in SECTION 811 with respect to acceptance of appointment by a
successor Trustee; (ii) to cure any ambiguity, correct or supplement any
provision herein which may be inconsistent with any other provision herein, or
to make any other provisions with respect to matters or questions arising under
this Trust Agreement that shall not be inconsistent with the other provisions
of this Trust Agreement; or (iii) to modify, eliminate or add to any provisions
of this Trust Agreement to such extent as shall be necessary to ensure that the
Trust shall be classified for United States federal income tax purposes as a
grantor trust at all times that any Trust Securities are outstanding or to
ensure that the Trust shall not be required to register as an "investment
company" under the Investment Company Act; provided, however, that in the case
of clause (ii), such action shall not adversely affect in any material respect
the interests of any Securityholder, and any such amendments of this Trust
Agreement shall become effective when notice thereof is given to the
Securityholders.
(b) Except as provided in SECTION 601(c) or SECTION 1002(c)
hereof, any provision of this Trust Agreement may be amended by the Trustees
and the Depositor (i) with the consent of Securityholders representing not less
than a majority (based upon Liquidation Amounts) of the Trust Securities then
Outstanding; and (ii) upon receipt by the Trustees of an Opinion of Counsel to
the effect that such amendment or the exercise of any power granted to the
Trustees in accordance with such amendment shall not affect the Trust's status
as a grantor trust for United Status federal income tax purposes or the Trust's
exemption from status of an "investment company" under the Investment Company
Act.
(c) In addition to and notwithstanding any other provision in this
Trust Agreement, without the consent of each affected Securityholder (such
consent being obtained in accordance with SECTION 603 or 606 hereof), this
Trust Agreement may not be amended to (i) change the amount or
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timing of any Distribution on the Trust Securities or otherwise adversely
affect the amount of any Distribution required to be made in respect of the
Trust Securities as of a specified date; or (ii) restrict the right of a
Securityholder to institute suit for the enforcement of any such payment on or
after such date; notwithstanding any other provision herein, without the
unanimous consent of the Securityholders (such consent being obtained in
accordance with SECTION 603 or 606 hereof), this paragraph of this Section may
not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement,
no Trustee shall enter into or consent to any amendment to this Trust Agreement
which would cause the Trust to fail or cease to qualify for the exemption from
status of an "investment company" under the Investment Company Act or to fail
or cease to be classified as a grantor trust for United States federal income
tax purposes.
(e) In the event that any amendment to this Trust Agreement is
made, the Administrative Trustees shall promptly provide to the Depositor a
copy of such amendment.
(f) Neither the Property Trustee nor the Delaware Trustee shall be
required to enter into any amendment to this Trust Agreement which affects its
own rights, duties or immunities under this Trust Agreement. The Property
Trustee shall be entitled to receive an Opinion of Counsel and an Officers'
Certificate stating that any amendment to this Trust Agreement is in compliance
with this Trust Agreement.
SECTION 1003. SEVERABILITY.
In case any provision in this Trust Agreement or in the Trust
Securities Certificates shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 1004. GOVERNING LAW.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST
AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES).
SECTION 1005. PAYMENTS DUE ON NON-BUSINESS DAY.
If the date fixed for any payment on any Trust Security shall be a day
that is not a Business Day, then such payment need not be made on such date but
may be made on the next succeeding day which is a Business Day (except as
otherwise provided in SECTIONS 401(A) and 402(D)), with the same force and
effect as though made on the date fixed for such payment, and no distribution
shall accumulate thereon for the period after such date.
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<PAGE> 56
SECTION 1006. SUCCESSORS.
This Trust Agreement shall be binding upon and shall inure to the
benefit of any successor to the Depositor, the Trust or the Relevant
Trustee(s), including any successor by operation of law. Except as contemplated
by ARTICLE XII of the Indenture and pursuant to which the assignee agrees in
writing to perform the Depositor's obligations hereunder, the Depositor shall
not assign its obligations hereunder.
SECTION 1007. HEADINGS.
The Article and Section headings are for convenience only and shall
not affect the construction of this Trust Agreement.
SECTION 1008. REPORTS, NOTICES AND DEMANDS.
Any report, notice, demand or other communication which by any
provision of this Trust Agreement is required or permitted to be given or
served to or upon any Securityholder or the Depositor may be given or served in
writing by deposit thereof, first-class postage prepaid, in the United States
mail, hand delivery or facsimile transmission, in each case, addressed, (a) in
the case of a Preferred Securityholder, to such Preferred Securityholder as
such Securityholder's name and address may appear on the Securities Register;
and (b) in the case of the Common Securityholder or the Depositor, to Southside
Bancshares, Inc., 1201 S. Beckham, Tyler, Texas 75701, Attention: President,
facsimile no.: 903-592-3692. Such notice, demand or other communication to or
upon a Securityholder shall be deemed to have been sufficiently given or made,
for all purposes, upon hand delivery, mailing or transmission.
Any notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
the Trust, the Property Trustee, the Delaware Trustee or the Administrative
Trustees shall be given in writing addressed (until another address is
published by the Trust) as follows: (a) with respect to the Property Trustee to
U.S. Trust Company of Texas, N.A., 2001 Ross Avenue, Suite 2700, Dallas, Texas
75201, Attention: Corporate Trust Trustee Administration; (b) with respect to
the Delaware Trustee, to Wilmington Trust Company,
c/o_____________________________________________; and (c) with respect to the
Administrative Trustees, to them at the address above for notices to the
Depositor, marked "Attention: Administrative Trustees of Southside Capital
Trust I." Such notice, demand or other communication to or upon the Trust or
the Property Trustee shall be deemed to have been sufficiently given or made
only upon actual receipt of the writing by the Trust or the Property Trustee.
SECTION 1009. AGREEMENT NOT TO PETITION.
Each of the Trustees and the Depositor agree for the benefit of the
Securityholders that, until at least one year and one day after the Trust has
been dissolved in accordance with ARTICLE IX, they shall not file, or join in
the filing of, a petition against the Trust under any bankruptcy, insolvency,
reorganization or other similar law (including, without limitation, the United
States Bankruptcy Code of 1978, as amended) (collectively, "Bankruptcy Laws")
or otherwise join in the commencement of any proceeding against the Trust under
any Bankruptcy Law. In the event the Depositor takes action
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<PAGE> 57
in violation of this Section, the Property Trustee agrees, for the benefit of
the Securityholders, that at the expense of the Depositor (which expense shall
be paid prior to the filing), it shall file an answer with the bankruptcy court
or otherwise properly contest the filing of such petition by the Depositor
against the Trust or the commencement of such action and raise the defense that
the Depositor has agreed in writing not to take such action and should be
stopped and precluded therefrom. The provisions of this Section shall survive
the termination of this Trust Agreement.
SECTION 1010. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT.
(a) This Trust Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Trust Agreement and shall,
to the extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a
trustee for the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or conflicts with
another provision hereof which is required to be included in this Trust
Agreement by any of the provisions of the Trust Indenture Act, such required
provision shall control. If any provision of this Trust Agreement modifies or
excludes any provision of the Trust Indenture Act which may be so modified or
excluded, the latter provision shall be deemed to apply to this Trust Agreement
as so modified or to be excluded, as the case may be.
(d) The application of the Trust Indenture Act to this Trust
Agreement shall not affect the nature of the Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
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<PAGE> 58
SECTION 1011. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND
INDENTURE.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN
BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY
SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE
UNCONDITIONAL ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A
BENEFICIAL INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF
THIS TRUST AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER
TERMS OF THE GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF
THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF
THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS AMONG THE
TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS.
SOUTHSIDE BANCSHARES, INC., AS DEPOSITOR
By:
---------------------------------------
Name:
---------------------------------
Title: President and Chief Executive Officer
U.S. TRUST COMPANY OF TEXAS, N.A., AS
PROPERTY TRUSTEE
By:
---------------------------------------
Name:
------------------------------------
Title:
------------------------------------
WILMINGTON TRUST COMPANY
AS DELAWARE TRUSTEE
By:
---------------------------------------
Name:
------------------------------------
Title:
------------------------------------
By:
---------------------------------------
Name: Sam Dawson
Title: As Administrative Trustee
By:
---------------------------------------
Name: Lee A. Gibson
Title: As Administrative Trustee
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<PAGE> 59
EXHIBIT A
FORM OF
CERTIFICATE OF TRUST
OF
SOUTHSIDE CAPITAL TRUST I
This Certificate of Trust of Southside Capital Trust I (the "Trust")
dated April 9, 1998, is being duly executed and filed by the undersigned, as
trustees, to form a business trust pursuant to the Delaware Business Trust Act,
Chapter 38 of Title 12 of the Delaware Code. The undersigned, as trustees, do
hereby certify as follows:
1. The name of the business trust being formed hereby is
"Southside Capital Trust A."
2. The name and business address of the trustee of the Trust that
has its principal place of business in the State of Delaware
is: Wilmington Trust Company, Rodney Square North, 1100 N.
Market Street, Wilmington, Delaware 19890.
3. This Certificate of Trust shall be effective as of the date
of filing.
IN WITNESS WHEREOF, the undersigned, being the sole trustees of the
Trust, have executed this Certificate of Trust as of the date first written
above.
-----------------------------------
Sam Dawson, as Trustee
-----------------------------------
Lee Gibson, as Trustee
Wilmington Trust Company
as Delaware Trustee
By:
-------------------------------
Name:
------------------------------
Title:
-----------------------------
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<PAGE> 60
EXHIBIT D
FORM OF
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT, dated as of May __, 1998, between Southside Bancshares,
Inc., a Texas corporation (the "Corporation") having its principal office at
1201 S. Beckman, Tyler, Texas 75701, and Southside Capital Trust I, a Delaware
business trust (the "Trust").
WHEREAS, the Trust intends to issue its Common Securities (the "Common
Securities") to and purchase debentures from the Corporation and to issue and
sell ___% Trust Preferred Securities (the "Preferred Securities," and together
with the Common Securities, the "Trust Securities") with such powers,
preferences and special rights and restrictions are set forth in the Amended
and Restated Trust Agreement of the Trust, dated as of May __, 1998, as the
same may be amended from time to time (the "Trust Agreement");
WHEREAS, the Corporation will directly or indirectly own all of the
Common Securities of the Trust and will issue the debentures;
NOW, THEREFORE, in consideration of the purchase by each holder of the
Preferred Securities, which purchase the Corporation hereby agrees shall
benefit the Corporation and which purchase the Corporation acknowledges will be
made in reliance upon the execution and delivery of this Agreement, the
Corporation and Trust hereby agree as follows:
ARTICLE I
SECTION 1.1. GUARANTEE BY THE CORPORATION.
Subject to the terms and conditions hereof, the Corporation hereby
irrevocably and unconditionally guarantees to each person or entity to whom the
Trust is now or hereafter becomes indebted or liable (the "Beneficiaries") the
full payment, when and as due, of any and all Obligations (as hereinafter
defined) to such Beneficiaries. As used herein, "Obligations" means any costs,
expenses or liabilities of the Trust, other than obligations of the Trust to
pay to holders of any Trust Securities or other similar interests in the Trust
the amounts due such holders pursuant to the terms of the Trust Securities or
such other similar interests, as the case may be. This Agreement is intended
to be for the benefit of, and to be enforceable by, all such Beneficiaries,
whether or not such Beneficiaries have received notice hereof.
SECTION 1.2. TERM OF AGREEMENT.
This Agreement shall terminate and be of no further force and effect
upon the later of (a) the date on which full payment has been made of all
amounts payable to all holders of all the Preferred Securities (whether upon
redemption, liquidation, exchange or otherwise) and (b) the date on which there
are no Beneficiaries remaining; provided, however, that this Agreement shall
continue to be effective or shall be reinstated, as the case may be, if at any
time any holder of Preferred Securities
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<PAGE> 61
or any Beneficiary must restore payment of any sums paid under the Preferred
Securities, under any Obligation, under the Guarantee Agreement dated the date
hereof by the Corporation and U.S. Trust Company of Texas, N.A., as guarantee
trustee or under this Agreement for any reason whatsoever. This Agreement is
continuing, irrevocable, unconditional and absolute.
SECTION 1.3. WAIVER OF NOTICE.
The Corporation hereby waives notice of acceptance of this Agreement
and of any Obligation to which it applies or may apply, and the Corporation
hereby waives presentment, demand for payment, protest, notice of nonpayment,
notice of dishonor, notice of redemption and all other notices and demands.
SECTION 1.4. NO IMPAIRMENT.
The obligations, covenants, agreements and duties of the Corporation
under this Agreement shall in no way be affected or impaired by reason of the
happening from time to time of any of the following:
(a) the extension of time for the payment by the Trust of all or
any portion of the Obligations or for the performance of any other obligation
under, arising out of, or in connection with, the obligations;
(b) any failure, omission, delay or lack of diligence on the part
of the Beneficiaries to enforce, assert or exercise any right, privilege, power
or remedy conferred on the Beneficiaries with respect to the Obligations or any
action on the part of the Trust granting indulgence or extension of any kind;
or
(c) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or readjustment
of debt of, or other similar proceedings affecting, the Trust or any of the
assets of the Trust.
There shall be no obligation of the Beneficiaries to give notice to, or obtain
the consent of, the Corporation with respect to the happening of any of, the
foregoing.
SECTION 1.5 ENFORCEMENT.
A Beneficiary may enforce this Agreement directly against the
Corporation and the Corporation waives any right or remedy to require that any
action be brought against the Trust or any other person or entity before
proceeding against the Corporation.
SECTION 1.6. SUBROGATION.
The Corporation shall be subrogated to all rights (if any) of the
Trust in respect of any amounts paid to the Beneficiaries by the Corporation
under this Agreement; provided, however, that the Corporation shall not (except
to the extent required by mandatory provisions of law) be entitled to enforce
or exercise any rights which it may acquire by way of subrogation of any
indemnity,
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<PAGE> 62
reimbursement of other agreement, in all cases as a result of payment under
this Agreement, if, at the time of any such payment, any amounts are due and
unpaid under this Agreement.
ARTICLE II
SECTION 2.1. BINDING EFFECT.
All guarantees and agreements contained in this Agreement shall bind
the successors, assigns, receivers, trustees and representatives of the
Corporation and shall inure to the benefit of the Beneficiaries.
SECTION 2.2 AMENDMENT.
So long as there remains any Beneficiary or any Preferred Securities
are outstanding, this Agreement shall not be modified or amended in any manner
adverse to such Beneficiary or to the holders of the Preferred Securities,
without the consent of such Beneficiary or the holders of the Preferred
Securities, as the case may be.
SECTION 2.3 NOTICES.
Any notice, request or other communication required or permitted to be
given hereunder shall be given in writing by delivering the same against
receipt therefor by facsimile transmission (confirmed by mail) or by registered
or certified mail, addressed as follows (and if so given, shall be deemed given
when mailed):
Southside Capital Trust I
c/o U.S. Trust Company of Texas, N.A.
2001 Ross Avenue, Suite 2700
Dallas, Texas 75201
Facsimile No.: 214-754-1303
Attention: Corporate Trust Administration
Southside Bancshares, Inc.
1201 S. Beckman
Tyler, Texas 75701
Facsimile No.: (903) 592-3692
Attention: Lee Gibson
SECTION 2.4. CHOICE OF LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAW PRINCIPLES THEREOF.
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<PAGE> 63
THE AGREEMENT is executed as of the day and year first above
written.
SOUTHSIDE BANCSHARES, INC.
By:
----------------------------------
Sam Dawson, President
SOUTHSIDE CAPITAL TRUST I
By:
----------------------------------
Sam Dawson, Administrative Trustee
By:
----------------------------------
Lee Gibson, Administrative Trustee
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<PAGE> 64
EXHIBIT E
FORM OF
TRUST AGREEMENT
OF
SOUTHSIDE CAPITAL TRUST I
THIS TRUST AGREEMENT, dated as of April 9, 1998, is made among
Southside Bancshares, Inc., a Texas corporation, as "Depositor", Sam Dawson and
Lee Gibson as "Administrative Trustees" and Wilmington Trust Company as
"Delaware Trustee" (the Delaware Trustee and the Administrative Trustees
together, the "Trustees"). The Depositor and the Trustees agree as follows:
1. The trust shall be known as "Southside Capital Trust I" (the
"Trust"), in which name the Trustees or the Depositor, to the extent provided
herein, may conduct the business of the Trust, make and execute contracts and
sue and be sued.
2. The Depositor hereby assigns, transfers, conveys and sets over
to the Trust the sum of $10. It is the intention of the parties that the Trust
constitute a business trust under Chapter 38 of Title 12 of the Delaware Code
(the "Business Trust Act"), and that this document constitute the governing
instrument of the Trust. The Trustees are hereby authorized and directed to
execute and file a certificate of trust with the Delaware Secretary of State in
such form as the Trustees may approve.
3. An amended and restated Trust Agreement satisfactory to each
party to it and substantially in the form to be included as an exhibit to the
Registration Statement (the "1933 Act Registration Statement") referred to
below, or in such other form as the parties thereto may approve, will be
entered into to provide for the contemplated operation of the Trust and the
issuance of the Preferred Securities and Common Securities referred to therein.
Prior to the execution and delivery of such amended and restated Trust
Agreement, the Trustees shall not have any duty or obligation hereunder or with
respect of the trust estate, except as otherwise required by applicable law or
as may be necessary to obtain prior to such execution and delivery any
licenses, consents or approvals required by applicable law or otherwise.
Notwithstanding the foregoing, the Trustees may take all actions deemed proper
as are necessary to effect the transactions contemplated herein.
4. The Depositor, as the Depositor of the Trust, is hereby
authorized (i) to file with the Securities and Exchange Commission (the
"Commission") and to execute, in the case of the 1933 Act Registration
Statement and 1934 Act Registration Statement (as herein defined), on behalf of
the Trust, (a) the 1933 Act Registration Statement, including pre-effective or
post-effective amendments to such Registration Statement, relating to the
registration under the Securities Act of 1933, as amended (the "1933 Act"), of
the Preferred Securities of the Trust, (b) any preliminary prospectus or
prospectus or supplement thereto relating to the Preferred Securities required
to be filed pursuant to the 1933 Act, and (c) a Registration Statement on Form
8-A or other appropriate form (the "1934 Act Registration Statement")
(including all pre-effective and post-effective amendments thereto) relating to
the registration of the Preferred Securities of the Trust under the Securities
Exchange Act of 1934, as amended; (ii) to file with the American Stock Exchange
("AMEX") or other exchange, and execute on behalf of the Trust a listing
application and all other applications, statements,
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<PAGE> 65
certificates, agreements and other instruments as shall be necessary or
desirable to cause the Preferred Securities to be listed on such exchange;
(iii) to file and execute on behalf of the Trust such applications, reports,
surety bonds, irrevocable consents, appointments of attorney for service of
process and other papers and documents as shall be necessary or desirable to
register the Preferred Securities under the securities or "Blue Sky" laws of
such jurisdictions as the Depositor, on behalf of the Trust, may deem necessary
or desirable; and (iv) to execute, deliver and perform on behalf of the Trust
an underwriting agreement with the Depositor and the underwriter or
underwriters of the Preferred Securities of the Trust. In the event that any
filing referred to in clauses (i)-(iii) above is required by the rules and
regulations of the Commission, an exchange, or state securities or Blue Sky
laws to be executed on behalf of the Trust by the Trustees, the Trustees, in
their capacities as trustees of the Trust, are hereby authorized and directed
to join in any such filing and to execute on behalf of the Trust any and all of
the foregoing, it being understood that the Trustees, in their capacities as
trustees of the Trust, shall not be required to join in any such filing or
execute on behalf of the Trust any such document unless required by the rules
and regulations of the Commission, such exchange, or state securities or Blue
Sky laws. In connection with all of the foregoing, the Trustees, solely in
their capacities as trustees of the Trust, and the Depositor hereby constitute
and appoint Sam Dawson and Lee Gibson as their true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution
for the Depositor or in the Depositor's name, place and stead, in any and all
capacities, to sign any and all amendments (including all pre-effective and
post-effective amendments) to the 1933 Act Registration Statement and the 1934
Act Registration Statement and to file the same, with all exhibits thereto, and
any other documents in connection therewith, with the Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as the Depositor might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or his respective substitute or substitutes, shall do or cause to be
done by virtue hereof.
5. This Trust Agreement may be executed in one or more
counterparts.
6. The number of trustees of the Trust initially shall be three
and thereafter the number of trustees of the Trust shall be such number as
shall be fixed from time to time by a written instrument signed by the
Depositor which may increase or decrease the number of trustees of the Trust;
provided, however, that to the extent required by the Business Trust Act, one
trustee of the Trust shall either be a natural person who is a resident of the
State of Delaware or, if not a natural person, an entity which has its
principal place of business in the State of Delaware. Subject to the
foregoing, the Depositor is entitled to appoint or remove without cause any
trustee of the Trust at any time. Any trustee of the Trust may resign upon
thirty days' prior notice to the Depositor.
7. This Trust Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (with regard to conflict of
laws principles).
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<PAGE> 66
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed as of the day and year first above written.
SOUTHSIDE BANCSHARES, INC.,
as Depositor
By:
----------------------------------
Sam Dawson, President
WILMINGTON TRUST COMPANY,
as Delaware Trustee
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
--------------------------------------
Sam Dawson, Administrative Trustee
--------------------------------------
Lee Gibson, Administrative Trustee
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<PAGE> 67
EXHIBIT F
FORM OF CERTIFICATE
OF PREFERRED SECURITIES
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUST
OR ITS AGENT FOR REGISTRATION OF TRANSFER EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.
PREFERRED SECURITY
CERTIFICATE NUMBER NUMBER OF PREFERRED SECURITIES
P-__ 2,000,000
CUSIP NO. 84471A 20 0
CERTIFICATE EVIDENCING PREFERRED SECURITIES
OF
SOUTHSIDE CAPITAL TRUST I
___% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
Southside Capital Trust I, a statutory business trust created under
the laws of the State of Delaware (the "Trust"), hereby certifies that Cede &
Co. (the "Holder") is the registered owner of 2,000,000 preferred securities of
the Trust representing an undivided beneficial interest in the assets of the
Trust and designated the Southside Capital Trust I ___% Cumulative Trust
Preferred Securities (liquidation amount $10 per Preferred Security) (the
"Preferred Securities"). The Preferred Securities are transferable on the books
and records of the Trust, in person or by a duly authorized attorney, upon
surrender of this certificate duly endorsed and in proper form for transfer as
provided in Section 504 of the Trust Agreement (as defined below). The
designations, rights, privileges, restrictions, preferences and other terms and
provisions of the Preferred Securities are set forth in, and the Preferred
Securities represented hereby are issued and shall in all respects be subject
to the terms and provisions of, the Amended and Restated Trust Agreement dated
as of May __, 1998, as the same may be amended from time to time (the "Trust
Agreement"), including the designation of the terms of Preferred Securities as
set forth therein. The Holder is entitled to the benefits of the Guarantee
Agreement entered into by Southside Bancshares, Inc., a Texas corporation, as
guarantor and U.S. Trust Company of Texas, N.A., as guarantee trustee, dated as
of May __, 1998, as amended from time to time (the "Guarantee"), to the extent
provided therein. The Trust will furnish a copy of the Trust Agreement and the
Guarantee to the Holder without charge upon written request to the Trust at its
principal place of business or registered office.
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<PAGE> 68
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Preferred
Securities as evidence of indirect beneficial ownership in the Debentures.
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust
has executed this certificate this ___ day of May, 1998.
SOUTHSIDE CAPITAL TRUST I
By:
-----------------------------------
Name:
---------------------------------
Title: Administrative Trustee
--------------------------------
This is one of the Preferred Securities referred to in the Trust
Agreement.
Dated: U.S. TRUST COMPANY OF TEXAS, N.A.
as Trustee
By:
-----------------------------------
Authorized Signatory
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<PAGE> 69
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
Preferred Security to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints
agent to transfer this Preferred Securities Certificate on the books of the
Trust. The agent may substitute another to act for him or her.
Date:
---------------------------------------------
Signature:
-----------------------------------------------------------------
(Sign exactly as your name appears on the other side of
this Preferred Securities Certificate)
Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the [Registrar], which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the
[Registrar] in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
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<PAGE> 1
EXHIBIT 4.7
PREFERRED SECURITIES GUARANTEE AGREEMENT
BY AND BETWEEN
SOUTHSIDE BANCSHARES, INC.
AND
U.S. TRUST COMPANY OF TEXAS, N.A.
MAY __, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
ARTICLE I - DEFINITIONS AND INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions and Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - TRUST INDENTURE ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.1 Trust Indenture Act; Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.2 Lists of Holders of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.3 Reports by the Preferred Guarantee Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.4 Periodic Reports to Preferred Guarantee Trustee . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.5 Evidence of Compliance with Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.6 Events of Default; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.7 Event of Default; Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.8 Conflicting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III - POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.1 Powers and Duties of the Preferred Guarantee Trustee . . . . . . . . . . . . . . . . . . . . 7
Section 3.2 Certain Rights of Preferred Guarantee Trustee . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.3 Not Responsible for Recitals or Issuance of Guarantee . . . . . . . . . . . . . . . . . . . 11
ARTICLE IV - PREFERRED GUARANTEE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.1 Preferred Guarantee Trustee; Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.2 Appointment, Removal and Resignation of Preferred Guarantee
Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE V - GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.1 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.2 Waiver of Notice and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.3 Obligations Not Affected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.4 Rights of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.5 Guarantee of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.6 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.7 Independent Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI - LIMITATION OF TRANSACTIONS; SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.1 Limitation of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.2 Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
i
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<TABLE>
<S> <C>
ARTICLE VII - TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VIII - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.1 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.2 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.4 Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8.5 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
ii
<PAGE> 4
PREFERRED SECURITIES GUARANTEE AGREEMENT
THIS PREFERRED SECURITIES GUARANTEE AGREEMENT (this "Preferred
Securities Guarantee"), dated as of May __, 1998, is executed and delivered by
SOUTHSIDE BANCSHARES, INC., a Texas corporation (the "Guarantor"), and U.S.
TRUST COMPANY OF TEXAS, N.A., a trust company organized under the laws of the
United States, as trustee (the "Preferred Guarantee Trustee"), for the benefit
of the Holders (as defined herein) from time to time of the Preferred
Securities (as defined herein) of Southside Capital Trust I, a Delaware
statutory business trust (the "Trust").
RECITALS
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the
"Trust Agreement") dated as of May __, 1998, among the trustees of the Trust
named therein, the Guarantor, as depositor, and the holders from time to time
of undivided beneficial interests in the assets of the Trust, the Trust is
issuing on the date hereof preferred securities, having an aggregate
liquidation amount of $10, designated the ____% Cumulative Trust Preferred
Securities (the "Preferred Securities") representing undivided beneficial
ownership interests in the assets of the Trust and having the terms set forth
in the Trust Agreement;
WHEREAS, the Preferred Securities will be issued by the Trust and the
proceeds thereof, together with the proceeds from the issuance of the Trust's
Common Securities, will be used to purchase the Junior Subordinated Deferrable
Interest Debentures due June 30, 2028 (the "Junior Subordinated Debentures") of
the Guarantor which will be deposited with U.S. Trust Company of Texas, N.A.,
as Property Trustee under the Trust Agreement, as trust assets; and
WHEREAS, as an incentive for the Holders to purchase the Preferred
Securities, the Guarantor irrevocably and unconditionally agrees, to the extent
set forth in this Preferred Securities Guarantee, to pay to the Holders of the
Preferred Securities the Guarantee Payments (as defined herein) and to make
certain other payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 DEFINITIONS AND INTERPRETATION.
In this Preferred Securities Guarantee, unless the context otherwise
requires:
<PAGE> 5
(a) capitalized terms used in this Preferred Securities Guarantee
but not defined in the preamble or recitals above have the respective meanings
assigned to them in this Section;
(b) terms defined in the Trust Agreement in effect on the date of
execution of this Preferred Securities Guarantee have the same meaning when
used in this Preferred Securities Guarantee unless otherwise defined herein;
(c) all references to "the Preferred Securities Guarantee" or
"this Preferred Securities Guarantee" are to this Preferred Securities
Guarantee as modified, supplemented or amended from time to time;
(d) all references in this Preferred Securities Guarantee to
Articles and Sections are to Articles and Sections of this Preferred Securities
Guarantee, unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning
when used in this Preferred Securities Guarantee, unless otherwise defined in
this Preferred Securities Guarantee or unless the context otherwise requires;
and
(f) a reference to the singular includes the plural and vice
versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than a Saturday or a Sunday or a
day on which federal or state banking institutions in the Borough of Manhattan,
the City of New York, or the State of Delaware are authorized or required by
law, executive order or regulation to close, or a day on which the Corporate
Trust Office of the Preferred Guarantee Trustee is closed for business.
"Corporate Trust Office" means the office of the Preferred Guarantee
Trustee at which the corporate trust business of the Preferred Guarantee
Trustee shall, at any particular time, be principally administered, which
office at the date of execution of this Agreement is located at U.S. Trust
Company of Texas, N.A., 2001 Ross Avenue, Suite 2700, Dallas, Texas 75201,
Attention: Corporate Trust Administration.
"Covered Person" means any Holder or beneficial owner of Preferred
Securities.
"Debentures" means the ____% Junior Subordinated Debentures due June
30, 2028, of the Debenture Issuer held by the Property Trustee of the Trust.
"Debenture Issuer" means the Guarantor.
"Debt" means, with respect to any person, whether recourse is to all
or a portion of the assets of such Person and whether or not contingent: (i)
every obligation of such Person for money
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<PAGE> 6
borrowed; (ii) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in
connection with the acquisition of property, assets or businesses; (iii) every
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person; (iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business); (v) every
capital lease obligation of such Person; (vi) all indebtedness of such person
whether incurred on or prior to the date of the Indenture or thereafter
incurred, for claims in respect of derivative products, including interest
rate, foreign exchange rate and commodity forward contracts, options and swaps
and similar arrangements; and (vii) every obligation of the type referred to in
clauses (i) through (vi) of another Person and all dividends of another Person
the payments of which, in either case, such Person has guaranteed or is
responsible or liable, directly or indirectly, as obligor or otherwise.
"Distributions" has the meaning provided therefor in the Trust
Agreement.
"Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Preferred Securities Guarantee.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent
not paid or made by the Trust: (i) any accumulated and unpaid Distributions
that are required to be paid on such Preferred Securities, to the extent the
Trust shall have funds available therefor, (ii) the redemption price, including
all accumulated and unpaid Distributions to the date of redemption (the
"Redemption Price"), to the extent the Trust has funds available therefor, with
respect to any Preferred Securities called for redemption by the Trust, and
(iii) upon a voluntary or involuntary dissolution, winding-up or termination of
the Trust (other than in connection with the distribution of Junior
Subordinated Debentures to the Holders in exchange for Preferred Securities as
provided in the Trust Agreement or a redemption of all of the Preferred
Securities), the lesser of (a) the aggregate of the liquidation amount and all
accumulated and unpaid Distributions on the Preferred Securities to the date of
payment, to the extent the Trust shall have funds available therefor (the
"Liquidation Distribution"), and (b) the amount of assets of the Trust
remaining available for distribution to Holders in liquidation of the Trust.
"Holder" shall mean any holder, as registered on the books and records
of the Trust, of any Preferred Securities; provided, however, that in
determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder "Holder"
shall not include the Guarantor or any Affiliate of the Guarantor.
"Indenture" means the Indenture dated as of May __, 1998, among the
Debenture Issuer and U.S. Trust Company of Texas, N.A., as trustee, and any
indenture supplemental thereto pursuant to which the Junior Subordinated
Debentures are to be issued to the Trust.
3
<PAGE> 7
"Liquidation Distribution" has the meaning provided therefor in the
definition of Guarantee Payments. "Majority in liquidation amount of the
Preferred Securities" means the holders of more than 50% of the liquidation
amount (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accumulated and unpaid Distributions to the date
upon which the voting percentages are determined) of all of the Preferred
Securities.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two authorized officers of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the definitions relating
thereto;
(b) a brief statement of the nature and scope of the examination
or investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each such officer has made such examination
or investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, government or any agency
or political subdivision thereof or any other entity of whatever nature.
"Preferred Guarantee Trustee" means U.S. Trust Company of Texas,
N.A., until a Successor Preferred Guarantee Trustee has been appointed and has
accepted such appointment pursuant to the terms of this Preferred Securities
Guarantee and thereafter means each such Successor Preferred Guarantee Trustee.
"Redemption Price" has the meaning provided therefor in the definition
of Guarantee Payments.
"Responsible Officer" means, with respect to the Preferred Guarantee
Trustee, any officer of the Preferred Guarantee Trustee, including any
vice-president, any assistant vice-president, any assistant secretary, any
assistant treasurer or other officer customarily performing functions similar
to those performed by any of the above designated officers, and also means,
with respect to a particular corporate trust matter, any other officer to whom
such matter is referred because of that officer's knowledge of and familiarity
with the particular subject.
4
<PAGE> 8
"Senior Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing or any
petition in bankruptcy or for reorganization relating to the Guarantor whether
or not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of the Indenture or thereafter
incurred unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Junior Subordinated Debentures or to other
Debt which is pari passu with, or subordinated to, the Junior Subordinated
Debentures; provided, however, that Senior Debt shall not be deemed to include
(i) any Debt of the Guarantor which, when incurred and without respect to any
election under Section 1111(b) of the United States Bankruptcy Code of 1978, as
amended, was without recourse to the Guarantor, (ii) any Debt of the Guarantor
to any of its subsidiaries and (iii) Debt to any employee of the Guarantor.
"Successor Preferred Guarantee Trustee" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred Guarantee
Trustee under SECTION 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 TRUST INDENTURE ACT; APPLICATION.
(a) This Preferred Securities Guarantee is subject to the
provisions of the Trust Indenture Act that are required to be part of this
Preferred Securities Guarantee and shall, to the extent applicable, be governed
by such provisions.
(b) If and to the extent that any provision of this Preferred
Securities Guarantee limits, qualifies or conflicts with the duties imposed by
Section 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties
shall control.
SECTION 2.2 LISTS OF HOLDERS OF SECURITIES.
(a) The Guarantor shall provide the Preferred Guarantee Trustee
with a list, in such form as the Preferred Guarantee Trustee may reasonably
require, of the names and addresses of the Holders of the Preferred Securities
("List of Holders") as of such date, (i) within one Business Day after June 30
and December 31 of each year, and (ii) at any other time within 30 days of
receipt by the Guarantor of a written request for a List of Holders as of a
date no more than 15 days before such List of Holders is given to the Preferred
Guarantee Trustee; provided, however, that the Guarantor shall not be obligated
to provide such List of Holders at any time the List of Holders does not differ
from the most recent List of Holders given to the Preferred Guarantee Trustee
by the Guarantor. The Preferred Guarantee Trustee may destroy any List of
Holders previously given to it on receipt of a new List of Holders.
5
<PAGE> 9
(b) The Preferred Guarantee Trustee shall comply with its
obligations under Sections 311(a), 311(b) and Section 312(b) of the Trust
Indenture Act.
SECTION 2.3 REPORTS BY THE PREFERRED GUARANTEE TRUSTEE.
The Preferred Guarantee Trustee shall provide to the Holders of the
Preferred Securities such reports as are required by Section 313 of the Trust
Indenture Act, if any, in the form and in the manner provided by Section 313 of
the Trust Indenture Act. The Preferred Guarantee Trustee shall also comply
with the requirements of Section 313(d) of the Trust Indenture Act.
SECTION 2.4 PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE.
The Guarantor shall provide to the Preferred Guarantee Trustee such
documents, reports and information as are required by Section 314 (if any) and
the compliance certificate required by Section 314 of the Trust Indenture Act
in the form, in the manner and at the times required by Section 314 of the
Trust Indenture Act. Delivery of such reports, information and documents to
the Preferred Guarantee Trustee is for informational purposes only and the
Preferred Guarantee Trustee's receipt of such shall not constitute constructive
notice of any information contained therein or determinable from information
contained herein, including the Guarantor's compliance with any of its
covenants hereunder (as to which the Preferred Guarantee Trustee is entitled to
rely exclusively on Officer's Certificates).
SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
The Guarantor shall provide to the Preferred Guarantee Trustee such
evidence of compliance with any conditions precedent, if any, provided for in
this Preferred Securities Guarantee that relate to any of the matters set forth
in Section 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given by an officer pursuant to Section 314(c) may be given in
the form of an Officers' Certificate.
SECTION 2.6 EVENTS OF DEFAULT; WAIVER.
The Holders of a Majority in liquidation amount of Preferred
Securities may, by vote, on behalf of the Holders of all of the Preferred
Securities, waive any past Event of Default and its consequences. Upon such
waiver, any such Event of Default shall cease to exist and any Event of Default
arising therefrom shall be deemed to have been cured for every purpose of this
Preferred Securities Guarantee, but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
6
<PAGE> 10
SECTION 2.7 EVENT OF DEFAULT; NOTICE.
(a) The Preferred Guarantee Trustee shall, within 90 days after
the occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Preferred Securities, notices of all Events of
Default actually known to a Responsible Officer of the Preferred Guarantee
Trustee, unless such defaults have been cured before the giving of such notice;
provided, however, that the Preferred Guarantee Trustee shall be protected in
withholding such notice if and so long as a Responsible Officer of the
Preferred Guarantee Trustee in good faith determines that the withholding of
such notice is in the interest of the Holders of the Preferred Securities.
(b) The Preferred Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default unless the Preferred Guarantee Trustee shall
have received written notice, or a Responsible Officer of the Preferred
Guarantee Trustee charged with the administration of the Trust Agreement shall
have obtained actual knowledge, of such Event of Default.
SECTION 2.8 CONFLICTING INTERESTS.
The Trust Agreement shall be deemed to be specifically described in
this Preferred Securities Guarantee for the purposes of clause (i) of the first
proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE
SECTION 3.1 POWERS AND DUTIES OF THE PREFERRED GUARANTEE TRUSTEE.
(a) This Preferred Securities Guarantee shall be held by the
Preferred Guarantee Trustee for the benefit of the Holders of the Preferred
Securities, and the Preferred Guarantee Trustee shall not transfer this
Preferred Securities Guarantee to any Person except a Successor Preferred
Guarantee Trustee on acceptance by such Successor Preferred Guarantee Trustee
of its appointment to act as Successor Preferred Guarantee Trustee. The right,
title and interest of the Preferred Guarantee Trustee shall automatically vest
in any Successor Preferred Guarantee Trustee, and such vesting and cessation of
title shall be effective whether or not conveyancing documents have been
executed and delivered pursuant to the appointment of such Successor Preferred
Guarantee Trustee.
(b) If an Event of Default actually known to a Responsible Officer
of the Preferred Guarantee Trustee has occurred and is continuing, the
Preferred Guarantee Trustee shall enforce this Preferred Securities Guarantee
for the benefit of the Holders of the Preferred Securities.
(c) The Preferred Guarantee Trustee, before the occurrence of any
Event of Default and after the curing of all Events of Default that may have
occurred, shall undertake to perform
7
<PAGE> 11
only such duties as are specifically set forth in this Preferred Securities
Guarantee, and no implied covenants shall be read into this Preferred
Securities Guarantee against the Preferred Guarantee Trustee. In case an Event
of Default has occurred (that has not been cured or waived pursuant to SECTION
2.6) and is actually known to a Responsible Officer of the Preferred Guarantee
Trustee, the Preferred Guarantee Trustee shall exercise such of the rights and
powers vested in it by this Preferred Securities Guarantee, and use the same
degree of care and skill in its exercise thereof, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(d) No provision of this Preferred Securities Guarantee shall be
construed to relieve the Preferred Guarantee Trustee from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) prior to the occurrence of any Event of Default and
after the curing or waiving of all such Events of Default that may have
occurred: (A) the duties and obligations of the Preferred Guarantee Trustee
shall be determined solely by the express provisions of this Preferred
Securities Guarantee, and the Preferred Guarantee Trustee shall not be liable
except for the performance of such duties and obligations as are specifically
set forth in this Preferred Securities Guarantee, and no implied covenants or
obligations shall be read into this Preferred Securities Guarantee against the
Preferred Guarantee Trustee; and (B) in the absence of bad faith on the part of
the Preferred Guarantee Trustee, the Preferred Guarantee Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed herein, upon any certificates or opinions furnished to the
Preferred Guarantee Trustee and conforming to the requirements of this
Preferred Securities Guarantee; but in the case of any such certificates or
opinions that by any provision hereof are specifically required to be furnished
to the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall be
under a duty to examine the same to determine whether or not they conform to
the requirements of this Preferred Securities Guarantee;
(ii) the Preferred Guarantee Trustee shall not be liable
for any error of judgment made in good faith by a Responsible Officer of the
Preferred Guarantee Trustee, unless it shall be proved that the Preferred
Guarantee Trustee was negligent in ascertaining the pertinent facts upon which
such judgment was made;
(iii) the Preferred Guarantee Trustee shall not be liable
with respect to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than a Majority in
liquidation amount of the Preferred Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the Preferred
Guarantee Trustee, or exercising any trust or power conferred upon the
Preferred Guarantee Trustee under this Preferred Securities Guarantee; and
(iv) no provision of this Preferred Securities Guarantee
shall require the Preferred Guarantee Trustee to expend or risk its own funds
or otherwise incur personal financial liability in the performance of any of
its duties or in the exercise of any of its rights or powers,
8
<PAGE> 12
if the Preferred Guarantee Trustee shall have reasonable grounds for believing
that the repayment of such funds or liability is not reasonably assured to it
under the terms of this Preferred Securities Guarantee or indemnity, reasonably
satisfactory to the Preferred Guarantee Trustee, against such risk or liability
is not reasonably assured to it.
SECTION 3.2 CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE.
(a) Subject to the provisions of SECTION 3.1:
(i) The Preferred Guarantee Trustee may conclusively
rely, and shall be fully protected in acting or refraining from acting, upon
any resolution, certificate, statement, instrument, opinion, report notice,
request, direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to
have been signed, sent or presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by
this Preferred Securities Guarantee shall be sufficiently evidenced by an
Officers' Certificate.
(iii) Whenever, in the administration of this Preferred
Securities Guarantee, the Preferred Guarantee Trustee shall deem it desirable
that a matter be proved or established before taking, suffering or omitting any
action hereunder, the Preferred Guarantee Trustee (unless other evidence is
herein specifically prescribed) may, in the absence of bad faith on its part,
request and conclusively rely upon an Officers' Certificate which, upon receipt
of such request, shall be promptly delivered by the Guarantor.
(iv) The Preferred Guarantee Trustee shall have no duty to
see to any recording, filing or registration of any instrument (or any
rerecording, refiling or reregistration thereof).
(v) The Preferred Guarantee Trustee may consult with
counsel of its discretion, and the advice or opinion of such counsel with
respect to legal matters shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with such advice or opinion. Such counsel may
be counsel to the Guarantor or any of its Affiliates. The Preferred Guarantee
Trustee shall have the right at any time to seek instructions concerning the
administration of this Preferred Securities Guarantee from any court of
competent jurisdiction.
(vi) The Preferred Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Preferred Securities Guarantee at the request or direction of any Holder,
unless such Holder shall have provided to the Preferred Guarantee Trustee such
security and indemnity, reasonably satisfactory to the Preferred Guarantee
Trustee, against the costs, expenses (including attorneys' fees and expenses
and the expenses of the Preferred Guarantee Trustee's agents, nominees or
custodians) and liabilities that might be incurred by it in complying with such
request or direction, including such reasonable advances as
9
<PAGE> 13
may be requested by the Preferred Guarantee Trustee; provided, however, that,
nothing contained in this Section shall be taken to relieve the Preferred
Guarantee Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this Preferred
Securities Guarantee.
(vii) The Preferred Guarantee Trustee shall not be bound to
make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Preferred Guarantee Trustee,
in its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit.
(viii) The Preferred Guarantee Trustee may execute any of
the trusts or powers hereunder or perform any duties hereunder either directly
or by or through agents, nominees, custodians or attorneys, and the Preferred
Guarantee Trustee shall not be responsible for any misconduct or negligence on
the part of any agent or attorney appointed with due care by it hereunder.
(ix) Any action taken by the Preferred Guarantee Trustee
or its agents hereunder shall bind the Holders of the Preferred Securities and
the signature of the Preferred Guarantee Trustee or its agents alone shall be
sufficient and effective to perform any such action. No third party shall be
required to inquire as to the authority of the Preferred Guarantee Trustee to
so act or as to its compliance with any of the terms and provisions of this
Preferred Securities Guarantee, both of which shall be conclusively evidenced
by the Preferred Guarantee Trustee's or its agent's taking such action.
(x) Whenever in the administration of this Preferred
Securities Guarantee the Preferred Guarantee Trustee shall deem it desirable to
receive instructions with respect to enforcing any remedy or right or taking
any other action hereunder, the Preferred Guarantee Trustee (i) may request
written instructions from the Holders of a Majority in liquidation amount of
the Preferred Securities, (ii) may refrain from enforcing such remedy or right
or taking such other action until such written instructions are received, and
(iii) shall be protected in conclusively relying on or acting in accordance
with such instructions.
(b) No provision of this Preferred Securities Guarantee shall be
deemed to impose any duty or obligation on the Preferred Guarantee Trustee to
perform any act or acts or exercise any right, power, duty or obligation
conferred or imposed on it in any jurisdiction in which it shall be illegal, or
in which the Preferred Guarantee Trustee shall be unqualified or incompetent in
accordance with applicable law, to perform any such act or acts or to exercise
any such right, power, duty or obligation. No permissive power or authority
available to the Preferred Guarantee Trustee shall be construed to be a duty.
10
<PAGE> 14
SECTION 3.3 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE.
The Recitals contained in this Guarantee shall be taken as the
statements of the Guarantor, and the Preferred Guarantee Trustee does not
assume any responsibility for their correctness. The Preferred Guarantee
Trustee makes no representation as to the validity or sufficiency of this
Preferred Securities Guarantee.
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1 PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY.
(a) There shall at all times be a Preferred Guarantee Trustee
which shall: (i) not be an Affiliate of the Guarantor; and (ii) be a Person
permitted by the Securities and Exchange Commission to act as an institutional
trustee under the Trust Indenture Act, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$50,000,000, and subject to supervision or examination by federal, state or
District of Columbia authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of the
supervising or examining authority referred to above, then for the purposes of
this Section 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 as published.
(b) If at any time the Preferred Guarantee Trustee shall cease to
be eligible so to act under SECTION 4.1(A), the Preferred Guarantee Trustee
shall immediately resign in the manner and with the effect set out in SECTION
4.2(D).
(c) If the Preferred Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
SECTION 4.2 APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED GUARANTEE
TRUSTEES.
(a) Subject to SECTION 4.2(C), the Preferred Guarantee Trustee may
be appointed or removed without cause at any time by the Guarantor.
(b) The Preferred Guarantee Trustee may be removed for cause at
any time by Act (within the meaning of Section 608 of the Trust Agreement) of
the Holders of at least a Majority in liquidation amount of the Preferred
Securities, delivered to the Preferred Guarantee Trustee.
(c) The Preferred Guarantee Trustee shall not be removed in
accordance with SECTIONS 4.2(A) and 4.2(B) until a Successor Preferred
Guarantee Trustee has been appointed and has
11
<PAGE> 15
accepted such appointment by written instrument executed by such Successor
Preferred Guarantee Trustee and delivered to the Guarantor.
(d) The Preferred Guarantee Trustee appointed to office shall hold
office until a Successor Preferred Guarantee Trustee shall have been appointed
or until its removal or resignation. The Preferred Guarantee Trustee may
resign from office (without need for prior or subsequent accounting) by an
instrument in writing executed by the Preferred Guarantee Trustee and delivered
to the Guarantor, which resignation shall not take effect until a Successor
Preferred Guarantee Trustee has been appointed and has accepted such
appointment by instrument in writing executed by such Successor Preferred
Guarantee Trustee and delivered to the Guarantor and the resigning Preferred
Guarantee Trustee.
(e) If no Successor Preferred Guarantee Trustee shall have been
appointed and accepted appointment as provided in this Section within 60 days
after delivery of an instrument of resignation, the resigning Preferred
Guarantee Trustee may petition any court of competent jurisdiction for
appointment of a Successor Preferred Guarantee Trustee. Such court may
thereupon, after prescribing such notice, if any, as it may deem proper,
appoint a Successor Preferred Guarantee Trustee.
(f) No Preferred Guarantee Trustee shall be liable for the acts or
omissions to act of any Successor Preferred Guarantee Trustee.
(g) Upon termination of this Preferred Securities Guarantee or
removal or resignation of the Preferred Guarantee Trustee pursuant to this
Section, the Guarantor shall pay to the Preferred Guarantee Trustee all amounts
accumulated to the date of such termination, removal or resignation.
ARTICLE V
GUARANTEE
SECTION 5.1 GUARANTEE.
The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders the Guarantee Payments (without duplication of amounts theretofore
paid by the Trust), as and when due, regardless of any defense, right of
set-off or counterclaim that the Trust may have or assert. The Guarantor's
obligation to make a Guarantee Payment may be satisfied by direct payment of
the required amounts by the Guarantor to the Holders or by causing the Trust to
pay such amounts to the Holders.
12
<PAGE> 16
SECTION 5.2 WAIVER OF NOTICE AND DEMAND.
The Guarantor hereby waives notice of acceptance of this Preferred
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first
against the Trust or any other Person before proceeding against the Guarantor,
protest, notice of nonpayment, notice of dishonor, notice of redemption and all
other notices and demands.
SECTION 5.3 OBLIGATIONS NOT AFFECTED.
The obligations, covenants, agreements and duties of the Guarantor
under this Preferred Securities Guarantee shall in no way be affected or
impaired by reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of
the performance or observance by the Trust of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be
performed or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or
any portion of the Distributions, Redemption Price, Liquidation Distribution or
any other sums payable under the terms of the Preferred Securities or the
extension of time for the performance of any other obligation under, arising
out of, or in connection with, the Preferred Securities (other than an
extension of time for payment of Distributions, Redemption Price, Liquidation
Distribution or other sum payable that results from the extension of any
interest payment period on the Junior Subordinated Debentures);
(c) any failure, omission, delay or lack of diligence on the part
of the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Holders pursuant to the terms of the Preferred
Securities, or any action on the part of the Trust granting indulgence or
extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or readjustment
of debt of, or other similar proceedings affecting, the Trust or any of the
assets of the Trust;
(e) any invalidity of, or defect or deficiency in, the Preferred
Securities;
(f) any failure or omission to receive any regulatory approval or
consent required in connection with the Preferred Securities (or the common
equity securities issued by the Trust), including the failure to receive any
regulatory approval required in connection with the redemption of the Preferred
Securities;
13
<PAGE> 17
(g) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred; or
(h) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a guarantor, it being
the intent of this Section that the obligations of the Guarantor hereunder
shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.4 RIGHTS OF HOLDERS.
(a) The Guarantor expressly acknowledges that: (i) this Guarantee
will be deposited with the Preferred Guarantee Trustee to be held for the
benefit of the Holders; (ii) the Preferred Guarantee Trustee has the right to
enforce this Preferred Securities Guarantee; and (iii) Holders of a Majority in
liquidation amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Preferred Guarantee Trustee in respect of this Preferred Securities
Guarantee or exercising any trust or power conferred upon the Preferred
Guarantee Trustee under this Preferred Securities Guarantee.
(b) Any Holder of Preferred Securities may institute a legal
proceeding directly against the Guarantor to enforce its rights under this
Preferred Securities Guarantee, without first instituting a legal proceeding
against the Trust, the Preferred Guarantee Trustee or any other Person.
SECTION 5.5 GUARANTEE OF PAYMENT.
This Preferred Securities Guarantee creates a guarantee of payment and
not of collection. This Preferred Securities Guarantee will not be discharged
except by payment of the Guarantee Payments in full (without duplication of
amounts theretofore paid by the Trust).
SECTION 5.6 SUBROGATION.
The Guarantor shall be subrogated to all (if any) rights of the
Holders of Preferred Securities against the Trust in respect of any amounts
paid to such Holders by the Guarantor under this Preferred Securities
Guarantee; provided, however, that the Guarantor shall not (except to the
extent required by mandatory provisions of law) be entitled to enforce or
exercise any right that it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of payment under
this Preferred Securities Guarantee, if at the time of any such payment any
amounts are due and unpaid under this Preferred Securities Guarantee. If any
amount shall be paid to the Guarantor in violation of the preceding sentence,
the Guarantor agrees to hold such amount in trust for the Holders and to pay
over such amount to the Holders.
14
<PAGE> 18
SECTION 5.7 INDEPENDENT OBLIGATIONS.
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Trust with respect to the Preferred
Securities, and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Preferred
Securities Guarantee notwithstanding the occurrence of any event referred to in
SECTION 5.3.
ARTICLE VI
LIMITATION ON TRANSACTIONS; SUBORDINATION
SECTION 6.1 LIMITATION ON TRANSACTIONS.
So long as any Preferred Securities remain outstanding, if there shall
have occurred and be continuing an Event of Default under this Preferred
Securities Guarantee or an event of default under the Trust Agreement or during
an Extended Interest Payment Period (as defined in the Indenture), then (a) the
Guarantor shall not, and shall not permit any Subsidiary (as defined in the
Indenture) to, declare or pay any dividend on, make any distributions with
respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock (other than (i) the reclassification of
any class of the Company's capital stock into another class of capital stock,
(ii) dividends or distributions payable in any class of the Company's common
stock, (iii) any declaration of a dividend in connection with the
implementation of a shareholder rights plan, or the issuance of stock under any
such plan in the future, or the redemption or repurchase of any rights pursuant
thereto and (iv) purchases of the Company's common stock related to the rights
under any of the Company's benefit plans for its or its subsidiaries'
directors, officers or employees), and (b) the Guarantor shall not, and shall
not permit any Subsidiary to, make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities issued
by the Guarantor which rank pari passu with or junior to the Junior
Subordinated Debentures; (c) the Guarantor shall not, and shall not permit any
Subsidiary to make any guarantee payments with respect to any guarantee (other
than this Preferred Securities Guarantee) by the Company of the debt securities
of any Subsidiary of the Company if such guarantee ranks pari passu with or
junior to the Junior Subordinated Debentures; and (d) the Guarantor shall not
redeem, purchase or acquire less than all of the outstanding Debentures or any
of the Preferred Securities.
SECTION 6.2 RANKING.
This Preferred Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank (i) subordinate and junior in right
of payment to all other Senior Debt of the Guarantor, (ii) pari passu with the
most senior preferred securities or preference stock now or hereafter issued by
the Guarantor and with any guarantee now or hereafter entered into by the
Guarantor in respect to any preferred securities or preference stock of any
Affiliate of the Guarantor, and (iii) senior to the Guarantor's common stock.
15
<PAGE> 19
ARTICLE VII
TERMINATION
SECTION 7.1 TERMINATION.
This Preferred Securities Guarantee shall terminate (i) upon full
payment of the Redemption Price of all Preferred Securities, (ii) upon full
payment of the amounts payable in accordance with the Trust Agreement upon
liquidation of the Trust, or (iii) upon distribution of the Junior Subordinated
Debentures to the Holders of the Preferred Securities. Notwithstanding the
foregoing, this Preferred Securities Guarantee shall continue to be effective
or shall be reinstated, as the case may be, if at any time any Holder of
Preferred Securities must restore payment of any sums paid under the Preferred
Securities or under this Preferred Securities Guarantee.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 SUCCESSORS AND ASSIGNS.
All guarantees and agreements contained in this Preferred Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Preferred Securities then outstanding. Except in connection with a
consolidation, merger or sale involving the Guarantor that is permitted under
the Indenture and pursuant to which the successor agrees in writing to perform
the Guarantees obligations hereunder, any purported assignment that is not in
accordance with these provisions shall be void.
SECTION 8.2 AMENDMENTS.
Except with respect to any changes that do not adversely affect the
rights of Holders (in which case no consent of Holders will be required), this
Preferred Securities Guarantee may only be amended with the prior approval of
the Holders of at least a Majority in liquidation amount of the Preferred
Securities. The provisions of Article VI of the Trust Agreement with respect
to meetings of Holders of the Preferred Securities apply to the giving of such
approval.
SECTION 8.3 NOTICES.
All notices provided for in this Preferred Securities Guarantee shall
be in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed by first-class or certified mail, as follows:
(a) If given to the Preferred Guarantee Trustee, at the Preferred
Guarantee Trustee's mailing address set forth below (or such other address as
the Preferred Guarantee Trustee may give notice of to the Holders of the
Preferred Securities):
16
<PAGE> 20
U.S. Trust Company of Texas, N.A.
2001 Ross Avenue
Suite 2700
Dallas, Texas 75201
Facsimile No. (214) 754-1303
Attention: Corporate Trust Administration
(b) If given to the Guarantor, at the Guarantor's mailing address
set forth below (or such other address as the Guarantor may give notice of to
the Holders of the Preferred Securities):
Southside Bancshares, Inc.
1201 S. Beckham
Tyler, Texas 75701
Facsimile No. (903) 592-3692
Attention: President
(c) If given to any Holder of Preferred Securities, at the address
set forth on the books and records of the Trust.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
SECTION 8.4 BENEFIT.
This Preferred Securities Guarantee is solely for the benefit of the
Holders of the Preferred Securities and, subject to SECTION 3.1(A), is not
separately transferable from the Preferred Securities.
SECTION 8.5 GOVERNING LAW.
THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
17
<PAGE> 21
This Preferred Securities Guarantee is executed as of the day and year
first above written.
SOUTHSIDE BANCSHARES, INC. AS
GUARANTOR
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
U.S. TRUST COMPANY OF TEXAS, N.A., AS
PREFERRED GUARANTEE TRUSTEE
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
18
<PAGE> 1
EXHIBIT 5.1
[Jenkens & Gilchrist Letterhead]
May 12, 1998
The Board of Directors
Southside Bancshares, Inc.
1201 South Beckham
Tyler, Texas 75701
Re: Southside Bancshares, Inc.
Registration Statement on Form S-2
File Nos. 333-49889 and 333-49889-01
Ladies and Gentlemen:
We have acted as counsel to Southside Bancshares, Inc., a Texas
corporation (the "Company") and Depositor of Southside Capital Trust I, a
Delaware statutory business trust (the "Trust"), in connection with the
preparation of a Registration Statement on Form S-2 (the "Registration
Statement") filed by the Company and the Trust with the Securities and Exchange
Commission relating to (i) the proposed issuance by the Trust of $20,000,000
aggregate Liquidation Amount of the Trust's ___% Cumulative Trust Preferred
Securities due June 30, 2028 (the "Preferred Securities") registered under the
Securities Act of 1933, as amended (the "Securities Act"); (ii) the Company's
___% Junior Subordinated Deferrable Interest Debentures (the "Junior
Subordinated Debentures") registered under the Securities Act; and (iii) the
Company's guarantee (the "Guarantee"), which guarantees the payment of
Distributions and payments on liquidation or redemption of the Preferred
Securities, registered under the Securities Act. The Preferred Securities are
issuable under an Amended and Restated Trust Agreement to be entered into (the
"Trust Agreement") between the Company, as Depositor, Wilmington Trust Company,
a Delaware trust company, as Delaware Trustee, U.S. Trust Company of Texas,
N.A., a trust company organized under the laws of the United States, as Property
Trustee, and Sam Dawson, an individual, and Lee A. Gibson, an individual, each
an Administrative Trustee; the Junior Subordinated Debentures are issuable under
an Indenture to be entered into (the "Indenture") between the Company and U.S.
Trust Company of Texas, N.A. as Trustee; and the Guarantee relates to the
Guarantee Agreement to be entered into (the "Guarantee Agreement") between the
Company and U.S. Trust Company of Texas, N.A., as Guarantee Trustee.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the certificate of
trust filed by the Trust with the Secretary of State of the State of Delaware on
April 9, 1998; (ii) the form of the Trust Agreement;
<PAGE> 2
The Board of Directors
May 12, 1998
Page 2
(iii) the form of the Preferred Securities; (iv) the form of the Guarantee
Agreement; (v) the form of the Junior Subordinated Debentures; (vi) the form of
the Indenture, in each case in the form filed as an exhibit to the Registration
Statement; and (vii) the Registration Statement. We have also examined originals
or copies, certified or otherwise identified to our satisfaction, of such other
documents, certificates and records and have reviewed such questions of law as
we have considered necessary and appropriate for the purposes of our opinions
set forth below.
In rendering our opinions, we have assumed, without investigation, the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures and the conformity to authentic originals of all documents
submitted to us as copies. We have also assumed the legal capacity for all
purposes relevant hereto of all natural persons and, with respect to all parties
to agreements or instruments relevant hereto other than the Company and the
Trust, that such parties had the requisite power and authority (corporate or
otherwise) to execute, deliver and perform such agreements or instruments, that
such agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. In addition, we have assumed that the Trust Agreement, the
Preferred Securities, the Guarantee, the Junior Subordinated Debentures and the
Indenture, when executed, will be executed in substantially the form reviewed by
us. As to questions of fact material to our opinions, we have relied upon
certificates of officers of the Company and the Trust and of public officials.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to them in the Trust Agreement, the Indenture and the
Guarantee Agreement, as applicable.
Based on the foregoing, we are of the opinion that:
(1) The Junior Subordinated Debentures have been duly authorized by all
requisite corporate action and, when executed and authenticated as specified in
the Indenture and delivered and paid for in the manner described in the
Registration Statement, the Junior Subordinated Debentures will constitute valid
and binding obligations of the Company, enforceable against the Company in
accordance with their terms.
(2) The Guarantee has been duly authorized by all requisite corporate
action and, when duly executed as specified in the Guarantee Agreement and
delivered in the manner described in the Registration Statement, the Guarantee
will constitute the valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
<PAGE> 3
The Board of Directors
May 12, 1998
Page 3
The opinions set forth above are subject to the following
qualifications and exceptions:
The enforceability of the operative documents, or any provision thereof
may be limited by and/or subject to bankruptcy (including, without limitation,
executory contracts provisions), insolvency, reorganization, receivership,
moratorium, fraudulent transfer or conveyance, or other laws affecting the
rights and remedies of creditors generally, or similar federal or state laws, by
general equity principles, by rules of law governing specific performance,
appointment of receivers, injunctive relief and other equitable remedies, and by
remedies or the exercise of certain rights including, without limitation,
commercial reasonableness or conscionability, reasonable notice of disposition,
specific performance, or enforcement, limitation on sale or encumbrance
provisions, waivers or eliminations of rights such as statutory rights of
redemption, or of jury trial, separation or aggregation of property at
foreclosure or enforced sale, application of sale or judgment proceeds, and
multiplicity, inconsistency, waiver or omission or delay in the enforcement of
remedies.
This opinion is rendered only with respect to the laws of the State of
Texas, the federal laws of the United States of America and the General
Corporation Law of the State of Delaware. With respect to matters of Delaware
trust law, we are relying upon the opinion of Richards, Layton & Finger, P.A.,
Wilmington, Delaware, special counsel to the Company and the Trust.
The opinions expressed above concern only the effect of laws as now in
effect and are rendered as of the date hereof. We undertake no, and hereby
disclaim any, obligation to revise or supplement this opinion should such laws
be changed by legislative action, judicial decision, or otherwise after the date
of this opinion, or if we become aware of any facts that might change the
opinions expressed above after the date of this letter.
We hereby consent to your filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the caption
"Validity of Securities" contained in the Prospectus included therein.
Very truly yours,
/s/
Jenkens & Gilchrist, a Professional Corporation
<PAGE> 1
EXHIBIT 5.2
[LETTERHEAD OF RICHARDS, LAYTON & RINGER, P.A.]
May 13, 1998
Southside Capital Trust I
c/o Southside Bancshares, Inc.
1201 S. Beckham
Tyler, Texas 75701
Re: Southside Capital Trust I
Ladies and Gentlemen:
We have acted as special Delaware counsel for Southside Bancshares,
Inc., a Texas corporation (the "Company") and Southside Capital Trust I, a
Delaware business trust (the "Trust") in connection with the matters set forth
herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust, as filed with the office
of the Secretary of State of the State of Delaware (the "Secretary of State")
on April 9, 1998;
(b) The Trust Agreement of the Trust, dated as of April 9, 1998,
among the Company and the trustees named therein;
(c) The Registration Statement (the "Registration Statement") on
Form S-2, including a preliminary prospectus with respect to the Trust (the
"Prospectus"), relating to the Cumulative Trust Preferred Securities of the
Trust representing preferred undivided beneficial interests in the assets of
the Trust (each, a "Preferred Security" and collectively, the "Preferred
Securities"), to be filed by the Company and the Trust with the Securities and
Exchange Commission on or about May 12, 1998;
(d) A form of Amended and Restated Trust Agreement of the Trust, to
be entered into between the Company, the trustees of the Trust named therein,
and the holders, from
<PAGE> 2
Southside Capital Trust I
May 13, 1998
Page 2
time to time, of the undivided beneficial interests in the assets of the Trust
(including Exhibits C and D thereto) (the "Trust Agreement"), attached as an
exhibit to the Registration Statement; and
(e) A Certificate of Good Standing for the Trust, dated May 12,
1998, obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are
used as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents
other than the documents listed in paragraphs (a) through (e) above. In
particular, we have not reviewed any document (other than the documents listed
in paragraphs (a) through (e) above) that is referred to in or incorporated by
reference into the documents reviewed by us. We have assumed that there exists
no provision in any document that we have not reviewed that is inconsistent
with the opinions stated herein. We have conducted no independent factual
investigation of our own but rather have relied solely upon the foregoing
documents, the statements and information set forth therein and the additional
matters recited or assumed herein, all of which we have assumed to be true,
complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust
Agreement will constitute the entire agreement among the parties thereto with
respect to the subject matter thereof, including with respect to the creation,
operation and termination of the applicable Trust, and that the Trust Agreement
and the Certificate of Trust will be in full force and effect and will not be
amended, (ii) except to the extent provided in paragraph 1 below, the due
organization or due formation, as the case may be, and valid existence in good
standing of each party to the documents examined by us under the laws of the
jurisdiction governing its organization or formation, (iii) the legal capacity
of natural persons who are parties to the documents examined by us, (iv) that
each of the parties to the documents examined by us has the power and authority
to execute and deliver, and to perform its obligations under, such documents,
(v) the due authorization, execution and delivery by all parties thereto of all
documents examined by us, (vi) the receipt by each Person to whom a Preferred
Security is to be issued by the Trust (collectively, the "Preferred Security
Holders") of a Preferred Security Certificate for such Preferred Security and
the payment for such Preferred Security, in accordance with the Trust Agreement
and the Registration Statement, and (vii) that the Preferred Securities are
authenticated, issued and sold to the Preferred Security Holders in accordance
with the Trust Agreement and the Registration
<PAGE> 3
Southside Capital Trust I
May 13, 1998
Page 3
Statement. We have not participated in the preparation of the Registration
Statement or the Prospectus and assume no responsibility for their contents.
This opinion is limited to the laws of the State of Delaware
(excluding the securities laws of the State of Delaware), and we have not
considered and express no opinion on the laws of any other jurisdiction,
including federal laws and rules and regulations relating thereto. Our opinions
are rendered only with respect to Delaware laws and rules, regulations and
orders thereunder which are currently in effect.
Based upon the foregoing, and upon our examination of such questions
of law and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act.
2. The Preferred Securities of the Trust will represent valid and,
subject to the qualifications set forth in paragraph 3 below, fully paid and
nonassessable beneficial interests in the assets of the Trust.
3. The Preferred Security Holders, as beneficial owners of the
Trust, will be entitled to the same limitation of personal liability extended
to stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note that the Preferred Security
Holders may be obligated to make payments as set forth in the Trust Agreement.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. We hereby
consent to the use of our name under the heading "Validity of Securities" in
the Prospectus. In giving the foregoing consents, we do not thereby admit that
we come within the category of persons whose consent is required under Section
7 of the Securities Act of 1933, as amended, or the rules and regulations of
the Securities and Exchange Commission thereunder. Except as stated above,
without our prior written consent, this opinion may not be furnished or quoted
to, or relied upon by, any other person for any purpose.
Very truly yours,
/s/ RICHARDS, LAYTON & FINGER, P.A.
EAM
<PAGE> 1
EXHIBIT 8.1
[JENKENS & GILCHRIST LETTERHEAD]
May 12, 1998
Southside Bancshares, Inc.
1201 S. Beckman
Tyler, Texas 75701
Re: FEDERAL INCOME TAX OPINION REQUIRED UNDER ARTICLE VI, SECTION
601(B) OF THAT AMENDED AND RESTATED TRUST AGREEMENT (THE
"TRUST AGREEMENT") DATED MAY __, 1998 AMONG SOUTHSIDE
BANCSHARES, INC. ("COMPANY"), U.S. TRUST COMPANY OF TEXAS,
N.A. ("PROPERTY TRUSTEE"), WILMINGTON TRUST COMPANY ("DELAWARE
TRUSTEE"), SAM DAWSON AND LEE A. GIBSON ("ADMINISTRATIVE
TRUSTEES") AND HOLDERS (AS DEFINED IN THE TRUST AGREEMENT).
Gentlemen:
Jenkens & Gilchrist, a Professional Corporation (the "Firm"), has
acted as special tax counsel to Southside Bancshares, Inc., a Texas
corporation, and Southside Capital Trust I (the "Trust Issuer") in connection
with the Registration Statement on Form S-2 (the "Registration Statement")
filed by the Company and the Trust Issuer with the Securities and Exchange
Commission (File Nos. 333-49889 and 333-49889-01) for the purpose of
registering under the Securities Act of 1933 (the "Act") the Trust Issuer's
Preferred Securities, the Company's Junior Subordinated Debentures, and the
Company's Guarantee with respect to the Preferred Securities. You have
requested the opinions set forth in Section I hereof regarding the
characterization of the Trust for federal income tax purposes. Section I of
this letter (the "Opinion Letter") contains the Firm's opinion. Section II of
this Opinion Letter contains limitations on the opinion. Except as otherwise
provided herein, all capitalized terms herein shall have the same meaning given
to them in the Registration Statement.
<PAGE> 2
Southside Bancshares, Inc.
Page 2
I. OPINION
Based upon our analysis of the applicable authorities and subject to
the limitations set forth in Section II, the Firm is of the opinion that for
federal income tax purposes:
1. The Trust will be characterized as a grantor trust for U.S.
federal income tax purposes and not as an association subject to tax as a
corporation.
2. The discussion entitled "Certain Federal Income Tax
Consequences" in the Registration Statement, insofar as it relates to
statements of law or legal conclusions, is correct in all material respects.
II. LIMITATIONS
1. Except as otherwise indicated, the opinions set forth in
Section I are based upon the Code and its legislative history, the regulations
promulgated thereunder, judicial decisions and current administrative rulings
and practices of the Internal Revenue Service, all as in effect on the date of
this Opinion Letter. These authorities may be amended or revoked at any time.
Any such changes may or may not be retroactive with respect to transactions
entered into or contemplated prior to such changes and could significantly
alter the conclusions reached in this Opinion Letter. There is no assurance
that legislative, judicial or administrative changes will not occur in the
future. The Firm assumes no obligation to update or modify this Opinion Letter
to reflect any developments that may occur after the date of this Opinion
Letter.
2. The opinions set forth in Section I are not binding on the
Internal Revenue Service or the courts. Additionally, the Firm's opinions set
forth herein are dependent upon the accuracy of the representations contained
in the representation letters signed by officers of the Company and provided to
the Firm. The Firm has relied upon these representations and any inaccuracy
therein could adversely affect the opinions stated in Section I. Also, the
Firm assumes that the representations will be accurate in all respects material
hereto as of the effective time of the Merger.
3. In connection with this Opinion Letter, the Firm has examined
originals or copies, certified or otherwise identified, of such documents and
records and such statutes, regulations and other instruments as it deemed
necessary or advisable for the purposes of the opinions set forth herein,
including (i) the Registration Statement on Form S-2 (File Nos. 333-49889 and
333-49889-01) and (ii) the form of Trust Agreement. The Firm has assumed that
all signatures on all documents presented to it are genuine, that all documents
submitted to it as originals are accurate originals thereof, that all
information submitted to it is accurate and complete, and that all persons
executing and delivering originals or copies of documents examined by it are
competent to execute and deliver such documents.
4. The Firm is expressing its opinions only as to those matters
expressly set forth in Section I. No opinion should be inferred as to any
other matters.
<PAGE> 3
Southside Bancshares, Inc.
Page 3
5. This Opinion Letter may be filed as an exhibit to the
Registration Statement. Consent also is given to the reference to the Firm
under the caption "Legal Matters" in the Registration Statement as having
rendered the opinion in the "Certain Federal Income Tax Consequences" section
of such Registration Statement. In giving this consent, the Firm does not
thereby admit that it comes into the category of persons whose consent is
required under section 7 of the Securities Act or the rules and regulations of
the Securities Exchange Commission promulgated thereunder.
Respectfully submitted,
JENKENS & GILCHRIST,
a Professional Corporation
By: /s/ PATRICK E. MITCHELL
-----------------------------------
Patrick E. Mitchell, for the Firm
<PAGE> 1
EXHIBIT 12
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest Expense - Borrowings 1,494 804 547 490 211
Interest Expense - Deposits 14,711 13,593 12,290 10,054 9,153
Implicit Interest Rent 51 27 16 19 5
------- ------- ------- ------- -------
Total Fixed Charges (a) 16,256 14,424 12,853 10,563 9,369
Earnings 6,695 5,642 6,245 4,721 5,371
Earnings (b) 8,240 6,473 6,808 5,230 5,587
Earnings (c) 22,951 20,066 19,098 15,284 14,740
Ratio of Earnings to
Fixed Charges:
Excluding Interest on Deposits 5.33 7.79 12.09 10.20 25.87
Including Interest on Deposits 1.41 1.39 1.49 1.45 1.57
</TABLE>
(a) For purposes of such computation, the term "fixed charges" represents
interest expense and a portion of rentals representative of an implicit
interest factor for such rentals.
(b) For purposes of such computation, the term "earnings" represents earnings
before provision for income taxes and cumulative effect of change in
accounting principle plus interest on borrowings and a portion of rentals
representative of an implicit interest factor for such rentals.
(c) For purposes of such computation, the term "earnings" represents earnings
before provision for income taxes and cumulative effect of change in
accounting principle plus total fixed charges.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-2 (File No.
333-49889 and 333-49889-01) of our report dated March 13, 1998, on our audits of
the consolidated financial statements of Southside Bancshares, Inc. We also
consent to the references to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
Dallas, Texas
May 12, 1998
<PAGE> 1
EXHIBIT 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2)_________
------------------------
U.S. TRUST COMPANY OF TEXAS, N.A.
(Exact name of trustee as specified in its charter)
75-2353745
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
2001 Ross Ave, Suite 2700 75201
Dallas, Texas (Zip Code)
(Address of trustee's
principal executive offices)
Compliance Officer
U.S. Trust Company of Texas, N.A.
2001 Ross Ave, Suite 2700
Dallas, Texas 75201
(214) 754-1200
(Name, address and telephone number of agent for service)
------------------------
Southside Bancshares, Inc.
(Exact name of obligor as specified in its charter)
Texas 75-1848732
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
P.O. Box 1079
Tyler, Texas 75701
(Address of principal executive offices) (Zip Code)
------------------------
_____% Junior Subordinated Debentures
(Title of the indenture securities)
================================================================================
<PAGE> 2
GENERAL
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.
Federal Reserve Bank of Dallas (11th District),
Dallas, Texas (Board of Governors of the
Federal Reserve System)
Federal Deposit Insurance Corporation, Dallas, Texas
The Office of the Comptroller of the Currency,
Dallas, Texas
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust
powers.
2. Affiliations with Obligor and Underwriters.
If the obligor or any underwriter for the obligor is an affiliate of
the Trustee, describe each such affiliation.
None.
3. Voting Securities of the Trustee.
Furnish the following information as to each class of voting
securities of the Trustee:
<TABLE>
<CAPTION>
As of May 6, 1998
- --------------------------------------------------------------------------------
Col A. Col B.
<S> <C>
- --------------------------------------------------------------------------------
Title of Class Amount Outstanding
- --------------------------------------------------------------------------------
</TABLE>
Capital Stock - par value $100 per share 5,000 shares
4. Trusteeships under Other Indentures.
Not Applicable
5. Interlocking Directorates and Similar Relationships with the Obligor
or Underwriters.
Not Applicable
<PAGE> 3
6. Voting Securities of the Trustee Owned by the Obligor or its
Officials.
Not Applicable
7. Voting Securities of the Trustee Owned by Underwriters or their
Officials.
Not Applicable
8. Securities of the Obligor Owned or Held by the Trustee.
Not Applicable
9. Securities of Underwriters Owned or Held by the Trustee.
Not Applicable
10. Ownership or Holdings by the Trustee of Voting Securities of Certain
Affiliates or Security Holders of the Obligor.
Not Applicable
11. Ownership or Holdings by the Trustee of any Securities of a Person
Owning 50 Percent or More of the Voting Securities of the Obligor.
Not Applicable
12. Indebtedness of the Obligor to the Trustee.
Not Applicable
13. Defaults by the Obligor.
Not Applicable
14. Affiliations with the Underwriters.
Not Applicable
15. Foreign Trustee.
Not Applicable
16. List of Exhibits.
T-1.1 - A copy of the Articles of Association of U.S. Trust Company
of Texas, N.A.; incorporated herein by reference to Exhibit
T-1.1 filed with Form T-1 Statement, Registration No.
22-21897.
<PAGE> 4
16. (con't.)
T-1.2 - A copy of the certificate of authority of the Trustee to
commence business; incorporated herein by reference to
Exhibit T-1.2 filed with Form T-1 Statement, Registration
No. 22-21897.
T-1.3 - A copy of the authorization of the Trustee to exercise
corporate trust powers; incorporated herein by reference to
Exhibit T-1.3 filed with Form T-1 Statement, Registration
No. 22-21897.
T-1.4 - A copy of the By-laws of the U.S. Trust Company of Texas,
N.A., as amended to date; incorporated herein by reference
to Exhibit T-1.4 filed with Form T-1 Statement,
Registration No. 22-21897.
T-1.6 - The consent of the Trustee required by Section 321(b) of
the Trust Indenture Act of 1939.
T-1.7 - A copy of the latest report of condition of the Trustee
published pursuant to law or the requirements of its
supervising or examining authority.
NOTE
As of May 6, 1998, the Trustee had 5,000 shares of Capital Stock outstanding,
all of which are owned by U.S. T.L.P.O. Corp. As of May 6, 1998, U.S.
T.L.P.O. Corp. had 35 shares of Capital Stock outstanding, all of which are
owned by U.S. Trust Corporation. U.S. Trust Corporation had outstanding
19,142,000.00 shares of $5 par value Common Stock as of February 24, 1998.
The term "Trustee" in Items 2, 5, 6, 7, 8, 9, 10 and 11 refers to each of U.S
Trust Company of Texas, N.A., U.S. T.L.P.O. Corp. and U.S. Trust Corporation.
In as much as this Form T-1 is filed prior to the ascertainment by the Trustee
of all the facts on which to base responsive answers to Items 2, 5, 6, 7, 9, 10
and 11, the answers to said Items are based upon incomplete information. Items
2, 5, 6, 7, 9, 10 and 11 may, however, be considered correct unless amended by
an amendment to this Form T-1.
In answering any items in this Statement of Eligibility and Qualification which
relates to matters peculiarly within the knowledge of the obligors or their
directors or officers, or an underwriter for the obligors, the Trustee has
relied upon information furnished to it by the obligors and will rely on
information to be furnished by the obligors or such underwriter, and the
Trustee disclaims responsibility for the accuracy or completeness of such
information.
--------------
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
U.S Trust Company of Texas, N.A., a national banking association organized
under the laws of the United States of America, has duly caused this statement
of eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Dallas, and State of Texas on the
6th day of May, 1998.
U.S. Trust Company
of Texas, N.A., Trustee
By: /s/ JOHN C. STOHLMANN
-------------------------
John C. Stohlmann
Vice President
<PAGE> 6
<TABLE>
<S> <C>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
Federal Financial Institutions Examination Council Expires March 31, 2000
- -------------------------------------------------------------------------------------------------------------------------
(1)
(LOGO) Please Refer to Page I,
Table of Contents, for
the required disclosure
of estimated burden.
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF
CONDITION AND INCOME FOR A BANK
WITH DOMESTIC OFFICES ONLY AND (980331)
TOTAL ASSETS OF LESS THAN $100 -----------
MILLION -- FFIEC 033 (RCRI 9999)
REPORT AT THE CLOSE OF BUSINESS MARCH 31, 1998 This report form is to be filed by banks with
domestic offices only. Banks with branches and
consolidated subsidiaries in U.S. territories and
This report is required by law: 12 U.S.C. Section 324 (State possessions, Edge or Agreement subsidiaries, foreign
member banks); 12 U.S.C. Section 1817 (State nonmember branches, consolidated foreign subsidiaries, or
banks); and 12 U.S.C. Section 161 (National banks). International Banking Facilities must file FFIEC 031.
- -------------------------------------------------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by The Reports of Condition and Income are to be
an authorized officer and the Report of Condition must be prepared in accordance with Federal regulatory
attested to by not less than two directors (trustees) for authority instructions. NOTE: these instructions may
State nonmember banks and three directors for State member in some cases differ from generally accepted
and National Banks. accounting principles.
I, Alfred B. Childs, SVP & Cashier We, the undersigned directors (trustees), attest to
------------------------------- the correctness of this Report of Condition
Name and Title of Officer Authorized to Sign Report (including the supporting schedules) and declare that
it has been examined by us and to the best of our
of the named bank do hereby declare that these Reports of knowledge and belief has been prepared in conformance
Condition and Income (including the supporting schedules) with the instructions issued by the appropriate
have been prepared in conformance with the instructions Federal regulatory authority and is true and correct.
issued by the appropriate Federal regulatory authority and
are true to the best of my knowledge and belief. /s/ Stuart M. Pearman
---------------------
Director (Trustee)
/s/ Alfred B. Childs
- -------------------- /s/ J. T. Moore Jr.
Signature of Officer Authorized to Sign Report -------------------
Director (Trustee)
4/14/98 /s/ Peter Denker
- -------------------- ----------------
Date of Signature Director (Trustee)
- -------------------------------------------------------------------------------------------------------------------------
SUBMISSION OF REPORTS (b) in hard-copy (paper) form and arrange for another
party to convert the paper report to electronic
Each bank must prepare its Reports of Condition and Income form. That party (if other than EDS) must transmit
either: the bank's computer data file to EDS.
(a) in electronic form and then file the computer data file To fulfill the signature and attestation requirement for
directly with the banking agencies' collection agent, the Reports of Condition and Income for this report date,
Electronic Data Systems Corporation (EDS), by modem attach this signature page to the hard-copy record of the
or on computer diskette; or completed report that the bank places in its files.
- -------------------------------------------------------------------------------------------------------------------------
FDIC Certificate Number Call No. 203 33 03-31-98
----------
(RCRI 9050) STBK: 48-6797 13264 STCERT: 48-33217
US Trust Company of Texas, National Association
2001 Ross Avenue, Suite 2700
Dallas, TX 75201
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C> <C> <C>
Legal Title of Bank: Call Date: 03/31/98 State #: 48-6797 FFIEC 033
Address: 2100 Ross Avenue, Suite 2700 Vendor ID: D Cort #: 13264 Page RC-1
City, State Zip: Dallas, TX 75201 Transit #: 11101765
---------
9
---------
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC -- BALANCE SHEET
<TABLE>
<CAPTION>
C200<
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions: RCON
a. Noninterest-bearing balances and currency and coin (1,2).............................. 0081 1,143 1.a.
b. Interest bearing balances (3)......................................................... 0071 1,138 1.b.
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)............................ 1754 0 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D).......................... 1773 121,248 2.b.
3. Federal funds sold (4) and securiites purchased under agreements to resell: 1350 5,000 3
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income RCON
(from Schedule RC-C)____________................................ 2122 18,091 4.a.
b. LESS: Allowance for loan and lease losses....................... 3123 225 4.c.
c. LESS: Allocated transfer risk reserve........................... 3128 0
d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and RCON
4.c)..................................................................................... 2125 17,866 4.d.
5. Trading assets ............................................................................ 3545 0 5.
6. Premises and fixed assets (including capitalized leases)................................... 2145 743 6.
7. Other real estate owned (from Schedule RC-M)............................................... 2150 0 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule
RC-M)...................................................................................... 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding............................... 2155 0 9.
10. Intangible assets (from Schedule RC-M)..................................................... 2143 0 10.
11. Other assets (from Schedule RC-F).......................................................... 2160 1,902 11.
12. Total assets (sum of items 1 through 11)................................................... 2170 149,040 12.
</TABLE>
- ---------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 8
<TABLE>
<S> <C> <C> <C>
U.S. Trust Company of Texas, N.A.: Call Date: 03/31/98 State#: 48-6797 FFIEC 033
2100 Ross Avenue, Suite 2700 Vendor ID: D Cert#: 13264 Page RC-2
Dallas, TX 75201 Transit #: 11101765 10
</TABLE>
SCHEDULE RC - CONTINUED
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from RCON
----
Schedule RC-E ............................................................... RCON 2200 120,298 13.a.
----
(1) Noninterest-bearing(1).................................................. 6631 10,817 13.a.1
(2) Interest-bearing........................................................ 6636 109,481 13.a.2
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing.....................................................
(2) Interest-bearing........................................................
14. Federal funds purchased (2) and securities sold under agreements to repurchase: RCON
----
2800 0 14
15. a. Demand notes issued to the U.S. Treasury.................................... 2840 0 15.a
b. Trading liabilities ........................................................ 3548 0 15.b
16. Other borrowed money:
a. With a remaining maturity of one year or less............................... 2332 2,000 16.a
b. With a remaining maturity of more than one year through three years......... A547 2,000 16.b
c. With a remaining maturity of more than three years.......................... A548 1,000 16.c
17. Not Applicable
18. Bank's liability on acceptances executed and outstanding....................... 2920 0 18.
19. Subordinated notes and debentures.............................................. 3200 0 19.
20. Other liabilities (from Schedule RC-G)......................................... 2930 2,225 20.
21. Total liabilities (sum of items 13 through 20)................................. 2948 127,523 21.
22. Not applicable
EQUITY CAPITAL RCON
----
23. Perpetual preferred stock and related surplus.................................. 3838 7,000 23.
24. Common stock................................................................... 3230 500 24.
25. Surplus (exclude all surplus related to preferred stock)....................... 3839 8,384 25.
26. a. Undivided profits and capital reserves...................................... 3632 5,277 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities...... 8434 356 26.b
27. Cumulative foreign currency translation adjustments............................
28. Total equity capital (sum of items 23 through 27).............................. 3210 21,517 28.
29. Total liabilities and equity capital (sum of items 21, 22 and 28).............. 2257 149,040 29.
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that best NUMBER
describes the most comprehensive level of auditing work performed for the bank ------
by independent external auditors as of any date during 1997..................... 6724 1 M.1
1 = Independent audit of the bank conducted in accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in accordance with generally accepted auditing
standards by a certified public accounting firm which submits a report on the consolidated holding company (but
not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally accepted auditing standards by a
certified public accounting firm (may be required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors (may be required by state chartering
authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
</TABLE>
- ---------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
<PAGE> 9
Exhibit T-1.6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939 as amended in connection with the proposed issue of Southside Bancshares,
Inc. Junior Subordinated Debentures, we hereby consent that reports of
examination by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefore.
U.S. Trust Company of Texas, N.A.
By: /s/ JOHN C. STOHLMANN
----------------------------
John C. Stohlmann
Vice President
<PAGE> 10
<TABLE>
<S> <C>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
Federal Financial Institutions Examination Council OMB Number: 1557-0081
Expires March 31, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
(1)
Please Refer to Page I, Table of Contents, for
(LOGO) the required disclosure of estimated burden.
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK
WITH DOMESTIC OFFICES ONLY AND TOTAL ASSETS OF LESS THAN (980331)
$100 MILLION - - FFIEC 033 ----------
(RCRI 9999)
REPORT AT THE CLOSE OF BUSINESS MARCH 31, 1998
This report form is to be filed by banks with domestic offices
This report is required by law: 12 U.S.C. Section 324 only. Banks with branches and consolidated subsidiaries in
(State member banks); 12 U.S.C. Section 1817 (State U.S. territories and possessions, Edge or Agreement
nonmember banks); and 12 U.S.C. Section 161 (National subsidiaries, foreign branches, consolidated foreign
banks). subsidiaries, or International Banking Facilities must file
FFIEC 031.
- ------------------------------------------------------------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by The Reports of Condition and Income are to be prepared in
an authorized officer and the Report of Condition must be accordance with Federal regulatory authority instructions.
attested to by not less than two directors (trustees) for NOTE: these instructions may in some cases differ from
State nonmember banks and three directors for State member generally accepted accounting principles.
and National Banks.
We, the undersigned directors (trustees), attest to the
I, Alfred B. Childs, SVP & Cashier correctness of this Report of Condition (including the
----------------------------------- supporting schedules) and declare that it has been examined
Name and Title of Officer Authorized to Sign Report by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the
of the named bank do hereby declare that these Reports of appropriate Federal regulatory authority and is true and
Condition and Income (including the supporting schedules) correct.
have been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and /s/ Stuart M. Pearman
are true to the best of my knowledge and belief. --------------------------
Director (Trustee)
/s/ Alfred B. Childs
- ---------------------------- /s/ J. T. Moore Jr.
Signature of Officer Authorized to Sign Report ------------------------
Director (Trustee)
4/14/98
- --------------------- /s/ Peter Denker
Date of Signature --------------------
Director (Trustee)
- ------------------------------------------------------------------------------------------------------------------------------------
SUBMISSION OF REPORTS (b) in hard-copy (paper) form and arrange for another party to
convert the paper report to electronic form. That party (if
Each bank must prepare its Reports of Condition and Income other than EDS) must transmit the bank's computer data file
either: to EDS.
(a) in electronic form and then file the computer data To fulfill the signature and attestation requirement for the
file directly with the banking agencies? collection Reports of Condition and Income for this report date, attach
agent, Electronic Data Systems Corporation (EDS), by this signature page to the hard-copy record of the completed
modem or on computer diskette; or report that the bank places in its files.
- ------------------------------------------------------------------------------------------------------------------------------------
FDIC Certificate Number ____________ Call No. 203 33 03-31-98
(RCRI 9050)
STBK: 48-6797 13264 STCERT: 48-33217
US Trust Company of Texas, National Association
2001 Ross Avenue, Suite 2700
Dallas, TX 75201
</TABLE>
Board of Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, Office of the Comptroller of the Currency
<PAGE> 11
<TABLE>
<S> <C> <C> <C> <C>
U.S. TRUST COMPANY OF TEXAS, N.A. Call Date: 03/31/98 State #: 48-6797 FFIEC 033
2100 ROSS AVENUE, SUITE 2700 Vendor ID: D Cert #: 13264 Page RC-1
DALLAS, TX 75201 Transit #: 11101765
9
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise indicated,
report the amount outstanding as of the last business day of the quarter.
SCHEDULE RC - BALANCE SHEET
C200<
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
1. Cash and balances due from depository institutions: RCON
----
a. Noninterest-bearing balances and currency and coin (1,2) 0081 1,143 1.a
---------------- ------ -------
b. Interest bearing balances (3) 0071 1,138 1.b
------------------------------------------- ------ -------
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A) 1754 0 2.a
-------------- ------ -------
b. Available-for-sale securities (from Schedule RC-B, column D) 1773 121,248 2.b
------------ ------ -------
3. Federal funds sold (4) and securities purchased under agreements to resell: 1350 5,000 3
4. Loans and lease financing receivables: RCON
----
a. Loans and leases, net of unearned income (from Schedule RC-C) 2122 18,091 4.a
-----------
b. LESS: Allowance for loan and lease losses 3123 4.b
------------------------------ 225
c. LESS: Allocated transfer risk reserve 3128 0 4.c
----------------------------------
d. Loans and leases, net of unearned income, allowance, and reserve RCON
----
(item 4.a minus 4.b and 4.c) 2125 17,866 4.d
------------------------------------------- ------ -------
5. Trading assets 3545 0 5.
-------------------------------------------------------------- ------ -------
6. Premises and fixed assets (including capitalized leases) 2145 743 6.
-------------------- ------ -------
7. Other real estate owned (from Schedule RC-M) 2150 0 7.
-------------------------------- ------ -------
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M) 2130 0 8.
-------------------------------------------------------- ------ -------
9. Customers? liability to this bank on acceptances outstanding 2155 0 9.
---------------- ------ -------
0. Intangible assets (from Schedule RC-M) 2143 0 10.
-------------------------------------- ------ -------
1. Other assets (from Schedule RC-F) 2160 1,902 11.
------------------------------------------- ------ -------
2. Total assets (sum of items 1 through 11) 2170 149,040 12.
------------------------------------ ------ -------
</TABLE>
(1) Includes cash items in process of collection and unposted debits.
(2) Included time certificates of deposit not held for trading.
<PAGE> 12
<TABLE>
<S> <C>
U.S. TRUST COMPANY OF TEXAS, N.A. Call Date: 3/31/98 State #: 48-6797 FFIEC 033
2100 ROSS AVENUE, SUITE 2700 Vendor ID: D Cert #: 13264 Page RC-2
DALLAS, TX 75201 Transit #: 11101765
10
SCHEDULE RC - CONTINUED
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of RCON
----
columns A and C from Schedule RC-E) RCON 2200 120,298 13.a
------------------------------------ ----
(1) Noninterest-bearing (1) 6631 10,817 13.a.1
-------------------------------------------
(2) Interest-bearing 6636 109,481 13.a.2
-------------------------------------------------
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing
----------------------------------------------
(2) Interest-bearing
-------------------------------------------------
14. Federal funds purchased(2) and securities sold under agreements to
repurchase: RCON 0 14
----
2800
15. a. Demand notes issued to the U.S. Treasury 2840 0 15.a
-------------------------------- ------ -------
b. Trading liabilities 3548 0 15.b
----------------------------------------------------- ------ -------
16. Other borrowed money:
A. WITH A REMAINING MATURITY OF ONE YEAR OR LESS 2332 2,000 16.a
--------------------------- ------ -------
B. WITH A REMAINING MATURITY OF MORE THAN ONE YEAR THROUGH THREE YEARS A547 2,000 16.b
------ ------ -------
C. WITH A REMAINING MATURITY OF MORE THAN THREE YEARS A548 1,000 16.c
----------------------- ------ -------
17. Not applicable
18. Bank?s liability on acceptances executed and outstanding 2920 0 18.
-------------------- ------ -------
19. Subordinated notes and debentures 3200 0 19.
------------------------------------------- ------ -------
20. Other liabilities (from Schedule RC-G) 2930 2,225 20.
-------------------------------------- ------ -------
21. Total liabilities (sum of items 13 through 20) 2948 127,523 21.
------------------------------ ------ -------
22. Not applicable
EQUITY CAPITAL
RCON
----
23. Perpetual preferred stock and related surplus 3838 7,000 23.
------------------------------- ------ -------
24. Common stock 3230 500 24.
---------------------------------------------------------------- ------ -------
25. Surplus (exclude all surplus related to preferred stock) 3839 8,384 25.
-------------------- ------ -------
26. a. Undivided profits and capital reserves 3632 5,277 26.a
---------------------------------- ------ -------
b. Net unrealized holding gains (losses) on available-for-sale securities 8434 356 26.b
-- ------ -------
27. Cumulative foreign currency translation adjustments
-------------------------
28. Total equity capital (sum of items 23 through 27) 3210 21,517 28.
--------------------------- ------ -------
29. Total liabilities and equity capital (sum of items 21 and 28) 2257 149,040 29.
--------------- ------ -------
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION. NUMBER
1. Indicate in the box at the right the number of the
statement below that best describes the most comprehensive
level of auditing work performed for the bank by independent
external auditors as of any date during 1997 6724 1 M.1
-----------------------------------------------------
1 = Independent audit of the bank conducted in accordance 4 = Director's examination of the bank performed by other
with generally accepted auditing standards by certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by
submits a report on the consolidated holding company (but external auditors
not on the bank separately) 7 = Other audit procedures (excluding tax preparation
3 = Directors' examination of the bank conducted in accordance work)
with generally accepted auditing standards by a certified 8 = No external audit work
public accounting firm (may be required by state chartering
authority)
</TABLE>
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
<PAGE> 1
EXHIBIT 25.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT OF
1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2)_________
_______________
U.S. TRUST COMPANY OF TEXAS, N.A.
(Exact name of trustee as specified in its charter)
75-2353745
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
2001 Ross Ave, Suite 2700 75201
Dallas, Texas (Zip Code)
(Address of trustee's
principal executive offices)
Compliance Officer
U.S. Trust Company of Texas, N.A.
2001 Ross Ave, Suite 2700
Dallas, Texas 75201
(214) 754-1200
(Name, address and telephone number of agent for service)
_______________
Southside Capital Trust I
(Exact name of obligor as specified in its charter)
Delaware
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
P.O. Box 1079
Tyler, Texas 75701
(Address of principal executive offices) (Zip Code)
_______________
____% Cumulative Trust Preferred Securities
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
GENERAL
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.
Federal Reserve Bank of Dallas (11th District),
Dallas, Texas (Board of Governors of the
Federal Reserve System)
Federal Deposit Insurance Corporation, Dallas, Texas
The Office of the Comptroller of the Currency,
Dallas, Texas
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust
powers.
2. Affiliations with Obligor and Underwriters.
If the obligor or any underwriter for the obligor is an affiliate of
the Trustee, describe each such affiliation.
None.
3. Voting Securities of the Trustee.
Furnish the following information as to each class of voting
securities of the Trustee:
<TABLE>
<CAPTION>
As of May 6, 1998
- --------------------------------------------------------------------------------
Col A. Col B.
<S> <C>
- --------------------------------------------------------------------------------
Title of Class Amount Outstanding
- --------------------------------------------------------------------------------
</TABLE>
Capital Stock - par value $100 per share 5,000 shares
4. Trusteeships under Other Indentures.
Not Applicable
5. Interlocking Directorates and Similar Relationships with the Obligor
or Underwriters.
Not Applicable
<PAGE> 3
6. Voting Securities of the Trustee Owned by the Obligor or its
Officials.
Not Applicable
7. Voting Securities of the Trustee Owned by Underwriters or their
Officials.
Not Applicable
8. Securities of the Obligor Owned or Held by the Trustee.
Not Applicable
9. Securities of Underwriters Owned or Held by the Trustee.
Not Applicable
10. Ownership or Holdings by the Trustee of Voting Securities of Certain
Affiliates or Security Holders of the Obligor.
Not Applicable
11. Ownership or Holdings by the Trustee of any Securities of a Person
Owning 50 Percent or More of the Voting Securities of the Obligor.
Not Applicable
12. Indebtedness of the Obligor to the Trustee.
Not Applicable
13. Defaults by the Obligor.
Not Applicable
14. Affiliations with the Underwriters.
Not Applicable
15. Foreign Trustee.
Not Applicable
16. List of Exhibits.
T-1.1 - A copy of the Articles of Association of U.S. Trust Company
of Texas, N.A.; incorporated herein by reference to Exhibit
T-1.1 filed with Form T-1 Statement, Registration No.
22-21897.
<PAGE> 4
16. (con't.)
T-1.2 - A copy of the certificate of authority of the Trustee to
commence business; incorporated herein by reference to
Exhibit T-1.2 filed with Form T-1 Statement, Registration
No. 22-21897.
T-1.3 - A copy of the authorization of the Trustee to exercise
corporate trust powers; incorporated herein by reference to
Exhibit T-1.3 filed with Form T-1 Statement, Registration
No. 22-21897.
T-1.4 - A copy of the By-laws of the U.S. Trust Company of Texas,
N.A., as amended to date; incorporated herein by reference
to Exhibit T-1.4 filed with Form T-1 Statement,
Registration No. 22-21897.
T-1.6 - The consent of the Trustee required by Section 321(b) of
the Trust Indenture Act of 1939.
T-1.7 - A copy of the latest report of condition of the Trustee
published pursuant to law or the requirements of its
supervising or examining authority.
NOTE
As of May 6, 1998, the Trustee had 5,000 shares of Capital Stock outstanding,
all of which are owned by U.S. T.L.P.O. Corp. As of May 6, 1998, U.S.
T.L.P.O. Corp. had 35 shares of Capital Stock outstanding, all of which are
owned by U.S. Trust Corporation. U.S. Trust Corporation had outstanding
19,142,000.00 shares of $5 par value Common Stock as of February 24, 1998.
The term "Trustee" in Items 2, 5, 6, 7, 8, 9, 10 and 11 refers to each of U.S
Trust Company of Texas, N.A., U.S. T.L.P.O. Corp. and U.S. Trust Corporation.
In as much as this Form T-1 is filed prior to the ascertainment by the Trustee
of all the facts on which to base responsive answers to Items 2, 5, 6, 7, 9, 10
and 11, the answers to said Items are based upon incomplete information. Items
2, 5, 6, 7, 9, 10 and 11 may, however, be considered correct unless amended by
an amendment to this Form T-1.
In answering any items in this Statement of Eligibility and Qualification which
relates to matters peculiarly within the knowledge of the obligors or their
directors or officers, or an underwriter for the obligors, the Trustee has
relied upon information furnished to it by the obligors and will rely on
information to be furnished by the obligors or such underwriter, and the
Trustee disclaims responsibility for the accuracy or completeness of such
information.
--------------
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
U.S Trust Company of Texas, N.A., a national banking association organized
under the laws of the United States of America, has duly caused this statement
of eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Dallas, and State of Texas on the
6th day of May, 1998.
U.S. Trust Company
of Texas, N.A., Trustee
By: /s/ JOHN C. STOHLMANN
-------------------------
John C. Stohlmann
Vice President
<PAGE> 6
<TABLE>
<S> <C>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
Federal Financial Institutions Examination Council Expires March 31, 2000
- -------------------------------------------------------------------------------------------------------------------------
(1)
(LOGO) Please Refer to Page I,
Table of Contents, for
the required disclosure
of estimated burden.
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF
CONDITION AND INCOME FOR A BANK
WITH DOMESTIC OFFICES ONLY AND (980331)
TOTAL ASSETS OF LESS THAN $100 -----------
MILLION -- FFIEC 033 (RCRI 9999)
REPORT AT THE CLOSE OF BUSINESS MARCH 31, 1998 This report form is to be filed by banks with
domestic offices only. Banks with branches and
consolidated subsidiaries in U.S. territories and
This report is required by law: 12 U.S.C. Section 324 (State possessions, Edge or Agreement subsidiaries, foreign
member banks); 12 U.S.C. Section 1817 (State nonmember branches, consolidated foreign subsidiaries, or
banks); and 12 U.S.C. Section 161 (National banks). International Banking Facilities must file FFIEC 031.
- -------------------------------------------------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by The Reports of Condition and Income are to be
an authorized officer and the Report of Condition must be prepared in accordance with Federal regulatory
attested to by not less than two directors (trustees) for authority instructions. NOTE: these instructions may
State nonmember banks and three directors for State member in some cases differ from generally accepted
and National Banks. accounting principles.
I, Alfred B. Childs, SVP & Cashier We, the undersigned directors (trustees), attest to
------------------------------- the correctness of this Report of Condition
Name and Title of Officer Authorized to Sign Report (including the supporting schedules) and declare that
it has been examined by us and to the best of our
of the named bank do hereby declare that these Reports of knowledge and belief has been prepared in conformance
Condition and Income (including the supporting schedules) with the instructions issued by the appropriate
have been prepared in conformance with the instructions Federal regulatory authority and is true and correct.
issued by the appropriate Federal regulatory authority and
are true to the best of my knowledge and belief. /s/ Stuart M. Pearman
---------------------
Director (Trustee)
/s/ Alfred B. Childs
- -------------------- /s/ J. T. Moore Jr.
Signature of Officer Authorized to Sign Report -------------------
Director (Trustee)
4/14/98 /s/ Peter Denker
- -------------------- ----------------
Date of Signature Director (Trustee)
- -------------------------------------------------------------------------------------------------------------------------
SUBMISSION OF REPORTS (b) in hard-copy (paper) form and arrange for another
party to convert the paper report to electronic
Each bank must prepare its Reports of Condition and Income form. That party (if other than EDS) must transmit
either: the bank's computer data file to EDS.
(a) in electronic form and then file the computer data file To fulfill the signature and attestation requirement for
directly with the banking agencies' collection agent, the Reports of Condition and Income for this report date,
Electronic Data Systems Corporation (EDS), by modem attach this signature page to the hard-copy record of the
or on computer diskette; or completed report that the bank places in its files.
- -------------------------------------------------------------------------------------------------------------------------
FDIC Certificate Number Call No. 203 33 03-31-98
----------
(RCRI 9050) STBK: 48-6797 13264 STCERT: 48-33217
US Trust Company of Texas, National Association
2001 Ross Avenue, Suite 2700
Dallas, TX 75201
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C> <C> <C>
Legal Title of Bank: Call Date: 03/31/98 State #: 48-6797 FFIEC 033
Address: 2100 Ross Avenue, Suite 2700 Vendor ID: D Cort #: 13264 Page RC-1
City, State Zip: Dallas, TX 75201 Transit #: 11101765
---------
9
---------
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC -- BALANCE SHEET
<TABLE>
<CAPTION>
C200<
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions: RCON
a. Noninterest-bearing balances and currency and coin (1,2).............................. 0081 1,143 1.a.
b. Interest bearing balances (3)......................................................... 0071 1,138 1.b.
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)............................ 1754 0 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D).......................... 1773 121,248 2.b.
3. Federal funds sold (4) and securiites purchased under agreements to resell: 1350 5,000 3
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income RCON
(from Schedule RC-C)____________................................ 2122 18,091 4.a.
b. LESS: Allowance for loan and lease losses....................... 3123 225 4.c.
c. LESS: Allocated transfer risk reserve........................... 3128 0
d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and RCON
4.c)..................................................................................... 2125 17,866 4.d.
5. Trading assets ............................................................................ 3545 0 5.
6. Premises and fixed assets (including capitalized leases)................................... 2145 743 6.
7. Other real estate owned (from Schedule RC-M)............................................... 2150 0 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule
RC-M)...................................................................................... 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding............................... 2155 0 9.
10. Intangible assets (from Schedule RC-M)..................................................... 2143 0 10.
11. Other assets (from Schedule RC-F).......................................................... 2160 1,902 11.
12. Total assets (sum of items 1 through 11)................................................... 2170 149,040 12.
</TABLE>
- ---------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 8
<TABLE>
<S> <C> <C> <C>
U.S. Trust Company of Texas, N.A.: Call Date: 03/31/98 State#: 48-6797 FFIEC 033
2100 Ross Avenue, Suite 2700 Vendor ID: D Cert#: 13264 Page RC-2
Dallas, TX 75201 Transit #: 11101765 10
</TABLE>
SCHEDULE RC - CONTINUED
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from RCON
----
Schedule RC-E ............................................................... RCON 2200 120,298 13.a.
----
(1) Noninterest-bearing(1).................................................. 6631 10,817 13.a.1
(2) Interest-bearing........................................................ 6636 109,481 13.a.2
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing.....................................................
(2) Interest-bearing........................................................
14. Federal funds purchased (2) and securities sold under agreements to repurchase: RCON
----
2800 0 14
15. a. Demand notes issued to the U.S. Treasury.................................... 2840 0 15.a
b. Trading liabilities ........................................................ 3548 0 15.b
16. Other borrowed money:
a. With a remaining maturity of one year or less............................... 2332 2,000 16.a
b. With a remaining maturity of more than one year through three years......... A547 2,000 16.b
c. With a remaining maturity of more than three years.......................... A548 1,000 16.c
17. Not Applicable
18. Bank's liability on acceptances executed and outstanding....................... 2920 0 18.
19. Subordinated notes and debentures.............................................. 3200 0 19.
20. Other liabilities (from Schedule RC-G)......................................... 2930 2,225 20.
21. Total liabilities (sum of items 13 through 20)................................. 2948 127,523 21.
22. Not applicable
EQUITY CAPITAL RCON
----
23. Perpetual preferred stock and related surplus.................................. 3838 7,000 23.
24. Common stock................................................................... 3230 500 24.
25. Surplus (exclude all surplus related to preferred stock)....................... 3839 8,384 25.
26. a. Undivided profits and capital reserves...................................... 3632 5,277 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities...... 8434 356 26.b
27. Cumulative foreign currency translation adjustments............................
28. Total equity capital (sum of items 23 through 27).............................. 3210 21,517 28.
29. Total liabilities and equity capital (sum of items 21, 22 and 28).............. 2257 149,040 29.
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that best NUMBER
describes the most comprehensive level of auditing work performed for the bank ------
by independent external auditors as of any date during 1997..................... 6724 1 M.1
1 = Independent audit of the bank conducted in accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in accordance with generally accepted auditing
standards by a certified public accounting firm which submits a report on the consolidated holding company (but
not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally accepted auditing standards by a
certified public accounting firm (may be required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors (may be required by state chartering
authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
</TABLE>
- ---------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
<PAGE> 9
Exhibit T-1.6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939 as amended in connection with the proposed issue of Southside Capital
Trust I ___% Cumulative Trust Preferred Securities, we hereby consent that
reports of examination by Federal, State, Territorial or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefore.
U.S. Trust Company of Texas, N.A.
By: /s/ JOHN C. STOHLMANN
--------------------------------------
John C. Stohlmann
Vice President
<PAGE> 1
EXHIBIT 25.3
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE
ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2)_________
---------------
U.S. TRUST COMPANY OF TEXAS, N.A.
(Exact name of trustee as specified in its charter)
75-2353745
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
2001 Ross Ave, Suite 2700 75201
Dallas, Texas (Zip Code)
(Address of trustee's
principal executive offices)
Compliance Officer
U.S. Trust Company of Texas, N.A.
2001 Ross Ave, Suite 2700
Dallas, Texas 75201
(214) 754-1200
(Name, address and telephone number of agent for service)
---------------
Southside Bancshares, Inc.
(Exact name of obligor as specified in its charter)
Texas 75-1848732
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
P.O. Box 1079
Tyler, Texas 75701
(Address of principal executive offices) (Zip Code)
---------------
Guarantee Pursuant to the Preferred Securities Guarantee Agreement
(Title of the indenture securities)
================================================================================
<PAGE> 2
GENERAL
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.
Federal Reserve Bank of Dallas (11th District),
Dallas, Texas (Board of Governors of the
Federal Reserve System)
Federal Deposit Insurance Corporation, Dallas, Texas
The Office of the Comptroller of the Currency,
Dallas, Texas
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust
powers.
2. Affiliations with Obligor and Underwriters.
If the obligor or any underwriter for the obligor is an affiliate of
the Trustee, describe each such affiliation.
None.
3. Voting Securities of the Trustee.
Furnish the following information as to each class of voting
securities of the Trustee:
<TABLE>
<CAPTION>
As of May 6, 1998
- --------------------------------------------------------------------------------
Col A. Col B.
<S> <C>
- --------------------------------------------------------------------------------
Title of Class Amount Outstanding
- --------------------------------------------------------------------------------
</TABLE>
Capital Stock - par value $100 per share 5,000 shares
4. Trusteeships under Other Indentures.
Not Applicable
5. Interlocking Directorates and Similar Relationships with the Obligor
or Underwriters.
Not Applicable
<PAGE> 3
6. Voting Securities of the Trustee Owned by the Obligor or its
Officials.
Not Applicable
7. Voting Securities of the Trustee Owned by Underwriters or their
Officials.
Not Applicable
8. Securities of the Obligor Owned or Held by the Trustee.
Not Applicable
9. Securities of Underwriters Owned or Held by the Trustee.
Not Applicable
10. Ownership or Holdings by the Trustee of Voting Securities of Certain
Affiliates or Security Holders of the Obligor.
Not Applicable
11. Ownership or Holdings by the Trustee of any Securities of a Person
Owning 50 Percent or More of the Voting Securities of the Obligor.
Not Applicable
12. Indebtedness of the Obligor to the Trustee.
Not Applicable
13. Defaults by the Obligor.
Not Applicable
14. Affiliations with the Underwriters.
Not Applicable
15. Foreign Trustee.
Not Applicable
16. List of Exhibits.
T-1.1 - A copy of the Articles of Association of U.S. Trust Company
of Texas, N.A.; incorporated herein by reference to Exhibit
T-1.1 filed with Form T-1 Statement, Registration No.
22-21897.
<PAGE> 4
16. (con't.)
T-1.2 - A copy of the certificate of authority of the Trustee to
commence business; incorporated herein by reference to
Exhibit T-1.2 filed with Form T-1 Statement, Registration
No. 22-21897.
T-1.3 - A copy of the authorization of the Trustee to exercise
corporate trust powers; incorporated herein by reference to
Exhibit T-1.3 filed with Form T-1 Statement, Registration
No. 22-21897.
T-1.4 - A copy of the By-laws of the U.S. Trust Company of Texas,
N.A., as amended to date; incorporated herein by reference
to Exhibit T-1.4 filed with Form T-1 Statement,
Registration No. 22-21897.
T-1.6 - The consent of the Trustee required by Section 321(b) of
the Trust Indenture Act of 1939.
T-1.7 - A copy of the latest report of condition of the Trustee
published pursuant to law or the requirements of its
supervising or examining authority.
NOTE
As of May 6, 1998, the Trustee had 5,000 shares of Capital Stock outstanding,
all of which are owned by U.S. T.L.P.O. Corp. As of May 6, 1998, U.S.
T.L.P.O. Corp. had 35 shares of Capital Stock outstanding, all of which are
owned by U.S. Trust Corporation. U.S. Trust Corporation had outstanding
19,142,000.00 shares of $5 par value Common Stock as of February 24, 1998.
The term "Trustee" in Items 2, 5, 6, 7, 8, 9, 10 and 11 refers to each of U.S
Trust Company of Texas, N.A., U.S. T.L.P.O. Corp. and U.S. Trust Corporation.
In as much as this Form T-1 is filed prior to the ascertainment by the Trustee
of all the facts on which to base responsive answers to Items 2, 5, 6, 7, 9, 10
and 11, the answers to said Items are based upon incomplete information. Items
2, 5, 6, 7, 9, 10 and 11 may, however, be considered correct unless amended by
an amendment to this Form T-1.
In answering any items in this Statement of Eligibility and Qualification which
relates to matters peculiarly within the knowledge of the obligors or their
directors or officers, or an underwriter for the obligors, the Trustee has
relied upon information furnished to it by the obligors and will rely on
information to be furnished by the obligors or such underwriter, and the
Trustee disclaims responsibility for the accuracy or completeness of such
information.
--------------
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
U.S Trust Company of Texas, N.A., a national banking association organized
under the laws of the United States of America, has duly caused this statement
of eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Dallas, and State of Texas on the
6th day of May, 1998.
U.S. Trust Company
of Texas, N.A., Trustee
By: /s/ JOHN C. STOHLMANN
-------------------------
John C. Stohlmann
Vice President
<PAGE> 6
<TABLE>
<S> <C>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
Federal Financial Institutions Examination Council Expires March 31, 2000
- -------------------------------------------------------------------------------------------------------------------------
(1)
(LOGO) Please Refer to Page I,
Table of Contents, for
the required disclosure
of estimated burden.
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF
CONDITION AND INCOME FOR A BANK
WITH DOMESTIC OFFICES ONLY AND (980331)
TOTAL ASSETS OF LESS THAN $100 -----------
MILLION -- FFIEC 033 (RCRI 9999)
REPORT AT THE CLOSE OF BUSINESS MARCH 31, 1998 This report form is to be filed by banks with
domestic offices only. Banks with branches and
consolidated subsidiaries in U.S. territories and
This report is required by law: 12 U.S.C. Section 324 (State possessions, Edge or Agreement subsidiaries, foreign
member banks); 12 U.S.C. Section 1817 (State nonmember branches, consolidated foreign subsidiaries, or
banks); and 12 U.S.C. Section 161 (National banks). International Banking Facilities must file FFIEC 031.
- -------------------------------------------------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by The Reports of Condition and Income are to be
an authorized officer and the Report of Condition must be prepared in accordance with Federal regulatory
attested to by not less than two directors (trustees) for authority instructions. NOTE: these instructions may
State nonmember banks and three directors for State member in some cases differ from generally accepted
and National Banks. accounting principles.
I, Alfred B. Childs, SVP & Cashier We, the undersigned directors (trustees), attest to
------------------------------- the correctness of this Report of Condition
Name and Title of Officer Authorized to Sign Report (including the supporting schedules) and declare that
it has been examined by us and to the best of our
of the named bank do hereby declare that these Reports of knowledge and belief has been prepared in conformance
Condition and Income (including the supporting schedules) with the instructions issued by the appropriate
have been prepared in conformance with the instructions Federal regulatory authority and is true and correct.
issued by the appropriate Federal regulatory authority and
are true to the best of my knowledge and belief. /s/ Stuart M. Pearman
---------------------
Director (Trustee)
/s/ Alfred B. Childs
- -------------------- /s/ J. T. Moore Jr.
Signature of Officer Authorized to Sign Report -------------------
Director (Trustee)
4/14/98 /s/ Peter Denker
- -------------------- ----------------
Date of Signature Director (Trustee)
- -------------------------------------------------------------------------------------------------------------------------
SUBMISSION OF REPORTS (b) in hard-copy (paper) form and arrange for another
party to convert the paper report to electronic
Each bank must prepare its Reports of Condition and Income form. That party (if other than EDS) must transmit
either: the bank's computer data file to EDS.
(a) in electronic form and then file the computer data file To fulfill the signature and attestation requirement for
directly with the banking agencies' collection agent, the Reports of Condition and Income for this report date,
Electronic Data Systems Corporation (EDS), by modem attach this signature page to the hard-copy record of the
or on computer diskette; or completed report that the bank places in its files.
- -------------------------------------------------------------------------------------------------------------------------
FDIC Certificate Number Call No. 203 33 03-31-98
----------
(RCRI 9050) STBK: 48-6797 13264 STCERT: 48-33217
US Trust Company of Texas, National Association
2001 Ross Avenue, Suite 2700
Dallas, TX 75201
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C> <C> <C>
Legal Title of Bank: Call Date: 03/31/98 State #: 48-6797 FFIEC 033
Address: 2100 Ross Avenue, Suite 2700 Vendor ID: D Cort #: 13264 Page RC-1
City, State Zip: Dallas, TX 75201 Transit #: 11101765
---------
9
---------
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC -- BALANCE SHEET
<TABLE>
<CAPTION>
C200<
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions: RCON
a. Noninterest-bearing balances and currency and coin (1,2).............................. 0081 1,143 1.a.
b. Interest bearing balances (3)......................................................... 0071 1,138 1.b.
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)............................ 1754 0 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D).......................... 1773 121,248 2.b.
3. Federal funds sold (4) and securiites purchased under agreements to resell: 1350 5,000 3
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income RCON
(from Schedule RC-C)____________................................ 2122 18,091 4.a.
b. LESS: Allowance for loan and lease losses....................... 3123 225 4.c.
c. LESS: Allocated transfer risk reserve........................... 3128 0
d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and RCON
4.c)..................................................................................... 2125 17,866 4.d.
5. Trading assets ............................................................................ 3545 0 5.
6. Premises and fixed assets (including capitalized leases)................................... 2145 743 6.
7. Other real estate owned (from Schedule RC-M)............................................... 2150 0 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule
RC-M)...................................................................................... 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding............................... 2155 0 9.
10. Intangible assets (from Schedule RC-M)..................................................... 2143 0 10.
11. Other assets (from Schedule RC-F).......................................................... 2160 1,902 11.
12. Total assets (sum of items 1 through 11)................................................... 2170 149,040 12.
</TABLE>
- ---------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 8
<TABLE>
<S> <C> <C> <C>
U.S. Trust Company of Texas, N.A.: Call Date: 03/31/98 State#: 48-6797 FFIEC 033
2100 Ross Avenue, Suite 2700 Vendor ID: D Cert#: 13264 Page RC-2
Dallas, TX 75201 Transit #: 11101765 10
</TABLE>
SCHEDULE RC - CONTINUED
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from RCON
----
Schedule RC-E ............................................................... RCON 2200 120,298 13.a.
----
(1) Noninterest-bearing(1).................................................. 6631 10,817 13.a.1
(2) Interest-bearing........................................................ 6636 109,481 13.a.2
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing.....................................................
(2) Interest-bearing........................................................
14. Federal funds purchased (2) and securities sold under agreements to repurchase: RCON
----
2800 0 14
15. a. Demand notes issued to the U.S. Treasury.................................... 2840 0 15.a
b. Trading liabilities ........................................................ 3548 0 15.b
16. Other borrowed money:
a. With a remaining maturity of one year or less............................... 2332 2,000 16.a
b. With a remaining maturity of more than one year through three years......... A547 2,000 16.b
c. With a remaining maturity of more than three years.......................... A548 1,000 16.c
17. Not Applicable
18. Bank's liability on acceptances executed and outstanding....................... 2920 0 18.
19. Subordinated notes and debentures.............................................. 3200 0 19.
20. Other liabilities (from Schedule RC-G)......................................... 2930 2,225 20.
21. Total liabilities (sum of items 13 through 20)................................. 2948 127,523 21.
22. Not applicable
EQUITY CAPITAL RCON
----
23. Perpetual preferred stock and related surplus.................................. 3838 7,000 23.
24. Common stock................................................................... 3230 500 24.
25. Surplus (exclude all surplus related to preferred stock)....................... 3839 8,384 25.
26. a. Undivided profits and capital reserves...................................... 3632 5,277 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities...... 8434 356 26.b
27. Cumulative foreign currency translation adjustments............................
28. Total equity capital (sum of items 23 through 27).............................. 3210 21,517 28.
29. Total liabilities and equity capital (sum of items 21, 22 and 28).............. 2257 149,040 29.
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that best NUMBER
describes the most comprehensive level of auditing work performed for the bank ------
by independent external auditors as of any date during 1997..................... 6724 1 M.1
1 = Independent audit of the bank conducted in accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in accordance with generally accepted auditing
standards by a certified public accounting firm which submits a report on the consolidated holding company (but
not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally accepted auditing standards by a
certified public accounting firm (may be required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors (may be required by state chartering
authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
</TABLE>
- ---------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
<PAGE> 9
EXHIBIT T-1.6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939 as amended in connection with the proposed issue of Southside Bancshares,
Inc. Guarantee Pursuant to the Preferred Securities Guarantee Agreement, we
hereby consent that reports of examination by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefore.
U.S. Trust Company of Texas, N.A.
By: /S/ JOHN C. STOHLMANN
-------------------------------------
John C. Stohlmann
Vice President
