<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Mark One
[X] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
March 31, 1998.
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
________________ to ______________.
Commission file number 33-1983
SURETY CAPITAL CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2065607
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1845 Precinct Line Road, Suite 100, Hurst, Texas 76054
-------------------------------------------------------
(Address of principal executive offices)
(817) 498-2749
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [x] No [ ]
Common stock outstanding on May 12, 1998, 5,761,348 shares
PAGE
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SURETY CAPITAL CORPORATION
INDEX
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ ---------
ITEM 1. Financial Statements
Consolidated Balance Sheets at March 31, 1998
and December 31, 1997 3
Consolidated Statements of Income for the Three
Months Ended March 31, 1998 and 1997 4
Consolidated Statements of Comprehensive Income
for the Three Months Ended March 31, 1998 and 1997 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. - OTHER INFORMATION
- ------------------------------
ITEM 1. Legal Proceedings 18
ITEM 2. Changes in Securities 19
ITEM 3. Defaults Upon Senior Securities 19
ITEM 4. Submission of Matters to a Vote of Security Holders 19
ITEM 5. Other Information 20
ITEM 6. Exhibits and Reports on Form 8-K 20
2
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<PAGE>
SURETY CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and December 31, 1997
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets:
Cash and due from banks $ 6,959,708 $ 6,204,177
Federal funds sold 32,319,522 22,257,266
Interest bearing deposits in financial
institutions 94,939 94,939
Investment securities: Available-for-sale 24,559,359 28,785,162
Loans 101,997,760 100,846,310
Less: Unearned interest (2,223,289) (2,212,391)
Allowance for credit losses (1,170,929) (950,809)
------------ ------------
Net loans 98,603,542 97,683,110
Medical claims receivables, net 2,531,874 3,073,155
Premises and equipment, net 3,650,054 3,760,550
Accrued interest receivable 798,392 908,487
Other real estate and repossessed assets 174,639 158,271
Deferred tax asset 1,622,394 1,622,394
Other assets 1,928,748 2,381,887
Excess of cost over fair value of net assets
acquired, net of accumulated amortization
of $2,472,137 and $2,377,636 at March 31,
1998 and December 31, 1997, respectively 4,627,719 4,722,220
------------ ------------
Total assets $177,870,890 $171,651,618
============ ============
Liabilities and shareholders' equity:
Demand deposits $ 23,096,665 $ 22,185,320
Savings, NOW and money markets 44,277,731 44,477,424
Time deposits, $100,000 and over 24,202,845 23,492,179
Other time deposits 64,551,690 64,386,569
------------ ------------
Total deposits 156,128,931 154,541,492
Accrued interest payable and other
liabilities 1,235,429 1,232,793
Convertible subordinated debt 4,350,000
------------ ------------
Total liabilities 161,714,360 155,774,285
============ ============
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized, none issued at March
31, 1998 and December 31, 1997 - -
Common stock, $.01 par value, 20,000,000
shares authorized, 5,792,171 and 5,790,171
shares issued at March 31, 1998 and
December 31, 1997, respectively, and
5,757,882 and 5,755,882 outstanding at
March 31, 1998 and December 31, 1997,
respectively 57,922 57,902
Additional paid-in capital 16,876,119 16,867,777
Retained earnings (accumulated deficit) (692,069) (1,024,435)
Stock rights issuable 57,902 57,902
Treasury stock, 34,289 shares at March
31, 1998 and at December 31, 1997,
carried at cost (172,828) (172,828)
Accumulated other comprehensive income,
net of tax 29,484 91,015
------------ ------------
Total shareholders' equity 16,156,530 15,877,333
------------ ------------
Total liabilities and shareholders'
equity $177,870,890 $171,651,618
============ ============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
3
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<PAGE>
SURETY CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
for the three months ended March 31, 1998 and 1997
(unaudited)
Three Months Ended
--------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
Interest income:
Commercial and real estate loans $1,184,588 $1,122,513
Consumer loans 273,219 334,726
Insurance premium financing 976,500 1,133,770
Medical claims receivable factoring 636,366 606,325
Federal funds sold 350,202 194,670
Investment securities:
Taxable 352,538 542,050
Tax-exempt 36,070 79,801
Interest bearing deposits 1,432 5,611
---------- ----------
Total interest income 3,810,915 4,019,466
---------- ----------
Interest expense:
Savings, NOW and money market 284,911 302,560
Time deposits, $100,000 and over 319,273 270,827
Other time deposits 823,364 826,848
---------- ----------
Total interest expense 1,427,548 1,400,235
---------- ----------
Net interest income before
provision for credit losses 2,383,367 2,619,231
---------- ----------
Provision for credit losses on loans 360,000 -
Provision for medical claims receivables
losses (credit) (335,000) 75,000
---------- ----------
Net interest income 2,358,367 2,544,231
---------- ----------
Noninterest income 570,970 566,348
---------- ----------
Noninterest expense:
Salaries and employee benefits 1,196,262 1,192,833
Occupancy and equipment 402,308 357,955
General and administrative 805,440 764,669
Total noninterest expense 2,404,010 2,315,457
---------- ----------
Income before income taxes 525,327 795,122
Income tax expenses:
Current 192,981 295,298
Net income $332,346 $499,824
========== ==========
Basic earnings per share of common stock $0.06 $0.09
========== ==========
Weighted average shares outstanding 5,756,838 5,749,858
========== ==========
Diluted earnings per share of common stock $0.06 $0.09
========== ==========
Weighted average shares outstanding
And common stock equivalents 5,991,740 5,873,717
========== ==========
The accompanying notes are an integral part
of the consolidated financial statements.
4
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<PAGE>
SURETY CAPITAL CORPORATION
STATEMENT OF COMPREHENSIVE INCOME
for the three months ended March 31, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Net income $332,346 $499,824
Other comprehensive income, net of income tax
Unrealized holding gains (losses) (61,531) (93,188)
--------- ---------
Comprehensive income $270,815 $406,636
========= =========
Disclosure of reclassification amount:
Unrealized holding losses arising during period $(19,921) $(89,141)
Less: reclassification adjustment for gains
(losses) included in net income, net of
income tax (41,610) (4,047)
--------- ---------
Net unrealized gains (losses) on securities $(61,531) $(93,188)
========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
5
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<PAGE>
SURETY CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
March 31,
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $332,346 $499,824
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for credit losses 25,000 75,000
Depreciation 162,549 185,653
Amortization of intangible assets 94,501 116,809
Gain on sale of available-for-sale securities (53,670) (4,312)
Loss on sale or disposal of assets 86,278 12,080
Changes in assets and liabilities:
Unearned interest on loans 10,898 83,980
Other assets 559,972 (105,167)
Accrued interest payable and other liabilities 37,247 (246,068)
----------- -----------
Net cash provided by operating activities 1,255,121 617,799
----------- -----------
Cash flows from investing activities:
Net increase in loans (1,376,522) (6,064,512)
Payments received on purchased medical claims receivables 4,930,539 4,153,841
Purchases of medical claims receivables (4,054,258) (6,368,211)
Purchases of available-for-sale securities (7,562,500) (5,970,938)
Proceeds from sales of available-for-sale securities 3,265,331 2,745,774
Proceeds from maturities of available-for-sale securities 8,480,500 971,770
Purchases of held-to-maturity securities
Proceeds from maturities of held-to-maturity securities 1,166,676
Proceeds from maturities of interest bearing deposits in
financial institutions 95,481
Purchases of bank premises and equipment (126,960) (111,313)
Proceeds from sale of other real estate and repossessed
assets 60,715 137,984
----------- -----------
Net cash provided by (used in) investing
activities 3,616,846 (9,243,448)
----------- -----------
Cash flows from financing activities:
Net increase in deposits 1,587,439 2,293,910
Issuance of subordinated debt 4,350,000
Purchase of treasury stock (98,289)
Exercise of stock options 8,382 98,289
Proceeds from the sale of stock
----------- -----------
Net cash provided by financing activities 5,945,821 2,293,910
----------- -----------
Net increase (decrease) in cash and cash equivalents 10,817,787 (6,331,739)
Beginning cash and cash equivalents 28,461,443 22,866,457
----------- -----------
Ending cash and cash equivalents $39,279,230 $16,534,718
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
6
PAGE
<PAGE>
SURETY CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 1998 and 1997
(unaudited)
March 31,
1998 1997
-------- --------
Supplemental schedule of noncash investing and
financing activities:
Transfers of repossessed collateral to other
assets $88,417 $226,562
Additions to loans to facilitate the sale of
other real estate and other assets $ 3,225 $ 67,089
Adjustments to other assets subsequent to
acquisition $141,955
The accompanying notes are an integral part
of the consolidated financial statements.
7
PAGE
<PAGE>
SURETY CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
Surety Capital Corporation (the "Company") is a publicly traded
bank holding company located in Hurst, Texas. The Company owns
a subsidiary national bank, Surety Bank, National Association,
with full service office located in Lufkin, Hurst, Chester,
Wells, Kennard, Whitesboro, Waxahachie, Midlothian, Universal
City, Converse, New Braunsfels, San Antonio, and Schertz, Texas.
Surety Bank engages in general commercial and consumer banking
and concentrates its lending activities in the area of insurance
premium financing. The financial statements included herein
have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the
information presented not misleading. These condensed financial
statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's
latest annual report on Form 10-K. In the opinion of the
Company, all adjustments consisting only of normal recurring
adjustments necessary to present fairly the financial position
of the Company as of March 31, 1998, and the results of its
operations and its cash flows for the indicated periods have
been included. The results of operations for such interim
period are not necessarily indicative of the results to be
expected for the fiscal year ending December 31, 1998.
2. LOANS, NET:
At March 31, 1998 and December 31, 1997 the loan portfolio was
composed of the following:
March 31, December 31,
1998 1997
------------ ------------
Insurance premium financing $ 42,428,509 $ 40,373,695
Installment loans 10,099,910 10,632,451
Commercial loans 20,803,364 23,171,566
Real estate loans 28,665,977 26,668,598
------------ ------------
Total gross loans 101,997,760 100,846,310
Unearned interest (2,223,289) (2,212,391)
Allowance for credit losses (1,170,929) (950,809)
------------ ------------
Loans, net $ 98,603,542 $ 97,683,110
============ ============
8
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<PAGE>
SURETY CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. LOANS, NET continued:
Activity in the allowance for credit losses is as follows:
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
-------------- --------------
Beginning balance $ 950,809 $1,067,041
Provision for credit losses 360,000 -
Loans charged off, net of
Recoveries (139,881) (30,440)
-------------- --------------
Ending balance $1,170,928 $1,036,601
============== ==============
Loans on which the accrual of interest has been discontinued
amounted to approximately $238,000 and $92,000 at March 31, 1998
and December 31, 1997, respectively.
3. MEDICAL CLAIMS RECEIVABLES:
At March 31, 1998 and December 31, 1997, the medical claims
receivables portfolio was composed of the following:
March 31, December 31,
1998 1997
----------- ------------
Medical claims receivables $6,974,827 $8,079,524
Unearned interest (395,917) (698,484)
Allowance for medical claims
receivables losses (4,047,036) (4,307,885)
----------- ------------
Medical claims receivables, net $2,531,874 $3,073,155
=========== ============
4. CONVERTIBLE SUBORDINATED DEBT:
Effective March 31, 1998, the Company issued $4,350,000 in 9%
Convertible Subordinated Notes Due 2008 (the "Notes"), pursuant
to an indenture ("Indenture") between the Company and Harris
Trust and Savings Bank, Chicago, Illinois, as trustee (the
"Trustee"). The Notes are general unsecured obligations of the
Company. The terms of the Notes are such that they should
qualify as Tier II capital under the Federal Reserve Board's
regulatory capital guidelines applicable to bank holding
companies. The Notes bear interest at a rate of 9% per annum
until maturity. Interest on the Notes is payable semi-annually
on March 31 and September 30 of each year, commencing September
30, 1998. No principal payments are due until maturity on March
31, 2008.
9
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<PAGE>
SURETY CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. CONVERTIBLE SUBORDINATED DEBT continued:
The payment of the principal of $4,350,000, premium, if any, and
interest on the Notes are subordinated in right of payment to
the prior payment in full of all senior indebtedness of the
Company. Upon the occurrence of certain events involving the
bankruptcy, insolvency, reorganization, receivership or similar
proceedings of the Company, either the Trustee or the holders of
not less than 25% in aggregate principal amount of the
outstanding Notes may declare the principal of the Notes,
together with any accrued and unpaid interest, to be immediately
due and payable. The Notes do not otherwise provide for any
right of acceleration of the payment of principal thereof.
Each holder of Notes has the right at any time prior to maturity
of the Notes, unless previously redeemed, at the holder's
option, to convert such Notes, or any portion thereof which is
an integral multiple of $10,000, into shares of Common Stock of
the Company, at the conversion price of $6.00 per share, subject
to certain antidilutive adjustments.
The Notes are not subject to mandatory redemption or sinking
fund provision. The Notes are redeemable for cash at the option
of the Company on at least 30 but not more than 60 days notice,
in whole or in part, at any time after the date of issuance and
on or before March 31, 2002 at the redemption prices set forth
in the table below, plus accrued interest to the date of
redemption, if the closing sales price of the Common Stock shall
be at least 130% of the Conversion Price then in effect for a
period of 20 consecutive trading days in the principal market in
which the Common Stock is then traded. At any time after March
31, 2002 and prior to maturity, the Notes are redeemable for
cash at the option of the Company, on at least 30 but not more
than 60 days notice, in whole or in part, at the redemption
prices set forth in the table below, plus accrued interest to
the date of redemption.
If Redeemed During Percentage of If Redeemed During Percentage of
12 Months Ended Principal 12 Months Ended Principal
March 31, Amount March 31, Amount
- ------------------ ------------- ------------------ -------------
1999 109% 2004 104%
2000 108% 2005 103%
2001 107% 2006 102%
2002 106% 2007 101%
2003 105% 2008 100%
5. SUBSEQUENT EVENTS:
On April 1, 1998 the Company acquired TexStar National Bank
("TexStar"), a community bank headquartered in Universal City,
Texas, which is located in the growth corridor northeast of San
Antonio, Texas. TexStar had four branch locations in Converse,
New Braunsfels, San Antonio, and Schertz, all also located in
the greater San Antonio metropolitan area. At March 31, 1998,
TexStar had $70,335,427 in total assets, $64,761,640 in total
deposits and $5,023,393 in shareholders' equity. The completion
of the merger will result in Surety Bank increasing its asset
size to approximately $243,864,000. This will represent an
approximate 40% increase in asset size. The merger is expected
to create approximately $4,385,000 in goodwill. TexStar offers
interest-bearing and non-interest-bearing depository accounts
and makes real estate, commercial and consumer loans.
10
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<PAGE>
SURETY CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. SUBSEQUENT EVENTS continued:
The Company acquired TexStar through the merger of TexStar into
the Company's wholly-owned subsidiary, Surety Bank, National
Association (the "Bank"), pursuant to which the Bank acquired
all of the assets, and assumed all of the liabilities, of
TexStar (the "Merger"). The purchase price for TexStar was
approximately $19.36 per share of TexStar common stock
outstanding (total cash consideration: $9,772,000), which was
paid to the shareholders of TexStar in connection with the
Merger. The acquisition of TexStar was financed in part through
a private placement by the Company of $4,350,000 aggregate
principal amount of Notes as discussed in Note 4.
The Office of the Comptroller of the Currency (the "OCC")
conditionally approved the Merger, contingent upon (1) the
Company contributing at least $4,000,000 in additional capital
to the Bank, (2) the Bank maintaining certain OCC-mandated
capital ratios in excess of the minimum "well-capitalized"
capital ratios through December 31, 2000, (3) in the event of
the failure of the Bank to maintain such minimum capital ratios,
the Company initiating efforts to bring the Bank back into
compliance with such minimum capital ratios. A portion of the
proceeds from the Offering ($4,000,000) was contributed by the
Company to the Bank to satisfy the OCC's capital contribution
requirement. At March 31, 1998, the Bank was "well capitalized"
under federal regulatory capital adequacy guidelines and in
compliance with the OCC-mandated capital ratio levels.
At March 31, 1998, TexStar's loan portfolio consisted of $18.4
million of real estate loans (53.2% of the gross loan
portfolio), $12.3 million of commercial loans (35.5% of the
gross loan portfolio), and $3.9 million of installment loans
(11.3% of the gross loan portfolio). The allowance for possible
loan losses was $820,625, or 372.37% of total nonperforming
loans, and 2.4% of the gross loan portfolio. Other real estate
owned by TexStar was $454,300 at March 31, 1998. TexStar
reported a net loss after taxes of $831,858 for the three months
ended March 31, 1998 and net income of $584,633 for the twelve
months ended December 31, 1997. At March 31, 1998, TexStar's
loan-to-deposit ratio was 53.5%.
11
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is a bank holding company registered under the Bank
Holding Company Act of 1956, as amended. The Company, owns all of
the issued and outstanding shares of capital stock of Surety Bank,
National Association, formerly Texas Bank, National Association and
formerly Texas National Bank, Lufkin, Texas (the "Bank").
The information presented below reflects the lending and related
funding business of the Company:
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
------------------ ------------------
INSURANCE PREMIUM FINANCING:
Average balance outstanding $ 39,430,694 $ 40,522,934
Average yield 9.9% 11.2%
Interest income $ 976,500 $ 1,133,770
CONSUMER, COMMERCIAL AND REAL
ESTATE FINANCING:
Average balance outstanding $ 59,315,803 $ 58,292,147
Average yield 9.8% 10.0%
Interest income $ 1,457,807 $ 1,457,239
MEDICAL CLAIMS RECEIVABLES:
Average balance outstanding $ 6,809,648 $ 7,099,171
Average yield 37.4% 34.2%
Interest income $ 636,366 $ 606,325
COST OF FUNDS:
Average balance outstanding $ 155,858,576 $ 153,910,269
Average interest rate 3.7% 3.6%
Interest expense $ 1,427,548 $ 1,400,235
AVERAGE MONTHLY AMOUNTS:
Total interest income $ 1,270,305 $ 1,339,822
Total interest expense $ 475,849 $ 466,745
Provision for credit losses $ 120,000 $ -
Provision (credit) for medical
claims receivables losses $ (111,667) $ 25,000
Noninterest income $ 190,323 $ 188,783
Noninterest expense $ 801,337 $ 771,819
Note: Average balances are computed using daily balances throughout
each period.
12
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<PAGE>
AVERAGE BALANCE SHEET
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
-----------------------------------
Average Average
Balance Interest Rate
------- -------- -------
<S> <C> <C> <C>
ASSETS:
Interest earnings assets:
U.S. Treasury and agency securities
and due from time(1) $ 21,668,271 $ 390,040 7.2%
Federal funds sold 28,044,984 350,202 5.0%
Loans(2)(3) 98,746,297 2,434,307 9.9%
Medical claims receivables 6,809,648 636,366 37.4%
Allowance for credit losses and
factoring (5,117,579) N/A N/A
------------ ---------- -----
Total interest earning assets 150,151,621 3,810,915 10.2%
------------ ---------- -----
Cash and due from banks 5,424,940
Premises and equipment 3,698,399
Accrued interest receivable 775,831
Other assets 12,135,446
------------
Total assets $172,186,237
============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest bearing liabilities:
Interest bearing demand deposits $ 36,851,059 $ 236,539 2.6%
Savings deposits 8,078,790 48,372 2.4%
Time deposits 88,435,553 1,142,637 5.2%
------------ ---------- -----
Total interest bearing
liabilities 133,365,402 1,427,548 4.3%
------------ ---------- -----
Net interest income $2,383,367
==========
Net interest spread 5.9%
-----
Net interest income to average earning assets 6.4%
=====
Noninterest bearing deposits 22,493,174
Accrued interest payable and other liabilities 233,931
------------
Total liabilities 156,092,507
Shareholders' equity 16,093,730
------------
Total liabilities and shareholders' equity $172,186,237
============
</TABLE>
(1) Interest income on the tax-exempt securities does not reflect the
tax equivalent yield.
(2) Loans on nonaccrual status have been included in the computation of
average balances.
(3) The interest income on loans does not include loan fees. Loan fees
are immaterial and are included in noninterest income.
13
PAGE
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS ENDED MARCH 31, 1997.
- ---------------------------------------------------------------------------
Surety Capital Corporation (the "Company") and its wholly owned
subsidiary, Surety Bank, National Association ("Surety Bank"), reported
a decrease of 33.5% in net earnings of $332,346 as compared to $499,824
during the three months ended March 31, 1998 and 1997, respectively.
Basic and diluted earnings per share were $0.06 and $0.09 for the three
months ended March 31, 1998 and 1997, respectively. The yields earned
by the Company on its loan portfolio during the three months ended
March 31, 1998 and 1997 were 9.9% and 10.5%, respectively, while the
average cost of funds for the Company for the same periods was 3.7% and
3.6%, respectively. The average balance of loans outstanding was
$98,746,297 and $98,815,081 for the three months ended March 31, 1998
and 1997, respectively. The loan-to-deposit ratio as of March 31, 1998
and 1997 was 65.3% and 66.7%, respectively. It is the Company's goal
to increase its loan production in order to improve Surety Bank's loan-
to-deposit ratio, which will result in a transfer from Surety Bank's
overnight federal funds sold (with a 5.0% yield for the first three
quarters of 1998) to the higher yielding loan portfolio (with a 9.9%
yield for the first three months of 1998).
Total interest income decreased 5.2% to $3,810,915 from $4,019,466,
while total interest expense increased 2.0% to $1,427,548 from
$1,400,235, resulting in a 9.01% decrease in net interest income before
provision for credit losses to $2,383,367 from $2,619,231. The
Company's loan growth between these two periods was concentrated within
real estate loans. Real estate lending increased by 18.0% to
$28,665,977 from $24,291,985, commercial lending decreased by 11.4% to
$20,803,364 from $23,475,695, consumer lending decreased by 15.0% to
$10,099,910 from $11,883,880, and insurance premium financing decreased
by 7.7% to $42,428,509 from $45,696,751. The average volume of
consumer, commercial, and real estate lending increased 1.8%, with a
decrease in the average yields on those loans from 10.0% to 9.8%. The
2.8% decrease in the average volume of insurance premium financing
loans was accompanied by a yield of 9.9% and 11.2% on those loans for
the three months ended March 31, 1998 and 1997, respectively. The
decline in yield realized on insurance premium finance loans is a
result of increased competition within the insurance premium finance
market. The average balance of interest bearing deposits increased
1.3%, while the average rate paid increased from 4.2% to 4.3%.
The Company recorded a $360,000 provision for loan losses during the
three months ended March 31, 1998 compared to no provision for loan
losses during the three months ended March 31, 1997. As the Company's
ratio of net charge-offs to average loans remained unchanged for these
periods, the Company provided amounts, through charges to earnings, to
maintain the allowance for loan losses at an adequate level. Management
believes that all known losses in the portfolio have been recognized.
The Company recorded a $335,000 credit for medical claims receivables
losses during the three months ended March 31, 1998 compared to a
$75,000 provision for medical claims receivables losses during the
three months ended March 31, 1997. During the three months ended March
31, 1998, the Company's collection efforts yielded collections of
approximately $886,000 of factored receivables charged-off or provided
for at year-end 1997. In light of the amounts collected, the Company
determined that a credit in the amount of $335,000 was needed to
maintain the allowance for medical claims receivables losses at an
adequate level. Management believes that all known losses in the
medical claims receivables portfolio have been recognized.
The Company's noninterest income increased 1.0% to $570,970 from
$566,348 for the three months ended March 31, 1998 and 1997,
respectively. This increase compares to a corresponding increase in
average noninterest bearing deposits of 1.2% to $22,493,174 from
$22,231,281 for these same periods. Noninterest income is generated
primarily from fees associated with noninterest and interest bearing
accounts.
Noninterest expense increased 3.82%, primarily the result of a 0.29%
increase in salaries and employee benefits, a 12.4% increase in
occupancy and equipment expenses, and a 5.3% increase in general and
administrative expenses. Increases in general and administrative
expenses relate primarily to legal and professional fees.
On April 1, 1998 the Company acquired TexStar National Bank
("TexStar"), a community bank headquartered in Universal City, Texas,
which is located in the growth corridor northeast of San Antonio,
Texas. TexStar had four branch locations in Converse, New
Braunsfels, San Antonio, and Schertz, all also
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located in the greater San Antonio metropolitan area. At March 31,
1998, TexStar had $70,335,427 in total assets, $64,761,640 in total
deposits and $5,023,393 in shareholders' equity. The completion of
the merger will result in Surety Bank increasing its asset size to
approximately $243,864,000. This will represent an approximate 40%
increase in asset size. The merger is expected to create
approximately $4,385,000 in goodwill. TexStar offers interest-
bearing and non-interest-bearing depository accounts and makes real
estate, commercial and consumer loans.
The Company acquired TexStar through the merger of TexStar into the
Bank, pursuant to which the Bank acquired all of the assets, and
assumed all of the liabilities, of TexStar (the "Merger"). The
purchase price for TexStar was approximately $19.36 per share of
TexStar common stock outstanding (total cash consideration:
$9,772,000), which was paid to the shareholders of TexStar in
connection with the Merger. The acquisition of TexStar was financed
in part through a private placement by the Company of $4,350,000
aggregate principal amount of Notes as discussed in Note 4 and 5.
PARENT COMPANY ONLY RESULTS OF OPERATIONS.
- ------------------------------------------
The Company primarily serves as a parent company to Surety Bank and has
nominal separate business activities. For the three months ended March
31, 1998, the Company had only nominal interest income of approximately
$5,200, and approximately $38,000 in noninterest expenses. The
noninterest expenses, which increased 15.2% from the same period in the
prior year, consisted primarily of legal and professional fees incurred
in the operation of the Company and in the maintenance of the Company's
public company status under applicable securities laws and regulations.
ALLOWANCE FOR CREDIT LOSSES
The Company recorded a $360,000 provision for credit losses during the
three months ended March 31, 1998 compared to no provision during the
three months ended March 31, 1997. The Company recorded at $335,000
credit for medical claims receivables losses during the three months
ended March 31, 1998, compared to a $75,000 provision for medical
claims receivables losses during the three months ended March 31, 1997.
The Company's provision for credit losses and provision for medical
claims receivables losses is based upon quarterly loan portfolio
reviews by management. The purpose of the reviews is to assess loan
quality, analyze delinquencies, ascertain loan growth, evaluate
potential charge-offs and recoveries, and assess general economic
conditions in the market economy. Management periodically reviews the
estimates used in determining the allowance for credit losses and the
allowance for medical claims receivables losess and adequately provides
for the changes as needed. Credit losses in excess of the amount of
the allowance could and probably would have a material adverse effect
on the financial condition of the Company.
The ratio of charge-offs, net of recoveries, to average loans during
the three months ended March 31, 1998 was 0.13%. The ratio of the
allowance for credit losses to total loans was 4.8% on March 31, 1998
as compared to 1.2% on March 31, 1997. The allowance for credit losses
was $5,217,964 on March 31, 1998.
CURRENT TRENDS AND UNCERTAINTIES
Economic trends and other developments could adversely affect the
Company's operations. Regulatory changes may increase the Company's
cost of doing business or otherwise impact it adversely.
LIQUIDITY
The Company's investment securities portfolio, including federal funds
sold, and its cash and due from bank deposit balances serve as the
primary sources of liquidity. At March 31, 1998, 15.5% of Surety
Bank's interest bearing liabilities were in the form of time deposits
of $100,000 and over. Although unlikely, if a large number of these
time deposits matured at approximately the same time and were not
renewed, Surety Bank's liquidity could be adversely affected.
Currently, the maturities of Surety Bank's large time deposits are
spread throughout the year, and Surety Bank monitors those maturities
in an effort to minimize any adverse effect on liquidity.
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Over the long term, the ability of the Company to meet its cash
obligations will depend substantially on its receipt of dividends from
Surety Bank, which are limited by banking statutes and regulations.
CAPITAL RESOURCES
Shareholders' equity at March 31, 1998 was $16,156,530 as compared to
$15,877,833 at December 31, 1997. The Company had consolidated net
income of $332,346 for the three months ended March 31, 1998.
Under the regulatory risk-based capital framework, Surety Bank is
expected to meet a minimum risk-based capital ratio to risk-weighted
assets ratio of 8%, of which at least one-half, or 4%, must be in the
form of Tier 1 (core) capital. The remaining one-half, or 4%, may be
either in the form of Tier 1 (core) or Tier 2 (supplementary) capital.
The amount of the loan loss allowances that may be included in capital
after the transition period is limited to 1.25% of risk-weighted
assets. The ratio of Tier 1 (core) and the combined amount of Tier 1
(core) and Tier 2 (supplementary) capital to risk-weighted assets for
Surety Bank was 9.92% and 11.28%, respectively, at December 31, 1997
and 13.32% and 18.04%, respectively, at March 31, 1998. In addition,
Surety Bank is expected to maintain a Tier 1 capital to total assets
ratio (Tier 1 leverage ratio) of at least 3%. Surety Bank is currently,
and expects to continue to be, in compliance with these capital
requirements.
While the Company believes it has sufficient financing for its working
capital needs until the end of its 1998 fiscal year, there can be no
assurance that the Company's present capital and financing will be
sufficient to finance future operations thereafter. If the Company
sells additional shares of common and/or preferred stock to raise
funds, the terms and conditions of the issuances and any dilutive
effect may have an adverse impact on the existing stockholders. If
additional financing becomes necessary, there can be no assurance that
the financing can be obtained on satisfactory terms. In this event,
the Company could be required to restrict its operations.
The Board of Governors of the Federal Reserve System (the "Federal
Reserve") has announced a policy sometimes known as the "source of
strength doctrine" that requires a bank holding company to serve as a
source of financial and managerial strength to its subsidiary banks.
The Federal Reserve has interpreted this requirement to require that a
bank holding company, such as the Company, stand ready to use available
resources to provide adequate capital funds to its subsidiary banks
during periods of financial stress or adversity. The Federal Reserve
has stated that it would generally view a failure to assist a troubled
or failing subsidiary bank in these circumstances as an unsound or
unsafe banking practice, a violation of Regulation Y, or both,
justifying a cease and desist order or other enforcement action,
particularly if appropriate resources are available to the bank holding
company on a reasonable basis. The requirement that a bank holding
company, such as the Company, make its assets and resources available
to a failing subsidiary bank could have an adverse effect upon the
Company and its stockholders.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains, and losses) in a full
set of general-purpose financial statements. SFAS 130 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. SFAS 130 does not require a specific format for the
financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that
financial statement. SFAS 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. The
Company adopted SFAS 130 in the first quarter ended March 31, 1998.
In June 1997, FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for the way
that public enterprises report information about operating segments in
annual financial statements, and
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requires that those enterprises report information about operating
segments in annual financial statements and report selected information
about operating segments in interim financial reports issued to
shareholders. SFAS 131 also establishes standards for related
disclosures about products and services, geographic areas, and major
customers.
SFAS 131 requires that a public business enterprise report financial
and descriptive information about its reportable operating segments.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources
and in assessing performance. Generally, financial information is
required to be reported on the basis that it is used internally for
evaluating segment performance and deciding how to allocate resources
to segments.
SFAS 131 is effective for periods beginning after December 15, 1997.
In the initial year of application, comparative information for earlier
years is to be restated. SFAS 131 will be adopted by the Company on
December 31, 1998. The Company is expected to have two operating
segments to report on, the traditional banking segment and the
insurance premium finance segment.
Management believes that the adoption of these pronouncements will not
have a material impact on the financial condition or results of
operations of the Company.
IMPACT OF INFLATION, CHANGING PRICES AND MONETARY POLICIES
The financial statements and related financial data concerning the
Company in this report have been prepared in accordance with generally
accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars
without considering changes in the relative purchasing power of money
over time due to inflation. The primary effect of inflation on the
operations of the Company is reflected in increased operating costs.
Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a
result, changes in interest rates have a more significant effect on the
performance of a financial institution than do the effects of changes
in the general rate of inflation and changes in prices. Interest rates
do not necessarily move in the same direction or in the same magnitude
as the prices of goods and services. Interest rates are highly
sensitive to many factors which are beyond the control of Surety Bank,
including the influence of domestic and foreign economic conditions and
the monetary and fiscal policies of the United States government and
federal agencies, particularly the Federal Reserve . The Federal
Reserve implements national monetary policy such as seeking to (1) curb
inflation and combat recession by its open market operations in United
States government securities, (2) control the discount rate applicable
to borrowing by banks and (3) establish reserve requirements against
bank deposits. The actions of the Federal Reserve in these areas
influence the growth of bank loans, investments and deposits, and
affect the interest rates charged on loans and paid on deposits. The
nature, timing and impact of any future changes in federal monetary and
fiscal policies on Surety Bank and its results of operations are not
predictable.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Bank is a defendant in two related cases: Tennessee Ex Rel.
Douglas Sizemore, Commissioner of Commerce and Insurance for the
State of Tennessee, et al. vs. Surety Bank, N.A., filed in June
1995 in the Federal District Court for the Northern District of
Texas, Dallas Division (the "Anchorage Case"), and United Short-
line Inc. Assurance Services, N.A. et al. vs. MacGregor General
Insurance Company, Ltd., et al., now pending in the 141st
Judicial District Court of Tarrant County, Texas (the "MacGregor
Case").
The claimant in the Anchorage Case is the Tennessee Commissioner
of Commerce and Insurance ("Tennessee"), appointed by the
Chancery Court for the State of Tennessee, Twentieth Judicial
District, Davidson County, to liquidate Anchorage Fire and
Casualty Insurance Company ("Anchorage"), including Anchorage
deposits at the Bank. Tennessee seeks to recover compensatory
and punitive damages on various alleged causes of action,
including violation of orders issued by a Tennessee court,
fraudulent and preferential transfers, common law conversion,
fraud, negligence, and bad faith, all of which are based on the
same underlying facts and course of conduct. The plaintiff in
the MacGregor Case, United Shortline Inc. Assurance Services,
N.A. ("Shortline"), is the holder of a Florida judgment against
MacGregor who seeks to recover funds allegedly belonging to
MacGregor which were held by the Bank.
Both cases arise out of the Bank's alleged exercise of control
over funds, representing the Bank's collateral, held in accounts
at the Bank under agreements with Anchorage and MacGregor. The
Bank asserts that it had a right to exercise control over its
collateral under contractual agreements between the Bank and the
respective insurance companies or the Bank and the policy
holders, and also in order to protect the Bank against the
possibility of inconsistent orders regarding the same funds.
Tennessee also seeks to recover funds allegedly transferred in
and out of the Anchorage/MacGregor accounts at the Bank during
an approximate four month period in 1993.
When the MacGregor case was initially filed, Shortline sought a
restraining order against the Bank concerning the MacGregor
funds. When the Bank received notice of competing claims to
some or all of these funds by Tennessee, the Bank intervened and
interpled approximately $600,000 into the court's registry.
Shortline now seeks, inter alia, damages against the Bank from
an alleged wrongful offset wherein the Bank allegedly exercised
control over the MacGregor funds at the Bank pursuant to
agreements with MacGregor. The Bank moved for and obtained a
summary judgment that its intervention and interpleader of funds
was proper. Shortline also sought and obtained a summary
judgment from the trial court that the funds interpled by the
Bank into the court's registry belonged to Shortline. Tennessee
appealed the summary judgment to the Fort Worth Court of
Appeals. The Fort Worth Court of Appeals affirmed the trial
court's ruling that the Bank's intervention and interpleader was
proper but reversed the trial court's ruling that the funds in
the court belonged to Shortline. Shortline and Tennessee
appealed the ruling of the Fort Worth Court of Appeals. Oral
argument has been made to the Texas Supreme Court. The matter
is pending before that court, and no ruling has been made at
this time.
In the Anchorage case, Tennessee claims that the Bank allegedly
transferred funds in and out of the Anchorage accounts after
allegedly receiving notice of court orders prohibiting such
transfers. Discovery in this case has not been completed, and
the damages sought by Tennessee are not yet certain.
The Bank believes both of these cases lack merit and intends to
defend them vigorously. The outcome of both of these cases is
uncertain at this time. However, in management's opinion the
outcome of these cases will not be material to the Company.
In June 1997 the Company learned that a number of IPF agreements
on which it has made loans may be fictitious or forged, and has
filed two lawsuits regarding such agreements.
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The first lawsuit was filed by the Bank on July 24, 1997, in the
342nd District Court of Tarrant County, Texas, against
Defendants Greenway Insurance Agency, Inc., Peter M. O'Malley,
Jr., and Auto-Owners Insurance Company (the "Greenway" case).
The Greenway case was removed to the Federal District Court for
the Northern District of Texas, Fort Worth Division, where it is
currently pending. In the Greenway case, the Bank alleges that
defendants O'Malley and Greenway submitted forged, fictitious
and fraudulent premium finance agreements to the Bank for the
funding of loans on insurance policies purportedly issued by
Auto-Owners Insurance Company. These loans were funded to
Greenway pursuant to instructions on the premium finance
agreements submitted and pursuant to written instructions from
Auto-Owners. The fictitious loans submitted by Greenway and
O'Malley that ultimately went into default exceeded $800,000,
for which the Bank is suing the defendants on theories of
negligence, fraud, and breach of contract and warranty. An
Assignment and Release Agreement has been executed between the
Bank and Auto-Owners. Pursuant to this agreement, the Bank has
assigned and transferred its claims and causes of action against
Greenway and O'Malley to Auto-Owners. In consideration for this
agreement, Auto-Owners has paid the Bank $650,000 and will
pursue the claims and causes of action against Greenway and
O'Malley pursuant to the terms of the agreement. Should a
recovery be made, Auto-Owners agrees to pay the Bank 50% of the
amounts collected until the Bank has received payments totaling
approximately $197,000, in addition to the $650,000 previously
paid. This constitutes a settlement of this case insofar as the
Bank is concerned. The Bank continues to have a bond claim
presented to St. Paul Insurance, and St. Paul Insurance has yet
to take a position with respect to the claim.
The second lawsuit was filed by the Bank against Beverly
Insurance Group, Inc. in its own right and d/b/a First Coast
Insurance Services, and Rhoda Nottingham (the "First Coast"
case). The First Coast case was filed on December 1, 1997, and
is currently pending in the 348th Judicial District Court of
Tarrant County, Texas. The defendants in the First Coast case
submitted premium finance agreements to the Bank which resulted
in loans being funded by the Bank to defendants pursuant to
instructions contained on the premium finance agreements. Once
the premium finance agreements had been funded, payment coupon
books were mailed by the Bank to the insured at the address
listed for the insured in the premium finance agreement. After
the Bank had been financing purported insurance policies under
the premium finance agreements submitted by defendants for some
period of time, it was discovered that numerous payment coupon
books were being returned to the Bank by the post office because
the insured's address listed on the premium finance agreement
sent by defendants was not correct. As such, required payments
on numerous premium finance agreements were not made which
resulted in numerous premium finance agreements going into
default. The Bank has asserted causes of action against
defendants for breach of contract and warranty, negligence and,
alternatively, fraud, where the bank seeks to recover the amount
of loans in default, which approximates $300,000. The
defendants filed an Answer, challenging the jurisdiction of the
court in which the case was filed. Subsequently, the attorneys
for the defendants withdrew, and the defendants are currently
without counsel. The Bank has received notice that Rhoda
Nottingham has filed bankruptcy proceedings under Chapter 13 of
the Bankruptcy Code, which imposes an automatic stay on the
proceedings in this case. The potential exists for a bond claim
in this case, similar to the bond claim that was filed in the
Greenway case.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable
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Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.01 Agreement and Plan of Reorganization by and among Surety
Bank, National Association, TexStar National Bank,
Surety Capital Corporation, and certain shareholders of
TexStar National Bank, dated as of October 10, 1997; and
Agreement to Merge TexStar National Bank with and into
Surety Bank, National Association Under the Charter of
Surety Bank, National Association and Under the Title of
Surety Bank, National Association, between Surety Bank,
National Association and TexStar National Bank and joined
in by Surety Capital Corporation and certain shareholders
of TexStar National Bank, dated as of October 10, 1997 (1)
2.02 Indenture between Surety Capital Corporation and Harris
Trust and Savings Bank, as Trustee, dated March 31, 1998*
27 Financial Data Schedule*
----------------------------------------
* Filed herewith.
(1) Filed with the Company's Form 10-K for the fiscal year ended
December 31, 1997 and incorporated by reference herein.
(b) Reports on Form 8-K
On February 10, 1998 the Company filed a Current Report on Form 8-K
to report a net loss in the fourth quarter of 1997 as the result of
management's decision to charge off certain medical claims
receivables and to make provision for other receivables outstanding
over 120 days, due to concerns regarding the collectibility of such
receivables, and to write off goodwill of $1,511,111 relating to the
medical claims factoring division during the fourth quarter.
On April 9, 1998 the Company filed a Current Report on Form 8-K to
report that effective April 1, 1998 the Company acquired TexStar
National Bank, a national banking association located in Universal
City, Texas with branches in Converse, New Braunsfels, San Antonio
and Schertz, Texas. The main office and branches of TexStar are
being operated as branches of Surety Bank.
On May 19, 1998 the Company filed a Current Report on Form 8-K/A
(Amendment No. 1) to amend the Form 8-K filed on April 9, 1998
to include (1) the report of Burnside & Rishebarger, PLLC, dated
January 23, 1998, on its audits of the financial statements of
TexStar National Bank, San Antonio, Texas as of December 31, 1997
and 1996, and for the two years ended December 31, 1997, and (2) the
related pro forma balance sheet as of March 31, 1998, and pro
forma income statements for the three months ended March 31, 1998
and for the twelve months ended December 31, 1997 giving effect
to the TexStar purchase.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Dated: May 15, 1998 SURETY CAPITAL CORPORATION
By: /s/ C. Jack Bean
----------------
C. Jack Bean
Chairman
By: /s/ B.J. Curley
----------------
B.J. Curley
Vice President, Chief
Accounting Officer &
Secretary
21
EXHIBIT 2.02
============================================
SURETY CAPITAL CORPORATION
to
HARRIS TRUST AND SAVINGS BANK,
As Trustee
INDENTURE
Dated as of March 31, 1998
============================================
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Certain Sections of this Indenture relating to
Sections 310 through 318, inclusive, of the
Trust Indenture Act of 1939:
Trust Indenture Act Section Indenture Section
- --------------------------- -----------------
ss.310(a)(1).............................609
(a)(2)...................................609
(a)(3)...................................Not Applicable
(a)(4)...................................Not Applicable
(a)(5)...................................609
(b)......................................608, 610
ss.311(a)................................613
(b)......................................613
(c)......................................Not Applicable
ss.312(a)................................701, 702(a)
(b)......................................702(b)
(c)......................................702(c)
ss.313(a)................................703(a)
(b)......................................703(a)
(c)......................................703(a)
(d)......................................703(b)
ss.314(a)(1).............................704
(a)(2)...................................704
(a)(3)...................................704
(a)(4)...................................101, 1004
(b)......................................Not Applicable
(c)(1)...................................102
(c)(2)...................................102
(c)(3)...................................Not Applicable
(d)......................................Not Applicable
(e)......................................102
ss.315(a)................................601
(b)......................................602
(c)......................................601
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(d)......................................514
(e)......................................514
ss.316(a)................................101
(a)(1)(A)................................502, 512
(a)(1)(B)................................513
(a)(2)...................................Not Applicable
(b)......................................508
(c)......................................104(c)
ss.317(a)(1).............................503
(a)(2)...................................504
(b)......................................1003
ss.318(a)................................107
- -------------------
NOTE: This reconciliation and tie shall not, for any purpose,
be deemed to be a part of the Indenture.
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TABLE OF CONTENTS
-----------------
NOTE: THIS TABLE OF CONTENTS SHALL NOT, FOR ANY PURPOSE, BE DEEMED
TO BE A PART OF THE INDENTURE.
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
Section 101. DEFINITIONS 1
Section 102. COMPLIANCE CERTIFICATES AND OPINIONS 7
Section 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE 8
Section 104. ACTS OF HOLDERS; RECORD DATES 8
Section 105. NOTICES, ETC., TO TRUSTEE AND COMPANY 10
Section 106. NOTICE TO HOLDERS; WAIVER 11
Section 107. APPLICATION OF AND CONFLICT WITH TRUST INDENTURE ACT 11
Section 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS 11
Section 109. SUCCESSORS AND ASSIGNS 12
Section 110. SEVERABILITY CLAUSE 12
Section 111. BENEFITS OF INDENTURE 12
Section 112. GOVERNING LAW 12
Section 113. LEGAL HOLIDAYS 12
ARTICLE TWO
FORM OF NOTES
Section 201. FORM AND DATING 13
ARTICLE THREE
THE NOTES
Section 301. TITLE AND TERMS 13
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Section 302. AUTHORIZED DENOMINATIONS 14
Section 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING 14
Section 304. TEMPORARY NOTES 15
Section 305. REGISTRAR AND PAYING AGENT 15
Section 306. PAYING AGENT TO HOLD MONEY IN TRUST 16
Section 307. TRANSFER AND EXCHANGE 17
Section 308. MUTILATED, DESTROYED, LOST AND STOLEN NOTES 18
Section 309. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED 19
Section 310. PERSONS DEEMED OWNERS 20
Section 311. CANCELLATION 20
Section 312. COMPUTATION OF INTEREST 21
Section 313. CUSIP NUMBER 21
ARTICLE FOUR
SATISFACTION AND DISCHARGE
Section 401. SATISFACTION AND DISCHARGE OF INDENTURE 21
Section 402. APPLICATION OF TRUST MONEY 22
ARTICLE FIVE
REMEDIES
Section 501. EVENTS OF DEFAULT 23
Section 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT 23
Section 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR
ENFORCEMENT BY TRUSTEE 24
Section 504. TRUSTEE MAY FILE PROOFS OF CLAIM 25
Section 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION
OF NOTES 26
Section 506. APPLICATION OF MONEY COLLECTED 26
Section 507. LIMITATION ON SUITS 26
Section 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE
PRINCIPAL, PREMIUM AND INTEREST 27
Section 509. RESTORATION OF RIGHTS AND REMEDIES 28
Section 510. RIGHTS AND REMEDIES CUMULATIVE 28
Section 511. DELAY OR OMISSION NOT WAIVER 28
Section 512. CONTROL BY HOLDERS 28
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Section 513. WAIVER OF PAST DEFAULTS 29
Section 514. UNDERTAKING FOR COSTS 29
Section 515. WAIVER OF STAY OR EXTENSION LAWS 29
ARTICLE SIX
THE TRUSTEE
Section 601. CERTAIN DUTIES AND RESPONSIBILITIES 30
Section 602. NOTICE OF DEFAULTS 30
Section 603. CERTAIN RIGHTS OF TRUSTEE 30
Section 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF NOTES 32
Section 605. MAY HOLD NOTES 32
Section 606. MONEY HELD IN TRUST 33
Section 607. COMPENSATION AND REIMBURSEMENT 33
Section 608. DISQUALIFICATION; CONFLICTING INTERESTS 33
Section 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY 34
Section 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR 34
Section 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR 35
Section 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION
TO BUSINESS 36
Section 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY 36
Section 614. APPOINTMENT OF AUTHENTICATING AGENT 36
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 701. COMPANY TO FURNISH TRUSTEE NAMES AND
ADDRESSES OF HOLDERS 38
Section 702. PRESERVATION OF INFORMATION; COMMUNICATIONS
TO HOLDERS 38
Section 703. REPORTS BY TRUSTEE 38
Section 704. REPORTS BY COMPANY 39
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ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS 39
Section 802. SUCCESSOR SUBSTITUTED 39
Section 803. OPINION OF COUNSEL TO TRUSTEE 40
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS 40
Section 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS 41
Section 903. EXECUTION OF SUPPLEMENTAL INDENTURES 42
Section 904. EFFECT OF SUPPLEMENTAL INDENTURES 42
Section 905. CONFORMITY WITH TRUST INDENTURE ACT 42
Section 906. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES 42
Section 907. SUBORDINATION UNIMPAIRED 42
ARTICLE TEN
COVENANTS
Section 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST 43
Section 1002. MAINTENANCE OF OFFICE OR AGENCY 43
Section 1003. MONEY FOR NOTES PAYMENTS TO BE HELD IN TRUST 44
Section 1004. STATEMENT BY OFFICERS AS TO DEFAULT 45
Section 1005. CORPORATE EXISTENCE 45
Section 1006. WAIVER OF CERTAIN COVENANTS 45
Section 1007. MAINTENANCE OF STATUS OF SUBSIDIARIES AS
INSURED DEPOSITORY INSTITUTION 45
Section 1008. CAPITAL AND DIVIDENDS 46
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ARTICLE ELEVEN
SUBORDINATION OF NOTES
Section 1101. NOTES SUBORDINATED TO EXTENT PROVIDED 46
Section 1102. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. 46
Section 1103. PRIOR PAYMENT TO SENIOR INDEBTEDNESS
UPON ACCELERATION OF NOTES 47
Section 1104. NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT 48
Section 1105. PAYMENT PERMITTED IF NO DEFAULT 48
Section 1106. SUBROGATION TO RIGHTS OF HOLDERS OF
SENIOR INDEBTEDNESS 49
Section 1107. OBLIGATIONS OF COMPANY UNCONDITIONAL; PROVISIONS
SOLELY TO DEFINE RELATIVE RIGHTS 49
Section 1108. AUTHORIZATION OF TRUSTEE TO EFFECTUATE
SUBORDINATION OF NOTES 50
Section 1109. NO WAIVER OF SUBORDINATION PROVISIONS 50
Section 1110. NOTICE TO TRUSTEE; TRUSTEE NOT CHARGED
WITH KNOWLEDGE OF PROHIBITION 51
Section 1111. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE
OF LIQUIDATING AGENT 51
Section 1112. NO FIDUCIARY DUTY TO HOLDERS OF SENIOR INDEBTEDNESS
OR OTHER FINANCIAL OBLIGATIONS 52
Section 1113. RIGHT OF TRUSTEE TO HOLD SENIOR INDEBTEDNESS
OF COMPANY 52
Section 1114. ARTICLE APPLICABLE TO PAYING AGENTS 52
Section 1115. PAYMENT OF PROCEEDS IN CERTAIN CASES 52
ARTICLE TWELVE
CONVERSION OF SECURITIES
Section 1201. CONVERSION PRIVILEGE 54
Section 1202. EXERCISE OF CONVERSION PRIVILEGE 54
Section 1203. FRACTIONAL INTERESTS 55
Section 1204. CONVERSION PRICE 56
Section 1205. ADJUSTMENT OF CONVERSION PRICE 56
Section 1206. CONTINUATION OF CONVERSION PRIVILEGE IN CASE OF
RECLASSIFICATION, CHANGE, MERGER, CONSOLIDATION
OR SALE OF ASSETS 60
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Section 1207. NOTICE OF CERTAIN EVENTS 61
Section 1208. TAXES ON CONVERSION 62
Section 1209. COMPANY TO PROVIDE STOCK 62
Section 1210. DISCLAIMER OF RESPONSIBILITY FOR CERTAIN MATTERS 62
Section 1211. RETURN OF FUNDS DEPOSITED FOR REDEMPTION OF
CONVERTED SECURITIES 63
ARTICLE THIRTEEN
REDEMPTION
Section 1301. NOTICES TO TRUSTEE 63
Section 1302. SELECTION OF NOTES TO BE REDEEMED 63
Section 1303. NOTICE OF REDEMPTION 64
Section 1304. EFFECT OF NOTICE OF REDEMPTION 65
Section 1305. DEPOSIT OF REDEMPTION PRICE 65
Section 1306. NOTES REDEEMED IN PART 65
Section 1307. OPTIONAL REDEMPTION 66
ARTICLE FOURTEEN
MISCELLANEOUS
Section 1401. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR 66
Section 1402. NO RECOURSE AGAINST OTHERS 67
Section 1403. COUNTERPARTS 67
Section 1404. FURTHER INSTRUMENTS AND ACTS 67
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INDENTURE, dated as of March 31, 1998, between Surety Capital
Corporation, a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Company"), having
its principal office at 1845 Precinct Line Road, Suite 100, Hurst,
Texas 76054, and Harris Trust and Savings Bank, an Illinois
banking corporation, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of its 9%
Convertible Subordinated Notes due March 31, 2008 (the "Notes") of
substantially the tenor and amount hereinafter set forth, and to
provide therefor, the Company has duly authorized the execution and
delivery of this Indenture.
All things necessary to make the Notes, when executed by the
Company and authenticated and delivered by the Trustee hereunder
and duly issued by the Company, the valid obligations of the
Company and to make this Indenture a valid agreement of the Company
in accordance with its terms have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Notes by the Holders (as hereinafter defined) thereof, it is
mutually agreed, for the equal and proportionate benefit of all
Holders of the Notes, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
Section 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as
the singular;
(2) all other terms used herein which are defined in the
Trust Indenture Act, either directly or by reference therein, have
the meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with generally accepted
accounting principles; and
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(4) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not
to any particular Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning
specified in Section 104.
"Actual Knowledge" has the meaning set forth in Section 603(l)
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person. For the
purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative
to the foregoing.
"Authenticating Agent" means any Person authorized by the
Trustee pursuant to Section 614 to act on behalf of the Trustee to
authenticate any of the Notes. Each reference herein to
authentication by the Trustee includes authentication by an
Authenticating Agent.
"Board of Directors" means the board of directors of the
Company or the Executive Committee or any other committee of the
Board of Directors duly authorized to act on behalf 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, and delivered to the
Trustee.
"Business Day", when used with respect to any Place of
Payment, unless otherwise specified in a Board Resolution and in an
Officers' Certificate, or in a supplemental indenture hereto, means
each Monday, Tuesday, Wednesday, Thursday and Friday that is not a
day on which banking institutions in an applicable Place of Payment
or the city in which the Trustee's Corporate Trust Office is
located or in the City of New York, New York are authorized or
obligated by law, executive order or regulation to remain closed.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Securities
Exchange Act of 1934, as amended, 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 Stock" means the common stock, par value $0.01 per
share, of the Company.
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"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have
become such pursuant to the applicable provisions of this
Indenture, and thereafter "Company" shall mean such successor
Person.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman of the
Board, its Vice Chairman of the Board, its President or a Vice
President, and by its Treasurer, an Assistant Treasurer, its
Secretary or an Assistant Secretary, and delivered to the Trustee.
"Conversion Price" has the meaning set forth in Section 1204.
"Conversion Shares" has the meaning set forth in Section 1205.
"Corporate Trust Office" means the principal office of the
Trustee at which at any particular time its corporate trust
business shall be principally administered, which office is, at the
date of execution of this instrument, located at 311 West Monroe
Street, Chicago, Illinois 60606, Attention: Indenture Trust
Division.
"Corporation" means a corporation, association, company,
joint-stock company or business trust.
"Date of Conversion" has the meaning set forth in Section
1202.
"default" for purposes of Sections 310(b) and 315 of the Trust
Indenture Act is defined to mean an "Event of Default" as specified
in Section 501 hereof.
"Defaulted Interest" has the meaning specified in Section 309.
"Distribution Date" has the meaning specified in Section 1205.
"Entitled Persons" means any person entitled to payment
pursuant to the terms of Other Financial Obligations.
"Event of Default" has the meaning specified in Section 501.
"Excess Proceeds" has the meaning specified in Section
1115(b).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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"FDIC" means the Federal Deposit Insurance Corporation, as
from time to time constituted, created under the Federal Deposit
Insurance Improvement Act of 1991, or if at any time after the
execution of this instrument, such corporation is not existing and
performing the duties now assigned to it, then the body performing
such duties on such date, or any other successor to the FDIC.
"Holder" means, with respect to any Note, the person in whose
name such Note is registered on the Note Register.
"indebtedness for money borrowed" as used in the definitions
of "Senior Indebtedness" and "Other Financial Obligations" means
any obligation of, or any obligation guaranteed by, the Company for
the repayment of borrowed money, whether or not evidenced by bonds,
debentures, notes or other written instruments, and any deferred
obligation for the payment of the purchase price
of property or assets.
"Indenture" means this instrument as originally executed or as
it may from time to time be supplemented or amended by one or more
indentures supplemental hereto, entered into pursuant to the
applicable provisions hereof.
"Interest Payment Date" means, when used with respect to any
of the Notes, the Stated Maturity of an installment of interest on
such Note.
"Issue Date" means with respect to the Notes, the date of
initial issuance of such Notes.
"Last Sale Price" has the meaning set forth in Section 1203.
"Maturity" means, when used with respect to any of the Notes,
the date on which the principal of such Note or an installment of
principal becomes due and payable as therein or herein provided,
whether at the Stated Maturity or by declaration of acceleration or
otherwise.
"Note Register" has the meaning specified in Section 305.
"Notes" has the meaning stated in the first recital of this
Indenture and more particularly means the Notes authenticated and
delivered under this Indenture.
"Officers' Certificate" means a certificate signed by the
Chairman of the Board, a Vice Chairman of the Board, the President
or a Vice President, and by the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary, of the Company, and
delivered to the Trustee.
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"Opinion of Counsel" means a written opinion of legal counsel,
who may be either counsel to the Company or an employee of the
Company, which Opinion shall be reasonably satisfactory to the
Trustee and which is delivered to the Trustee.
"Other Financial Obligations" means all obligations of the
Company to make payment pursuant to the terms of financial
instruments, such as (i) securities contracts and foreign currency
exchange contracts, (ii) derivative instruments, such as swap
agreements (including interest rate and foreign exchange rate swap
agreements), cap agreements, floor agreements, collar agreements,
interest rate agreements, foreign exchange rate agreements,
options, commodity futures contracts, commodity options contracts,
and (iii) in the case of both (i) and (ii) above, similar financial
instruments, other than (A) obligations on account of Senior Indebtedness
and (B) obligations on account of indebtedness for money borrowed ranking
pari passu with or subordinate to the Notes.
"Outstanding", when used with respect to the Notes, means, as
of the date of determination, all such Notes theretofore
authenticated and delivered under this Indenture, except:
(i) Notes theretofore cancelled by the Trustee or delivered
to the Trustee for cancellation;
(ii) Notes or portions thereof for whose payment money in the
necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other than the Company or an Affiliate of the
Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for the
Holders of such Notes; and
(iii) Notes in exchange for or in lieu of which other
Notes have been authenticated and delivered pursuant to this
Indenture;
provided, however, that in determining whether the Holders of the
requisite principal amount of the Outstanding Notes have given any
request, demand, authorization, direction, notice, consent or
waiver hereunder, Notes owned by the Company or any other obligor
upon the Notes or any Affiliate of the Company or of such other
obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Notes which the Trustee knows to be
so owned shall be so disregarded. Notes so owned which have been
pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right
so to act with respect to such Notes and that the pledgee is not
the Company or any other obligor upon the Notes or any Affiliate of
the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to
pay the principal of or premium, if any, or interest on any of the
Notes on behalf of the Company.
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"Person" means any individual, corporation, partnership,
association, joint venture, joint stock company, trust,
unincorporated organization or government or any agency or
political subdivision thereof.
"Place of Payment", when used with respect to the Notes,
unless otherwise specified in a Board Resolution and in an
Officers' Certificate or in a supplemental indenture hereto, means
the office or agency of the Company in Chicago, Illinois, and such
other place or places, if any, where the principal of and premium,
if any, and interest on the Notes are payable, as contemplated by
Section 301.
"Predecessor Security" of any particular Note means every
previous Note evidencing all or a portion of the same debt as that
evidenced by such particular Note; and, for the purposes of this
definition, any Note authenticated and delivered under Section 308
in exchange for or in lieu of a mutilated, destroyed, lost or
stolen Note shall be deemed to evidence the same debt as the
mutilated, destroyed, lost or stolen Note.
"Record Date" means any Regular Record Date or Special Record
Date.
"Redemption Date" has the meaning specified in Section 1301.
"Redemption Price" means, with respect to any Notes to be
redeemed by the Company, the price at which a Note may be redeemed
pursuant to Section 1307.
"Registered Note" means any Note that is registered as to
principal and interest, if any.
"Registrar" has the meaning specified in Section 305.
"Regular Record Date" for the interest payable on any Interest
Payment Date on any of the Notes means the date specified in
Section 309.
"Senior Indebtedness" of the Company means the principal of,
premium, if any, and interest (including interest accruing
subsequent to the commencement of any proceeding for the bankruptcy
or reorganization of the Company under applicable bankruptcy,
insolvency or similar law now or hereafter in effect) on (a) all
indebtedness of the Company for money borrowed, whether outstanding
on the date of execution of this Indenture or thereafter created,
assumed or incurred, except such indebtedness as is by its terms
expressly stated to be not superior in right of payment to the
Notes or to rank pari passu with or subordinate to the Notes, and
(b) any deferrals, renewals or extensions of any such indebtedness
for money borrowed.
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"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 309.
"Stated Maturity" means, when used with respect to any of the
Notes or any installment of principal thereof or interest thereon,
the date specified in such Note as the fixed date on which the
principal of such Note or such installment of principal or interest
is due and payable.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990 as in force at
the date as of which this instrument was executed; provided,
however, that in the event the Trust Indenture Act is amended after
such date, "Trust Indenture Act" means, to the extent required by
any such amendment, the Trust Indenture Act as so amended.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have
become such pursuant to the applicable provisions of this
Indenture, and thereafter "Trustee" shall mean or include each
Person who is then a Trustee hereunder.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a
number or a word or words added before or after the title "vice
president".
Section 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request 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, if any, provided for in this
Indenture relating to the proposed action have been complied with
and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied
with, except that in the case of any such application or request as
to which the furnishing of such documents is specifically required
by any provision of this Indenture relating to such particular
application or request, no additional certificate or opinion need
be furnished.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
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(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he or she has made such examination or investigation as is
necessary to enable him or her to express an informed opinion as to
whether or not such covenant or condition has been complied with;
and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not
necessary that all such matters be certified by or covered by the
opinion of only one such Person, or that they be so certified or
covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other
such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate
or opinion of or representations by counsel, unless such officer
knows or in the exercise of reasonable care should know that the
certificate or opinion or representations with respect to the
matters upon which his or her certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based,
insofar as it relates to factual matters, upon a certificate or
opinion of or representations by an officer or officers of the
Company stating that the information with respect to such factual
matters is in the possession of the Company, unless such counsel
knows or in the exercise of reasonable care should know that the
certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements,
opinions or other instruments under this Indenture, they may, but
need not, be consolidated and form one instrument.
Section 104. ACTS OF HOLDERS; RECORD DATES.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be
given or taken by Holders may be embodied in and evidenced by one
or more instruments of substantially similar tenor signed by such
Holders in person or by agent duly appointed in writing; and,
except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are received
by the Trustee and, where it is
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hereby expressly required, delivered to the Company. Such
instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of
the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any
such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 601) conclusive in favor of the Trustee and
the Company, 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 or her individual
capacity, such certificate or affidavit shall also constitute
sufficient proof of his or her authority. The fact and date of the
execution of any such instrument or writing, or the authority of
the Person executing the same, may also be proved in any other
manner which the Trustee deems sufficient.
(c) The Company may set any day as the record date for the
purpose of determining, as applicable, the Holders of Outstanding
Notes entitled to make any request or demand, or give any
authorization, direction, notice, consent or waiver, or take other
action, provided or permitted by this Indenture to be made, given
or taken by Holders of such Notes.
With regard to any record date set pursuant to this paragraph,
the Holders of Outstanding Notes on such record date (or their duly
appointed agents), and only such Persons, shall be entitled to take
relevant action, whether or not such Holders remain Holders after
such record date. With regard to any action that may be taken
hereunder only by Holders of a requisite principal amount of
Outstanding Notes (or their duly appointed agents) and for which a
record date is set pursuant to this paragraph, the Company may, at
its option, set an expiration date after which no such action
purported to be taken by any Holder shall be effective hereunder
unless taken on or prior to such expiration date by Holders of the
requisite principal amount of Outstanding Notes on such record date
(or their duly appointed agents). On or prior to any expiration
date set pursuant to this paragraph, the Company may, on one or
more occasions at its option, extend such expiration date to any
later date. Nothing in this paragraph shall prevent any Holder (or
any duly appointed agent thereof) from taking at any time any
action contrary to or different from any action previously taken or
purported to have been taken hereunder by such Holder, in which
event the Company may set a record date in respect thereof pursuant
to this paragraph. Notwithstanding the foregoing or the Trust
Indenture Act, the Company shall not set a record date for, and the
provisions of this paragraph shall not apply with respect to, any
action to be taken by Holders pursuant to Section 501, 502 or 512.
Upon receipt by the Trustee of notice of any default described
in Section 501, any declaration of acceleration, or any rescission
and annulment of any such declaration, pursuant to
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Section 502 or of any direction in accordance with Section 512, a
record date shall automatically and without any other action by any
Person be set for the purpose of determining the Holders of
Outstanding Notes entitled to join in such notice, declaration, or
rescission and annulment, or direction, as the case may be, which
record date shall be the close of business on the day the Trustee
receives such notice, declaration, rescission and annulment or
direction, as the case may be. The Holders of Outstanding Notes on
such record date (or their duly appointed agent), and only such
Persons, shall be entitled to join in such notice, declaration,
rescission and annulment, or direction, as the case may be, whether
or not such Holders remain Holders after such record date; provided
that, unless such notice, declaration, rescission and annulment, or
direction, as the case may be, shall have become effective by
virtue of Holders of the requisite principal amount of Outstanding
Notes on such record date (or their duly appointed agents) having
joined therein on or prior to the 90th day after such record date,
such notice of default, declaration, or rescission and annulment or
direction given or made by the Holders, as the case may be, shall
automatically and without any action by any Person be canceled and
of no further effect. Nothing in this paragraph shall prevent a
Holder (or a duly appointed agent thereof) from giving, before or
after the expiration of such 90-day period, a notice of default, a
declaration of acceleration, a rescission and annulment of a
declaration of acceleration or a direction in accordance with
Section 512, contrary to or different from, or, after the
expiration of such period, identical to, a previously given notice,
declaration, rescission and annulment, or direction, as the case
may be, that has been canceled pursuant to the proviso to the
preceding sentence, in which event a new record date in respect
thereof shall be set pursuant to this paragraph.
(d) The ownership of Notes shall be proved by the Note
Register.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Note shall bind
every future Holder of the same Note and the Holder of every Note
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 Trustee or the Company in reliance
thereon, whether or not notation of such action is made upon such
Note.
Section 105. NOTICES, ETC., TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or
permitted by this Indenture to be made upon, given or furnished to,
or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at the Corporate Trust
Office; or
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(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its
principal office specified in the first paragraph of this
instrument to the attention of the Office of the Secretary or at
any other address previously furnished in writing to the Trustee by
the Company.
Section 106. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any
event, such notice shall be sufficiently given (unless otherwise
herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his
address as it appears in the Note Register, not later than the
latest date (if any), and not earlier than the earliest date (if
any), prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event,
and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or
by reason of any other cause it shall be impracticable to give such
notice by mail, then such notification as shall be made with the
approval of the Trustee shall constitute a sufficient notification
for every purpose hereunder.
Section 107. APPLICATION OF AND CONFLICT WITH TRUST INDENTURE ACT.
The Trust Indenture Act shall apply as a matter of contract to
this Indenture for purposes of interpretation, construction and
definition of the rights and obligations hereunder. If any
provision hereof limits, qualifies or conflicts with another
provision hereof that is required under the Trust Indenture Act to
be included in this Indenture by any of the provisions of such Act,
such required provision shall control. If any provision of this
Indenture modifies or excludes any provision of the Trust Indenture
Act that may be so modified or excluded, such provision of the Act
as so modified or excluded, as the case may be, shall be deemed to
apply to this Indenture.
Section 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the
construction hereof.
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Section 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
Section 110. SEVERABILITY CLAUSE.
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 111. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Notes, express or implied,
shall give to any Person, other than the parties hereto and their
successors hereunder and the Holders, and, subject to Section 907,
holders of Senior Indebtedness or Entitled Persons in respect of
Other Financial Obligations, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
Section 112. GOVERNING LAW.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE
WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS OF SUCH STATE.
Section 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Stated Maturity
or any other payment date of any of the Notes shall not be a
Business Day at the Place of Payment of such Note at which such
Note is presented for payment, then (notwithstanding any other
provision of this Indenture or of the Notes), payment of principal
of and premium, if any, and interest on such Notes need not be made
at such Place of Payment on such date, but may be made on the next
succeeding Business Day at such Place of Payment with the same
force and effect as if made on such payment date and no interest
shall accrue for the period from and after such payment date.
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ARTICLE TWO
FORM OF NOTES
Section 201. FORM AND DATING
(a) The Notes and the certificate of authentication of the
Trustee thereon with respect to the Notes shall be substantially in
the form of Exhibit A hereto, which is hereby incorporated in and
expressly made a part of this Indenture.
(b) The Notes may have such letters, numbers or other marks
of identification and such legends and endorsements, stamped,
printed, lithographed or engraved thereon (i) as the Company may
deem appropriate and as are not inconsistent with the provisions of
this Indenture, (ii) as may be required to comply with this
Indenture, any law or any rule of any securities exchange on which
the Notes may be listed and (iii) as may be necessary to conform to
customary usage. Each Note shall be dated the date of its
authentication by the Trustee. The Notes shall be issued only in
fully registered form, without coupons, in denominations of $1,000
and integral multiples thereof.
(c) Definitive Notes shall be typed, printed, lithographed or
engraved or produced by any combination of such methods or produced
in any other manner permitted by the rules of any securities
exchange on which such Notes may be listed, all as determined by
the officers of the Company executing such Notes, as evidenced by
their execution of such Notes.
ARTICLE THREE
THE NOTES
Section 301. TITLE AND TERMS.
The aggregate principal amount of Notes which may be
authenticated and delivered under this Indenture and Outstanding at
any time may not exceed $4,300,000, except for Notes authenticated
and delivered upon registration of transfer of, or in exchange for,
or in lieu of, other Notes pursuant to Sections 304, 305, 307, 308
or 906.
The Notes shall be issued in a single series, known and
designated as the 9% Convertible Subordinated Notes due March 31,
2008. The Stated Maturity for the payment of principal of the Notes
shall be March 31, 2008, and the Notes shall bear interest at 9%
per annum from the Issue Date, or from the most recent Interest
Payment Date to which interest has been paid thereon or duly
provided for, payable semiannually on March 31 and September 30 of
each year (commencing September 30, 1998) until the principal
thereof is paid or duly provided for.
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The principal of and premium, if any, and interest on the
Notes shall be payable at the office or agency of the Company in
Chicago, Illinois, maintained such purpose and at any other office
or agency maintained by the Company for such purpose; provided,
however, that principal, premium, if any, and interest may be
payable at the option of the Company by check mailed to the address
of the person entitled thereto as such address shall appear on the
Note Register; provided further that all payments with respect to
Notes, the Holders of which have given wire transfer instructions
to the Company, will be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof.
Section 302. AUTHORIZED DENOMINATIONS.
The Notes shall be issuable in denominations of $1,000 and any
integral multiple thereof.
Section 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Notes shall be executed on behalf of the Company by its
Chairman of the Board, its President, a Vice Chairman or one of its
Vice Presidents, under its corporate seal reproduced or imprinted
on the Notes by facsimile or otherwise, and shall be attested by
the Company's Secretary or one of its Assistant Secretaries, in
each case by manual or facsimile signature.
In the event that any of the Notes shall have been signed
(either manually or by facsimile) by a Person that shall have
ceased to be an appropriate officer of the Company before any such
Note shall have been authenticated and delivered by the Trustee, or
disposed of by the Company, such Notes nevertheless may be
authenticated and delivered or disposed of as though the Person who
signed such Notes had not ceased to be such appropriate officer of
the Company, and any Note may be signed on behalf of the Company by
such Persons as, at the actual time of execution of such Note,
shall be the proper officers of the Company, although at the date
of such Note or of the execution of this instrument such Person was
not such officer.
The Trustee shall, upon receipt of a Company Order requesting
such action, authenticate Notes for original issue up to the
aggregate principal amount not to exceed $4,300,000 Outstanding in
respect of the Notes at any given time.
At any time after the execution and delivery of this
Indenture, the Company may deliver Notes executed by the Company to
the Trustee for authentication, together with a Company Order for
the authentication and delivery of such Notes; and the Trustee in
accordance with such Company Order shall authenticate such Notes by
manual signature of an authorized signatory of the Trustee and make
available for delivery such Notes as provided in this Indenture and
not otherwise. The Notes shall not be valid for any purpose unless
so authenticated.
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A Note shall not be valid or entitled to any benefit under
this Indenture or obligatory for any purpose unless executed and
issued by the Company and authenticated by the manual signature of
the Trustee as provided herein. The signature of the Trustee shall
be conclusive evidence, and the only evidence, that the Note has
been authenticated and delivered under this Indenture and is
entitled to the benefits of this Indenture.
Notwithstanding the foregoing, if any Note shall have been
authenticated and delivered hereunder but never issued and sold by
the Company, and the Company shall deliver such Note to the Trustee
for cancellation as provided in Section 311 together with a written
statement (which need not comply with Section 103 and need not be
accompanied by an Opinion of Counsel) stating that such Note has
never been issued and sold by the Company, for all purposes of this
Indenture such Note shall be deemed never to have been
authenticated and delivered hereunder and shall not be entitled to
the benefits of this Indenture.
Section 304. TEMPORARY NOTES.
Pending the preparation of definitive Notes, the Company may
execute, and upon Company Order the Trustee shall authenticate and
make available for delivery, temporary Notes which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in
any authorized denomination, substantially of the tenor of the
definitive Notes in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other
variations as the officers executing such Notes may determine, as
evidenced by their execution of such Notes.
If temporary Notes are issued, the Company will cause
definitive Notes to be prepared without unreasonable delay. After
the preparation of definitive Notes, the temporary Notes shall be
exchangeable for definitive Notes upon surrender of the temporary
Notes at the office or agency of the Company in a Place of Payment,
without charge to the Holder. Upon surrender for cancellation of
any one or more temporary Notes the Company shall execute and the
Trustee shall authenticate and make available for delivery in
exchange therefor one or more definitive Notes, of any authorized
denominations and of a like aggregate principal amount and tenor.
Until so exchanged the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive
Notes.
Section 305. REGISTRAR AND PAYING AGENT.
The Company shall maintain, pursuant to Section 1002 hereof,
an office or agency where the Notes may be presented for
registration of transfer or for exchange (the "Registrar"), an
office or agency where Notes may be presented for payment (the
"Paying Agent") and an office or agency where notices and demands
to or upon the Company in respect of the Notes and this Indenture
may be served.
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The Company shall cause to be kept at such office a register
(the register maintained in such office and in any other office or
agency of the Company in a Place of Payment being herein sometimes
collectively referred to as the "Note Register") in which, subject
to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of Notes and of transfers of
Notes entitled to be registered or transferred as provided herein.
The Trustee, at its Corporate Trust Office, is initially appointed
Registrar for the purpose of registering Notes and transfers of
Notes as herein provided. The Company may, upon written notice to
the Trustee, change the designation of the Trustee as Registrar and
appoint another Person to act as Registrar for purposes of this
Indenture. If any Person other than the Trustee acts as Registrar,
the Trustee shall have the right at any time, upon reasonable
notice, to inspect or examine the Note Register and to make such
inquiries of the Registrar as the Trustee shall in its discretion
deem necessary or desirable in performing its duties hereunder.
The Company shall enter into an appropriate agency agreement
with any Person designated by the Company as Registrar or Paying
Agent that is not a party to this Indenture, which agreement shall
incorporate the provisions of the Trust Indenture Act and shall
implement the provisions of this Indenture that relate to such
Registrar or Paying Agent. Prior to the designation of any such
Person, the Company shall, by written notice (which notice shall
include the name and address of such Person), inform the Trustee of
such designation. The Trustee, at its Corporate Trust Office, is
initially appointed Paying Agent under this Indenture. If the
Company fails to maintain a Registrar or Paying Agent, the Trustee
shall act as such.
All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this
Indenture, as the Notes surrendered upon such registration of
transfer or exchange.
Every Note presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or
the Trustee) be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Company and the
Note Register duly executed, by the Holder thereof or his attorney
duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange of Notes, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any registration of transfer
or exchange of Notes, other than exchanges pursuant to Section 304
or 906 not involving any transfer.
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Section 306. PAYING AGENT TO HOLD MONEY IN TRUST.
On or prior to each due date of the principal, premium, or any
payment of interest with respect to any Note, the Company shall
deposit with the Paying Agent a sum sufficient to pay such
principal, premium or interest when so becoming due.
The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that such Paying Agent shall hold in
trust for the benefit of Holders or the Trustee all money held by
such Paying Agent for the payment of principal, premium and
interest with respect to the Notes, shall notify the Trustee of any
default by the Company in making any such payment and at any time
during the continuance of any such default, upon the written
request of the Trustee, shall forthwith pay to the Trustee all sums
held in trust by such Paying Agent.
The Company at any time may require a Paying Agent to pay all
money held by it to the Trustee and to account for any funds
disbursed by such Paying Agent. Upon complying with this Section
306, the Paying Agent shall have no further liability for the money
delivered to the Trustee.
Section 307. TRANSFER AND EXCHANGE.
Upon surrender for registration of transfer of any Note at an
office or agency of the Company designated pursuant Section 1002
for such purpose, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Notes of any authorized
denominations and of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other
Notes of any authorized denominations and of a like aggregate
principal amount, upon surrender of the Notes to be exchanged at
such office or agency. Whenever any Notes are so surrendered for
exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Notes which the Holder making the
exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange
of Securities shall be the valid obligations of the Company,
evidencing the same debt, and entitled to the same benefits under
this Indenture, as the Notes surrendered upon such registration of
transfer or exchange.
Every Note presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or
the Trustee) be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Company and the
Registrar duly executed, by the Holder thereof of his attorney duly
authorized in writing. As a condition to the registration of
transfer of any Notes, the Company or the Trustee may require
evidence reasonably satisfactory to them as to the compliance with
the restrictions set forth in the legend below.
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No service change shall be made for any registration of
transfer or exchange of Notes, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any registration of transfer
or exchange of Notes, other than exchanges pursuant to Section 304
or 906 not involving any transfer.
All Notes authenticated and delivered upon original issuance
hereunder shall bear the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAW IN RELIANCE ON EXEMPTIONS FROM REGISTRATION PROVIDED THEREIN.
THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE SECURITIES ACT OR AN OPINION OF
COUNSEL TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
All Notes issued upon transfer or exchange or replacement
thereof shall bear such legend unless the Company shall have
delivered to the Trustee (and the Registrar, if other than the
Trustee) a Company Order which states that, as to Notes held by a
specific Holder or as to all Notes, such legend is no longer
required.
Section 308. MUTILATED, DESTROYED, LOST AND STOLEN NOTES.
If any mutilated Note is surrendered to the Trustee, the
Company shall execute, and upon its written request the Trustee
shall authenticate and make available for delivery, in exchange for
any such mutilated Note, a new Note containing identical provisions
of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their mutual satisfaction of the destruction, loss or
theft of any Note and (ii) such Note or indemnity as may be
required by them to save each of them and any agent of either of
them harmless, then, in the absence of notice to the Company or the
Trustee that such Note has been acquired by a bona fide purchaser,
the Company shall execute and upon the Company's request the
Trustee shall authenticate and make available for delivery, in lieu
of any such destroyed, lost or stolen Note, a new Note containing
identical provisions of like tenor and principal amount and bearing
a number note contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has
become or is about to become due and payable, the Company in its
discretion may, instead of issuing a new Note, pay such Note.
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Upon the issuance of any new Note under this Section, the
Company may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of
the Trustee) connected therewith.
Upon the issuance of any new Note under this Section, the
Company may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of
the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any
such destroyed, lost or stolen Note shall constitute an original
contractual obligation of the Company, whether or not the
destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture
equally and proportionately with any and all other Notes, as the
case may be, duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with
respect to the replacement or payment of mutilated, destroyed, lost
or stolen Notes.
Section 309. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Note which is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid to
the Person in whose name such Note is registered at the close of
business on the Regular Record Date for such interest, which shall
be the March 15 or September 15 (whether or not a Business Day)
immediately preceding such Interest Payment Date.
Any interest on any Note which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date
(herein called "Defaulted Interest") shall forthwith cease to be
payable to the Holder on the relevant Regular Record Date by virtue
of having been such Holder, and such Defaulted Interest may be paid
by the Company, at its election in each case, as provided in
Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest and any interest payable on such Defaulted Interest to the
Persons in whose names the Notes are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Note and the date of
the proposed payment, and at the same time the Company shall
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deposit with the Trustee an amount of money equal to the aggregate
amount proposed to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such
deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this Clause provided.
Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15
days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly
notify the Company of such Special Record Date and, in the name and
at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date
therefor to be mailed, first-class postage prepaid, to each Holder
of Notes at his or her or its address as it appears in the Note
Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose names the Notes are
registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest,
and any interest payable on such Defaulted Interest, on the Notes
in any other lawful manner not inconsistent with the requirements
of any securities exchange on which such Notes may be listed, and
upon such notice as may be required by such exchange, if, after
notice given by the Company to the Trustee of the proposed payment
pursuant to this Clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or
in exchange for or in lieu of any other Note shall carry the rights
to interest accrued and unpaid, and to accrue, which were carried
by such other Note.
Section 310. PERSONS DEEMED OWNERS.
Prior to due presentment for registration of transfer of any
Note, the Company, the Trustee, the Paying Agent, the Registrar or
any co-registrar may deem or treat the Person in whose name a Note
is registered as the absolute owner of such Note for the purpose of
receiving payment of principal of and any premium and any interest
on such Note and for all other purposes whatsoever, whether or not
such Note be overdue, and none of the Company, the Trustee, the
Paying Agent, the Registrar or any co-registrar shall be affected
by notice to the contrary.
Section 311. CANCELLATION.
All Notes surrendered for payment, registration of transfer or
exchange shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and, if not already cancelled,
shall be promptly cancelled by it. The Company may at any time
deliver to the Trustee for cancellation any Note previously
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authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee
(or to any other Person for delivery to the Trustee) for
cancellation any Notes previously authenticated hereunder which the
Company has not issued and sold, and all Notes so delivered shall
be promptly cancelled by the Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as
provided in this Section, except as expressly permitted by this
Indenture. All cancelled Notes held by the Trustee shall be
disposed of as directed by a Company Order, except that the Trustee
shall not be required to destroy Notes.
If the Company shall acquire any of the Notes, such
acquisition shall not operate as a satisfaction of the indebtedness
represented by such Notes unless and until the same are delivered
to the Trustee cancelled or for cancellation.
Section 312. COMPUTATION OF INTEREST.
Interest on the Notes shall be computed on the basis of a
360-day year of twelve 30-day months.
Section 313. CUSIP NUMBER.
The Company, in issuing Notes, may use a "CUSIP" number and,
if so, the Trustee shall use the CUSIP number in any notice to
Holders as a convenience to such Holders, provided that any such
notice may state that no representation is made as to the
correctness or accuracy of the CUSIP number printed in the notice
or on the Notes and that reliance may be placed only on the other
identification numbers printed on the Notes. The Trustee shall
promptly notify the Trustee of any change in CUSIP number.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
Section 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall, upon Company Request, cease to be of
further effect (except as to any surviving rights of registration
of transfer or exchange of Notes herein expressly provided for),
and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of this
Indenture, when
(1) either
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(A) all Notes theretofore authenticated and delivered
(other than (i) Notes which have been destroyed, lost or
stolen and which have been replaced or paid as provided in
Section 308 and (ii) Notes for whose payment money has
theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 1003), have
been delivered to the Trustee cancelled or for cancellation;
or
(B) the Company has deposited or caused to be deposited
with the Trustee as trust funds in trust an amount of money
sufficient to pay and discharge the entire indebtedness on
such Notes not theretofore delivered to the Trustee and
cancelled or for cancellation, for principal, premium, if any,
and interest to the date of such deposit (in the case of Notes
which have become due and payable) or to the Stated Maturity,
as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied
with.
Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Section 607,
the obligations of the Company to any Authenticating Agent under
Section 614, and, if money shall have been deposited with the
Trustee pursuant to subclause (B) of Clause (1) of this Section,
the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003, shall survive.
Section 402. APPLICATION OF TRUST MONEY.
Subject to provisions of the last paragraph of Section 1003,
all money deposited with the Trustee pursuant to Section 401 shall
be held in trust and applied by it, in accordance with the
provisions of the Notes and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting
as its own Paying Agent) as the Trustee may determine, to the
Persons entitled thereto, of the principal and any premium and
interest for whose payment such money has been deposited with the
Trustee.
Section 403. REINSTATEMENT.
If the Trustee or the Paying Agent is unable to apply any
money in accordance with this Article Four by reason of any order
or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, then the
Company's obligations under this Indenture and the Notes shall be
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revived and reinstated as though no deposit had occurred pursuant
to this Article Four until such time as the Trustee or Paying Agent
is permitted to apply all money held in trust with respect to the
Notes; provided, however, that if the Company makes any payment of
principal of or any premium or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of the Notes to receive such payment
from the money so held in trust.
ARTICLE FIVE
REMEDIES
Section 501. EVENTS OF DEFAULT.
"Event of Default", whenever used herein with respect to the
Notes, 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):
(1) a decree or order by a court having jurisdiction in the
premises shall have been entered adjudging the Company a bankrupt
or insolvent, or approving as properly filed a petition seeking
reorganization of the Company under the Federal Bankruptcy Act or
any other similar applicable federal or state law, and such decree
or order shall have continued undischarged and unstayed for a
period of 60 days; or a decree or order of a court having
jurisdiction in the premises for the appointment of a receiver or
liquidator or trustee or assignee in bankruptcy or insolvency of
the Company or substantially all of its property, or for the
winding up or liquidation of its affairs, shall have been entered,
and such decree or order shall have continued undischarged and
unstayed for a period of 60 days; or
(2) the Company shall institute proceedings to be adjudicated
a bankrupt, or shall consent to the filing of a bankruptcy
proceeding against it, or shall file a petition or answer or
consent seeking reorganization under the Federal Bankruptcy Act or
any other similar applicable federal or state law, or shall consent
to the filing of any such petition, or shall consent to the
appointment of a receiver or liquidator or trustee or assignee in
bankruptcy or insolvency of it or substantially all of its property
or shall make an assignment for the benefit of creditors.
Section 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default occurs and is continuing, then in every
such case the Trustee or the Holders of not less than 25% in
principal amount of the Outstanding Notes may declare the unpaid
principal of (and premium, if any), plus accrued and unpaid
interest on all of the Notes then Outstanding to be immediately due
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and payable, by a notice in writing to the Company (and to the
Trustee if given by Holders), and upon any such declaration such
principal amount (and premium, if any) and accrued interest shall
become immediately due and payable.
At any time after such a declaration of acceleration with
respect to Notes has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as
hereinafter in this Article provided, the Holders of a majority in
principal amount of the Outstanding Notes, by written notice to the
Company and the Trustee, may rescind and annul such declaration and
its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Notes,
(B) the principal of and premium, if any, on any Notes
which have become due otherwise than by such declaration of
acceleration and any interest thereon at the rate or rates
prescribed therefor in such Notes,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate or rates
prescribed therefor in such Notes, and
(D) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses, disbursements and
advances of the Trustee and its agents and counsel; and
(2) all Events of Default with respect to Notes, other than
the non-payment of the principal of Notes which have become due
solely by such declaration of acceleration, have been cured or
waived as provided in Section 513.
No such rescission shall affect any subsequent default or
impair any right consequent thereon.
Section 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR
ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(1) default is made in the payment of any interest on any
Note when such interest becomes due and payable and such default
continues for a period of 30 days, or
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(2) default is made in the payment of the principal of or
premium, if any, on any Note at the Maturity thereof,
the Company shall, upon demand of the Trustee, pay to it, for the
benefit of the Holders of such Notes, the whole amount then due and
payable on such Notes for principal and any premium and interest
and, to the extent that payment of such interest shall be legally
enforceable, interest on any overdue principal and premium and on
any overdue interest, at the rate or rates prescribed therefor in
such Notes; and, in addition thereto, such further amount as shall
be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express
trust, may institute a judicial proceeding for the collection of
the sums so due and unpaid, and may prosecute such proceeding to
judgment or final decree, and may enforce the same against the
Company or any other obligor upon such Notes and collect the moneys
adjudged or decreed to be payable in the manner provided by law out
of the property of the Company or any other obligor upon such
Notes, wherever situated.
If an Event of Default with respect to Notes occurs and is
continuing, the Trustee may in its discretion, subject to
applicable law, proceed to protect and enforce its rights and the
rights of the Holders of Notes under this Indenture by such
appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture
or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.
Section 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of any judicial proceeding relative to the Company (or
any other obligor upon the Notes), its property or its creditors,
the Trustee shall be entitled and empowered, by intervention in
such proceeding or otherwise, to take any and all actions
authorized under the Trust Indenture Act in order to have claims of
the Holders and the Trustee allowed in any such proceeding. In
particular, the Trustee shall be authorized to collect and receive
any moneys or other property payable or deliverable on any such
claims and to distribute the same; and any custodian, receiver,
assignee, trustee, liquidator, sequestrator or other similar
official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due it
for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
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No provision of this Indenture shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf
of any Holder any plan of reorganization, arrangement, adjustment
or composition affecting the Notes or the rights of any Holder
thereof or to authorize the Trustee to vote in respect of the claim
of any Holder in any such proceeding; provided, however, that the
Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and may be a member of
the creditors' committee.
Section 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION
OF NOTES.
All rights of action and claims under this Indenture or the
Notes may be prosecuted and enforced by the Trustee without the
possession of any of the Notes or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by
the Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agents and
counsel, be for the ratable benefit of the Holders of the Notes in
respect of which such judgment has been recovered.
Section 506. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed
by the Trustee and, in case of the distribution of such money on
account of principal or any premium or interest, upon presentation
of the Notes and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses of collection,
including all sums paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses and disbursements of the
Trustee, its agents and counsel and all other amounts due the
Trustee under Section 607;
SECOND: to the payment of the amounts then due and unpaid for
principal of and any premium and interest on the Notes in respect
of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to
the amounts due and payable on such Notes for principal and any
premium and interest, respectively; and
THIRD: the balance, if any, to the Company.
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Section 507. LIMITATION ON SUITS.
No Holder of any Note shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture,
or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to the Notes;
(2) the Holders of not less than 25% in principal amount of
the Outstanding Notes shall have made written request to the
Trustee to institute proceedings in respect of such Event of
Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to
be incurred in compliance with such request;
(4) the Trustee for 30 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 30-day period by the Holders
of a majority in principal amount of the Outstanding Notes;
it being understood and intended that no one or more of such
Holders shall have any right in any manner whatever by virtue of,
or by availing of, any provision of this Indenture to affect,
disturb or prejudice the rights of any other of such Holders, or to
obtain or to seek to obtain priority or preference over any other
of such Holders or to enforce any right under this Indenture,
except in the manner herein provided and for the equal and ratable
benefit of all of such Holders.
Section 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE
PRINCIPAL, PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the
Holder of any Note shall have the right, which is absolute and
unconditional, to receive payment of the principal of and any
premium and (subject to Section 309) any interest on such Note on
the Stated Maturity or Maturities expressed in such Note and to
institute suit for the enforcement of any such payment, and such
rights shall not be impaired without the consent of such Holder.
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Section 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or
has been determined adversely to the Trustee or to such Holder,
then and in every such case, subject to any determination in such
proceeding, the Company, the Trustee and the Holders shall be
restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and
the Holders shall continue as though no such proceeding had been
instituted.
Section 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes in the
last paragraph of Section 308, no right or remedy herein conferred
upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy
shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion
or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
Section 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any
Notes to exercise any right or remedy accruing upon any Event of
Default shall impair any such right or remedy or constitute a
waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the
Trustee or to the Holders may be exercised from time to time, and
as often as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.
Section 512. CONTROL BY HOLDERS.
The Holders of a majority in principal amount of the
Outstanding Notes shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the
Trustee, with respect to the Notes, provided that
(1) the Trustee shall have the right to decline to follow any
such direction if the Trustee, being advised by counsel, shall
determine that the action or proceeding so directed is in conflict
with any rule of law or with this Indenture, or the Trustee in good
faith shall determine that the action or proceedings so directed
might involve the Trustee in personal liability,
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(2) the trustee in good faith shall so determine that the
actions or forebearances specified in or pursuant to such direction
shall be unduly prejudicial to the interests of Holders of the
Notes not joining in the giving of said direction, it being
understood that (subject to Section 601) the Trustee shall have no
duty to ascertain whether or not such actions or forebearances are
unduly prejudicial to such Holders, and
(3) the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction.
Section 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of
the Outstanding Notes may on behalf of the Holders of all the Notes
waive any past default hereunder and its consequences, except a
default
(1) in the payment of the principal of or any premium, if
any, or interest on any Note, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of
the Holder of each Outstanding Note.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Indenture; but no such waiver
shall extend to any subsequent or other default or impair any right
consequent thereon.
Section 514. UNDERTAKING FOR COSTS.
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, suffered or omitted by it as Trustee, a court may require
any party litigant in such suit to file an undertaking to pay the
costs of such suit, and may assess costs against any such party
litigant, in the manner and to the extent provided in the Trust
Indenture Act; provided that neither this Section nor the Trust
Indenture Act shall be deemed to authorize any court to require
such an undertaking or to make such an assessment in any suit
instituted by the Company.
Section 515. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any
stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that
it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law and covenants that it will not hinder,
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delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
Section 601. CERTAIN DUTIES AND RESPONSIBILITIES.
The duties and responsibilities of the Trustee shall be as
provided by the Trust Indenture Act. Notwithstanding the foregoing,
no provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise
of any of its rights or powers, if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it.
Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the
provisions of this Section.
Section 602. NOTICE OF DEFAULTS.
If an Event of Default or a default in the performance and
observance of any of the terms, provisions and conditions of this
Indenture occurs hereunder with respect to the Notes, the Trustee
shall give the Holders of Outstanding Notes notice of such default
as and to the extent provided by the Trust Indenture Act.
Section 603. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate,
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 or presented by the proper
party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company
Order and any resolution of the Board of Directors may be
sufficiently evidenced by a Board Resolution;
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(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its
part, rely upon an Officers' Certificate;
(d) before the Trustee acts or refrains from acting, the
Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders pursuant to this
Indenture, unless such Holders shall have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or
direction;
(f) prior to the occurrence of an Event of Default hereunder
and after the curing or waiving of all Events of Default, the
Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, Officers' Certificate, or
other certificated statement, instrument, opinion, report, request,
consent, order, approval, appraisal, bond, debenture, note, coupon,
security, or other paper or document unless requested in writing so
to do by the Holders of not less than a majority in aggregate
principal amount of the Outstanding Notes; provided that, if the
payment within a reasonable time to the Trustee of the costs,
expenses or liabilities likely to be incurred by it in the making
of such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by
the terms of this Indenture, the Trustee may require reasonable
indemnity against such expenses or liabilities as a condition to
proceeding; the reasonable expenses of every such examination shall
be paid by the Company or, if advanced by the Trustee, shall be
repaid by the Company upon demand;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be
responsible for any misconduct or negligence on the part of any
agent or attorney appointed with due care by it hereunder;
(h) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of a majority in
principal amount of the Outstanding Notes relating to the time,
method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Indenture;
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(i) the Trustee shall not be required to give any bond or
surety in respect of the performance of its powers and duties
hereunder;
(j) the Trustee shall not be bound to ascertain or inquire as
to the performance or observance of any covenants, conditions or
agreements on the part of the Company, except as otherwise set
forth herein, but the Trustee may require of the Company full
information and advice as to the performance of the covenants,
conditions and agreements contained herein and shall be entitled in
connection herewith to examine the books, records and premises of
the Company; provided, however, Trustee shall not be permitted
access to any books, records or other information deemed by the
Company to be privileged, or confidential as a matter of law, rule
or regulation;
(k) the permissive rights of the Trustee to do things
enumerated in this Indenture shall not be construed as a duty and
the Trustee shall not be answerable for other than its negligence
or willful misconduct; and
(l) except for (i) a default in Sections 501(1) or (2)
hereof, or (ii) any other event of which the Trustee has "actual
knowledge" and which event, with the giving of notice or the
passage of time or both, would constitute an Event of Default under
this Indenture, the Trustee shall not be deemed to have notice of
any default or event unless specifically notified in writing of
such event by the Company or the Holders of not less than 25% in
aggregate principal amount of the Notes Outstanding; as used
herein, the term "actual knowledge" means the actual fact or
statement of knowing, without any duty to make any investigation
with regard thereto.
Section 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
NOTES.
The recitals contained herein and in the Notes, except the
Trustee's certificates of authentication, shall be taken as the
statements of the Company, and the Trustee or any Authenticating
Agent assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this
Indenture or of the Notes. The Trustee or any Authenticating Agent
shall not be accountable for the use or application by the Company
of Notes or the proceeds thereof.
Section 605. MAY HOLD NOTES.
The Trustee, any Authenticating Agent, any Paying Agent, any
Registrar or any other agent of the Company, in its individual or
any other capacity, may become the owner or pledgee of Notes and,
subject to Sections 608 and 613, may otherwise deal with the
Company with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Registrar or such other agent.
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Section 606. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law.
The Trustee shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed with the
Company.
Section 607. COMPENSATION AND REIMBURSEMENT.
The Company agrees
(1) to pay to the Trustee from time to time and the Trustee
shall be entitled to such compensation for all services rendered by
it hereunder as the parties shall agree in writing from time to
time (which compensation shall not be limited by any provision of
law in regard to the compensation of a trustee of an express
trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or
advance as may be attributable to its negligence or willful
misconduct; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence
or willful misconduct on its part, arising out of or in connection
with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself
against or investigating any claim or liability in connection with
the exercise or performance or any of its powers or duties
hereunder.
The obligations of the Company under this Section to
compensate the Trustee, to pay or reimburse the Trustee for
expenses, disbursements and advances and to indemnify and hold
harmless the Trustee shall constitute additional indebtedness
hereunder and shall survive the satisfaction and discharge of this
Indenture. When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Article Five
hereof, the expenses (including reasonable fees and expenses of its
counsel) and the compensation for the service in connection
therewith are intended to constitute expense of administration
under any applicable Bankruptcy law.
Section 608. DISQUALIFICATION; CONFLICTING INTERESTS.
If the Trustee has or shall acquire a conflicting interest
within the meaning of Section 310(b) of the Trust Indenture Act,
the Trustee shall either eliminate such interest or resign, to the
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extent and in the manner provided by, and subject to the provisions
of, the Trust Indenture Act and this Indenture.
Section 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which 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 such Person publishes reports of condition at least
annually, pursuant to law or to the requirements of said
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 recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the
manner and with the effect hereinafter specified in this Article.
Section 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the
successor Trustee in accordance with the applicable requirements of
Section 611.
(b) The Trustee may resign at any time with respect to the
Notes by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee required by Section
611 shall not have been delivered to the Trustee within 30 days
after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Notes.
(c) The Trustee may be removed at any time with respect to
the Notes by Act of the Holders of a majority in principal amount
of the Outstanding Notes, delivered to the Trustee and to the
Company. If the instrument of acceptance by a successor Trustee
required by Section 611 shall not have been delivered to the
Trustee within 30 days after the giving of such notice of removal,
the Trustee to be removed may, at the expense of the Company,
petition any court of competent jurisdiction for the appointment of
a successor Trustee with respect to the Notes.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has
been a bona fide Holder of a Note for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609
and shall fail to resign after written request therefor
by the Company or by any such Holder, or
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(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may
remove the Trustee with respect to all Notes, or (ii) subject to
Section 514, any Holder who has been a bona fide Holder of a Note
for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction
for the removal of the Trustee with respect to all Notes and the
appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of
Trustee for any cause, with respect to the Notes, the Company, by
a Board Resolution, shall promptly appoint a successor Trustee with
respect to the Notes (it being understood that any such successor
Trustee may be appointed with respect to the Notes and that at any
time there shall be only one Trustee with respect to the Notes) and
shall comply with the applicable requirements of Section 611. If,
within one year after such resignation, removal or incapability, or
the occurrence of such vacancy, a successor Trustee with respect to
the Notes shall be appointed by Act of the Holders of a majority in
principal amount of the Outstanding Notes delivered to the Company
and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 611, become the
successor Trustee with respect to the Notes and to that extent
supersede the successor Trustee appointed by the Company. If no
successor Trustee with respect to the Notes shall have been so
appointed by the Company or the Holders and accepted appointment in
the manner required by Section 611, any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of
himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee
with respect to the Notes.
(f) The Company shall give notice of each resignation and
each removal of the Trustee with respect to the Notes and each
appointment of a successor Trustee with respect to the Notes to all
Holders of Notes in the manner provided in Section 106. Each notice
shall include the name of the successor Trustee with respect to the
Notes and the address of its Corporate Trust Office.
Section 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor
Trustee with respect to all Notes, every such 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
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the request of the Company or the successor Trustee, such retiring
Trustee shall, upon payment of its charges, execute and deliver an
instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder.
(b) Upon request of any such successor Trustee, the Company
shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such
rights, powers and trusts referred to in paragraph (a) of this
Section.
(c) No successor Trustee shall accept its appointment unless
at the time of such acceptance such successor Trustee shall be
qualified and eligible under this Article.
Section 612. 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 such
corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any
further act on the part of any of the parties hereto. In case any
Notes shall have been authenticated, but not delivered, by the
Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Trustee may adopt such
authentication and deliver the Notes so authenticated with the same
effect as if such successor Trustee had itself authenticated such
Notes.
Section 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST
COMPANY.
The Trustee shall comply with the provisions of Section 311 of
the Trust Indenture Act.
Section 614. APPOINTMENT OF AUTHENTICATING AGENT.
The Trustee may appoint an Authenticating Agent or Agents with
respect to the Notes which shall be authorized to act on behalf of
the Trustee to authenticate Notes issued upon original issue and
upon exchange or registration of transfer or pursuant to Section
308, and Notes 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. Wherever
reference is made in this Indenture to the authentication and
delivery of Notes by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an
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Authenticating Agent and a certificate of authentication executed
on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent shall be acceptable to the Company and shall
at all times be a corporation organized and doing business under
the laws of the United States of America, any State thereof or the
District of Columbia, authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of not
less than $50,000,000 and subject to supervision or examination by
Federal or State authority. If such Authenticating Agent publishes
reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for
the purposes of this Section, the combined capital and surplus of
such Authenticating Agent shall be deemed to be its combined
capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of
this Section, such Authenticating Agent shall resign immediately in
the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be
merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation
to which such Authenticating Agent shall be a party, or any
corporation succeeding to the corporate agency or corporate trust
business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise
eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee or the
Authenticating Agent.
An Authenticating Agent may resign at any time by giving
written notice thereof to the Trustee and to the Company. The
Trustee may at any time terminate the agency of an Authenticating
Agent by giving written notice thereof to such Authenticating Agent
and to the Company. Upon receiving such a notice of resignation or
upon such a termination, or in case at any time such Authenticating
Agent shall cease to be eligible in accordance with the provisions
of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail
written notice of such appointment by first-class mail, postage
prepaid, to all Holders of Notes, as their names and addresses
appear in the Note Register. Any successor Authenticating Agent,
upon acceptance of its appointment hereunder, shall become vested
with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from
time to time reasonable compensation for its services under this
Section.
The Trustee is initially designated as the Authenticating
Agent for the Notes.
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ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES
OF HOLDERS.
The Company will furnish or cause to be furnished to the
Trustee, not more than 60 days after each semi-annual interest
payment, as the case may be, where such interest payments are to be
made, and at such other times as the Trustee may request in
writing, within 30 days after receipt by the Company of any such
request, a list in such form as the Trustee may reasonably require
containing all information in the possession or control of the
Company, or any of its paying agents other than the Trustee, as to
the names and addresses of the Holders of Notes obtained since the
date as of which the next previous list, if any, was furnished.
Section 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
HOLDERS.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders
contained in the most recent list furnished to the Trustee as
provided in Section 701 and the names and addresses of Holders
received by the Trustee in its capacity as Note Registrar. The
Trustee may destroy any list furnished to it as provided in Section
701 upon receipt of a new list so furnished.
(b) Holders may communicate as provided in Section 312(b) of
the Trust Indenture Act with other Holders with respect to their
rights under this Indenture or under the Notes.
(c) Every Holder of Notes agrees with the Company and the
Trustee that neither the Company nor the Trustee nor any agent of
either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made
pursuant to the Trust Indenture Act.
Section 703. REPORTS BY TRUSTEE.
(a) Within 60 days after May 15 of each year commencing with
the year 1999, if and so long as any Notes shall be outstanding
hereunder, the Trustee shall transmit to Holders such reports as
may be required pursuant to Section 313 of the Trust Indenture Act.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock
exchange upon which any Notes are listed, with the Commission and
with the Company. The Company will notify the Trustee when any
Notes are listed on any stock exchange.
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Section 704. REPORTS BY COMPANY.
The Company shall file with the Trustee and the Commission,
and transmit to Holders, such information, documents and other
reports, and such summaries thereof, as may be required pursuant to
Section 314 of the Trust Indenture Act at the times and in the
manner provided pursuant thereto; provided that any such
information, documents or reports required to be filed with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act
shall be filed with the Trustee within 15 days after the same is so
required to be filed with the Commission.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company covenants that it will not merge or consolidate
with any other corporation or sell or convey all or substantially
all of its assets to any person, firm or corporation, except that
the Company may merge or consolidate with, or sell or convey all or
substantially all of its assets to, any other corporation, provided
that (i) either the Company shall be the continuing corporation, or
the successor corporation (if other than the Company) shall be a
corporation organized and existing under the laws of the United
States of America or a State thereof and such corporation shall
expressly assume the due and punctual payment of the principal of
and premium, if any, and interest on all the Notes, according to
their tenor, and the due and punctual performance and observance of
all of the covenants and conditions of this Indenture to be
performed by the Company or such successor corporation, as the case
may be, by supplemental indenture in form satisfactory to the
Trustee, executed and delivered to the Trustee by such corporation,
and (ii) the Company or such successor corporation, as the case may
be, shall not, immediately after such merger or consolidation, or
such sale or conveyance, be in default in the performance of any
such covenant or condition.
Section 802. SUCCESSOR SUBSTITUTED.
Upon any consolidation of the Company with, or merger of the
Company into, any other Person or any sale or conveyance of all or
substantially all of the assets of the Company in accordance with
Section 801, the successor Person formed by such consolidation or
into which the Company is merged or to which such sale or
conveyance is made shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under this
Indenture with the same effect as if such successor Person had been
named as the Company herein, and thereafter, the predecessor Person
shall be relieved of all obligations and covenants under this
Indenture and the Notes.
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Section 803. OPINION OF COUNSEL TO TRUSTEE.
The Trustee may receive, and shall be fully protected in
relying upon, an Opinion of Counsel stating that any such
consolidation, merger, sale or conveyance, and any such assumption,
complies with the provisions of this Article.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and
from time to time, may enter into one or more indentures
supplemental hereto, in form satisfactory to the Trustee, for any
of the following purposes:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants
of the Company herein and in the Notes; or
(2) to add to the covenants of the Company for the benefit of
the Holders of the Notes or to surrender any right or power herein
conferred upon the Company; or
(3) to add any additional Events of Default; or
(4) to change or eliminate any of the provisions of this
Indenture, provided that any such change or elimination shall
become effective only when there is no Note Outstanding created
prior to the execution of such supplemental indenture which is
entitled to the benefit of such provision; or
(5) to secure the Notes; or
(6) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Notes and to
add to or change any of the provisions of this Indenture as shall
be necessary to provide for or facilitate the administration of the
trusts hereunder by more than one Trustee, pursuant to the
requirements of Section 611(b); or
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(7) subject to Section 907, to add to, change or eliminate
any of the provisions of Article Eleven in respect of the Notes,
including outstanding securities, provided that any such addition,
change or elimination shall not adversely affect the interests of
the Holders of Outstanding Notes in any material respect;
(8) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to add any other provisions with respect to matters or
questions arising under this Indenture, provided that such action
pursuant to this clause (8) shall not adversely affect the
interests of the Holders of Notes in any material respect; or
(9) to comply with the requirements of the Commission in
order to effect or maintain the qualification of this Indenture
under the Trust Indenture Act.
Section 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Notes affected by such
supplemental indenture, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or
indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the
provisions of this Indenture, or for the purpose of waiving or
modifying in any manner the rights of the Holders of Notes under
this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of principal of or interest on, any of the Notes, or
change any Place of Payment where, or the coin or currency in
which, any such Note or any premium or interest thereon is payable,
or impair the right to institute suit for the enforcement of any
such payment on or after the Stated Maturity thereof, or
(2) reduce the percentage in principal amount of the
Outstanding Notes, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of
this Indenture or certain defaults hereunder and their
consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section, Section 513
or Section 1006 except to increase any such percentage or to
provide that certain other provisions of this Indenture cannot be
modified or waived without the consent of the Holder of each
Outstanding Note affected thereby.
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It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the
substance thereof.
Section 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the
modifications thereby of the trusts created by this Indenture, the
Trustee shall be entitled to receive, and shall be fully protected
in relying upon, an Opinion of Counsel stating that the execution
of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter
into any such supplemental indenture which affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise.
Section 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith,
and such supplemental indenture shall form a part of this Indenture
for all purposes; and every Holder of Notes theretofore or
thereafter authenticated and delivered hereunder shall be bound
thereby.
Section 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article
shall conform to the requirements of the Trust Indenture Act.
Section 906. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may bear a notation
in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company or the Trustee shall so
determine, new Notes so modified as to conform, in the opinion of
the Trustee and the Company, to any such supplemental indenture may
be prepared and executed by the Company and authenticated and
delivered by the Trustee in exchange for Outstanding Notes.
Section 907. SUBORDINATION UNIMPAIRED.
No provision in any supplemental indenture that affects the
superior position of the holders of Senior Indebtedness shall be
effective against any holder of Senior Indebtedness, unless such
holder shall have consented thereto. Notwithstanding any provision
in this Indenture or otherwise, the rights of Entitled Persons in
respect of Other Financial Obligations under this Indenture and
otherwise in respect of any of the Notes may, at any time and from
time to time, be modified in any respect or eliminated without the
consent of any Entitled Person in respect of Other Financial
Obligations.
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Section 908. NOTICE OF SUPPLEMENTAL INDENTURE.
Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to Section 902, the Company
shall transmit to the Holders a notice setting forth the substance
of such supplemental indenture.
ARTICLE TEN
COVENANTS
Section 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company covenants and agrees for the benefit of the
Holders that it shall duly and punctually pay the principal of and
any premium and interest on the Notes in accordance with the terms
of the Notes and this Indenture.
Section 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in each Place of Payment for Notes
an office or agency where Notes may be presented or surrendered for
payment, where Notes may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the
Company in respect of the Notes and this Indenture may be served.
The Company will give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency.
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, surrenders, 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, surrenders, notices and demands.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or
surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however, that no such
designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in each Place of
Payment for Notes for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or
agency.
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Section 1003. MONEY FOR NOTES PAYMENTS TO BE HELD IN TRUST.
If the Company, any subsidiary of the Company or any of their
respective affiliates shall at any time act as its own Paying Agent
with respect to the Notes, such Paying Agent shall, on or before
each due date of the principal of or any premium or interest on any
of the Notes, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal and
any premium and interest thereon so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein
provided and will promptly notify the Trustee of its action or
failure so to act.
Whenever the Company shall have one or more Paying Agents for
the Notes, it shall, on or prior to each due date of the principal
of or any premium or interest on any Notes, deposit with a Paying
Agent a sum sufficient to pay such amount, such sum to be held as
provided by the Trust Indenture Act, and (unless such Paying Agent
is the Trustee) the Company will promptly notify the Trustee of its
action or failure so to act.
The Company shall cause the Paying Agent for the Notes other
than the Trustee to execute and deliver to the Trustee an
instrument in which such Paying Agent shall agree with the Trustee,
subject to the provisions of this Section, that such Paying Agent
shall (i) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent and (ii) during the continuance
of any default by the Company (or any other obligor upon the Notes)
in the making of any payment in respect of the Notes, upon the
written request of the Trustee, forthwith pay to the Trustee all
sums held in trust by such Paying Agent for payment in respect of
the Notes.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other
purpose, pay, or by Company Order direct any Paying Agent to pay,
to the Trustee all sums held in trust by the Company or such Paying
Agent, such sums to be held by the Trustee upon the same trusts as
those upon which such sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal
of or any premium or interest on any Note and remaining unclaimed
for two years after such principal, premium or interest has become
due and payable shall be paid to the Company on Company Request, or
(if then held by the Company) shall be discharged from such trust;
and the Holder of such Note shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to
such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease.
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Section 1004. STATEMENT BY OFFICERS AS TO DEFAULT.
The Company shall deliver to the Trustee, within 60 days after
the end of each fiscal year of the Company ending after the date
hereof, a certificate in accordance with Section 314(a)(4) of the
Trust Indenture Act stating whether or not, to the best knowledge
of the signers thereof, the Company is in default in the
performance and observance of any of the terms, provisions and
conditions of this Indenture (without regard to any requirement of
notice provided hereunder) and, if the Company shall be in default,
specifying all such defaults and the nature and status thereof of
which they may have knowledge.
Section 1005. CORPORATE EXISTENCE.
Subject to Article Eight, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and
effect its corporate existence, rights (charter and statutory) and
franchises; provided, however, that the Company shall not be
required to preserve any such right or franchise if the Company
shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that
the loss thereof is not disadvantageous in any material respect to
the Holders.
Section 1006. WAIVER OF CERTAIN COVENANTS.
The Company may elect in any particular instance not to comply
with any term, provision or condition of any covenant (other than
the covenants contained in Sections 1001 to 1005) made applicable
to the Notes pursuant to Section 301 hereof with respect to the
Notes if before the time for such compliance the Holders of at
least a majority in principal amount of the Outstanding Notes
shall, by Act of such Holders, either waive such compliance in such
instance or generally waive compliance with such term, provision or
condition, but no such waiver shall extend to or affect any term,
provision or condition except to the extent so expressly waived,
and, until such waiver shall become effective, the obligations of
the Company and the duties of the Trustee in respect of any such
term, provision or condition shall remain in full force and effect.
Section 1007. MAINTENANCE OF STATUS OF SUBSIDIARIES AS
INSURED DEPOSITORY INSTITUTION.
The Company shall do or cause to be done all things necessary
to preserve and keep in full force and effect the status of each of
its subsidiaries that is a depository institution as an insured
depository institution and do or cause to be done all things
necessary to ensure that accounts of each such subsidiary are
insured by the FDIC or any successor organization up to the maximum
amount permitted by 12 U.S.C. Section 1811 et seq. and the
regulations thereunder or any succeeding federal law, except as to
individual accounts or interests in employee benefit plans that are
not entitled to "pass-through" insurance under 12 U.S.C. Section
1821(a)(1)(D).
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Section 1008. CAPITAL AND DIVIDENDS.
The Company shall not, and shall not permit any subsidiary to,
declare or pay any dividend or make any other distribution on any
shares of its common stock (other than dividends payable solely in
shares of its common stock), or make or permit any subsidiary to
make any payment to purchase or otherwise retire or acquire any
such shares, if at the time of such action the Company or any such
subsidiary is not in compliance, or would fail as a result of such
action to remain in compliance, with any minimum capital
maintenance requirements established by the Federal Reserve Board
or another banking regulator that are then applicable to the
Company or any such subsidiary.
ARTICLE ELEVEN
SUBORDINATION OF NOTES
Section 1101. NOTES SUBORDINATED TO EXTENT PROVIDED.
The Company covenants and agrees, and each Holder of a Note,
by his or her acceptance thereof, likewise covenants and agrees,
that, to the extent and in the manner hereinafter set forth in this
Article, the indebtedness represented by the Notes and the payment
of the principal of and premium, if any, and interest on each and
all of the Notes are hereby expressly made subordinate and subject
in right of payment to the prior payment in full of all Senior
Indebtedness, and, to the extent set forth in Section 1115, to
Other Financial Obligations.
Section 1102. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
In the event of (a) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or
other similar case or proceeding in connection therewith, relative
to the Company or to its assets, or (b) any liquidation,
dissolution or other winding up of the Company, whether voluntary
or involuntary and whether or not involving insolvency or
bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshaling of assets and liabilities of the Company, then
and in any such event the holders of Senior Indebtedness shall be
entitled to receive payment in full of all amounts due or to become
due on or in respect of all Senior Indebtedness, or provision shall
be made for such payment in money or money's worth, before the
Holders of the Notes are entitled to receive any payment on account
of principal of or premium, if any, or interest on the Notes, and
to that end the holders of Senior Indebtedness shall be entitled to
receive, for application to the payment thereof, any payment or
distribution of any kind or character, whether in cash, property or
securities, which may be payable or deliverable in respect of the
Notes in any such case, proceeding, dissolution, liquidation or
other winding up or event.
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In the event that, notwithstanding the foregoing provisions of
this Section, the Trustee or Holder of any Note shall have received
any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, before all
Senior Indebtedness is paid in full or payment thereof provided
for, and if such fact shall, at or prior to the time of such
payment or distribution, have been made known to the Trustee or, as
the case may be, such Holder, then and in such event such payment
or distribution shall be paid over or delivered by the Trustee or
the Holder, as the case may be, forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee,
agent or other Person making payment or distribution of assets of
the Company for application to the payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay all
Senior Indebtedness in full, after giving effect to any concurrent
payment or distribution to or for the holders of Senior
Indebtedness.
For purposes of this Article only, 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, which are subordinated in right of
payment to all Senior Indebtedness which may at the time be
outstanding to substantially the same extent as, or to a greater
extent than, the Notes are so subordinated as provided in this
Article. The consolidation of the Company with, or the merger of
the Company into, another Person or the liquidation or dissolution
of the Company following the conveyance or transfer of its
properties and assets substantially as an entirety to another
Person upon the terms and conditions set forth in Article Eight
shall not be deemed a dissolution, winding up, liquidation,
reorganization, assignment for the benefit of creditors or
marshaling of assets and liabilities of the Company for the
purposes of this Section if the Person formed by such consolidation
or into which the Company is merged or the Person which acquires by
conveyance or transfer such properties and assets substantially as
an entirety, as the case may be, shall, as a part of such
consolidation, merger, conveyance or transfer, comply with the
conditions set forth in Article Eight.
Section 1103. PRIOR PAYMENT TO SENIOR INDEBTEDNESS UPON
ACCELERATION OF NOTES.
In the event that any of the Notes are declared due and
payable before their Stated Maturity, then and in such event the
holders of the Senior Indebtedness shall be entitled to receive
payment in full of all amounts due on or in respect of all Senior
Indebtedness, or provision shall be made for such payment in money
or money's worth, before the Holders of the Notes are entitled to
receive any payment of principal of or premium, if any, or interest
on the Notes or on account of the purchase or other acquisition of
the Notes.
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In the event that, notwithstanding the foregoing, the Company
shall make any payment to the Trustee or the Holder of any of the
Notes prohibited by the foregoing provisions of this Section, and
if such fact shall, at or prior to the time of such payment, have
been made known to the Trustee or, as the case may be, such Holder,
then and in such event such payment shall be paid over and
delivered by the Trustee or the Holder, as the case may be,
forthwith to the Company.
The provisions of this Section shall not apply to any payment
with respect to which Section 1102 would be applicable.
Section 1104. NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT.
In the event and during the continuation of any default in the
payment of principal of or premium, if any, or interest on any
Senior Indebtedness beyond any applicable grace period with respect
thereto, or in the event that any event of default with respect to
any Senior Indebtedness shall have occurred and be continuing
permitting the holders of such Senior Indebtedness (or a trustee on
behalf of the holders thereof) to declare such Senior Indebtedness
due and payable prior to the date on which it would otherwise have
become due and payable, unless and until such event of default
shall have been cured or waived or shall have ceased to exist and
such acceleration shall have been rescinded or annulled, or in the
event any judicial proceeding shall be pending with respect to any
such default in payment or event of default, then no payment shall
be made by the Company on account of principal of or premium, if
any, or interest on the Notes or on account of the purchase or
other acquisition of any of the Notes.
In the event that, notwithstanding the foregoing, the Company
shall make any payment to the Trustee or the Holder of any of the
Notes prohibited by the foregoing provisions of this Section, and
if such fact shall, at or prior to the time of such payment, have
been made known to the Trustee or, as the case may be, such Holder,
then and in such event such payment shall be paid over and
delivered by the Trustee or the Holder, as the case may be,
forthwith to the Company.
The provisions of this Section shall not apply to any payment
with respect to which Section 1102 would be applicable.
Section 1105. PAYMENT PERMITTED IF NO DEFAULT.
Nothing contained in this Article or elsewhere in this Indenture or
in any of the Notes shall prevent (a) the Company, at any time
except during the pendency of any case, proceeding, dissolution,
liquidation or other winding up, assignment for the benefit of
creditors or other marshaling of assets and liabilities of the
Company referred to in Section 1102 or under the conditions
described in Section 1103 or 1104, from making payments at any time
of principal of or interest on the Notes, or (b) the application by
the Trustee or any Paying Agent of any moneys
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deposited with it hereunder to the payment of or on account of the
principal of or premium, if any, or interest on the Notes and the
retention by the Holders of any moneys so received if, at the time
of such payment, the Trustee or such Paying Agent did not have
knowledge that such payment would have been prohibited by the
provisions of this Article.
Section 1106. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR
INDEBTEDNESS.
Subject to the payment in full of all Senior Indebtedness, the
Holders of the Notes shall be subrogated (equally and ratably with
the holders of all indebtedness of the Company which by its express
terms is subordinated to indebtedness of the Company to
substantially the same extent as the Notes are subordinated and is
entitled to like rights of subrogation) to the rights of the
holders of such Senior Indebtedness to receive payments and
distributions of cash, property and securities applicable to the
Senior Indebtedness until the principal of and premium, if any, and
interest on the Notes shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of the
Senior Indebtedness of any cash, property or securities to which
the Holders of the Notes or the Trustee would otherwise be entitled
except for the provisions of this Article, and no payments pursuant
to the provisions of this Article to the holders of Senior
Indebtedness by Holders of the Notes or the Trustee, shall, as
among the Company, its creditors other than holders of Senior
Indebtedness and the Holders of the Notes, be deemed to be a
payment or distribution by the Company to or on account of the
Senior Indebtedness.
Section 1107. OBLIGATIONS OF COMPANY UNCONDITIONAL;
PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders of the Notes
on the one hand and the holders of Senior Indebtedness (and, in the
case of Section 1115, Entitled Persons in respect of Other
Financial Obligations) on the other hand. Nothing contained in this
Article or elsewhere in this Indenture or in the Notes is intended
to or shall: (a) impair, as among the Company, its creditors other
than holders of Senior Indebtedness, Entitled Persons in respect of
Other Financial Obligations and the Holders of the Notes, the
obligation of the Company, which is absolute and unconditional (and
which, subject to the rights under this Article of the holders of
Senior Indebtedness and the rights under Section 1115 of Entitled
Persons in respect of Other Financial Obligations, is intended to
rank equally with all other general obligations of the Company), to
pay to the Holders of the Notes the principal of and premium, if
any, and interest on the Notes as and when the same shall become
due and payable in accordance with their terms; (b) affect the
relative rights against the Company of the Holders of the Notes and
creditors of the Company other than the holders of Senior
Indebtedness and of Entitled Persons in respect of Other Financial
Obligations; or (c) prevent the Trustee or the Holder of any Note
from exercising all remedies otherwise permitted by applicable law
upon default under this
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Indenture, subject to the rights, if any, under this Article of the
holders of Senior Indebtedness, and under Section 1115 of Entitled
Persons in respect of Other Financial Obligations, to receive cash,
property and securities otherwise payable or deliverable to the
Trustee or such Holder.
Section 1108. AUTHORIZATION OF TRUSTEE TO EFFECTUATE
SUBORDINATION OF NOTES.
Each Holder of a Note, by his or her acceptance thereof,
authorizes and expressly directs the Trustee on his or her behalf
to take such action as may be necessary or appropriate to
effectuate the subordination and payment provided in this Article.
Section 1109. NO WAIVER OF SUBORDINATION PROVISIONS.
No right of any present or future holder of any Senior
Indebtedness and Entitled Persons in respect of Other Financial
Obligations, as the case may be, 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
non-compliance by the Company with the terms, provisions and
covenants of this Indenture, regardless of any knowledge thereof
any such holder may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness and Entitled Persons
in respect of Other Financial Obligations, as the case may be, may,
at any time and from time to time, without the consent of or notice
to the Trustee or the Holders of the Notes, without incurring
responsibility to the Holders of the Notes, and without impairing
or releasing the subordination provided in this Article or the
obligations hereunder of the Holders of the Notes to the holders of
Senior Indebtedness or Entitled Persons in respect of Other
Financial Obligations, 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, Senior Indebtedness or Other
Financial Obligations, or otherwise amend or supplement in any
manner Senior Indebtedness or Other Financial Obligations or any
instrument evidencing the same or any agreement under which Senior
Indebtedness or Other Financial Obligations is outstanding; (ii)
sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness; (iii)
release any Person liable in any manner for the collection of
Senior Indebtedness or Other Financial Obligations; and (iv)
exercise or refrain from exercising any rights against the Company
and any other Person.
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Section 1110. NOTICE TO TRUSTEE; TRUSTEE NOT CHARGED WITH
KNOWLEDGE OF PROHIBITION.
The Company shall give prompt written notice to the Trustee of
any fact known to the Company which would prohibit the making of
any payment or distribution to or by the Trustee in respect of the
any of the Notes. Notwithstanding the provisions of this Article or
any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would
prohibit the making of any payment or distribution to or by the
Trustee in respect of any of the Notes, unless and until the
Trustee shall have received written notice thereof from the Company
or a holder of Senior Indebtedness or from any trustee therefor or
from any Entitled Persons in respect of Other Financial
Obligations, and, prior to the receipt of any such written notice,
the Trustee shall be entitled in all respects to assume that no
such facts exist.
The Trustee shall be entitled to rely on the delivery to it of
a written notice by a Person representing himself to be a holder of
Senior Indebtedness (or a trustee therefor) or an Entitled Person
in respect of Other Financial Obligations to establish that such
notice has been given by a holder of Senior Indebtedness (or a
trustee therefor) or an Entitled Person in respect of Other
Financial Obligations. 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 Senior Indebtedness or an
Entitled Person in respect of Other Financial Obligations to
participate in any payment or distribution pursuant to this
Article, the Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness or Other Financial Obligations 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 or distribution
to such Person pending judicial determination as to the right of
such Person to receive such payment.
Section 1111. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF
LIQUIDATING AGENT.
Upon any payment or distribution of assets of the Company referred
to in this Article, the Trustee and the Holders of the Notes shall
be entitled to rely upon any order or decree entered by any court
of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the
trustee in bankruptcy, receiver, liquidating trustee, custodian,
assignee for the benefit of creditors, agent or other Person making
such payment or distribution, delivered to the Trustee or to the
Holders of Notes, for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the
holders of the Senior Indebtedness and other indebtedness of the
Company and the Entitled Persons in respect of Other Financial
Obligations, the amount thereof or
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payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article.
Section 1112. NO FIDUCIARY DUTY TO HOLDERS OF SENIOR
INDEBTEDNESS OR OTHER FINANCIAL OBLIGATIONS.
The Trustee shall not be deemed to owe any duty to the holders
of Senior Indebtedness of the Company or Entitled Persons in
respect of Other Financial Obligations, except as provided in this
Article.
Section 1113. RIGHT OF TRUSTEE TO HOLD SENIOR INDEBTEDNESS OF
COMPANY.
The Trustee shall be entitled to all of the rights set forth
in this Article in respect of any Senior Indebtedness or Other
Financial Obligations of the Company at any time held by it to the
same extent as any other holder of such Senior Indebtedness or of
any Entitled Person in respect of Other Financial Obligations, and
nothing in this Indenture shall be construed to deprive the Trustee
of any of its rights as such holder or as such Entitled Person.
Section 1114. ARTICLE APPLICABLE TO PAYING AGENTS.
In case at any time any Paying Agent other than the Trustee
shall have been appointed by the Company and be then acting
hereunder, the term "Trustee" as used in this Article shall in such
case (unless the context otherwise requires) be construed as
extending to and including such Paying Agent within its meaning as
fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee;
provided, however, that Section 1113 shall not apply to the Company
or any Affiliate of the Company if it or such Affiliate acts as
Paying Agent.
Section 1115. PAYMENT OF PROCEEDS IN CERTAIN CASES.
(a) Upon the occurrence of any of the events specified in
clauses (a), (b) and (c) of the first paragraph of Section 1102,
the provisions of that Section shall be given effect to determine
the amount of cash, property or securities which may be payable or
deliverable as between the holders of Senior Indebtedness, on the
one hand, and the Holders of any of the Notes, on the other hand.
(b) If, after giving effect to the provisions of Section 1102
and Section 1106, any amount of cash, property or securities shall
be available for payment or distribution in respect of the Notes
("Excess Proceeds"), and, if at such time, any Entitled Persons in
respect of Other Financial Obligations shall not have received
payment in full of all amounts due or to become due on or in
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respect of such Other Financial Obligations (and provision shall
not have been made for such payment in money or money's worth),
then such Excess Proceeds shall first be applied (ratably with any
amount of cash, property or securities available for payment or
distribution in respect of any other indebtedness of the Company
that by its express terms provides for the payment over of amounts
corresponding to Excess Proceeds to Entitled Persons in respect of
Other Financial Obligations) to pay or provide for the payment of
the Other Financial Obligations remaining unpaid, to the extent
necessary to pay all Other Financial Obligations in full, after
giving effect to any concurrent payment or distribution to or for
Entitled Persons in respect of Other Financial Obligations. Any
Excess Proceeds remaining after the payment (or provision for
payment) in full of all Other Financial Obligations shall be
available for payment or distribution in respect of the Notes.
(c) In the event that, notwithstanding the foregoing
provisions of subsection (b) of this Section, the Trustee or Holder
of any Note shall have received any payment or distribution of
assets of the Company of any kind or character, whether in cash,
property or securities, before all Other Financial Obligations are
paid in full or payment thereof duly provided for, and if such fact
shall, at or prior to the time of such payment or distribution have
been made known to the Trustee or, as the case may be, such Holder,
then and in such event, subject to any obligation that the Trustee
or such Holder may have pursuant to Section 1102, such payment or
distribution shall be paid over or delivered by the Trustee or the
Holder, as the case may be, forthwith to the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee, agent or other
Person making payment or distribution of assets of the Company for
payment in accordance with subsection (b) of this Section.
(d) Subject to the payment in full of all Other Financial
Obligations, the Holders of the Notes shall be subrogated (equally
and ratably with the holders of all indebtedness of the Company
that by its express terms provides for the payment over of amounts
corresponding to Excess Proceeds to Entitled Persons in respect of
Other Financial Obligations and is entitled to like rights of
subrogation) to the rights of the Entitled Persons in respect of
Other Financial Obligations to receive payments and distributions
of cash, property and securities applicable to the Other Financial
Obligations until the principal of and interest on the Notes shall
be paid in full. For purposes of such subrogation, no payments or
distributions to Entitled Persons in respect of Other Financial
Obligations of any cash, property or securities to which Holders of
the Notes or the Trustee would be entitled except for the
provisions of this Section, and no payments over pursuant to the
provisions of this Section to Entitled Persons in respect of Other
Financial Obligations by Holders of Notes or the Trustee, shall, as
among the Company, its creditors other than Entitled Persons in
respect of Other Financial Obligations and the Holders of Notes, be
deemed to be a payment or distribution by the Company to or on
account of the Other Financial Obligations.
(e) The provisions of subsections (b), (c) and (d) of this Section
are and are intended solely for the purpose of defining the
relative rights of the Holders of the Notes, on the one hand,
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and the Entitled Persons in respect of Other Financial Obligations,
on the other hand, after giving effect to the rights of the holders
of Senior Indebtedness, as provided in this Article.
Nothing contained in subsections (b), (c) and (d) of this Section
is intended to or shall affect the relative rights against the
Company of the Holders of the Notes and (1) the holders of Senior
Indebtedness, (2) the holders of indebtedness other than holders of
indebtedness that by its express terms provides for the payment
over of amounts corresponding to Excess Proceeds to Entitled
Persons in respect of Other Financial Obligations or (3) other
creditors of the Company other than Entitled Persons in respect of
Other Financial Obligations.
ARTICLE TWELVE
CONVERSION OF SECURITIES
Section 1201. CONVERSION PRIVILEGE.
Subject to and upon compliance with the provisions of this
Article, at the option of the Holder thereof, any Note may at any
time be converted, in whole, or in part in multiples of $10,000
principal amount, into fully paid and non-assessable shares of
Common Stock at the conversion price in effect at the Date of
Conversion unless such Note or some portion thereof shall have been
called for redemption, in which case, with respect to such Note or
portion thereof as has been so called for redemption, such Note or
portion thereof may be so converted until and including, but not
after, the close of business on the Business Day prior to the
Redemption Date for such Note unless the Company subsequently fails
to pay the applicable Redemption Price.
Section 1202. EXERCISE OF CONVERSION PRIVILEGE.
In order to exercise the conversion privilege, the Holder of any
Note to be converted shall surrender such Note to the Company at
any time during usual business hours at its office or agency
maintained pursuant to Section 1002, accompanied by a fully
executed written notice, in substantially the form set forth on the
reverse of the Note, that the Holder elects to convert such Note or
a stated portion thereof constituting a multiple of $1,000
principal amount. The Holder of any Note at the close of business
on a Record Date will be entitled to receive the interest payable
on such Note on the corresponding Interest Payment Date
notwithstanding the conversion thereof after such Record Date.
Such notice of conversion shall also state the name or names (with
address) in which the certificate or certificates for shares of
Common Stock shall be issued. Notes surrendered for conversion
shall (if reasonably required by the Company or the Trustee) be
duly endorsed by, or be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company duly
executed by, the Holder. As promptly as practicable after the
receipt of such notice and the
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surrender of such Note as aforesaid, the Company shall, subject to
the provisions of Section 1208 hereof, issue and deliver at such
office or agency to such Holder, or on his written order, a
certificate or certificates for the number of full shares of Common
Stock issuable on such conversion of Note in accordance with the
provisions of this Article and cash, as provided in Section 1203
hereof, in respect of any fraction of a share of Common Stock
otherwise issuable upon such conversion. Such conversion shall be
deemed to have been effected immediately prior to the close of
business on the date (herein called the "Date of Conversion") on
which such Note shall have been properly surrendered as aforesaid,
and the Person or Persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become on the Date of Conversion
the holder or holders of record of the shares represented thereby;
provided, however, that any such surrender on any date when the
stock transfer books of the Company shall be closed shall cause the
Person or Persons in whose name or names the certificate or
certificates for such shares are to be issued to be deemed to have
become the recordholder or holders thereof for all purposes at the
opening of business on the next succeeding day on which such stock
transfer books are open but such conversion shall nevertheless be
at the conversion price in effect at the close of business on the
date when such Note shall have been so surrendered with the
conversion notice. In the case of conversion of a portion, but
less than all, of a Note, the Company shall as promptly as
practicable execute, and the Trustee shall authenticate and deliver
to the Holder thereof, at the expense of the Company, a Note or
Notes in the aggregate principal amount of the unconverted portion
of the Notes surrendered. Except as otherwise expressly provided
in this Indenture, no payment or adjustment shall be made for
interest accrued on any Note (or portion thereof) converted or for
dividends or distributions on any Common Stock issued upon
conversion of any Note.
Section 1203. FRACTIONAL INTERESTS.
No fractions of shares or scrip representing fractions of
shares shall be issued upon conversion of Notes. If more than one
Note shall be surrendered for conversion at one time by the same
holder, the number of full shares which shall be issuable upon
conversion thereof shall be computed on the basis of the aggregate
principal amount of the Notes so surrendered. If any fraction of
a share of Common Stock would, except for the foregoing provisions
of this Section 1203, be issuable on the conversion of any Note or
Notes, the Company shall make payment in lieu thereof in an amount
of cash equal to the value of such fraction computed on the basis
of the last sale price of the Common Stock as reported on the
American Stock Exchange (or if not listed for trading thereon, then
on the principal national securities exchange on which the Common
Stock is listed or admitted to trading or on the Nasdaq National
Market if listed thereon) on the Date of Conversion (any such last
sale price being hereinafter referred to as the "Last Sale Price").
If on such day the Common Stock is not quoted by any such
organization, the fair value of such Common Stock on such day, as
reasonably determined in good faith by the Board of Directors shall
be used.
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Section 1204. CONVERSION PRICE.
The conversion price per share of Common Stock issuable upon
conversion of the Notes shall initially be $6.00 (or 166.6667
shares of Common Stock per $1,000 principal amount of Notes).
Section 1205. ADJUSTMENT OF CONVERSION PRICE.
The conversion price (herein called the "Conversion Price")
shall be subject to adjustment from time to time as follows:
(a) In case the Company shall (1) make or pay a dividend (or
other distribution) in shares of Common Stock on Common Stock of
the Company, (2) subdivide its outstanding shares of Common Stock
into a greater number of shares or (3) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares,
the Conversion Price in effect immediately prior to such action
shall be adjusted so that the Holder of any Note thereafter
surrendered for conversion shall be entitled to receive the number
of shares of Common Stock that he would have owned immediately
following such action had such Note been converted immediately
prior thereto. An adjustment made pursuant to this subsection (a)
shall become effective immediately, except as provided in
subsection (f) below, after the record date in the case of a
dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision or
combination. If any dividend or distribution of the type described
in clause (1) above is not so paid or made, the Conversion Price
shall again be adjusted to the Conversion Price which would then be
in effect if such dividend or distribution had not been declared.
(b) In case the Company shall issue rights, options or
warrants to all holders of Common Stock entitling them to subscribe
for or purchase shares of Common Stock (or securities convertible
into shares of Common Stock) at a price per share less than the
then current market price per share of the Common Stock (as
determined pursuant to subsection (d) below) on the record date
mentioned below, the Conversion Price shall be adjusted to a price,
computed to the nearest cent, so that the same shall equal the
price determined by multiplying:
(i) the Conversion Price in effect immediately prior to
the date of issuance of such rights, options or warrants by a
fraction, of which
(ii) the numerator shall be (A) the number of shares of
Common Stock outstanding on the date of issuance of such
rights, options or warrants, immediately prior to such
issuance, plus (B) the number of shares which the aggregate
offering price of the total number of shares so offered for
subscription or purchase would purchase at such current market
price (determined by multiplying such total number of shares
by the exercise price
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of such rights, options or warrants and dividing the product
so obtained by such current market price), and of which
(iii) the denominator shall be (A) the number of
shares of Common Stock outstanding on the date of issuance of
such rights, options or warrants, immediately prior to such
issuance, plus (B) the number of additional shares of Common
Stock which are so offered for subscription or purchase.
Such adjustment shall become effective immediately, except as
provided in subsection (f) below, after the record date for the
determination of holders entitled to receive such rights, options
or warrants; provided, however, that if any such rights, options or
warrants issued by the Company as described in this subsection (b),
whether issued before or after the date of this Indenture, are only
exercisable upon the occurrence of certain triggering events,
including those relating to control and provided for in a
shareholder rights plan, then the Conversion Price will not be
adjusted as provided in this subsection (b) until such triggering
events occur. Upon the expiration or termination of any
rights, options or warrants without the exercise of such rights,
options or warrants, the Conversion Price then in effect shall be
adjusted immediately to the Conversion Price which would have been
in effect at the time of such expiration or termination had such
rights, options or warrants, to the extent outstanding immediately
prior to such expiration or termination, never been issued.
(c) In case the Company, after the date of this Indenture
shall issue shares of its Common Stock, at a price per share less
than the current market price per share (as determined pursuant to
subsection (d) below) on the date the Company fixes the offering
price of such additional shares then the Conversion Price shall be
reduced immediately thereafter so that it shall equal the price
determined by multiplying such Conversion Price in effect
immediately prior thereto by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares plus
the number of shares of Common Stock which the aggregate offering
price of the total number of shares of Common Stock so offered,
would purchase at the current market price and the denominator
shall be the number of shares of Common Stock that would be
outstanding immediately after the issuance of such additional
shares. Such adjustment shall be made successively whenever such
an issuance is made.
This subsection (c) does not apply to (i) any transaction
described in subsections (a) or (b); (ii) the issuance of the Notes
or the issuance of Common Stock upon conversion of the Notes; (iii)
the issuance of Common Stock upon (x) the exercise of any option,
warrant or other security convertible or exchangeable into Common Stock
("Equity Interests") issued after the date of this Indenture, to the
extent that any required adjustment to the Conversion Price has been made
pursuant to this subsection (c) or (y) the issuance of Common Stock pursuant
to the exercise of any Equity Interest outstanding on the date of
this Indenture; (iv) any Common Stock or Equity Interests issued
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to the Company's or any subsidiary's employees, consultants or
directors pursuant to any plan or agreement approved by either the
stockholders of the Company or a majority of the Company's
independent directors; (v) the issuance of any Common Stock or
Equity Interests in any bona fide underwritten public offering; or
(vi) any Common Stock or Equity Interests issued in connection with
any acquisition by the Company.
(d) For the purpose of any computation under subsections (b)
and (c) above, the current market price per share of Common Stock
on any date shall be deemed to be the average of the Last Sale
Prices of a share of Common Stock for the five consecutive trading
days selected by the Company commencing not more than 20 trading
days before, and ending not later than, the of the date in question
If on any such trading day the Common Stock is not quoted by any
organization referred to in the definition of Last Sale Price in
Section 1203, the fair value of the Common Stock on such day, as
reasonably determined in good faith by the Board of Directors,
shall be used.
(e) The Company, from time to time and to the extent
permitted by law, may reduce the Conversion Price by any amount for
any period of at least 20 Business Days in which the Company shall
give at least 15 days notice of such reduction, if the Board of
Directors has made a determination that such reduction would be in
the best interest of the Company, which determination shall be
conclusive. In addition to the foregoing adjustments in
subsections (a), (b) and (c) above and this subsection (e), the
Company will be permitted to make such reductions in the Conversion
Price as it considers to be advisable, including, without
limitation, to avoid or diminish any income tax to holders of
Common Stock resulting from any dividend or distribution of stock
(or rights to acquire stock) or from any event treated as such for
United States federal income tax purposes.
In the event the Company elects to make such a reduction in
the Conversion Price, the Company will comply with the requirements
of Rule 14e-1 of the Exchange Act and any other Federal and state
laws and regulations thereunder if and to the extent that such laws
and regulations are applicable in connection with the reduction of
the Conversion Price of the Notes; provided that any provisions of
this Indenture which conflict with such laws shall be deemed to be
superseded by the provisions of such laws.
(f) In any case in which this Section 1205 shall require that an
adjustment be made immediately following a record date, the Company
may elect to defer the effectiveness of such adjustment (but in no
event until a date later than the effective time of the event
giving rise to such adjustment), in which case the Company shall,
with respect to any Note converted after such record date and on
and before such adjustment shall have become effective (i) defer
paying any cash payment pursuant to Section 1203 hereof or issuing
to the Holder of such Note the number of shares of Common Stock (or
other assets or securities) issuable upon such conversion in excess
of the number of shares of Common Stock issuable thereupon only on
the basis of the Conversion Price
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prior to adjustment, and (ii) not later than five Business Days
after such adjustment shall have become effective, pay to such
Holder the appropriate cash payment pursuant to Section 1203 hereof
and issue to such Holder the additional shares of Common Stock
issuable on such conversion.
(g) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at
least 1.0% of the Conversion Price; provided that any adjustments
which by reason of this subsection (j) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Article shall be made to
the nearest cent or to the nearest one-hundredth of a share, as the
case may be.
(h) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly (i) file with the Trustee and
each conversion agent an Officers' Certificate setting forth the
Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment, which certificate
shall be conclusive evidence of the correctness of such adjustment,
and (ii) mail or cause to be mailed a notice of such adjustment to
each Holder at his address as the same appears on the Note
Register.
(i) In the event that the Company distributes rights or
warrants (other than those referred to in subsection (b) above) pro
rata to holders of Common Stock, so long as any such rights or
warrants have not expired or been redeemed by the Company, the
Company shall make proper provision so that the Holder of any Note
surrendered for conversion will be entitled to receive upon such
conversion, in addition to the shares of Common Stock issuable upon
such conversion (the "Conversion Shares"), a number of rights or
warrants to be determined as follows: (i) if such conversion
occurs on or prior to the date for the distribution to the holders
of rights or warrants of separate certificates evidencing such
rights or warrants (the "Distribution Date"), the same number of
rights or warrants to which a holder of a number of shares of
Common Stock equal to the number of Conversion Shares is entitled
at the time of such conversion in accordance with the terms and
provisions of and applicable to the rights or warrants, and (ii) if
such conversion occurs after such Distribution Date, the same
number of rights or warrants to which a holder of the number of
shares of Common Stock into which the principal amount of such Note
so converted was convertible immediately prior to such Distribution
Date would have been entitled on such Distribution Date in
accordance with the terms and provisions of and applicable to the
rights or warrants.
(j) For purposes of any computation respecting consideration
received pursuant to subsection (c), the following shall apply:
(1) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction
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be made for any commissions, discounts or other expenses
incurred by the Company for any underwriting of the issue or
otherwise in connection therewith; and
(2) in the case of the issuance of shares of Common
Stock for a consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to be the
fair market value thereof (irrespective of the accounting
treatment thereof) as determined in good faith by the Board of
Directors.
Section 1206. CONTINUATION OF CONVERSION PRIVILEGE IN CASE OF
RECLASSIFICATION, CHANGE, MERGER, CONSOLIDATION OR SALE OF ASSETS.
If any of the following shall occur, namely: (a) any
reclassification or change of outstanding shares of Common Stock
issuable upon conversion of the Notes (other than a change in par
value, or from par value to no par value, or from no par value, to
par value, or as a result of a subdivision or combination), (b) any
consolidation or merger of the Company with or into any other
Person, or the merger of any other Person with or into the Company
(other than a merger which does not result in any reclassification,
change, conversion, exchange or cancellation of outstanding shares
of Common Stock) or (c) any sale, transfer or conveyance of all or
substantially all of the assets of the Company (computed on a
consolidated basis), then the Company, or such successor or
purchasing entity, as the case may be, shall, as a condition
precedent to such reclassification, change, consolidation, merger,
sale or conveyance, execute and deliver to the Trustee a
supplemental indenture providing that the Holder of each Note then
Outstanding shall have the right to convert such Note only into the
kind and amount of shares of stock and other securities and
property (including cash) receivable upon such reclassification,
change, consolidation, merger, sale, transfer or conveyance by a
holder of the number of shares of Common Stock issuable upon
conversion of such Note immediately prior to such reclassification,
change, consolidation, merger, sale, transfer or conveyance
assuming such holder of Common Stock of the Company failed to
exercise his rights of an election, if any, as to the kind or
amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, sale, transfer or
conveyance. Such supplemental indenture shall provide for
adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article. If,
in the case of any such consolidation, merger, sale or conveyance,
the stock or other securities and property (including cash)
receivable thereupon by a holder of shares of Common Stock includes
shares of stock or other securities and property (including cash)
of a corporation other than the successor or purchasing
corporation, as the case may be, in such consolidation, merger,
sale or conveyance, then such supplemental indenture shall also be
executed by such other corporation and shall contain such
additional provisions to protect the interests of the Holders of
the Notes as the Board of Directors of the Company shall reasonably
consider necessary by reason of the foregoing. The provisions of
this Section 1206 shall similarly apply to successive
consolidations, mergers, sales or conveyances.
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Notice of the execution of each such supplemental indenture
shall be mailed to each Holder of Notes at his address as the same
appears on the registry books of the Company.
Neither the Trustee nor any conversion agent shall be under
any responsibility to determine the correctness of any provisions
contained in any such supplemental indenture relating either to the
kind or amount of shares of stock or securities or property
(including cash) receivable by Holders of Notes upon the conversion
of their Notes after any such reclassification, change,
consolidation, merger, sale or conveyance or to any adjustment to
be made with respect thereto, but may accept as conclusive evidence
of the correctness of any such provisions, and shall be protected
in relying upon, the Officers' Certificate (which the Company shall
be obligated to file with the Trustee prior to the execution of any
such supplemental indenture) with respect thereto.
Section 1207. NOTICE OF CERTAIN EVENTS.
In case:
(a) the Company shall declare a dividend (or any other
distribution) payable to the holders of Common Stock (other than
cash dividends);
(b) the Company shall authorize the granting to the holders
of Common Stock of rights, warrants or options to subscribe for or
purchase any shares of stock of any class or of any other rights;
or
(c) the Company shall authorize any reclassification or
change of the Common Stock (including a subdivision or combination
of its outstanding shares of Common Stock), or any consolidation or
merger to which the Company is a party and for which approval of
any stockholders of the Company is required, or the sale or
conveyance of all or substantially all the property or business of
the Company;
then, the Company shall cause to be filed at the office or agency
maintained for the purpose of conversion of the Notes as provided
in Section 1002 hereof, and shall cause to be mailed to each
Holder, at his address as it shall appear on the Note Register, at
least 20 days before the date hereinafter specified (or the earlier
of the dates hereinafter specified, in the event that more than one
date is specified), a notice stating the date on which (1) a record
is expected to be taken for the purpose of such dividend,
distribution, rights, warrants or options, or if a record is not to
be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights,
warrants or options are to be determined, or (2) such
reclassification, change, consolidation, merger, sale, conveyance,
dissolution, liquidation or winding-up is expected to become
effective and the date, if any is to be fixed, as of which it is
expected that holders of
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Common Stock of record shall be entitled to exchange their shares
of Common Stock for securities or other property deliverable upon
such reclassification, change, consolidation, merger, sale,
conveyance, dissolution, liquidation or winding-up.
Section 1208. TAXES ON CONVERSION.
The Company will pay any and all documentary, stamp or similar
taxes payable to the United States of America or any political
subdivision or taxing authority thereof or therein in respect of
the issue or delivery of shares of Common Stock on conversion of
Notes pursuant thereto; provided, however, that the Company shall
not be required to pay any tax which may be payable in respect of
any transfer involved in the issue or delivery of shares of Common
Stock in a name other than that of the Holder of the Notes to be
converted and no such issue or delivery shall be made unless and
until the person requesting such issue or delivery has paid to the
Company the amount of any such tax or has established, to the
satisfaction of the Company, that such tax has been paid. The
Company extends no protection with respect to any other taxes
imposed in connection with conversion of Notes.
Section 1209. COMPANY TO PROVIDE STOCK.
The Company shall reserve, free from preemptive rights, out of
its authorized but unissued shares, sufficient shares to provide
for the conversion of the Notes from time to time as such Notes are
presented for conversion, provided that nothing contained herein
shall be construed to preclude the Company from satisfying its
obligations in respect of the conversion of Notes by delivery of
repurchased shares of Common Stock which are held in the treasury
of the Company.
The Company covenants that all shares of Common Stock which
may be issued upon conversion of Notes will upon issue be fully
paid and non-assessable by the Company and free of preemptive
rights.
Section 1210. DISCLAIMER OF RESPONSIBILITY FOR CERTAIN MATTERS.
Neither the Trustee nor any agent of the Trustee shall at any time
be under any duty or responsibility to any Holder of Notes to
determine whether any facts exist which may require any adjustment
of the Conversion Price, or with respect to the Officers'
Certificate referred to in Section 1205 hereof, or with respect to
the nature or extent of any such adjustment when made, or with
respect to the method employed, or herein or in any supplemental
indenture provided to be employed, in making the same. Neither the
Trustee nor any agent of the Trustee shall be accountable with
respect to the validity or value (or the kind or amount) of any
shares of Common Stock, or of any securities or property (including
cash), which may at any time be issued or delivered upon the
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conversion of any Note, and neither the Trustee nor any conversion
agent makes any representation with respect thereto. Neither the
Trustee nor any agent of the Trustee shall be responsible for any
failure of the Company to issue, register the transfer of or
deliver any shares of Common Stock or stock certificates or other
securities or property (including cash) upon the surrender of any
Note for the purpose of conversion or to comply with any of the
covenants of the Company contained in this Article.
Section 1211. RETURN OF FUNDS DEPOSITED FOR REDEMPTION OF
CONVERTED SECURITIES.
Any funds which at any time shall have been deposited by the
Company or on its behalf with the Trustee or any other Paying Agent
for the purpose of paying the principal of, premium and interest on
any of the Notes and which shall not be required for such purposes
because of the conversion of such Notes, as provided in this
Article, shall after such conversion be repaid to the Company by
the Trustee or such other Paying Agent.
ARTICLE THIRTEEN
REDEMPTION
Section 1301. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 1307 hereof, it shall furnish to
the Trustee, at least 45 days but not more than 60 days before the
date fixed by the Board of Directors for redemption (the
"Redemption Date"), an Officers' Certificate setting forth the
Redemption Date and the principal amount of Notes to be redeemed.
If the Registrar is not the Trustee, the Company shall,
concurrently with each notice of redemption, cause the Registrar to
deliver to the Trustee a certificate (upon which the Trustee may
rely) setting forth the principal amounts of Notes held by each
Holder.
Section 1302. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed, the Trustee shall
select the Notes to be redeemed in compliance with the requirements
of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not listed on a national
securities exchange, on a pro rata basis, by lot or by such method
as the Trustee shall deem fair and reasonable. In the event of
partial redemption by lot, the particular Notes to be redeemed
shall be selected, unless otherwise
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provided herein, not less than 30 nor more than 60 days prior to
the Redemption Date by the Trustee from the outstanding Notes not
previously called for redemption.
The Trustee shall promptly notify the Company in writing of
the Notes selected for redemption and, in the case of any Note
selected for partial redemption, the principal amount thereof to be
redeemed. Notes and portions of them selected shall be in amounts
of $10,000 or integral multiples of $10,000; except that if all of
the Notes of a Holder are to be redeemed, the entire outstanding
amount of Notes held by such Holder, even if not a multiple of
$10,000, shall be redeemed. Except as provided in the preceding
sentence, provisions of this Indenture that apply to Notes called
for redemption also apply to portions of Notes called for
redemption.
Section 1303. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a Redemption
Date, the Company shall mail a notice of redemption to each Holder
whose Notes are to be redeemed, with a copy to the Trustee.
The notice shall identify the Notes to be redeemed and shall
state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) if any Note is being redeemed in part, the portion
of the principal amount of such Note to be redeemed and that,
after the Redemption Date, upon surrender of such Note, a new
Note or Notes in principal amount equal to the unredeemed
portion will be issued;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered
to the Paying Agent to collect the Redemption Price;
(6) that, unless the Company defaults in making the
redemption payment, interest on Notes called for redemption
ceases to accrue on and after the Redemption Date, and the
only remaining right of the Holders of such Notes is to
receive payment of the Redemption Price upon surrender to the
Paying Agent of the Notes redeemed; and
(7) if fewer than all the outstanding Notes are to be
redeemed, the identification of the particular Notes (or
portion thereof) to be redeemed, as well as the aggregate
principal
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amount of securities to be redeemed and the aggregate
principal amount of Notes to be outstanding after such partial
redemption.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided that
the Company shall deliver to the Trustee, at least 45 days prior to
the Redemption Date, an Officers' Certificate requesting that the
Trustee give such notice and setting forth the information to be
stated in such notice as provided in the preceding paragraph.
Section 1304. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed, Notes called for
redemption become due and payable on the Redemption Date at the
Redemption Price. Upon surrender to any Paying Agent, such Notes
shall be paid at the Redemption Price; provided, however, that
installments of interest whose Stated Maturity is on or prior to
the Redemption Date shall be payable to the Holders of such Notes,
registered as such, at the close of business on the relevant Record
Date for the payment of such installment of interest.
Section 1305. DEPOSIT OF REDEMPTION PRICE.
One Business Day prior to the Redemption Date, the Company
shall irrevocably deposit with the Trustee or with the Paying Agent
(or, if the Company is acting as its own Paying Agent, segregate
and hold in trust) money sufficient to pay the Redemption Price of
all Notes to be redeemed on that date. The Trustee or the Paying
Agent shall return to the Company any money not required for that
purpose.
If the Company complies with the preceding paragraph, unless
the Company defaults in the payment of such Redemption Price,
interest on the Notes to be redeemed will cease to accrue on the
applicable Redemption Date, whether or not such Notes are presented
for payment. If any Note called for redemption shall not be so
paid upon surrender for redemption because of the failure of the
Company to comply with the preceding paragraph, interest will be
paid on the unpaid principal, from the Redemption Date until such
principal is paid, and on any interest not paid on such unpaid
principal, in each case at the rate provided in Section 301 hereof.
Section 1306. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company
shall issue and the Trustee shall authenticate for the Holder at
the expense of the Company a new Note equal in principal amount to
the unredeemed portion of the Note surrendered.
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Section 1307. OPTIONAL REDEMPTION.
The Company may, at its election, redeem the Notes for cash:
(i) at any time as a whole or from time to time in part,
on or after the date of issuance and on or before March 31,
2002, if the Last Sale Price of the Common Stock shall be at
least 130% of the Conversion Price then in effect for a period
of 20 consecutive trading days; and
(ii) at any time after March 31, 2002 and prior to
maturity;
in each instance at the Redemption Prices (expressed in
percentages of the principal amount) specified below:
If Redeemed During Percentage of If Redeemed During Percentage of
12 Months Ended Principal 12 Months Ended Principal
March 31, Amount March 31, Amount
------------------ ------------- ------------------ -------------
1999 109% 2004 104%
2000 108% 2005 103%
2001 107% 2006 102%
2002 106% 2007 101%
2003 105% 2008 100%
together, in each case, with interest, if any, accrued on the
Notes from the most recent Interest Payment date to the
Redemption Date. Any redemption pursuant to this Section 1307
shall be made pursuant to the provisions of Section 1301
through 1306 hereof.
ARTICLE FOURTEEN
MISCELLANEOUS
Section 1401. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR.
The Trustee may make reasonable rules for action by or a
meeting of Holders, and any Registrar and Paying Agent may make
reasonable rules for their functions; PROVIDED THAT no such rule
shall conflict with terms of this Indenture or the Trust Indenture
Act.
Section 1402. NO RECOURSE AGAINST OTHERS.
No director, officer, employee, incorporator or stockholder of
the Company, as such, shall have any liability for any obligations
of the Company under the Notes or this Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their
creation, solely by reason of its status as a director, officer,
employee, incorporator or stockholder of the Company. By accepting
a Note, each Holder waives and releases all such liability (but
only such liability) as part of the consideration for issuance of
such Note to such Holder.
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Section 1403. COUNTERPARTS.
This Indenture may be executed in any number of counterparts
and by the parties thereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
Section 1404. FURTHER INSTRUMENTS AND ACTS.
Upon request of the Trustee, the Company will execute and
deliver such further instruments and do such further acts as may be
reasonably necessary or proper to carry out more effectively the
purposes of this Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the day and year first above
written.
SURETY CAPITAL CORPORATION
By: /s/ B. J. Curley
----------------
Name: B. J. Curley
Title: Secretary & C.F.O.
HARRIS TRUST AND SAVINGS BANK,
AS TRUSTEE
By: /s/ J. Bartolini
----------------
Name: J. Bartolini
Title: Vice President
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EXHIBIT A
FORM OF NOTE
FORM OF FACE OF NOTE
THIS SECURITY IS NOT A DEPOSIT OR SAVINGS ACCOUNT AND IS NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE"SECURITIES ACT"), OR ANY STATE SECURITIES
LAW IN RELIANCE ON EXEMPTIONS FROM REGISTRATION PROVIDED THEREIN.
THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE SECURITIES ACT OR AN OPINION OF
COUNSEL TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
SURETY CAPITAL CORPORATION
9% CONVERTIBLE SUBORDINATED NOTES DUE 2008
No.____________ $____________
Surety Capital Corporation, a Delaware corporation, for value
received, hereby promises to pay to ________________, or its
registered assigns, the principal sum of ___________Dollars, on
March 31, 2008.
Interest Payment Dates: March 31 and September 30, commencing
September 30, 1998.
Record Dates: March 15 and September 15.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions
shall for all purposes have the same effect as if set forth at this
place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual
signature, this Note shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purposes.
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IN WITNESS WHEREOF, Surety Capital Corporation has caused this
Note to be duly executed under its corporate seal.
Dated:
SURETY CAPITAL CORPORATION
By: ________________________
Title:
Name:
[Corporate Seal]
Attest:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Harris Trust and Savings Bank, as Trustee, certifies that this
Note is one of the Notes referred to in the Indenture.
By: ________________________________
Authorized Signatory
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FORM OF REVERSE SIDE OF NOTE
SURETY CAPITAL CORPORATION
9% CONVERTIBLE SUBORDINATED NOTES DUE 2008
I. INDENTURE.
This Note is one of a duly authorized issue of debt securities
of the Company (as defined below) designated as its "9% Convertible
Subordinated Notes due 2008" (the "Notes") limited in aggregate
principal amount to $_______, issued under an indenture dated as of
March 31, 1998 (as further amended or supplemented from time to
time, the "Indenture") among the Company, as issuer, and Harris
Trust and Savings Bank, as trustee (the "Trustee," which term
includes any successor Trustee under the Indenture), to which
Indenture reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee and each Holder of Notes and
of the terms upon which the Notes are, and are to be, authenticated
and delivered. The summary of the terms of this Note contained
herein does not purport to be complete and is qualified by
reference to the Indenture. To the extent permitted by applicable
law, in the event of any inconsistency between the terms of this
Note and the terms of the Indenture, the terms of the Indenture
shall control. All capitalized terms used in this Note which are
not defined herein shall have the meanings assigned to them in the
Indenture.
II. PRINCIPAL AND INTEREST.
Surety Capital Corporation, a Delaware corporation (such
corporation, and its successors and assigns under the Indenture
hereinafter referred to, being herein called "the Company"),
promises to pay the principal amount of this Note to the Holder
hereof on March 31, 2008.
The Company shall pay interest on this Note at a rate of 9%
per annum, from March 31, 1998 or from the most recent Interest
Payment Date thereafter to which interest has been paid or duly
provided for, semiannually in arrears on March 31 and September 30
of each year, commencing on September 30, 1998, to the Holder
hereof until the principal amount hereof is paid or duly provided
for. The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, subject to certain
exceptions provided in the Indenture, be paid to the Person in
whose name this Note (or the Note in exchange or substitution for
which this Note was issued) is registered at the close of business
on the Regular Record Date for interest payable on such Interest
Payment Date. The Regular Record Date for any interest payment is
the close of business on March 15 or September 15, as the case may
be, whether or not a Business Day, immediately preceding the
Interest Payment Date on which such interest is payable. Any such
interest not so punctually paid or duly provided for ("Defaulted
Interest") shall forthwith cease to be payable to the Holder on
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such Regular Record Date and shall be paid as provided in Section
309 of the Indenture. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
Each payment of interest in respect of an Interest Payment
Date will include interest accrued through the day before such
Interest Payment Date. If an Interest Payment Date falls on a day
that is not a Business Day, the interest payment to be made on such
Interest Payment Date will be made on the next succeeding Business
Day with the same force and effect as if made on such Interest
Payment Date and no additional interest will accrue as a result of
such delayed payment.
To the extent lawful, the Company shall pay interest on
Defaulted Interest (without regard to any applicable grace period)
at the same rate. The Company's obligation pursuant to the
previous sentence shall apply whether such overdue amount is due at
its Stated Maturity or otherwise.
III. METHOD OF PAYMENT.
The Company, through the Paying Agent, shall pay interest on
this Note to the registered Holder of this Note, as provided above.
The Holder must surrender this Note to a Paying Agent to collect
principal payments. The Company will pay principal, premium, if
any, and interest in money of the United States of America that at
the time of payment is legal tender for payment of all debts,
public and private. Principal, premium, if any, and interest may be
paid by check mailed to the registered Holders of Notes at their
registered addresses; provided that all payments with respect to
Notes the Holders of which have given wire transfer instructions to
the Company will be required to be made by wire transfer of
immediately available funds to the accounts specified by the
Holders thereof.
IV. REGISTRAR AND PAYING AGENT.
Initially, the Trustee will act as Registrar and Paying Agent
under the Indenture. The Company may, upon written notice to the
Trustee, appoint and change any Registrar or Paying Agent. If the
Company or any of its Affiliates acts as Paying Agent, the Company
or such Affiliate shall segregate the funds held by it as Paying
Agent and hold them in trust for the benefit of the Holders of
Notes or the Trustee.
V. SUBORDINATION
The indebtedness evidenced by this Note is, to the extent
provided in Article Eleven of the Indenture, subordinate and
subject in right of payment to the prior payment in full of all
Senior Indebtedness (as defined in the Indenture), and this Note is
issued subject to the provisions of the Indenture with respect
thereto. Each Holder of this Note, by accepting the same, agrees
that each holder of Senior Indebtedness, whether created or
acquired before or after the issuance of the Notes, shall be deemed
conclusively to have relied on such provisions in acquiring and
continuing to hold, or in continuing to hold, such Senior
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Indebtedness. The Indenture also provides that if, upon the
occurrence of certain events of bankruptcy or insolvency relating
to the Company, there remains, after giving effect to such
subordination provisions, any amount of cash, property or
securities available for payment or distribution in respect of
Notes (as defined in the Indenture, "Excess Proceeds"), and if, at
such time, any Entitled Person (as defined in the Indenture) has
not received payment in full of all amounts due or to become due on
or in respect of Other Financial Obligations (as defined in the
Indenture), then such Excess Proceeds shall first be applied to pay
or provide for the payment in full of such Other Financial
Obligations before any payment or distribution may be made in
respect of Notes. This Note is also issued subject to the
provisions of the Indenture regarding payments to Entitled Persons
in respect of Other Financial Obligations. Each Holder of this
Note, by accepting the same, (a) agrees to and shall be bound by
all of such provisions, (b) authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate
to effectuate the subordination of this Note and payment of Excess
Proceeds as provided in the Indenture and (c) appoints the Trustee
as his attorney-in-fact for any and all such purposes.
VI. CONVERSION
Subject to the provisions of the Indenture, the Holders have
the right to convert the principal amount of the Notes into fully
paid and nonassessable shares of Common Stock of the Company at the
initial conversion price per share of Common Stock of $6.00 (or
166.6667 shares per $1,000 principal amount of Notes) or at the
adjusted conversion price then in effect, if adjustment has been
made as provided in the Indenture, upon surrender of the Security
to the Company, together with a fully executed notice in
substantially the form attached hereto. The number of shares of
Common Stock into which the Holders have the right to convert shall
be determined by dividing the principal amount of such Securities
by the conversion price then in effect.
VII. REDEMPTION
The Company may, at its election, redeem the Notes for cash
(i) at any time as a whole or from time to time in part, on or
after the date of issuance and on or before March 31, 2002, if the
Last Sale Price (as defined in the Indenture) of the Common Stock
shall be at least 130% of the Conversion Price then in effect for
a period of 20 consecutive trading days, and at any time after
March 31, 2002 and prior to maturity, in each instance at the
Redemption Prices (as defined in the Indenture) expressed in
percentages of the principal amount specified below:
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If Redeemed During Percentage of If Redeemed During Percentage of
12 Months Ended Principal 12 Months Ended Principal
March 31, Amount March 31, Amount
------------------ ------------- ------------------ -------------
1999 109% 2004 104%
2000 108% 2005 103%
2001 107% 2006 102%
2002 106% 2007 101%
2003 105% 2008 100%
together, in each case, with interest, if any, accrued on the Notes
from the most recent Interest Payment Date (as defined in the
Indenture) to the Redemption Date. any accrued but unpaid interest,
if any, to the Redemption Date. Any such redemption will comply with
Article Thirteen of the Indenture. The Company shall not be required
to make mandatory redemption or sinking fund payments with respect to
the Notes.
VIII. DENOMINATIONS.
The Notes are issuable only in registered form, without coupons,
in denominations of $10,000 and integral multiples thereof of
principal amount.
IX. UNCLAIMED MONEY
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee or Paying Agent
shall pay the money back to the Company at its request unless an
abandoned property law designates another Person. After any such
payment, Holders of Notes entitled to the money must look only to the
Company and not to the Trustee for payment unless such abandoned
property law designates another Person.
X. AMENDMENT, WAIVER.
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Notes may be amended with the consent of the
Holders of not less than a majority in principal amount of the
outstanding Notes affected by such amendment (which consent may, but
need not, be given in connection with any tender offer or exchange
offer for Notes) and (ii) any past default or Event of Default and
its consequences may be waived with the consent of the Holders of at
least a majority in principal amount of the outstanding Notes.
Subject to certain exceptions set forth in the Indenture, without the
consent of any Holder of Notes, the Company and the Trustee may amend
the Indenture or the Notes, among other things, (i) to evidence the
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succession of another Person to the Company and the assumption by
such successor of the covenants of the Company under the Indenture
and contained in the Notes; (ii) to add to the covenants of the
Company for the benefit of the Holders of all or any of the Notes or
to surrender any right or power herein or in the Indenture conferred
upon the Company; (iii) to add any additional Events of Default; (iv)
to provide for uncertificated Notes in addition to or in place of
certificated Notes; (v) to change or eliminate any of the provisions
of the Indenture, provided that any such change or elimination shall
become effective only when there is no Note outstanding created prior
to the execution of such amendment which is entitled to the benefit
of such provision; (vi) to secure the Notes; (vii) to evidence and
provide for the acceptance of appointment under the Indenture of a
successor Trustee with respect to the Notes and to add to or change
any of the provisions of the Indenture as are necessary to provide
for or facilitate the administration of the trusts under the
Indenture by more than one Trustee; (viii) to add to, change or
eliminate any of the provisions of Article Eleven of the Indenture in
respect of the Notes, provided that ashall not adversely affect the
interests of the Holders of Notes in any material respect; (ix) to
cure any ambiguity in the Indenture or to correct or supplement any
provision in the Indenture which may be inconsistent with any other
provision therein or to add any other provision with respect to
matters or questions arising under the Indenture, provided that such
actions shall not adversely affect the interests of the Holders of
Notes in any material respect; or (x) to comply with the requirements
of the Commission in order to effect or maintain the qualification of
the Indenture under the Trust Indenture Act.
XI. DEFAULTS AND REMEDIES.
An Event of Default is any of certain events involving a
bankruptcy, insolvency or reorganization of the Company. If an Event
of Default occurs and is continuing, either the Trustee or the
holders of at least 25% in aggregate principal amount of the Notes
then outstanding may declare the unpaid principal of (and premium, if
any, on) all the Notes, plus accrued and unpaid interest thereon, to
be immediately due and payable. Holders of Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. The
foregoing provision would be subject as to enforcement to the broad
equity powers of a federal bankruptcy court and to the determination
by that court of the nature of the rights of the Holders of the
Notes. The Company is required to furnish annually to the Trustee a
statement as to the performance by the Company of its obligations
under the Indenture and as to any default in such performance. Under
certain circumstances, any declaration of acceleration with respect
to the Notes may be rescinded and past defaults (except, unless
theretofore cured, a default in the payment of principal of or
premium, if any, or interest on the Notes) may be waived by the
holders of a majority in aggregate principal amount of the Notes then
outstanding.
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XII. LIMITED RIGHT OF ACCELERATION.
The Notes may be accelerated only in the case of an Event of
Default as described above. The Indenture does not provide for any
right of acceleration of the payment of the principal of the Notes
upon a default in the payment of principal of or premium, if any, or
interest on the Notes, or a default in the performance of any
covenant or agreement in the Notes or in the Indenture. In the event
of a default in the payment of principal, premium, if any, or
interest, the Holder of a Note (or the Trustee on behalf of the
Holders of all of the Notes affected) may, subject to certain
limitations and conditions, seek to enforce payment of such
principal, premium or interest.
XIII. MAINTENANCE OF STATUS OF SUBSIDIARIES AS INSURED DEPOSITORY
INSTITUTIONS.
The Company has agreed that it will do or cause to be done all
things necessary to preserve and keep in full force and effect the
status of each of its subsidiaries that is a depository institution
as an insured depository institution and do or cause to be done all
things necessary to ensure that savings accounts of each such
subsidiary are insured by the FDIC or any successor organization up
to the maximum amount permitted by 12 U.S.C. Section 1811 et seq. and
the regulations thereunder or any succeeding federal law, except as
to individual accounts or interests in employee benefit plans that
are not entitled to "pass-through" insurance under 12 U.S.C. Section
1821(a)(1)(D).
XIV. INDIVIDUAL RIGHTS OF TRUSTEE.
Subject to certain limitations imposed by the Trust Indenture
Act, the Trustee or any Authenticating Agent, Paying Agent or
Registrar, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with the Company
with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent or Registrar, as the case may be,
under the Indenture.
XV. NO RECOURSE AGAINST CERTAIN OTHERS.
No director, officer, employee, incorporator or stockholder of
the Company, as such, shall have any liability for any obligations of
the Company under the Notes or the Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their
creation, solely by reason of its status as a director, officer,
employee, incorporator or stockholder of the Company. By accepting a
Note, each Holder waives and releases all such liability (but only
such liability) as part of the consideration for issuance of such
Note to such Holder.
XVI. AUTHENTICATION.
This Note shall not be valid until the Trustee or an
authenticating agent manually signs the certificate of authentication
on the other side of this Note.
A-8
PAGE
<PAGE>
XVII. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder of
Notes or an assignee, such as TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with rights of
survivorship and not as tenants in common), CUST (= custodian), and
U/G/M/A (= Uniform Gift to Minors Act).
XVIII. GOVERNING LAW.
THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE WITHOUT REGARD TO
THE CONFLICTS OF LAWS PROVISIONS OF SUCH STATE.
The Company will furnish to any Holder of Notes upon written
request and without charge to the Holder a copy of the Indenture.
Requests may be made to:
SURETY CAPITAL CORPORATION
1845 Precinct Line Road, Suite 100
Hurst, Texas 76054
Att.: Corporate Secretary
A-9
PAGE
<PAGE>
ASSIGNMENT
(To be executed by the registered Holder if such
Holder desires to transfer this Note)
FOR VALUE RECEIVED ___________________________ hereby sells,
assigns and transfers unto ___________________________
PLEASE INSERT SOCIAL SECURITY OR OTHER TAX IDENTIFYING NUMBER OF
TRANSFEREE
(Please print name and address of transferee)
This Note, together with all right, title and interest herein,
and does hereby irrevocably constitute and appoint
________________________________ Attorney to transfer this Note on
the Security Register, with full power of substitution.
Dated: _______________
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing Assignment must correspond to
the Name as written upon the face of this Note in every particular,
without alteration or any change whatsoever.
A-10
PAGE
<PAGE>
FORM OF CONVERSION NOTICE
To: SURETY CAPITAL CORPORATION
$____________
9% Convertible Subordinated Notes due 2008
The undersigned owner of this Note hereby: (i) irrevocably
exercises the option to convert this Note or the portion hereof below
designated, for shares of Common Stock of in accordance with the
terms of the Indenture referred to in this Note and (ii) directs that
such shares of Common Stock deliverable upon the conversion, together
with any check in payment for fractional shares and any Security(ies)
representing any unconverted principal amount hereof, be issued and
delivered to the registered Holder hereof unless a different name has
been indicated below. If shares are to be delivered registered in
the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto.
Dated ____________________
_________________________
Signature
Fill in for registration of shares if to be delivered, and of
Notes if to be issued, otherwise than to and in the name of the
registered Holder.
__________________________ ____________________________
Name (please print) Social Security or other
Taxpayer Identifying Number
__________________________
Street Address (please print)
Principal amount to be
__________________________ converted: (if less than all)
City, State and Zip Code
$_________________________
Signature Guarantee.*
___________________________
* Participant in a recognized Signature Guarantee Medallion Program
(or other signature guarantor acceptable to the Trustee).
A-11
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,959,708
<INT-BEARING-DEPOSITS> 94,939
<FED-FUNDS-SOLD> 32,319,522
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<ALLOWANCE> (1,170,929)
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0
0
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<EXPENSE-OTHER> 2,404,010
<INCOME-PRETAX> 525,327
<INCOME-PRE-EXTRAORDINARY> 332,346
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 332,346
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
<YIELD-ACTUAL> 0.102
<LOANS-NON> 238,000
<LOANS-PAST> 30,611
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 950,809
<CHARGE-OFFS> 199,614
<RECOVERIES> 59,733
<ALLOWANCE-CLOSE> 1,170,928
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</TABLE>
