<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 12, 1999
REGISTRATION STATEMENT NOS. 333- AND 333- -01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------------
NBN CAPITAL TRUST
NORTHEAST BANCORP
(Exact Name of Registrants as Specified in Their Charters)
<TABLE>
<S> <C>
DELAWARE [TO BE APPLIED FOR]
MAINE 65-0624640
(States or Other Jurisdictions of (I.R.S. Employer
Incorporation or Organization) Identification Nos.)
</TABLE>
232 CENTER STREET
AUBURN, MAINE 04210
(207) 777-6411
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrants' Principal Executive Offices)
---------------------
JAMES D. DELAMATER, PRESIDENT
NORTHEAST BANCORP
232 CENTER STREET
AUBURN, MAINE 04210
(207) 777-6411
(Name, Address, Including Zip Code, and
Telephone Number, Including Area Code, of Agent For Service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD A. DENMON, ESQ. WILLIAM W. BOUTON, III, ESQ.
CARLTON, FIELDS, WARD, EMMANUEL, TYLER COOPER & ALCORN, LLP
SMITH & CUTLER, P.A. CITY PLACE - 35TH FLOOR
777 SOUTH HARBOUR ISLAND BOULEVARD HARTFORD, CONNECTICUT 06103
TAMPA, FLORIDA 33602
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] .
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE
SECURITIES TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
% Preferred Securities of NBN Capital Trust...... $12,075,000 $3,356.85
- -----------------------------------------------------------------------------------------------------------------------
% Junior Subordinated Debentures of Northeast
Bancorp............................................ (2)
- -----------------------------------------------------------------------------------------------------------------------
Guarantee of Northeast Bancorp of certain obligations
under the Preferred Securities..................... (3)
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as
amended, (the "Securities Act"), exclusive of interest and dividends, if
any.
(2) The Junior Subordinated Debentures will be purchased by NBN Capital Trust
with the proceeds from the sale of the Preferred Securities. Such securities
may later be distributed for no additional consideration to the holders of
the Preferred Securities upon dissolution of NBN Capital Trust and the
distribution of its assets.
(3) This Registration Statement is deemed to cover the Guarantee. Pursuant to
Rule 457(n) under the Securities Act, no separate registration fee is
payable for the Guarantee.
The Prospectus contained in this Registration Statement will be used for the
offering of the following securities: (1) % Preferred Securities of NBN
Capital Trust, (2) % Junior Subordinated Debentures of Northeast Bancorp,
and (3) a Guarantee of Northeast Bancorp of certain obligations under the
Preferred Securities.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS, DATED OCTOBER , 1999
PROSPECTUS
$10,500,000
NBN CAPITAL TRUST
% PREFERRED SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED AS DESCRIBED IN THIS PROSPECTUS, BY
NORTHEAST BANCORP
---------------------
NBN Capital Trust is offering preferred securities for sale to the public
which Northeast Bancorp will fully and unconditionally guarantee, to the extent
described in this prospectus, based on its obligations under a guarantee, a
trust agreement, and an indenture.
NORTHEAST BANCORP --
- - We are a unitary savings and loan holding corporation that offers a full range
of financial and banking services and products to its customers in the state
of Maine through our wholly-owned banking subsidiary, Northeast Bank, F.S.B.
- - We will purchase all of the common securities of the Trust.
THE TRUST --
- - NBN Capital Trust is a Delaware business trust.
- - The Trust will sell preferred securities to the public and common securities
to Northeast Bancorp. The proceeds will be used to purchase an equal amount of
our junior subordinated debentures.
THE PREFERRED SECURITIES --
- - The preferred securities represent beneficial interests in the assets of the
Trust, which will include the junior subordinated debentures and payments on
the junior subordinated debentures.
- - Holders of the preferred securities are entitled to receive cumulative cash
distributions at an annual rate of % on March 31, June 30, September 30,
and December 31 of each year, beginning on December 31, 1999.
- - The preferred securities mature on , 2029.
- - The Trust may redeem the preferred securities for cash or in exchange for the
junior subordinated debentures.
- - If we defer interest payments on the junior subordinated debentures, the Trust
will defer distributions on the preferred securities.
THE JUNIOR SUBORDINATED DEBENTURES --
- - We will sell $ of our % junior subordinated debentures to the
Trust.
- - The junior subordinated debentures are scheduled to mature on , 2029,
but we may shorten this time period.
- - We may defer interest payments on the junior subordinated debentures from time
to time.
We have applied for listing of the preferred securities on the American
Stock Exchange under the trading symbol "NBN.Pr".
---------------------
INVESTING IN THE PREFERRED SECURITIES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 11.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NONE OF THE SECURITIES OFFERED BY THIS PROSPECTUS ARE DEPOSITS OR SAVINGS
ACCOUNTS OF A BANK, AND THEY ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
PER PREFERRED SECURITY TOTAL
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Public offering price....................................... $10.00 $10,500,000
- ----------------------------------------------------------------------------------------------------------------
Underwriting fees (to be paid by Northeast Bancorp)......... $ $
- ----------------------------------------------------------------------------------------------------------------
Proceeds to NBN Capital Trust, before expenses.............. $ $
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The underwriter also may purchase up to an additional 157,500 preferred
securities at the public offering price within 30 days after the date of this
prospectus to cover any over-allotments.
The Trust expects the preferred securities to be ready for delivery in book
entry only form through the Depository Trust Company on or about ,
1999.
---------------------
ADVEST, INC.
THE DATE OF THIS PROSPECTUS IS OCTOBER , 1999
<PAGE> 3
[INSERT GRAPHIC PRESENTATION]
2
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
A Note About Forward-Looking Statements..................... 3
Prospectus Summary.......................................... 5
Risk Factors................................................ 11
NBN Capital Trust........................................... 18
Use of Proceeds............................................. 19
Capitalization.............................................. 20
Accounting Treatment........................................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 48
Description of Preferred Securities......................... 57
Description of Junior Subordinated Debentures............... 70
Description of Guarantee.................................... 80
Relationship Among the Preferred Securities, the Junior
Subordinated Debentures, and the Guarantee................ 82
Certain Federal Income Tax Consequences..................... 84
Certain ERISA Considerations................................ 88
Supervision and Regulation.................................. 88
Underwriting................................................ 98
Validity of Securities...................................... 99
Experts..................................................... 99
Where Can You Find More Information......................... 99
Documents Incorporated by Reference......................... 100
Index to Financial Statements............................... F-1
</TABLE>
A NOTE ABOUT FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, such as statements relating to our financial condition,
results of operations, plans, objectives, future performance and business
operations. These statements relate to expectations concerning matters that are
not historical fact. These forward-looking statements are typically identified
by words or phrases such as "believes" , "expects", "anticipates", "plans",
"estimates", "approximately", "intend", and other similar words and phrases, or
future or conditional verbs such as "will", "should", "would", "could", and
"may". These forward-looking statements are based largely on our expectations
and involve inherent risks and uncertainties. Although we believe our
expectations are based on reasonable assumptions, a number of important factors
could cause actual results to differ materially from those in the
forward-looking statements. Some factors include those described under "Risk
Factors" and the following:
- general economic conditions, either nationally or in Maine, may be less
favorable than expected, resulting in, among other things, a
deterioration in credit quality or a decreased demand for our services
and products;
- changes in the interest rate environment which could reduce our margins
and increase defaults in our loan portfolio;
- a significant increase in competitive pressures in the banking or
financial services industry;
- changes in political conditions or in the legislative or regulatory
environment which adversely affect the businesses in which we will be
engaged or limit the payment of dividends by us or the Bank;
- changes occurring in consumer spending, saving, and borrowing habits;
3
<PAGE> 5
- changes in accounting policies and practices, as may be adopted by
regulatory agencies as well as the Financial Accounting Standards Board;
- changes in technology and challenges associated with Year 2000 issues;
- changes in trade, tax, monetary or fiscal policies; and
- money market and monetary fluctuations, and changes in inflation and in
the securities markets.
Many of these factors are beyond our control and you should read carefully
the factors described in the "Risk Factors" section beginning on page 11 of this
prospectus.
4
<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that is
important to you. You should carefully read this prospectus and the information
that is incorporated by reference into this prospectus, in their entirety,
before you decide to invest in the preferred securities.
NORTHEAST BANCORP
GENERAL
Northeast Bancorp is a unitary savings and loan holding company,
incorporated under the laws of the State of Maine in 1987. Northeast Bancorp,
through its subsidiary, is a full service financial institution able to deliver
a broad array of financial services and products to our customers. We originate
residential real estate loans, commercial real estate and business loans, and
consumer loans, primarily in the State of Maine, through our principal
subsidiary, Northeast Bank, F.S.B. We also purchase wholesale residential loans
from third parties and make other permitted investments. Our Bank's trust
department offers trust services, including administration of retirement plans
such as profit sharing, pension, and 401(k) plans. Further, financial planning,
investment, and insurance products are provided to customers by Northeast
Financial Services Corporation, a subsidiary of the Bank. In this regard,
Northeast Financial Services Corporation provides brokerage services to our
customers through an arrangement with Commonwealth Equity Services, Inc., a New
York securities firm, and uses relationships with several insurance companies
and agencies in order to provide access to a full range of insurance products
for our customers. We serve our customers from 12 full service retail banking
branches located in Auburn, Lewiston, Augusta, Bethel, Harrison, South Paris,
Buckfield, Mechanic Falls, Brunswick, Richmond and Lisbon Falls, Maine. The Bank
also maintains a facility in Falmouth, Maine from which it accepts loan
applications and offers investment, insurance, and financial planning products.
As of June 30, 1999, we had total consolidated assets of approximately $364.4
million, deposits of $219.4 million, and stockholders' equity of $26.7 million.
The Bank:
- is a federally-chartered savings bank and is subject to examination and
comprehensive regulation by the Office of Thrift Supervision;
- is a member of the Federal Home Loan Bank of Boston;
- has deposits which are insured by the Federal Deposit Insurance
Corporation to the extent permitted by law;
- was formerly known as Bethel Savings Bank F.S.B. and was originally
organized in 1872 as a Maine-chartered mutual savings bank; and
- converted into a federal savings bank in fiscal 1984, and in 1987
restructured into a stock form of ownership.
In 1991 we purchased Brunswick Federal Savings, F.A. and in 1996 merged
Bethel and Brunswick. Bethel was the surviving savings bank and its name was
changed to Northeast Bank, F.S.B.
The Bank currently offers its customers access to a broad range of
financial services and products including: (a) real estate, commercial, and
consumer loans, (b) deposit and investment services, (c) trust services, (d)
debit cards, (e) electronic transfer services, and (f) other related products.
In addition, through relationships and arrangements developed by us, we are able
to provide our customers with access to insurance products, brokerage services,
and ATMs. Historically, the Bank has served primarily as a residential mortgage
lender and its business has mainly consisted of attracting deposits from the
general public through its retail banking offices and utilizing those funds
primarily for loans. In particular, the Bank has applied these funds to
originate, retain, service, invest in, and sell first mortgage loans on single
and multi-family residential
5
<PAGE> 7
real estate. In recent years, the Bank has expanded its efforts in the consumer,
small business, home equity, and commercial lending areas, including indirect
lending through local automobile dealerships.
STRATEGY
Northeast Bancorp's overall strategy is to increase the core earnings of
the Bank by developing stronger interest margins, improving non-interest fee
income, and increasing the volume of banking products and services through the
expansion of the Bank's market areas. To this end, the Bank seeks to be an
all-inclusive financial center able to provide its customers with nearly every
financial service and product that they may require. Specifically, the Bank
provides personalized financial planning services to assist its clients in
assessing their financial needs. After determining the customers' financial
needs, we provide the financial products or services which most beneficially
meet those needs. We believe that the ability to provide such personalized
service and advice will be one of the primary bases on which financial
institutions will compete for business in the future. As a result, over the past
few years the Bank has invested a substantial amount of resources in developing
its ability to offer a high level of personalized service with an emphasis on
financial planning and delivery of financial advisory services responsive to a
broad range of customer needs.
We believe that our emphasis on personalized financial planning and advice,
together with the local character of the Bank's business and its "community
bank" management philosophy will allow it to continue to compete effectively in
its market area. The Bank's community bank approach provides its customers at
each branch location with:
- local decision-making authority,
- employees who are familiar with the customers' needs, their business
environment, and competitive demands, and
- employees who are able to develop and customize personalized financial
solutions to the customer's needs on a turn-key basis.
We believe that our strategy of providing "one-stop shopping" for our
customers' financial needs, together with our community bank approach, will
continue to foster the development of profitable long-term banking relationships
between the Bank and its customers.
Our principal executive offices are located at 232 Center Street, Auburn,
Maine, 04210, and our telephone number is (207) 777-6411.
NBN CAPITAL TRUST
NBN Capital Trust is a Delaware statutory business trust that we created
for the limited purpose of:
- issuing its preferred securities and the common securities;
- investing the proceeds that it receives from issuing the preferred
securities and the common securities in an equivalent amount of junior
subordinated debentures issued by us; and
- engaging only in those activities related to the activities described
above.
The Trust will issue all of the preferred securities to the purchasers in
this offering. We will purchase all of the common securities. The common
securities will represent an aggregate liquidation amount equal to at least 3%
of the total capital of the Trust.
The junior subordinated debentures will be the only assets of the Trust,
and payments under the junior subordinated debentures will be the only revenue
of the Trust.
The Trust will be governed by a trust agreement among us, as depositor,
Bankers Trust (Delaware), as Delaware trustee, and Bankers Trust Company, as
property trustee. The Trust will continue in existence for 31 years unless it is
dissolved earlier under the terms of the trust agreement.
The principal executive offices of the Trust is c/o Northeast Bancorp at
232 Center Street, Auburn, Maine 04210, and its telephone number is (207)
777-6411.
6
<PAGE> 8
THE OFFERING
The Issuer.................... NBN Capital Trust, a Delaware statutory
business trust.
The Securities Being
Offered....................... 1,050,000 preferred securities having a
liquidation amount of $10 per preferred
security. The preferred securities represent
preferred undivided beneficial interests in
the assets of the Trust, which will consist
solely of the junior subordinated debentures.
We will guarantee payments on the preferred
securities to the extent of funds in the
Trust. The Trust has granted the underwriter
an option, exercisable within 30 days after
the date of this prospectus, to purchase up
to an additional 157,500 preferred securities
at the initial offering price, solely to
cover over-allotments, if any.
The Offering Price............ $10 per preferred security, plus accrued
distributions, if any, from , 1999.
The Payment of
Distributions................. The Trust will pay distributions to you on each
preferred security at an annual rate of %.
The distributions will be cumulative, will
accumulate from , 1999 (the date that the
preferred securities are issued), and will be
payable in arrears at the end of each
calendar quarter, commencing , 1999.
Junior Subordinated
Debentures.................... The Trust will invest the proceeds from the
issuance of the preferred securities and the
common securities in an equivalent amount of
our % junior subordinated debentures. The
junior subordinated debentures are scheduled
to mature on , 2029, unless we shorten the
maturity date. We will not shorten the
maturity date unless we have first received
any required regulatory approvals.
We Have the Option to Extend
the Interest Payment Period... At any time we are not in default under the
junior subordinated debentures, we may defer
payments of interest on the junior
subordinated debentures for up to 20
consecutive quarters, but not beyond their
stated maturity date. If we defer payment on
the junior subordinated debentures, the Trust
will defer quarterly distributions on the
preferred securities. Deferred quarterly
distributions will continue to accumulate
additional distributions at an annual rate of
% compounded quarterly.
During any period that we are deferring
interest payments, we may not declare or pay
any cash distributions on our capital stock
or debt securities that are of equal or lower
rank than the junior subordinated debentures.
After the end of any period in which we defer
interest payments, we may again defer
payments if we have paid all the previously
deferred and current interest due under the
junior subordinate debentures. If we defer
interest payments, you will be required to
include deferred interest income in your
gross income for United States federal income
tax purposes even if you have not yet
received your cash distribution from such
deferred interest payments.
Redemption of the Preferred
Securities.................... The Trust must redeem the preferred securities
when payment is made on the junior
subordinated debentures on their scheduled
7
<PAGE> 9
maturity date, or following any earlier
redemption of the junior subordinated
debentures. Subject to any regulatory
approvals that may then be required, we may
redeem the junior subordinated debentures
prior to their scheduled maturity (1) in
whole or in part at any time on or after
, 2004, or (2) in whole, but not in
part, within 90 days after:
- certain tax events occur or become likely to
occur;
- the Trust is or becomes likely to be deemed
an investment company; or
- there is a change in the capital treatment of
the preferred securities under applicable
banking regulations.
Following the repayment of the junior
subordinated debentures at their scheduled
maturity or upon any earlier redemption, we
will use the cash proceeds from such
repayment to pay to you a liquidation amount
for the preferred securities. The liquidation
amount that you will receive will be $10 per
preferred security plus any accrued and
unpaid distributions through the date of
redemption.
How the Securities Will Rank
in Right of Payment........... - The preferred securities will rank equally
with the common securities. The Trust will
pay distributions on the preferred securities
and the common securities pro rata. However,
if we default on the junior subordinated
debentures by failing to make interest
payments, then no distributions will be paid
on the common securities until all
accumulated and unpaid distributions on the
preferred securities have been paid.
- Our obligations under the junior subordinated
debentures and the guarantee are unsecured
and generally will rank junior in priority to
our senior and other subordinated
indebtedness.
- Because we are a holding company, the junior
subordinated debentures and the guarantee
will effectively be subordinated to all
existing and future liabilities and
obligations of our subsidiaries.
The Junior Subordinated
Debentures May Be Distributed
to You...................... Under certain circumstances, we may dissolve
the Trust after obtaining any necessary
regulatory approvals. If we dissolve the
Trust, after satisfaction of any of the
Trust's liabilities to creditors, the Trust
will distribute your pro rata share of the
junior subordinated debentures to you in
liquidation of the Trust.
Our Guarantee of Payments..... We will fully and unconditionally guarantee the
obligations of the preferred securities
through the following:
- our obligation to make payments on the junior
subordinated debentures;
- our obligations under the guarantee executed
for the benefit of the holders of the
preferred securities; and
- our obligations under the trust agreement.
8
<PAGE> 10
If we do not make payments under the junior
subordinated debentures, the Trust will not
have sufficient funds to make payments on the
preferred securities. The guarantee does not
cover payments when the Trust does not have
sufficient funds.
Voting Rights................. You will have no voting rights except in
limited circumstances.
Use of Proceeds............... The Issuer will invest all of the proceeds from
the sale of the preferred securities and the
common securities in our junior subordinated
debentures. We intend to use the net proceeds
from the sale of our junior subordinated
debentures to:
- Make contributions to the capital of the Bank
to support the capital needs of the Bank and
its subsidiary,
- Finance possible future acquisitions if, and
when, suitable opportunities arise, and
- Fund any potential repurchase of our common
stock.
ERISA Considerations.......... You must carefully consider the information set
forth under "Certain ERISA Considerations."
AMEX Trading Symbol........... We have applied to have the preferred
securities approved for listing on the
American Stock Exchange under the symbol
"NBN.Pr."
Book-entry.................... The preferred securities will be represented by
a global security that will be deposited with
and registered in the name of the Depository
Trust Company, New York, New York, or its
nominee. This means that you will not receive
a certificate for your preferred securities.
RISK FACTORS
Before purchasing the preferred securities offered by this prospectus you
should carefully consider the "Risk Factors" beginning on page 11.
9
<PAGE> 11
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following is our selected financial information. You should read this
selected financial information in conjunction with our consolidated financial
statements and the related notes that begin on page F-1. This information has
been restated to include our acquisition of Cushnoc Bank & Trust in 1997
accounted for as a pooling of interests.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR
ENDED JUNE 30,
---------------------------------------------------------
1999 1998 1997 1996 1995
NORTHEAST BANCORP --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATIONS DATA:
Interest income........................................... $ 26,857 $ 24,283 $ 21,936 $ 20,105 $ 18,953
Interest expense.......................................... 14,550 12,810 11,291 10,087 8,841
-------- -------- -------- -------- --------
Net interest income....................................... 12,307 11,473 10,645 10,018 10,112
Provision for loan losses................................. 610 706 614 639 691
Other operating income(1)................................. 2,621 2,384 1,827 1,909 1,760
Net securities gains...................................... 95 288 259 279 419
Other operating expenses(2)............................... 10,570 9,732 9,718 9,536 9,093
-------- -------- -------- -------- --------
Income before income taxes................................ 3,843 3,707 2,399 2,031 2,507
Income tax expense........................................ 1,433 1,303 909 738 878
-------- -------- -------- -------- --------
Net Income................................................ $ 2,410 $ 2,404 $ 1,490 $ 1,293 $ 1,629
======== ======== ======== ======== ========
CONSOLIDATED PER SHARE DATA(3):
Net income:
Basic................................................... $ 0.88 $ 1.00 $ 0.63 $ 0.56 $ 0.77
Diluted................................................. $ 0.86 $ 0.86 $ 0.56 $ 0.50 $ 0.66
Cash dividends............................................ $ 0.21 $ 0.21 $ 0.21 $ 0.16 $ 0.11
SELECTED BALANCE SHEET DATA:
Total assets.............................................. $364,383 $322,533 $284,077 $244,782 $231,856
Loans receivable.......................................... 318,986 282,031 222,682 187,210 187,777
Deposits.................................................. 219,364 184,024 172,921 164,855 168,682
Borrowings................................................ 104,569 105,433 81,793 54,140 38,274
Total stockholders' equity................................ 26,683 25,140 22,096 20,364 19,388
PERFORMANCE RATIOS:
Return on average assets.................................. 0.71% 0.83% 0.57% 0.55% 0.71%
Return on average equity.................................. 9.18 10.35 7.05 6.31 8.81
Average equity to average total assets.................... 7.73 7.99 8.09 8.67 8.10
Efficiency ratio(4)....................................... 70.36 68.80 76.33 78.13 73.98
Net interest margin....................................... 3.30 3.63 3.83 4.04 4.28
Common dividend payout ratio(3)........................... 24.42 24.42 37.50 32.00 16.67
ASSET QUALITY RATIOS:
Allowance for loan losses to total loans.................. 0.92 1.06 1.23 1.47 1.41
Allowance for loan losses to non-performing loans......... 255.59 132.47 95.18 86.77 100.15
Net charge-offs to average loans.......................... 0.23 0.20 0.32 0.29 0.42
RATIOS OF EARNINGS TO FIXED CHARGES(5):
Excluding interest on deposits............................ 165.47 170.97 157.28 174.15 194.50
Including interest on deposits............................ 126.41 128.94 121.25 120.13 128.36
</TABLE>
- ---------------
(1) Includes fees for services to customers, gains on sales of loans, and other
income.
(2) Includes salaries, employee benefits, occupancy, equipment, and other
expenses.
(3) Per share data includes restatement to reflect (a) a 100% stock dividend
paid in December 1995, (b) a 50% stock dividend paid in 1997, and (c)
adoption of FASB No. 128 "Earnings Per Share" and its retroactive
application to periods prior to and including 1997. In 1999, the decrease in
basic net income per share was primarily attributable to the conversion of
outstanding preferred stock into common stock.
(4) Non-interest expense divided by net interest income plus non-interest
income.
(5) The consolidated ratio of earnings to fixed charges has been computed by
dividing income before income taxes and fixed charges by fixed charges.
Fixed charges represent all interest expense (ratios are presented both
excluding and including interest on deposits). There was no amortization of
notes expense nor was any portion of net rental expense deemed to be
equivalent to interest on debt. Interest expense (other than on deposits)
includes interest on notes, federal funds purchased, securities sold under
agreements to repurchase, and Federal Home Loan Bank advances.
10
<PAGE> 12
RISK FACTORS
You should carefully review and consider the following risks as well as
other information contained in this prospectus before you decide to purchase the
preferred securities. To the extent any of the information contained in this
prospectus constitutes forward-looking information, the risk factors set forth
below are cautionary statements identifying important factors that could cause
Northeast Bancorp's actual results for various financial reporting periods to
differ materially from those expressed in any forward-looking statements made by
or on behalf of Northeast Bancorp or the Trust.
RISK FACTORS RELATING TO THE PREFERRED SECURITIES
IF WE DO NOT MAKE PAYMENTS ON THE JUNIOR SUBORDINATED DEBENTURES, THE TRUST WILL
NOT BE ABLE TO MAKE PAYMENTS TO YOU UNDER THE PREFERRED SECURITIES.
The Trust will depend solely on our payments under the junior subordinated
debentures to pay the amounts due to you under the preferred securities. We are
a holding company and we conduct substantially all of our operations through the
Bank. Because we are a separate legal entity from the Bank and do not have
significant operations of our own, our ability to make our payments on the
junior subordinated debentures will depend principally on any dividends we
receive from the Bank and on our cash and liquid investments.
OUR OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR SUBORDINATED DEBENTURES ARE
SUBORDINATE TO MOST OF OUR OTHER CREDITORS.
Our obligations under the guarantee and the junior subordinated debentures
are unsecured and subordinate in right of payment to all of our existing and
future senior debt. This means that in an event of bankruptcy, liquidation,
reorganization, or dissolution, our assets must be used to pay off our senior
debt in full before any payments may be made on the junior subordinated
debentures or the guarantee. Because we are a holding company, the creditors of
our subsidiaries also will have priority over us and you in any distribution of
the subsidiaries' assets in a bankruptcy, liquidation, reorganization, or
dissolution, except to the extent that we are recognized as a creditor of our
subsidiaries. The junior subordinated debentures will be effectively
subordinated to all existing and future liabilities of our subsidiaries, and you
should look only to our assets for payments on the junior subordinated
debentures.
At June 30, 1999, our subsidiaries had outstanding debt and other
liabilities, including deposits, of approximately $337.7 million. Our ability to
incur additional senior debt is not limited by the indenture pursuant to which
the junior subordinated debentures will be issued, the guarantee, or the
declaration of trust which created the Trust.
WE HAVE THE ABILITY TO DEFER INTEREST PAYMENTS ON THE JUNIOR SUBORDINATED
DEBENTURES AND ANY SUCH DEFERRAL MAY HAVE ADVERSE CONSEQUENCES FOR YOU.
So long as we are not in default under the junior subordinated debentures,
we have the right to defer the payment of interest on the junior subordinated
debentures at any time or from time to time for a period not exceeding 20
consecutive quarters. No deferral, however, may extend beyond the stated
maturity date of the junior subordinated debentures.
Because interest payments on the junior subordinated debentures will fund
distributions on the preferred securities, the Trust will defer quarterly
payments on the preferred securities during any period that we defer the payment
of interest on the junior subordinated debentures. Distributions on the
preferred securities will accumulate during any deferral period at an annual
rate of % compounded quarterly from the relevant distribution date.
If we defer interest payments on the junior subordinated debentures, you
will be required to accrue interest income for United States federal income tax
purposes in respect of your proportionate share of the deferred interest on the
junior subordinated debentures held by the Trust. As a result, you would be
required to include the accrued interest in your gross income for United States
federal income tax purposes before you
11
<PAGE> 13
actually receive any cash attributable to that income. If you sell your
preferred securities prior to the record date for the first distribution after a
deferral period, you would not receive the cash related to the accrued interest
that you reported for tax purposes. In addition, during a deferral period your
tax basis in the preferred securities will increase by the amount of accrued but
unpaid distributions. If you sell your preferred securities during a deferral
period, your increased tax basis will decrease the amount of capital gain or
increase the amount of capital loss that you may have otherwise realized on the
sale. A capital loss, except in limited circumstances, cannot be applied to
offset ordinary income. As a result, a deferral of distributions could result in
ordinary income, a related tax liability for the holder, and a capital loss that
can only be used to offset a capital gain.
We do not currently intend to exercise our right to defer paying interest
on the junior subordinated debentures. However, if we should decide to defer
paying interest in the future, the market price of the preferred securities is
likely to be adversely affected. Even if we do not do so, our right to defer
interest payments could mean that the market price of the preferred securities
may be more volatile than the market price of other securities without interest
deferral rights.
THE PREFERRED SECURITIES MAY BE REDEEMED PRIOR TO MATURITY; YOU MAY BE TAXED ON
THE PROCEEDS AND YOU MAY BE UNABLE TO REINVEST THE PROCEEDS AT THE SAME OR A
HIGHER RATE OF RETURN.
We may redeem the junior subordinated debentures before their stated
maturity date under the following circumstances:
- We may redeem all of the junior subordinated debentures in whole, but not
in part, within 90 days following the occurrence of certain special
events relating to changes in the tax law, the Investment Company Act of
1940, or the treatment of the preferred securities for bank regulatory
capital purposes.
You should be aware that Congress has from time to time considered and in
the future may enact legislation that would adversely affect our ability
to deduct the interest we pay on the junior subordinated debentures or
that otherwise results in unfavorable tax consequences for us or the
Trust. This legislation may cause us to redeem the junior subordinated
debentures.
- We also may shorten the maturity date of the junior subordinated
debentures to a date not earlier than , 2004.
We will not exercise our redemption right unless we have received prior
regulatory approval, if such approval is then required. If we redeem the junior
subordinated debentures, the Trust must use the proceeds to redeem all the
preferred securities at a redemption price equal to the $10 liquidation amount,
plus accumulated and unpaid distributions through the redemption date.
Under current United States federal income tax law, the redemption of the
preferred securities would be a taxable event to you. In addition, you may not
be able to reinvest the money you receive in the redemption at a rate that is
equal to or higher than the rate of return you were earning on the preferred
securities.
THE GUARANTEE COVERS PAYMENTS ONLY IF THE TRUST HAS THE CASH AVAILABLE.
If we do not make our principal or interest payments on the junior
subordinated debentures, the Trust will not have sufficient funds to pay
distributions on, or the $10 liquidation amount of, the preferred securities. In
that case you will not be able to rely on the guarantee for payment of those
amounts because the guarantee only applies if we make a payment of principal or
interest on the junior subordinated debentures. Instead, you or the property
trustee, Bankers Trust Company, may have to proceed directly against us to
enforce the payment of amounts due under the junior subordinated debentures.
YOU MAY NOT BE ABLE TO ENFORCE YOUR RIGHTS AGAINST US DIRECTLY IF AN EVENT OF
DEFAULT OCCURS AND YOU MAY HAVE TO RELY ON THE PROPERTY TRUSTEE TO ENFORCE YOUR
RIGHTS.
You are not always able to directly enforce rights against us if an event
of default occurs. If an event of default under the junior subordinated
debentures occurs and is continuing, that event also will be an event of
12
<PAGE> 14
default under the preferred securities. In that case, you would rely on the
property trustee, as the holder of the junior subordinated debentures, to
enforce its rights against us.
You may only sue us directly under the following circumstances:
- if the holders of at least 25% in liquidation amount of the preferred
securities direct the property trustee to enforce its rights under the
indenture but it does not enforce its rights as directed, and holders of
a majority in liquidation amount do not direct the trustee differently.
- if the event of default under the trust agreement occurs because of our
failure to pay interest or principal on the junior subordinated
debentures, you may sue us directly.
The trust agreement provides that you agree to the provisions of the
guarantee and the indenture relating to the junior subordinated debentures by
accepting your preferred securities.
THE HOLDERS OF THE PREFERRED SECURITIES AND THE JUNIOR SUBORDINATED DEBENTURES
ARE NOT PROTECTED BY COVENANTS IN THE INDENTURE AND THE TRUST AGREEMENT.
The indenture, which sets forth the terms of the junior subordinated
debentures, contains few covenants restricting our actions, and there are no
such covenants in the trust agreement, the document which sets forth the terms
of the preferred securities and the common securities. As a result, neither the
indenture nor the trust agreement:
- protects you or the Trust in the event of a material adverse change in
our financial condition or results of operations,
- limits our ability or the ability of any of our subsidiaries to incur or
assume additional indebtedness or other obligations, or
- contains any financial ratios or specified levels of liquidity to which
we must adhere.
Therefore, you should not consider the provisions of these governing
instruments a significant factor in evaluating whether we will be able to comply
or will comply with our obligations under the junior subordinated debentures or
the guarantee.
WE CAN DISSOLVE THE TRUST AND DISTRIBUTE THE JUNIOR SUBORDINATED DEBENTURES TO
HOLDERS OF THE PREFERRED SECURITIES, AND THE JUNIOR SUBORDINATED DEBENTURES MAY
TRADE AT A LOWER PRICE THAN WHAT YOU PAID FOR THE PREFERRED SECURITIES.
Since we hold all of the common securities, we have the right to dissolve
the Trust prior to its expiration, either as a result of the occurrence of
adverse tax or regulatory events or at our option. Before exercising this right,
we must receive all required regulatory approvals, if any such approvals are
then required. If we decide to exercise our right to dissolve the Trust, subject
to the terms of the trust agreement and the prior satisfaction of the Trust's
liabilities to its creditors, the trustees may distribute the junior
subordinated debentures to holders of the preferred securities.
We cannot predict the market prices for the junior subordinated debentures
that may be distributed. Accordingly, the junior subordinated debentures that
you receive upon a distribution, or the preferred securities you hold pending
the distribution, may trade at a lower price than what you paid to purchase the
preferred securities.
Under current United States federal income tax law, a distribution of
junior subordinated debentures upon the termination of the Trust generally would
not be taxable to you. If, however, the Trust is characterized as an association
taxable as a corporation at the time of its liquidation, the distribution of the
junior subordinated debentures would be taxable to you. Moreover, upon
occurrence of an adverse change in tax laws, a dissolution of the trust in which
you receive cash may be taxable to you.
Because the Trust will rely on the payments it receives on the junior
subordinated debentures to fund all payments on the preferred securities and
because you may receive junior subordinated debentures in
13
<PAGE> 15
exchange for preferred securities, you also are making an investment decision
with regard to the junior subordinated debentures as well as the preferred
securities. You should carefully review all the information included in this
prospectus regarding Northeast Bancorp, which is solely responsible for payments
on the junior subordinated debentures. We also urge you to review the terms of
the junior subordinated debentures and the preferred securities contained in
this prospectus.
WE GENERALLY WILL CONTROL THE TRUST BECAUSE THE VOTING RIGHTS OF THE HOLDERS OF
THE PREFERRED SECURITIES ARE VERY LIMITED.
You will have no voting rights in the Trust except in limited circumstances
relating only to the modification of the preferred securities and the guarantee
and the exercise of the Trust's rights as holder of the junior subordinated
debentures. In general, you will not be able to elect, remove, or replace any
trustees. As the sole holder of the common securities, only we will have such
rights. The trust agreement does provide that the holders of a majority in
liquidation amount of preferred securities may remove the trustees (a) for
cause, or (b) if there is an event of default under the indenture. We and the
property trustee may amend the trust agreement without your consent to ensure
that the Trust will not be classified as a corporation for United States federal
income tax purposes, or to ensure that the Trust will not be required to
register as an investment company under the Investment Company Act, even if such
action adversely affects your interests.
AN ACTIVE TRADING MARKET FOR THE PREFERRED SECURITIES MAY NOT DEVELOP OR BE
MAINTAINED.
Although we have applied for listing of the preferred securities on the
American Stock Exchange, there is no current public market for the preferred
securities. We cannot assure you that the preferred securities, if approved for
listing, will continue to be listed on the American Stock Exchange or any other
stock exchange or inter-dealer quotation system. In addition, a listing does not
guarantee that an established and liquid trading market will develop or, if
developed, will be maintained or sustained following the issuance of the
preferred securities. The underwriter has informed the Trust and us that it
intends to make a market in the preferred securities. However, the underwriter
is not obligated to do so and may discontinue such market making activity at any
time without notice. Accordingly, you may experience difficulty reselling the
preferred securities or may be unable to sell them at all. Even if an active
trading market does develop, there is no guarantee that the market price for the
preferred securities will equal or exceed the price that you paid for the
preferred securities. Prices will be determined in the marketplace and may be
influenced by a variety of factors, including many which are outside of our
control.
THE RECEIPT OF DISTRIBUTIONS ON THE PREFERRED SECURITIES WILL BE AFFECTED BY THE
PREFERRED SECURITIES BEING REPRESENTED BY A GLOBAL CERTIFICATE.
The preferred securities will be represented by one or more global
certificates registered in the name of the Depository Trust Company or its
nominees. The Trust's obligations, as well as the obligations of its trustees
and those of any third parties employed by the Trust or the trustees, run only
to persons who are registered as holders of the preferred securities. For
example, once the Trust makes distributions to the registered holder, the Trust
has no further responsibility for the distribution even if that holder is
legally required to pass that distribution along to you -- as an indirect
holder -- but does not do so. As an indirect holder, your rights relating to a
global preferred security will be governed by the account rules of your
financial institution and of the Depository Trust Company, as well as general
laws relating to securities transfers.
You should be aware that when the Trust issues preferred securities in the
form of a global preferred security:
- you cannot have the preferred securities registered in your name;
- you cannot receive physical certificates for your interest in the
preferred securities;
- you must look to your bank or brokerage firm for payments on the
preferred securities and protection of your legal rights relating to the
preferred securities; and
14
<PAGE> 16
- the Depository Trust Company's policies will govern payments, transfers,
exchanges, and other matters relating to your interest in the global
preferred securities. The Trust and its trustees have no responsibility
for any aspect of the actions of the Depository Trust Company or for its
records of ownership interests in the global preferred securities. The
Trust and its trustees do not supervise the Depository Trust Company in
any way.
NEITHER THE PREFERRED SECURITIES NOR THE JUNIOR SUBORDINATED DEBENTURES ARE
INSURED.
Neither the Federal Deposit Insurance Corporation or any other governmental
agency, nor any private insurer, has insured the preferred securities or the
junior subordinated debentures.
RISK FACTORS RELATING TO NORTHEAST BANCORP AND ITS INDUSTRY
CHANGES IN MARKET INTEREST RATES MAY ADVERSELY AFFECT OUR PERFORMANCE.
Most of our assets and liabilities are monetary in nature and subject us to
significant risks from changes in interest rates. Changes in interest rates can
impact our net interest income as well as the valuation of our assets and
liabilities.
Our profitability depends to a large extent on our net interest income. Net
interest income is the difference between:
- interest income on interest-earning assets, such as loans and
investments, and
- interest expense on interest-bearing liabilities, such as deposits,
borrowings, and other sources of funds.
This difference is referred to as the interest rate spread. Like most
financial institutions, our results of operations are largely impacted by
changes in interest rates and our ability to manage interest rate risks. Changes
in market interest rates, or changes in the relationships between short-term and
long-term market interest rates, or changes in the relationships between
different interest rate indices, can affect the interest rates charged on
interest-earning assets differently than the interest rates paid on
interest-bearing liabilities. This difference could result in an increase in
interest expense relative to interest income, or a decrease in our interest rate
spread. In recent years, interest rate spreads at financial institutions,
including ours, have narrowed due to changing market conditions and competitive
pricing pressures.
We cannot predict or control changes in interest rates. Regional and local
economic conditions and policies of regulatory authorities, including the
monetary policies of the Federal Reserve Board, affect interest rates and
influence interest rate spreads. While we continually take measures to mitigate
the impact of changes in market interest rates, we cannot assure you that we
will be successful. Despite our strategies to manage interest rate risks,
changes in interest rates can still have a material adverse impact on our
profitability.
OUR CONCENTRATION IN REAL ESTATE LOANS COULD ADVERSELY AFFECT OUR PERFORMANCE.
Based on the composition of our loan portfolio and the nature of our
assets, a decline in the real estate markets in which we conduct our business or
in the economy generally could have a material adverse affect on our operations.
At June 30, 1999, approximately 58% of the loans in our loan portfolio were
secured by mortgages on 1 - 4 family residential real estate. Furthermore,
approximately 73% of the principal amount of such loans were secured by
properties located in the State of Maine. Additionally, the Bank has originated
home equity and mobile home consumer loans, most of which relate to mobile homes
and properties also located in the State of Maine. A decline in the real estate
market could have an adverse impact on the ability of our mortgage lending
operations to make loans, and a decline in real estate values in Maine may
increase the risk of loan defaults.
In addition, at June 30, 1999, approximately 17% of the principal amount of
our loans were secured by commercial real estate. Commercial real estate loans
generally present a higher level of risk than loans secured by one-to-four
family residences due to the concentration of principal in a limited number of
loans
15
<PAGE> 17
and borrowers, the effects of general economic conditions on commercial
properties, and the increased difficulty of evaluating and monitoring these
types of loans. Typically, the repayment of loans secured by commercial real
estate is dependent on the successful operation of the related business
activities. A decline in general economic conditions increases the possibility
of business failures and the incurrence of defaults on commercial real estate
loans.
OUR ALLOWANCE FOR LOAN LOSSES MAY NOT BE ADEQUATE TO COVER ACTUAL LOAN LOSSES.
As a lender, we are exposed to the risk that our customers will be unable
to repay their loans according to their terms and that any collateral securing
the payment of their loans may not be sufficient to assure repayment. Credit
losses are inherent in the business of making loans and could have a material
adverse effect on our operating results. Our credit risk with respect to our
real estate and construction loan portfolio relates principally to the
creditworthiness of individuals and the value of the real estate serving as
security for the repayment of loans. Our credit risk with respect to our
commercial and consumer loan portfolio relates principally to the general
creditworthiness of businesses and individuals within our local markets.
We make various assumptions and judgments about the collectability of our
loan portfolio and provide an allowance for potential loan losses based on a
number of factors. If our assumptions or judgments are wrong, our allowance for
loan losses may not be sufficient to cover our actual loan losses. Further, we
may have to increase our allowance in the future to adjust for changing
conditions and assumptions or as a result of any deterioration in the quality of
our loan portfolio. Material additions to our allowance for loan losses would
decrease our net income. This could adversely affect the ability of the Bank to
pay us dividends which will be used by us to make payments under the junior
subordinated debentures.
CHANGES IN LOCAL ECONOMIC CONDITIONS COULD ADVERSELY AFFECT OUR LOAN PORTFOLIO.
Our success depends to a certain extent upon general economic conditions
and the geographic markets that we serve. Unlike larger banks that are more
geographically diversified, we provide banking and financial services primarily
to customers located throughout the western, central, and mid-coastal regions of
the State of Maine, where our banking facilities are located. The ability of our
customers to repay their loans will be impacted by the local economic
conditions. If the State of Maine should experience a recession for a prolonged
period of time, we would likely experience significant increases in
nonperforming loans which could lead to operating losses, impaired liquidity,
and eroding capital.
THE GROWTH IN OUR CONSUMER LOAN PORTFOLIO SUBJECTS US TO GREATER CREDIT RISK AND
A HIGHER LEVEL OF CHARGE-OFFS.
During the past several years we have experienced significant growth in our
consumer loan portfolio. A significant amount of these loans were indirect
automobile loans. Indirect automobile loans are those that are originated by the
automobile dealers rather than directly by us. Consumer loans, especially
indirect automobile loans, carry more credit risk than other types of loans,
such as residential real estate or home equity loans. They generally result in a
higher level of charge-offs than other types of loans. Charge-offs are amounts
of loans written off as uncollectible. These adversely affect our results of
operations and an increase in charge-offs could cause us to increase our loan
loss allowance.
WE MAY INCUR SIGNIFICANT COSTS IF WE FORECLOSE ON ENVIRONMENTALLY CONTAMINATED
REAL ESTATE.
If we foreclose on a defaulted mortgage loan to recover our investment in
the mortgage loan, then we may be exposed to environmental liabilities in
connection with the underlying property. These liabilities could exceed the fair
value of the real property. It also is possible that hazardous substances or
wastes, contaminants, pollutants, or their sources, as defined by state and
federal laws and regulations, may be discovered on properties during our
ownership or after they are sold to a third party. If they are discovered on a
property that we have acquired through foreclosure or otherwise, we may be
required to remove those substances and clean up the property. We may have to
pay for the entire cost of any removal and clean up without the contribution of
any other third parties. These costs also may exceed the fair value of the
property.
16
<PAGE> 18
We also may be liable to tenants and other users of neighboring properties.
Further, we may find it difficult or impossible to sell the property before or
following any clean-up. These events may have a material adverse impact on our
results of operations and our ability to make payments under the junior
subordinated debentures.
WE NEED TO STAY CURRENT ON TECHNOLOGICAL CHANGES IN ORDER TO COMPETE AND MEET
CUSTOMER DEMANDS.
The financial services market, including banking services, is undergoing
rapid changes with frequent introductions of new technology-driven products and
services. These technological advances include developments in
telecommunications, data processing, computers, automation, Internet-based
banking, telebanking, debit cards, and so-called "smart" cards. In addition to
better serving customers, the effective use of technology increases efficiency
and enables banks to reduce costs. Our ability to compete successfully in the
future will depend on whether we can anticipate and respond to technological
changes. To be competitive, we may need to spend significant amounts of money on
the development of these and other technologies, additional computer hardware
and software, and for technical personnel. Many of our competitors have
substantially greater resources to invest in technology improvements. Although
we will continually invest in new technology, we cannot assure you that we will
have sufficient resources or access to the necessary proprietary technology to
remain competitive or that we will be able to successfully implement or market
any new technology-driven products and services.
THE BANKING BUSINESS IS HIGHLY COMPETITIVE.
Our profitability depends on our ability to compete in our market areas. We
operate in a highly competitive environment. In the markets in which we operate,
we face competition from other savings and loan associations, commercial banks,
credit unions, finance companies, mutual funds, insurance companies, brokerage
and investment banking firms, and other financial intermediaries that offer
similar services. Many of these competitors have significantly greater resources
and lending limits and may offer certain services that our subsidiaries do not
currently provide. In addition, some of our nonbank competitors are not subject
to the same extensive regulations that govern both us and the Bank.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION WHICH COULD HAVE AN ADVERSE
IMPACT ON OUR OPERATIONS AND THE BANK'S ABILITY TO PAY DIVIDENDS.
The banking industry is extensively regulated and supervised under both
federal and state law. We are subject to the regulation and supervision of the
Office of Thrift Supervision and by the State of Maine Bureau of Banking. The
Bank is subject to regulation and examination by the OTS and the FDIC. These
regulations are intended primarily to protect depositors and the FDIC, not our
creditors or stockholders. These regulations can sometimes impose significant
limitations on our operations. Northeast Bancorp and the Bank are subject to
changes in federal and state law, as well as regulation and governmental
policies, income tax laws, and accounting principles. Regulations affecting
banks are undergoing continuous change, and the ultimate effect of such changes
cannot be predicted. Regulations and laws may be modified at any time, and new
legislation enacted that will affect us and our subsidiaries. We cannot assure
you that such modifications or new laws will not adversely affect us.
As indicated above, our ability to make payments on the junior subordinated
debentures will depend on our receipt of dividends from the Bank. The payment of
dividends by the Bank is subject to regulatory restrictions, including those
imposed by the OTS. The capital level of the Bank and its supervisory status
with the OTS, as well as its net income and capital surplus levels, will
determine the level of distributions that the Bank is permitted to make to us
under OTS regulations. Under current OTS regulations, at June 30, 1999, the Bank
could pay approximately $1.8 million in dividends to us so long as the Bank
sends prior notification to the OTS. We cannot assure you that the Bank will
continue to satisfy the necessary capital requirements or that its net income or
capital surplus will be sufficient in the future to permit the payment of
dividends to us in amounts necessary to make all of our payments under the
junior subordinated debentures.
17
<PAGE> 19
THE YEAR 2000 PROBLEM COULD DISRUPT OUR BUSINESS.
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. Any computer programs or
equipment that use dates may recognize a date using "00" as the year 1900 rather
than the year 2000. As with other financial institutions, we engage in a
significant amount of business and reporting activity that depends on accurate
date information, such as the calculation of interest and other calculations
pertaining to loans, deposits, assets, and investments. As a result, Year 2000
problems could result in a system failure or miscalculations that disrupt our
operations. The following are the principal risks posed by the Year 2000 problem
to our business:
- disruption of our business due to our failure to achieve Year 2000
readiness;
- disruption of our business due to the failure of third parties, including
our service providers, to achieve Year 2000 readiness, which may affect
their ability to provide us services;
- disruption in our loan operations due to the failure of our borrowers to
achieve Year 2000 readiness, which may affect their ability to repay
loans; and
- litigation due to Year 2000 noncompliance by customers, borrowers and
suppliers as a result of both internal and third party system failures.
We have undertaken various initiatives intended to ensure that our computer
applications will function properly with respect to dates in the Year 2000. In
this regard, we have established a Year 2000 action plan based on the guidelines
outlined in the Federal Financial Institutions Examination Council's "The Effect
of 2000 on Computer Systems." However, we cannot assure you that our initiatives
and action plan have identified all costs, risks, or possible losses that we may
experience with respect to Year 2000 issues. Most of our data processing is
provided by third-party vendors who have indicated that their software, systems,
and equipment will be Year 2000 compliant in a timely manner. However, we have
no control over the effective implementation of our vendors' Year 2000
compliance programs and we cannot assure you that they will make the necessary
modifications, conversions, or equipment replacements in a timely fashion. The
failure of our vendors to be Year 2000 compliant in a timely fashion could have
a material adverse impact on our operations. Due to the uncertainty inherent in
the Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third party vendors, borrowers, and customers, we are unable to
determine whether the consequences of the Year 2000 problem will have a material
impact on the results of our operations.
THE LOSS OF CERTAIN KEY PERSONNEL COULD ADVERSELY AFFECT OUR OPERATIONS.
Our success depends on the retention of our key senior executive officers,
including Mr. James D. Delamater, our President and Chief Executive Officer. We
would likely undergo a difficult transition period if we should lose the
services of any or all of these individuals. In recognition of this risk, we own
and are the beneficiary of an insurance policy on the life of Mr. Delamater
providing benefits of $400,000. However, none of the key members of management
have a written employment agreement with us or the Bank.
NBN CAPITAL TRUST
The Trust is a statutory business trust created under Delaware law pursuant
to the filing of a Certificate of Trust with the Delaware Secretary of State on
October 4, 1999. The Trust will be governed by the trust agreement among
Northeast Bancorp, as depositor, Bankers Trust (Delaware), as Delaware trustee,
Bankers Trust Company, as property trustee, two individuals, as administrators,
and holders, from time to time of undivided beneficial interests in the assets
of the Trust. As the sole holder of the common securities, Northeast Bancorp
will select two individuals who are employees or officers of or affiliated with
Northeast Bancorp to serve as the administrators of the Trust. See "Description
of Preferred Securities -- Miscellaneous." The Trust exists for the exclusive
purposes of:
- issuing and selling its preferred and common securities;
18
<PAGE> 20
- investing the proceeds from the sale of the preferred and common
securities to acquire the junior subordinated debentures issued by
Northeast Bancorp; and
- engaging in only those other activities necessary, convenient, or
incidental thereto (such as registering the transfer of the preferred and
common securities).
Accordingly, the junior subordinated debentures will be the sole assets of
the Trust, and payments under the junior subordinated debentures will be the
sole source of revenue of the Trust.
Northeast Bancorp will initially own all of the common securities. The
common securities generally will rank equally, and payments will be made pro
rata, with the preferred securities. However, if Northeast Bancorp defaults on
the junior subordinated debentures by failing to pay any amounts due under the
junior subordinated debentures, then for so long as such default continues the
rights of the holder of the common securities to receive distributions and
payments upon liquidation, redemption or otherwise will be subordinated to the
rights of the holders of the preferred securities. See "Description of Preferred
Securities -- Subordination of Common Securities". Northeast Bancorp will
acquire common securities in an aggregate liquidation amount equal to at least
3% of the total capital of the Trust. The Trust has a term of 31 years, but may
dissolve earlier as provided in the trust agreement.
The address of the Delaware trustee is Bankers Trust (Delaware), 1011
Centre Road, Suite 200, Trust Department, Wilmington, Delaware 19805, and the
telephone number is (302) 636-3301.
The address of the property trustee, the guarantee trustee and the
debenture trustee is Bankers Trust Company, Four Albany Street, 4th Floor, New
York, New York 10006, and the telephone number is (212) 250-2500.
USE OF PROCEEDS
All the proceeds to the Trust from the sale of the preferred securities
will be invested by the Trust in the junior subordinated debentures. The net
proceeds to Northeast Bancorp from the sale of the junior subordinated
debentures are expected to be approximately $ ($ if the
over-allotment option is exercised in full). The net proceeds from the sale of
the junior subordinated debentures will be used by Northeast Bancorp for general
corporate purposes, including:
- contributions to the capital of the Bank to support the capital needs of
the Bank and its subsidiaries,
- financing of possible future acquisitions if, and when, suitable
opportunities arise, and
- a potential repurchase of shares of our common stock.
Pending any such use, Northeast Bancorp may invest the net proceeds in
short-to-medium-term investments. The precise amounts and timing of the
application of proceeds will depend upon the funding requirements of Northeast
Bancorp and its subsidiaries and the availability of other funds.
19
<PAGE> 21
CAPITALIZATION
The following table sets forth (1) the consolidated capitalization of
Northeast Bancorp at June 30, 1999, and (2) the consolidated capitalization of
Northeast Bancorp giving effect to the issuance of the preferred securities. The
table assumes application of the proceeds from the corresponding sale of junior
subordinated debentures to the Trust as if the sale of the preferred securities
had been consummated on June 30, 1999, and as if the underwriter's
over-allotment option was not exercised.
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------
ACTUAL AS ADJUSTED(1)
------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
GUARANTEED PREFERRED BENEFICIAL INTEREST IN
NORTHEAST BANCORP'S SUBORDINATED DEBT (2)............... $ 0 $10,500
STOCKHOLDERS' EQUITY:
Common Stock, $1.00 par value, 15,000,000 shares
authorized and 2,768,624 shares issued and
outstanding............................................. 2,769 2,769
Preferred Stock, $1.00 par value, 1,000,000 shares
authorized; none issued and outstanding................. 0 0
Additional paid-in capital................................ 10,208 10,208
Retained earnings......................................... 14,146 14,146
Unrealized loss on investment securities available for
sale, net............................................... (440) (440)
------- -------
Total stockholders' equity......................... $26,683 $26,683
------- -------
Total capitalization............................... $26,683 $37,183
======= =======
</TABLE>
- ---------------
(1) The amount reflected assumes that the over-allotment option granted to the
underwriter is not exercised.
(2) Preferred securities representing beneficial interests in the aggregate
principal amount of $10,500,000 of the % junior subordinated debentures
of Northeast Bancorp. The junior subordinated debentures will mature on
, 2029.
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust will be treated as a subsidiary
of Northeast Bancorp and, accordingly, the accounts of the Trust will be
included in the consolidated financial statements of Northeast Bancorp. The
preferred securities will be included in the consolidated statement of financial
condition of Northeast Bancorp and appropriate disclosures about the preferred
securities, the guarantee, and the junior subordinated debentures will be
included in the notes to the consolidated financial statements of Northeast
Bancorp. For financial reporting purposes, Northeast Bancorp will record
distributions on the preferred securities as interest expense in the
consolidated statements of income of Northeast Bancorp.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Northeast Bancorp's principal asset is its ownership of the Bank.
Accordingly, Northeast Bancorp's results of operations are primarily dependent
on the results of the operations of the Bank. The principal business of the Bank
consists of attracting deposits from the general public and applying those funds
to originate or acquire residential, commercial, and consumer loans and to make
other permitted investments such as the purchase of investment securities. The
Bank's profitability depends primarily on net interest income, which is the
difference between interest income earned from interest-earning assets (i.e.,
loans and investments) and interest expense incurred on interest-bearing
liabilities (i.e., customer deposits and borrowed funds). Net interest income is
affected by the relative balances of interest-earning assets and
interest-bearing liabilities, and the interest rate paid on these balances.
Net interest income is dependent upon the Bank's interest rate spread,
which is the difference between the average yield earned on its interest-earning
assets and the average rate paid on its interest-bearing liabilities. When
interest-earning assets approximate or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The interest
rate spread is impacted by interest rates, deposit flows, and loan demands.
Northeast Bancorp's profitability also is affected by such factors as the
level of non-interest income and expenses of Northeast Bancorp and the Bank, the
provision for loan losses, and the effective tax rate. Non-interest income
consists primarily of service fees and gains on the sale of loans and investment
securities. Non-interest expenses consist of compensation and benefits,
occupancy related expenses, deposit insurance premiums paid to the FDIC,
expenses of opening branch offices, and other operating expenses.
Although historically the Bank has been primarily a residential mortgage
lender, during the past few years the Bank has begun to expand its commercial
and consumer loan business, increase its line of financial products and
services, and expand its market area. We believe that this strategy will
increase core earnings in the long term by developing stronger interest margins,
additional non-interest income, and increased loan volume. See "-- Financial
Condition -- Lending Activities" and "Business". As part of its expansion and
growth strategy, in fiscal 1998 Cushnoc Bank and Trust Company, a commercial
bank located in Augusta, Maine, was merged into the Bank. In fiscal 1999 the
Bank opened a new full service branch in Lewiston, Maine, and a facility in
Falmouth, Maine from which the Bank accepts loan applications and offers
investment, insurance, and financial planning products.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations presents a review of the consolidated operating results
and financial condition of Northeast Bancorp for the fiscal years ended June 30,
1999, 1998, and 1997. This discussion and analysis is intended to assist you in
understanding the financial condition and results of operation of Northeast
Bancorp and the Bank. You should read this discussion together with your review
of the consolidated financial statements and the related notes and the other
statistical information contained in this prospectus.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1999 AND 1998
For the year ended June 30, 1999, Northeast Bancorp reported net income of
$2,410,452, or basic earnings per share of $0.88 and diluted earnings per share
of $0.86, as compared to $2,403,783, or basic earnings of $1.00 per share and
diluted earnings per share of $0.86, for the year ended June 30, 1998. In 1999,
the decrease in basic net income per share was primarily attributable to the
conversion of outstanding preferred stock into common stock.
Net income in fiscal 1999 was approximately the same as fiscal 1998
although the components of net income changed. While net income was up only
$6,669, or 0.3% for the year ended June 30, 1999, net interest
21
<PAGE> 23
income increased by $833,611, or 7.3%, relative to the 1998 fiscal year. The
increase in net interest income was primarily the result of increased loan
volume which was offset, in part, by a decrease in loan rates. In addition,
non-interest income for the year ended June 30, 1999, increased by approximately
$44,821, or 1.68% as compared to 1998. The net operating income in 1999 also was
benefited from a $96,083 reduction in the provision for loan losses.
This increase in income was offset by a $838,126 increase in non-interest
expense. The increase in non-interest expense was due, in part, to (a) the costs
associated with opening the new branch in Lewiston, Maine and the facility in
Falmouth, Maine, (b) the increased commissions paid to brokers in the investment
sales division due to growth in sales revenue, (c) increased costs associated
with the Company's health insurance and benefit plans, (d) expenses associated
with the relocation of our benefit administration department, and (e) expenses
associated with the upgrade and replacement of our computer and
telecommunication systems.
In the fourth quarter of 1999, Northeast Bancorp dissolved the First New
England Benefits division of the Bank ("FNEB") because it did not attain
sufficient growth to meet revenue expectations. FNEB was a pension and 401(k)
administration company that was purchased by Northeast Bancorp in 1993. A
portion of the operations and certain administrative support staff of FNEB were
transferred to the Bank's trust department. Due to the closure of FNEB,
Northeast Bancorp experienced one-time pretax expense of $290,133 for goodwill,
receivables, and fixed asset write-offs, as well as approximately $140,000 in
pretax other general one-time business expenses that related to the operations
of FNEB during fiscal 1999.
Earnings in 1998 were affected by costs incurred in connection with the
merger of Cushnoc. The one-time costs associated with the merger were
approximately $435,000, before tax, during the year ended June 30, 1998 and were
charged against 1998 earnings. Before taking into account these one-time
charges, Northeast Bancorp's net operating income for the year ended June 30,
1998 would have been $2,686,542.
Northeast Bancorp's total assets at June 30, 1999 were approximately $364.4
million, an increase of $41.9 million, or approximately 13.0%, from June 30,
1998. Most of the increase in assets was the result of an increase of
approximately $37 million in loans. Asset growth was funded by an increase in
deposits and through securities sold under repurchase agreements.
Northeast Bancorp's portfolio loans at June 30, 1999, were approximately
$319.0 million, or 87.5% of total assets. The allowance for loan losses
decreased slightly to $2,924,000 at June 30, 1999 from $2,978,000 at June 30,
1998. This allowance represented 0.92% of total loans at June 30, 1999, as
compared with 1.06% at June 30, 1998. We believe that the current allowance for
loan losses is sufficient to cover reasonably expected losses in the loan
portfolio. See "-- Result of Operations -- Provision for Loan Losses" and
"-- Financial Condition -- Allowance for Loan Losses".
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1998 AND 1997
For the year ended June 30, 1998, Northeast Bancorp reported net income of
$2,403,783, or basic earnings per share of $1.00 and diluted earnings per share
of $0.86, as compared to net income of $1,489,745, or basic earnings per share
of $0.63 and diluted earnings per share of $0.56 for the year ended June 30,
1997. The return on average assets was 0.83% for the year ended June 30, 1998,
as compared to 0.57% for 1997. From the fiscal year ended June 30, 1997 to June
30, 1998, net interest income increased by $828,107 and non-interest income
increased by $585,290.
The increase in interest income was primarily the result of increased loan
volume. Non-interest income increased from 1997 to 1998 for a number of reasons,
including increases in the gains on the sale of loans and the income generated
by the Bank's trust department. Income also was affected by costs incurred in
connection with the acquisition of Cushnoc in 1998 and the special BIF-SAIF
deposit insurance assessment made in 1997 on its savings and loan deposits, both
of which were one-time costs charged against earnings for the periods in which
they were incurred. The Cushnoc acquisition resulted in acquisition costs of
approximately $435,000. Without this one-time charge, the net income of
Northeast Bancorp for the 1998 fiscal year would have been $2,686,542. Further,
pursuant to federal legislation, institutions with SAIF deposits were required
to pay a special assessment on such deposits and, in 1997, the amount of this
special
22
<PAGE> 24
assessment paid by the Bank was approximately $296,860. Because of the one-time
non-interest expenses experienced in 1998 and 1997, overall non-interest
expenses remained relatively flat and increased only slightly during the fiscal
year ended June 30, 1998.
Northeast Bancorp's total assets at June 30, 1998 were approximately $322.5
million, an increase of $38.5 million, or approximately 13.5%, from June 30,
1997. The majority of the increase was invested in loans. Asset growth was
funded by an increase in deposits from continued growth at new and existing
branches, from the sale of investment securities held for sale, and from FHLB
borrowings.
Northeast Bancorp's loan portfolio at June 30, 1998 was approximately
$282.0 million, or 87.4% of total assets. The increase in portfolio loans
included not only mortgage loans, but also a significant increase in consumer
and commercial loans. The allowance for loan losses increased to $2,978,000 at
June 30, 1998 from $2,741,809 at June 30, 1997. The allowance for loan losses
represented 1.06% of total loans at June 30, 1998, as compared with 1.23% at
June 30, 1997.
NET INTEREST INCOME
Net interest income, which constitutes the principal source of income for
Northeast Bancorp, is the difference between interest earned on its
interest-earning assets and the interest accrued on interest-bearing
liabilities. The principal interest-earning assets are loans, investment
securities, FHLB stock, and short-term investments. Interest-bearing liabilities
primarily consist of customer deposits (such as interest paying checking
accounts or NOW accounts, retail savings deposits, money market accounts, and
time deposits), repurchase agreements, and other borrowings. Funds attracted by
these interest-bearing liabilities are invested by the Bank in interest-earning
assets. Accordingly, net interest income will depend on the volume of average
interest-earning assets and average interest-bearing liabilities and the
interest rates earned or paid on them.
Total interest income for the fiscal years ended June 30, 1999, 1998, and
1997 was $26.9 million, $24.3 million, and $21.9 million, respectively, on
average outstanding balances of interest earning assets of approximately $325.9
million, $277.3 million, and $248.0 million, respectively. This increase was due
to the growth in the volume of the total average interest earning assets over
these periods offset by a decrease in the average yield of interest-earning
assets. Interest income from loans for the fiscal years ended June 30, 1999,
1998, and 1997, comprised approximately 93.8%, 90.6%, and 86.5% of the total
interest income from interest-earning assets.
Total interest expense over this period also has grown steadily as the
Bank's deposit liabilities and borrowings have increased. Total interest expense
for the fiscal years 1999, 1998, and 1997, was approximately $14.6 million,
$12.8 million, and $11.3 million, respectively. The increases were due primarily
to the increases in the volume of deposits attracted by the Bank and an
increased level of borrowings by the Bank. The average cost of these
interest-bearing liabilities for the fiscal years ended June 30, 1999, 1998,
1997, was 4.94%, 5.13%, and 5.02%, respectively.
Net interest income was $12.3 million, $11.5 million, and $10.6 million for
each of the fiscal years ended June 30, 1999, 1998, and 1997. The increases in
net interest income during this period were due to the growth in loan volume
which was partially offset by the growth in deposits and borrowings and a
decrease in the net yield on interest-earning assets. The net yield on average
earning assets was 3.78%, 4.14%, and 4.29%, for 1999, 1998, and 1997,
respectively. This decrease in the net yield of average earning assets was due
to the steady decrease in interest rates earned on interest-earning assets
because of the declining interest rate environment in the marketplace.
23
<PAGE> 25
COMPARATIVE AVERAGE BALANCES, INTEREST, AND AVERAGE YIELDS
The following table shows for each category of interest-earning assets and
interest-bearing liabilities, the average amount outstanding, the interest
earned or paid on such amount, and the average rate earned or paid for the years
ended June 30, 1999, 1998, and 1997. This table also show the average rate
earned on all interest-earning assets, the average rate paid on all
interest-bearing liabilities, and the net yield on average interest-earning
assets for the same periods.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------- ---------------------------- ----------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- -------- ------ -------- -------- ------ -------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment securities (1).......... $ 15,413 $ 958 6.22% $ 21,799 $ 1,461 6.70% $ 32,024 $ 2,285 7.14%
Loans (2)(3)....................... 297,690 25,179 8.46 240,859 21,989 9.13 203,934 18,974 9.30
FHLB stock......................... 5,680 364 6.41 4,647 301 6.48 3,531 227 6.43
Short-term investments (4)......... 7,157 356 4.97 9,951 532 5.35 8,474 450 5.31
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-earning
assets/interest
income/average rates
earned..................... $325,940 $26,857 8.24% $277,256 $24,283 8.76% $247,963 $21,936 8.85%
-------- ------- ---- -------- ------- ---- -------- ------- ----
NON-INTEREST EARNING ASSETS:
Cash and due from banks............ $ 5,099 $ 4,516 $ 4,182
Bank premises and equipment, net... 4,839 4,597 4,609
Other assets....................... 6,912 7,061 7,038
Allowance for loan losses.......... (2,955) (2,867) (2,769)
-------- -------- --------
Total non-interest earning
assets..................... 13,895 13,307 13,060
-------- -------- --------
Total assets................. $339,835 $290,563 $261,023
======== ======== ========
INTEREST-BEARING LIABILITIES:
NOW................................ $ 31,162 $ 933 2.99% $ 15,400 $ 269 1.75% $ 14,813 $ 216 1.46%
Money market....................... 8,938 210 2.35 14,002 467 3.34 15,902 537 3.38
Savings............................ 20,068 515 2.57 21,289 570 2.68 22,142 592 2.67
Time............................... 125,802 7,022 5.58 108,580 6,281 5.78 100,485 5,758 5.73
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-bearing
deposits................... 185,970 8,680 4.67 159,271 7,587 4.76 153,342 7,103 4.63
-------- ------- ---- -------- ------- ---- -------- ------- ----
Repurchase agreements.............. 8,202 340 4.15 4,917 206 4.19 4,566 200 4.38
Borrowed funds..................... 100,074 5,530 5.53 85,686 5,017 5.86 67,037 3,988 5.95
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities/interest
expense/average rate
paid....................... $294,246 $14,550 4.94% $249,874 $12,810 5.13% $224,945 $11,291 5.02%
-------- ------- ---- -------- ------- ---- -------- ------- ----
TOTAL NON-INTEREST BEARING
LIABILITIES:
Demand deposit and escrow
accounts......................... $ 17,132 $ 15,480 $ 13,380
Other liabilities.................. 2,194 1,983 1,576
-------- -------- --------
Total liabilities............ $313,572 $267,337 $239,901
Stockholders' equity............... 26,263 23,226 21,122
-------- -------- --------
Total liabilities and
stockholders' equity....... $339,835 $290,563 $261,023
======== ======== ========
Net interest income................ $12,307 $11,473 $10,645
======= ======= =======
Interest rate spread............... 3.30% 3.63% 3.83%
==== ==== ====
Net yield on average earning assets
(5).............................. 3.78% 4.14% 4.29%
==== ==== ====
</TABLE>
- ---------------
(1) Principally taxable. The yield information does not give effect to changes
in fair value that are reflected as a component of stockholders' equity.
(2) Non-accruing loans are included in computation of average balance.
(3) Interest income on loans includes fees (costs) of ($590) in 1999, ($10) in
1998, and $35 in 1997.
(4) Short-term investments include FHLB overnight deposits, and interest-earning
deposits and dividends.
(5) The net yield on average earning assets is the net interest income divided
by average interest-earning assets.
The effect on interest income, interest expense, and net interest income
for the periods indicated, of changes in average balance and rate, is shown
below for Northeast Bancorp. The effect of a change in average balance has been
determined by applying the average rate at the year-end for the earlier period
to the change
24
<PAGE> 26
in average balance at the year-end for the later period. Changes from average
balance/rate are spread proportionately between changes resulting from volume
and changes resulting from rate.
RATE/VOLUME INTEREST ANALYSIS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------------------------------------------------
1999 COMPARED TO 1998 1998 COMPARED TO 1997
--------------------------------------- ---------------------------------------
INCREASE (DECREASE) DUE TO CHANGE IN: INCREASE (DECREASE) DUE TO CHANGE IN:
--------------------------------------- ---------------------------------------
AVERAGE AVERAGE TOTAL AVERAGE AVERAGE TOTAL
VOLUME(1) RATE CHANGE VOLUME(1) RATE CHANGE
------------ ---------- --------- ------------ ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Investment securities................ $ (398) $ (105) $ (503) $ (795) $ (29) $ (824)
Loans, net (2)....................... 4,898 (1,708) 3,190 3,377 (362) 3,015
FHLB stock........................... 66 (3) 63 72 1 73
Short-term investments (3)........... (141) (35) (176) 79 4 83
------ ------- ------ ------ ----- ------
Total interest income......... $4,425 $(1,851) $2,574 $2,733 $(386) $2,347
====== ======= ====== ====== ===== ======
INTEREST BEARING LIABILITIES:
NOW.................................. $ 391 $ 272 $ 663 $ 9 $ 44 $ 53
Money market......................... (141) (116) (257) (64) (7) (71)
Savings.............................. (32) (23) (55) (23) 1 (22)
Time................................. 968 (226) 742 468 55 523
------ ------- ------ ------ ----- ------
Total interest on deposits.... 1,186 (93) 1,093 390 93 483
Repurchase agreements................ 136 (3) 133 15 (8) 7
Borrowed funds....................... 756 (242) 514 1,093 (64) 1,029
------ ------- ------ ------ ----- ------
Total interest expense........ $2,078 $ (338) $1,740 $1,498 $ 21 $1,519
====== ======= ====== ====== ===== ======
Change in net interest income.......... $2,347 $(1,513) $ 834 $1,235 $(407) $ 828
====== ======= ====== ====== ===== ======
</TABLE>
- ---------------
(1) Non-accruing loans are excluded from the average volumes used in calculating
this table.
(2) Includes loan fees (costs) of ($590) in 1999, ($10) in 1998, and $35 in
1997.
(3) Short-term investments include FHLB overnight deposits, and interest-earning
deposits and dividends.
PROVISION FOR LOAN LOSSES
The loan loss provision recorded for the fiscal year ended June 30, 1999
was $610,017 as compared to $706,100 and $614,427 for 1998 and 1997,
respectively. The decrease in the loan loss provision in 1999 as compared to
1998 was consistent with a decrease in delinquent and non-performing loans. The
level of the resulting allowance for loan loss, however, was a lower percentage
of Northeast Bancorp's total loans. See "--Financial Condition -- Allowance for
Loan Losses."
NON-INTEREST INCOME
Non-interest income for the fiscal year ended June 30, 1999 was $2,716,352,
as compared to $2,671,531 for the fiscal year ended June 30, 1998, and
$2,086,241 for the fiscal year ended June 30, 1997. The increase in non-interest
income in 1999 as compared to 1998 was primarily due to an increase on the sale
of loans and in service charges and fees. Service charges and fees increased in
1999 as compared to 1998 as a result of loan and deposit growth. Gains on the
sale of loans amounted to $817,084 for fiscal 1999, which represents an increase
of $90,485 from fiscal 1998. The increase in gain on sale of loans in fiscal
1999, when compared to 1998, was due to an increase of $4,329,681 in loans sold,
including in 1999, indirect automobile loans. The increase in non-interest
income for this period was offset, in part, by a decrease in the gains received
from the sale of securities. The increase in non-interest income in 1998 as
compared to 1997 was primarily the result of a $525,181 increase in gains on the
sale of loans in 1998. This was due to sales of residential and SBA guaranteed
loans. During both 1999 and 1998, loans were sold from Northeast Bancorp's
portfolio to improve its asset/liability management position while at the same
time taking advantage of market prices.
25
<PAGE> 27
During 1999, Northeast Bancorp also experienced an increase in revenue of
approximately $67,888 in other income generated primarily from its trust
department, insurance division, and revenues from the sale of investments to
customers through its relationship with Commonwealth Financial Services, Inc.
The following table summarizes the major components of non-interest income
for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------
1999 1998 1997
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fees and service charges on loans...................... $ 288 $ 207 $ 194
Fees for other services to customers................... 660 596 658
Gain on sale of securities............................. 95 288 259
Gain on sale of loans.................................. 817 727 201
Loan servicing fees.................................... 161 227 276
Other income........................................... 695 627 498
------ ------ ------
Total........................................ $2,716 $2,672 $2,086
====== ====== ======
</TABLE>
NON-INTEREST EXPENSE
Non-interest expenses for the fiscal year ended June 30, 1999 were
$10,569,843, as compared to $9,731,717 for the fiscal year ended June 30, 1998
and $9,718,337 for the fiscal year ended June 30, 1997. For the years ended June
30, 1999, 1998, and 1997, non-interest expenses were 3.1%, 3.3%, and 3.7%,
respectively, of average assets. The largest component, salaries and employee
benefits, were approximately 46.3%, 47.7%, and 47.5%, respectively, of such
non-interest expenses for 1999, 1998, and 1997. The increase in non-interest
expenses in 1999 was due primarily to the expenses associated with the opening
of the new Lewiston, Maine branch office, the Falmouth facility, and the
dissolution of FNEB.
As a result of these activities, during the 1999 fiscal year Northeast
Bancorp paid:
- increased salary and compensation expenses for the additional staff hired
for the new facilities;
- increased occupancy expenses for:
-- additional lease obligations, and
-- a one-time penalty incurred for terminating an existing lease in
connection with the relocation of the benefits administration
department; and
- increased costs for supplies and equipment.
Salaries and benefits also increased as the result of rising costs
associated with Northeast Bancorp's health insurance plan. Such amounts include
increased commissions paid to brokers in the investment sales division due to
growth in sales revenue.
Due to the closure of FNEB during the fourth quarter of fiscal 1999,
Northeast Bancorp has experienced one-time pretax expenses of $290,133 for
goodwill, receivables, and fixed asset write-offs, as well as approximately
$140,000 in pretax other one-time general expenses related to the operations of
FNEB.
The increase in non-interest expenses in 1998 was due primarily to
increases in operating expenses related to the growth of Northeast Bancorp's
assets and the expenses associated with the acquisition of Cushnoc. These
expenses were offset, in part, by a reduction in the costs of FDIC insurance
premiums in 1998 as compared to 1997 when a special FDIC insurance payment was
assessed on the Bank's SAIF-insured deposits.
26
<PAGE> 28
The following table summarizes the various categories of non-interest
expense for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------
1999 1998 1997
------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Salaries and employee benefits........................ $ 4,889 $4,639 $4,615
Occupancy expense..................................... 975 904 783
Equipment expenses.................................... 888 864 894
FDIC Insurance........................................ 63 60 390
Goodwill amortization................................. 462 296 296
Other expenses........................................ 3,293 2,969 2,740
------- ------ ------
Total....................................... $10,570 $9,732 $9,718
======= ====== ======
</TABLE>
INCOME TAX EXPENSE
For the three years ended June 30, 1999, 1998, and 1997, income tax
provisions totaling $1,432,591, $1,302,871, and $908,565, were recorded. The
increases in the tax provision for 1999 from 1998, and for 1998 from 1997, were
a result of increased earnings during each succeeding period. The goodwill
write-off for FNEB did not impact the 1999 income tax expense since it is not a
tax deductible expense. The combined effective tax rates for the years ended
1999, 1998, and 1997 were 37.4%, 35.1%, and 37.9% respectively.
ASSET/LIABILITY MANAGEMENT
Northeast Bancorp's business primarily consists of the savings and loan
activities of the Bank. Accordingly, the success of Northeast Bancorp is largely
dependent on its ability to manage interest rate risk. This is the risk that
changes in interest rates may adversely affect net interest income.
Generally, interest rate risk results from differences in repricing
intervals or maturities between interest-earning assets and interest-bearing
liabilities, the components of which comprise the interest rate spread. When
such differences exist, a change in the level of interest rates will most likely
result in an increase or decrease in net interest income. Although Northeast
Bancorp regularly manages other risks, such as credit and liquidity risk,
management considers interest rate risk to be one of the most significant
factors that affects earnings. Asset liability management refers to efforts to
minimize the fluctuations in net interest income caused by interest rate
changes. Interest rate risk management is the responsibility of the
Asset/Liability Management Committee (ALCO), which reports to the board of
directors of the Bank. The ALCO meets regularly to establish policies that
monitor and coordinate the sources, uses, and pricing of funds and to review the
Bank's progress in reducing its vulnerability to changing interest rates. The
ALCO is involved in formulating the economic projections for the Bank's budget
and strategic plan.
One measure of Northeast Bancorp's exposure to interest rate risk is the
difference between interest rate sensitive assets and liabilities for the
periods being measured, commonly referred to as the "gap" for such period. An
asset or liability is considered interest rate sensitive if it will reprice or
mature within the time period being analyzed. Controlling the maturity or
repricing of an institution's liabilities and assets in order to minimize
interest rate risk is commonly referred to as gap management. A gap is
considered positive when the amount of interest rate sensitive assets exceeds
the amount of interest rate sensitive liabilities. When the opposite occurs, the
gap is considered to be negative. During periods of increasing interest rates,
negative gap would tend to adversely affect income while a positive gap would
tend to result in net interest income. During periods of decreasing interest
rates, the inverse would tend to occur. If the maturities of interest rate
sensitive assets and liabilities were equally flexible and moved concurrently,
the impact of any material or prolonged increase or decrease in interest rates
or net interest income on existing assets or liabilities would be minimal. It is
common to focus on the one year gap, which is the difference between the dollar
amount of assets and the dollar amount of liabilities maturing or repricing
within the next twelve months.
Principal among the asset/liability management strategies has been the
emphasis on managing its interest rate sensitive liabilities in a manner
designed to attempt to reduce exposure during periods of fluctuating
27
<PAGE> 29
interest rates. To accomplish this, management has undertaken steps to increase
the percentage of variable rate assets as a percentage of its total
interest-earning assets. In recent years, the focus has been to originate
adjustable rate residential and commercial real estate loans, which reprice or
mature more quickly than fixed-rate real estate loans. The Bank also originates
adjustable-rate consumer loans and commercial business loans. The Bank's
adjustable-rate loans are primarily tied to published indices, such as the Wall
Street Journal prime rate and one year U.S. Treasury Bills. Further, because
Northeast Bancorp has designated its regular savings, NOW, and money market
accounts as core deposits for the purpose of its internal asset/liability
analysis and has assigned these deposits in the five year or greater maturity
category (rather than in the one year or less category), we do not consider our
gap position to be as negative as it would otherwise appear to be. We believe
that the Bank is slightly asset sensitive based on our own internal analysis
which matches core deposits to long term assets. We believe that a slightly
asset sensitive position is appropriate for the Bank since interest rates
historically tend to rise faster than they decline.
The following table presents the interest rate sensitive assets and
liabilities of Northeast Bancorp at June 30, 1999, which are expected to mature
or are subject to repricing in each of the time periods indicated. The tables
may not be indicative of Northeast Bancorp's rate sensitive position at other
points in time. The balances have been derived based on the financial
characteristics of the various assets and liabilities. Adjustable and floating
rate assets are included in the period in which interest rates are next
scheduled to adjust rather than their scheduled maturity dates. Fixed rate loans
are shown in the periods in which they are scheduled to be repaid.
INTEREST RATE SENSITIVITY ANALYSIS AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
TERM TO REPRICING OR MATURITY
------------------------------------------------------------------------------
91-180 181 DAYS DUE WITHIN DUE AFTER % OF
90 DAYS DAYS TO 365 DAYS 1-5 YEARS 5-YEARS TOTAL TOTAL
-------- -------- ----------- ---------- --------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment securities........... $ 1,727 $ 0 $ 0 $ 344 $ 15,983 $ 18,054 5.18%
FHLB Stock...................... 0 0 0 0 5,680 5,680 1.63
Short-term investments (1)...... 7,441 0 0 0 0 7,441 2.13
Mortgage loans:
Residential mortgages:
Fixed rate loans............ 41 2 239 1,815 105,926 108,023 30.97
Variable loans.............. 15,964 12,153 18,300 27,701 103 74,221 21.28
Commercial real estate........ 14,594 1,311 3,099 32,622 3,812 55,438 15.89
Construction.................. 685 475 526 0 0 1,686 0.48
Other Loans:
Commercial.................... 12,314 54 434 16,627 5,218 34,647 9.93
Consumer and installment...... 1,687 134 317 17,649 23,856 43,643 12.51
-------- -------- --------- -------- -------- -------- ------
Total loans.............. 45,285 14,129 22,915 96,414 138,915 317,658 91.06
-------- -------- --------- -------- -------- -------- ------
Total interest-earning
assets................. 54,453 14,129 22,915 96,758 160,578 348,833 100.00
-------- -------- --------- -------- -------- -------- ------
INTEREST-BEARING LIABILITIES:
Customer deposits:
NOW accounts.................. 31,203 0 0 0 0 31,203 9.82
Money market accounts......... 7,156 0 0 0 0 7,156 2.25
Regular savings............... 22,000 0 0 0 0 22,000 6.92
Certificates of deposit....... 31,112 21,557 45,779 42,627 38 141,113 44.39
-------- -------- --------- -------- -------- -------- ------
Total customer
deposits............... 91,471 21,557 45,779 42,627 38 201,472 63.38
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
TERM TO REPRICING OR MATURITY
------------------------------------------------------------------------------
91-180 181 DAYS DUE WITHIN DUE AFTER % OF
90 DAYS DAYS TO 365 DAYS 1-5 YEARS 5-YEARS TOTAL TOTAL
-------- -------- ----------- ---------- --------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Borrowings:
Repurchase agreements........... $ 11,868 $ 0 $ 0 $ 0 $ 0 $ 11,868 $ 3.73
Other borrowings................ 25,076 2,077 15,153 19,264 43,000 104,570 32.89
-------- -------- --------- -------- -------- -------- ------
Total borrowings......... 36,944 2,077 15,153 19,264 43,000 116,438 36.62
======== ======== ========= ======== ======== ======== ======
Total interest-bearing
liabilities............ $128,415 $ 23,634 $ 60,932 $ 61,891 $ 43,038 $317,910 100.00%
======== ======== ========= ======== ======== ======== ======
Interest sensitivity gap........ $(73,962) $ (9,505) $ (38,017) $ 34,867 $117,540 $ 30,923
======== ======== ========= ======== ======== ======== ======
Cumulative gap.................. $(73,962) $(83,467) $(121,484) $(86,617) $ 30,923
-------- -------- --------- -------- --------
Cumulative gap ratio............ 42.40 45.11 42.96 68.49 109.73
-------- -------- --------- -------- --------
Cumulative gap as a percentage
of total assets............... -20.30% -22.91% -33,34% -23.77% 8.49%
======== ======== ========= ======== ========
</TABLE>
- ---------------
(1) Includes investment securities, FHLB overnight deposits, interest earning
deposits, and loans held for sale.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the ALCO also evaluates how the repayment of particular
assets and liabilities is impacted by changes in interest rates. Income
associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or periods
of repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest rates on
other types may lag behind changes in general market rates. In addition, certain
assets, such as adjustable rate mortgage loans, have features (generally
referred to as "interest rate caps") which limit changes in interest rates on a
short-term basis and over the life of the asset. In the event of a change in
interest rates, prepayment and early withdrawal levels also could deviate
significantly from those assumed in calculating the interest rate gap. The
ability of many borrowers to service their debts also may decrease in the event
of an interest rate increase.
The table below presents in tabular form contractual balances of Northeast
Bancorp's financial instruments that are interest rate sensitive at the expected
maturity dates as well as the fair value of those financial instruments that are
interest rate sensitive for the period ended June 30, 1999, with comparative
summary balances for 1998. The expected maturity categories take into
consideration historical prepayment speeds as well as actual amortization of
principal and do not take into consideration reinvestment of cash. Principal
prepayments are the amounts of principal reduction, over and above normal
amortization, that Northeast Bancorp has experienced in the past twenty-four
months. Northeast Bancorp's assets and liabilities that do not have a stated
maturity date, as in cash equivalents and certain deposits, are considered to be
long term in nature by Northeast Bancorp and are reported in the "Thereafter"
column. Northeast Bancorp does not consider these financial instruments
materially sensitive to interest rate fluctuations and historically the balances
have remained fairly consistent over various economic conditions. The interest
rate table for loans
29
<PAGE> 31
reflects contractual maturity and does not indicate repricing in variable rate
loans. Variable rate loans reprice in the fiscal years as follows:
- Fiscal year 2000 -- $76,960,496
- Fiscal year 2001 -- $13,479,884
- Fiscal year 2002 -- $22,668,642
- Fiscal year 2003 -- $9,411,503
- Fiscal year 2004 -- $13,408,882
The weighted average interest rates for the various assets and liabilities
presented are actual as of June 30, 1999.
The fair value of interest bearing deposits at other banks and interest
receivable approximate their book values due to their short maturities. The fair
value of available for sale securities are based on bid quotations from security
dealers or on bid prices published in financial newspapers. FHLB stock does not
have a market and the fair value is unknown. The fair value of loans are
estimated in portfolios with similar financial characteristics and takes into
consideration discounted cash flows through the estimated maturity or repricing
dates using estimated market discount rates that reflect credit risk. The fair
value of loans held for sale is based on bid quotations from loan dealers. The
fair value of demand deposits, NOW, money market, and savings accounts is the
amount payable upon demand. The fair value of time deposits is based upon the
discounted value of contractual cash flows, which is estimated using current
rates offered for deposits of similar remaining terms. The fair value of
repurchase agreements approximates the carrying value due to their short
maturity. The fair value of FHLB borrowings is estimated by discounting the cash
flows through maturity or the next repricing date based on current rates offered
by the FHLB for borrowings with similar maturities. The fair value of the note
payable approximates the carrying value due to the note payable's interest rate
approximating market rates. There have been no substantial changes in Northeast
Bancorp's market risk from the preceding year and the assumptions are consistent
with prior year assumptions.
30
<PAGE> 32
MARKET RISK TABLE AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
-----------------------------------------------------------------------
1999
6/30/00 6/30/01 6/30/02 6/30/03 6/30/04 THEREAFTER TOTAL
------- ------- ------- ------- ------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL ASSETS:
Interest Bearing
Deposits
Variable Rate...... $ -- $ -- $ -- $ -- $ -- $7,130 $ 7,130
Weighted Average
Interest Rate.... -- -- -- -- -- 5.54% 5.54%
Available for Sale
Securities......... 2,831 1,225 1,291 1,420 1,755 10,198 18,720
Weighted Average
Interest Rate.... 6.31% 6.60% 6.57% 6.57% 6.48% 6.58% 6.52%
FHLB Stock (1)....... -- -- -- -- -- 5,681 5,681
Weighted Average
Interest Rate.... -- -- -- -- -- 6.55% 6.55%
Loans Held For Sale
Fixed Rate......... 312 -- -- -- -- -- 312
Weighted Average
Interest Rate.... 7.53% -- -- -- -- -- 7.53%
Loans
Fixed Rate Loans... 16,181 16,877 20,539 25,376 35,080 68,100 182,153
Weighted Average
Interest Rate.... 8.58% 8.90% 9.00% 9.19% 9.10% 8.45% 8.75%
Variable Rate
Loans............ 16,821 13,109 13,491 16,960 20,053 56,399 136,833
Weighted Average
Interest Rate.... 8.73% 8.63% 8.64% 8.54% 8.46% 8.54% 8.58%
Interest
Receivable......... 1,991 -- -- -- -- -- 1,991
FINANCIAL LIABILITIES:
NOW/Money
Market/Savings..... -- -- -- -- -- 60,359 60,359
Weighted Average
Interest Rate.... -- -- -- -- -- 2.41% 2.41%
Time Deposits........ 98,448 30,405 9,190 1,996 1,036 38 141,113
Weighted Average
Interest Rate.... 5.26% 5.47% 6.11% 5.58% 5.30% 4.97% 5.37%
Repurchase Agreements
Fixed Rate......... -- -- -- -- -- -- --
Weighted Average
Interest Rate.... -- -- -- -- -- -- --
Variable Rate...... 11,868 -- -- -- -- -- 11,868
Weighted Average
Interest Rate.... 4.07% -- -- -- -- -- 4.07%
FHLB Advances
Fixed Rate......... 42,000 3,148 2,816 9,516 3,402 43,000 103,882
Weighted Average
Interest Rate.... 5.29% 5.23% 5.65% 5.75% 5.95% 5.29% 5.36%
Variable Rate...... -- -- -- -- -- -- --
Weighted Average
Interest Rate.... -- -- -- -- -- -- --
Note Payable
Fixed Rate......... 306 306 76 -- -- -- 688
Weighted Average
Interest Rate.... 8.00% 8.00% 8.00% -- -- -- 8.00%
<CAPTION>
EXPECTED MATURITY DATE
----------------------------------
1999 1998 1998
FAIR VALUE TOTAL FAIR VALUE
---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FINANCIAL ASSETS:
Interest Bearing
Deposits
Variable Rate...... $ 7,130 $ 5,330 $ 5,330
Weighted Average
Interest Rate.... 5.76%
Available for Sale
Securities......... 18,054 13,707 13,609
Weighted Average
Interest Rate.... 6.58%
FHLB Stock (1)....... 5,681 5,681 5,681
Weighted Average
Interest Rate.... 6.40%
Loans Held For Sale
Fixed Rate......... 315 370 372
Weighted Average
Interest Rate.... 7.08%
Loans
Fixed Rate Loans... 172,834 128,496 129,220
Weighted Average
Interest Rate.... 9.29%
Variable Rate
Loans............ 135,853 153,535 152,800
Weighted Average
Interest Rate.... 9.04%
Interest
Receivable......... 1,991 1,934 1,934
FINANCIAL LIABILITIES:
NOW/Money
Market/Savings..... 60,359 55,729 55,729
Weighted Average
Interest Rate.... 2.90%
Time Deposits........ 141,352 113,086 113,488
Weighted Average
Interest Rate.... 5.75%
Repurchase Agreements
Fixed Rate......... -- 504 504
Weighted Average
Interest Rate.... 5.20%
Variable Rate...... 11,868 4,702 4,702
Weighted Average
Interest Rate.... 4.09%
FHLB Advances
Fixed Rate......... 99,986 103,440 101,052
Weighted Average
Interest Rate.... 5.55%
Variable Rate...... -- 1,000 1,000
Weighted Average
Interest Rate.... 5.95%
Note Payable
Fixed Rate......... 688 993 993
Weighted Average
Interest Rate.... 8.00%
</TABLE>
- ---------------
(1) FHLB stock does not have a market; therefore, its fair value is unknown.
Because a gap analysis may not adequately address the interest rate risk,
Northeast Bancorp also utilizes a simulation model to analyze net interest
income sensitivity to movements in interest rates. The simulation model projects
net interest income based on both an immediate rise or fall in interest rates
(rate shock) over a twelve and twenty-four month period. The model is based on
the actual maturity and repricing
31
<PAGE> 33
characteristics of interest rate sensitive assets and liabilities. The model
incorporates assumptions regarding the impact of changing interest rates on the
prepayment rate of certain assets and liabilities. The assumptions are based on
Northeast Bancorp's historical prepayment speeds on assets and liabilities when
interest rates increase or decrease by 200 basis points or greater. The model
factors in projections for anticipated activity levels by product lines offered
by Northeast Bancorp. The simulation model also takes into account Northeast
Bancorp's increased ability to control the rates on deposit products rather than
over adjustable-rate loans tied to published indices. Based on the information
and assumptions in effect at June 30, 1999, management believes that a 200 basis
point rate shock over a twelve month period, up or down, would not significantly
affect Northeast Bancorp's annualized net interest income.
FINANCIAL CONDITION
Northeast Bancorp had total assets of $364,382,905 and $322,532,594 at June
30, 1999 and June 30, 1998, respectively, an increase of approximately 13.0%.
The increase in assets is primarily due to loan growth. Loan volume has been
enhanced during the 1999 fiscal year due to whole loan purchases on the
secondary market, increased generation of commercial loans, and its
participation in the indirect automobile lending market. The increase in loans
has been funded with increased deposits and securities sold under repurchase
agreements. Northeast Bancorp has focused its business development efforts on
full service credit packages and financial services, as well as competitively
priced mortgage packages. Northeast Bancorp believes that its level of capital
is adequate. Its current capital plan, which includes the net proceeds from this
offering, will support future growth and development as well as allow for
additional provisions to the allowance for loan losses, if needed, without
significant impairment of the financial stability of Northeast Bancorp. As of
June 30, 1999 and June 30, 1998, respectively, Northeast Bancorp's total equity
represented approximately 7.32% and 7.79% of its total assets.
LENDING ACTIVITIES
The Bank, as a savings institution, has historically focused its lending
activities on originating and purchasing conventional mortgage loans for the
purpose of constructing, financing, or refinancing one-to-four family
residential properties, multifamily (i.e., more than four units) properties, and
commercial properties. During the past few years, however, additional emphasis
has been placed on consumer lending and small business, home equity, and
commercial loans. The Bank also has developed the ability to generate, and
pursues, indirect lending through local automobile dealerships and sellers of
mobile homes.
LOAN PORTFOLIO COMPOSITION. At June 30, 1999 and 1998, total loans
included portfolio loans of approximately $319.0 million and $282.0 million,
respectively. Loans held for sale are immaterial in amount. Portfolio loans
represent approximately 87.5% and 87.4% of Northeast Bancorp's total assets at
June 30, 1999 and 1998, respectively. The growth in net loans for the fiscal
years ended June 30, 1999 and 1998 primarily consisted of an increase in 1-4
family residential, consumer and commercial loans.
From time to time, Northeast Bancorp also has purchased mortgage loans in
the secondary market to increase its overall portfolio yield, reduce the average
maturity of its portfolio, diversify its geographic risk, and utilize excess
liquidity. During the year ended June 30, 1999, Northeast Bancorp purchased
approximately $27.9 million in fixed rate residential mortgages secured by
property located primarily in the States of North Carolina and New York. During
the 1998 fiscal year, Northeast Bancorp purchased approximately $66.3 million in
adjustable and fixed rate residential mortgages secured by property located
primarily in the State of Maine and various midwestern states. The continued
expansion into new markets diversifies the credit risk and the potential
economic risks of the credits held in Northeast Bancorp's purchased loan
portfolio. Northeast Bancorp's local market, as well as the secondary market,
continues to be very competitive for loan origination volume. The local
competitive environment and customer response to favorable secondary market
rates have adversely affected Northeast Bancorp's ability to increase the loan
portfolio. In an effort to increase loan volume, the Bank's interest rates for
its loan products have been reduced to compete in the various markets. Northeast
Bancorp has experienced margin compression due to decreased loan rates and
32
<PAGE> 34
anticipates that margin compression will continue for the foreseeable future
until loan volume increases in the current rising interest rate environment.
Approximately 20% of the Bank's loan portfolio is comprised of floating
rate loans based on a prime rate index. Interest income on these existing loans
will increase as the prime rate increases, as well as approximately 23% of other
loans in the Bank's portfolio that are based on short-term rate indices such as
the one-year treasury bill. An increase in short-term interest rates also will
increase deposit and FHLB advance rates, increasing the Bank's interest expense.
Although the Bank has experienced net interest margin compression, the impact on
net interest income will depend on, among other things, actual rates charged on
the Bank's loan portfolio, deposit and advance rates paid by the Bank, and loan
volume.
In 1998, Northeast Bancorp established a new automobile dealer finance
department to generate indirect automobile loans, and the increase in consumer
loans was due, in part, to the volume generated from this department. During the
1999 fiscal year, Northeast Bancorp sold approximately $9.8 million of indirect
automobile loans. Northeast Bancorp anticipates holding approximately $15.0
million to $20.0 million of indirect automobile loans in its portfolio and, as
of June 30, 1999, Northeast Bancorp held approximately $18.1 million of these
loans. As Northeast Bancorp continues to grow the indirect automobile portfolio,
Northeast Bancorp intends to build relationships with other institutions for
future sales of its indirect automobile loans.
The following table summarizes the composition of Northeast Bancorp's loan
portfolio (excluding loans held for sale) by type of loan on the dates
indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------- --------------- --------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TYPE OF LOAN:
Residential mortgage..... $182,244 57.4 $171,903 61.1 $139,633 62.7 $116,273 62.0 $120,762 64.2
Commercial real estate... 55,438 17.5 47,053 16.7 46,443 20.8 37,270 19.9 33,000 17.5
Construction............. 1,686 0.5 2,100 0.8 2,597 1.2 2,769 1.5 2,391 1.3
Commercial............... 34,647 10.9 26,967 9.6 19,421 8.7 16,761 8.9 15,597 8.3
Consumer and other....... 43,643 13.7 33,305 11.8 14,792 6.6 14,491 7.7 16,400 8.7
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total loans....... 317,658 100 281,328 100 222,886 100 187,564 100 188,150 100
==== ==== ==== ==== ====
LESS:
Allowance for loan
losses................. (2,924) (2,978) (2,742) (2,761) (2,661)
Net deferred costs
(fees)................. 1,328 703 (204) (354) (373)
-------- -------- -------- -------- --------
Total loans,
net............. $316,062 $279,053 $219,940 $184,449 $185,116
======== ======== ======== ======== ========
</TABLE>
Real Estate Loans. Real estate loans represent the largest class of loans
of Northeast Bancorp. Real estate loans are classified as follows:
- 1 to 4 Family Residential. Loans in this category consist primarily of
owner-occupied residential loans. As of June 30, 1999 and 1998, the
percentage of these loans which were variable rate loans was 40% and 54%,
respectively. It has been management's intent to increase the proportion
of variable rate residential real estate loans to reduce the interest
rate risk. Northeast Bancorp has primarily purchased adjustable rate
residential loans and sold fixed rate residential loans. However, during
fiscal 1999, Northeast Bancorp purchased $27,913,995 of residential whole
loans on the secondary market which consisted of 1-4 family fixed rate
residential loans secured by property in North Carolina and New York. The
purchase of fixed rate loans improved Northeast Bancorp's asset/liability
management position during the declining rate environment earlier in the
fiscal year. Interest rates began to rise late in the fiscal year. Due to
this change in the interest rate environment, management will return to
its strategy of increasing the percentage of variable rate loans held in
its total loan portfolio in an effort to manage its interest rate risk.
33
<PAGE> 35
- Commercial real estate. Commercial real estate loans have increased
consistently with the overall increase in the loan portfolio of the Bank,
representing approximately the same percentage of total loans at June 30,
1999 as at June 30, 1998. Most of these loans are variable rate
mortgages. However, the aggregate dollar amount of such variable rate
loans have decreased slightly from June 30, 1998 to June 30, 1999.
- Construction. Construction lending consists primarily of residential
mortgages with terms of one year or less. The amount of these loans has
decreased slightly from June 30, 1998 to June 30, 1999.
- Held for Sale. Loans held for sale represent residential loans intended
to be sold in the secondary market. These loans are immaterial in amount.
Commercial Loans. This category of loan is comprised of loans to local
businesses involved primarily in light manufacturing, service, retail, and
wholesale activities. The amount of these loans held by Northeast Bancorp has
increased slightly as a percentage of the total loan portfolio.
Consumer and Other Loans. This category of loans is comprised of consumer
and other loans that include automobile, mobile home, boat, and personal lines
of credit. The increase in these loans in recent periods is primarily due to the
volume generated from the automobile dealer finance department. These loans are
mostly fixed rate loans.
LOAN MATURITY SCHEDULE. The following table sets forth the maturities of
loans outstanding as of June 30, 1999.
<TABLE>
<CAPTION>
AT JUNE 30, 1999
------------------------------------------------------------------------
DUE AFTER 1 DUE AFTER 5
DUE IN 1 YEAR BUT YEARS BUT DUE AFTER
YEAR OR LESS BEFORE 5 YEARS BEFORE 10 YEARS 10 YEARS TOTAL
------------ -------------- --------------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
MORTGAGE LOANS:
Residential.......................... $46,699 $29,516 $12,420 $ 93,609 $182,244
Commercial........................... 19,004 32,622 1,156 2,656 55,438
Construction......................... 1,686 0 0 0 1,686
NON-MORTGAGE LOANS:
Commercial........................... 12,802 16,626 2,139 3,080 34,647
Consumer and other................... 2,139 17,649 7,715 16,140 43,643
------- ------- ------- -------- --------
Total loans (1)............... $82,330 $96,413 $23,430 $115,485 $317,658
======= ======= ======= ======== ========
</TABLE>
- ---------------
(1) Excluding deferred fees or costs, allowance for loan losses, and loans held
for sale.
SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES. The following table
sets forth as of June 30, 1999, the dollar amounts of loans due after one year
which had predetermined interest rates and loans due after one year which had
floating or adjustable interest rates.
<TABLE>
<CAPTION>
DOLLAR AMOUNT OF LOANS
----------------------
JUNE 30, 1999
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Type of Interest Rate:
Predetermined rate, maturity greater than one year........ $175,680
Floating or adjustable rate due after one year............ 59,649
--------
Total............................................. $235,329
========
</TABLE>
LOAN CLASSIFICATION
Management seeks to maintain a level of high quality assets through
conservative underwriting and sound lending practices. In an effort to maintain
the quality of the loan portfolio, management seeks to minimize higher risk
types of lending and additional precautions have been taken when such loans are
made in order to reduce Northeast Bancorp's risk of loss.
34
<PAGE> 36
The majority of loans held in Northeast Bancorp's loan portfolio are
collateralized by real estate mortgages. At June 30, 1999, approximately 58% of
Northeast Bancorp's loan portfolio was collateralized by first liens on
owner-occupied residential homes which have historically carried a relatively
low credit risk. Northeast Bancorp also maintains a commercial real estate
portfolio comprised primarily of owner-occupied commercial businesses.
Generally, construction loans present a higher degree of risk to a lender
depending upon, among other things, whether the borrower has permanent financing
at the end of the loan period, whether the project is an income producing
transaction in the interim, and the nature of changing economic conditions
including changing interest rates. While there is no assurance that Northeast
Bancorp will not suffer losses on its construction loans or its commercial real
estate loans, management believes that it has reduced the risks associated with
such loans because construction loans are made primarily for building individual
owner-occupied houses and commercial real estate loans primarily relate to
owner-occupied projects where the borrower has demonstrated that its business
will generate sufficient income to repay the loan.
Commercial loans also entail certain risks since they usually involve large
loan balances to single borrowers or a related group of borrowers, resulting in
a more concentrated loan portfolio. Further, since their repayment is usually
dependent upon the successful operation of the commercial enterprise, they also
are subject to adverse conditions in the economy. Commercial loans are generally
riskier than residential mortgages because they are typically made on the basis
of the ability to repay from the cash flow of a business rather than on the
ability of the borrower or guarantor to repay. Further, the collateral
underlying commercial loans may depreciate over time, and occasionally cannot be
appraised with as much precision as residential real estate, and may fluctuate
in value based on the success of the business. While there is no assurance that
Northeast Bancorp will not suffer any losses on its commercial loans, management
believes that it has reduced the risks associated therewith because, among other
things, substantially all of such loans relate to projects where the borrower
has demonstrated to management that its business will generate sufficient income
to repay the loan.
Consumer and installment loans are primarily fixed rate products, and, as a
result, they have interest rate risk when market rates increase. These loans
also have credit risk with minimal security. In an effort to protect the credit
quality of its indirect automobile dealer loans, Northeast Bancorp underwrites
all of these loans. Management attempts to mitigate credit and interest rate
risk by keeping the products offered short-term, receiving a rate of return
commensurate with the risk, and lending to individuals known in its market
areas.
In addition to maintaining high quality assets, management attempts to
limit Northeast Bancorp's risk exposure to any one borrower or borrowers with
similar or related entities. As of June 30, 1999, Northeast Bancorp had extended
credit or credit availability in excess of $1 million to twelve borrowers.
Loan concentrations are defined as amounts loaned to a number of borrowers
engaged in similar activities which would cause them to be similarly impacted by
economic or other conditions. Northeast Bancorp, on a routine basis, evaluates
these concentrations in order to make necessary adjustments in its lending
practices that most clearly reflect the economic times, loan to deposit ratios,
and industry trends. As of June 30, 1999, total loans to any particular group of
customers engaged in similar activities or having similar economic
characteristics did not exceed 10% of total loans.
The Board of Directors of Northeast Bancorp directs a substantial portion
of its efforts and resources, and that of its senior management and lending
officials, on loan review and underwriting procedures. In addition, Northeast
Bancorp utilizes the services of an independent consultant to perform periodic
loan documentation and compliance reviews as well as deposit and operations
compliance reviews. Internal controls include a loan review specialist employed
by Northeast Bancorp, who performs on-going reviews of new and existing loans to
monitor documentation and ensure the existence and valuations of collateral.
35
<PAGE> 37
NON-PERFORMING ASSETS AND ASSET QUALITY
The senior credit officer of Northeast Bancorp is charged with monitoring
asset quality, establishing credit policies and procedures, and seeking
consistent application of these procedures. A loan review process is in place
with the objective of quickly identifying, evaluating, and initiating necessary
corrective action for substandard loans. Combined, these components are integral
elements of Northeast Bancorp's loan program which has resulted in its loan
portfolio performance to date. Nonetheless, management maintains a cautious
outlook in anticipating the potential effects of uncertain economic conditions
(both locally and nationally) and the possibility of more stringent regulatory
standards.
Loans, including impaired loans, are generally classified by Northeast
Bancorp as non-accrual loans if they are past due as to maturity or payment of
principal or interest for a period of more than ninety days, unless such loans
are well collateralized and in the process of collection. If a loan or a portion
of a loan is classified as doubtful or is partially charged off, the loan is
classified as a non-accrual loan. Loans that are on a current payment status or
past due less than ninety days may also be classified as non-accrual if
repayment in full of principal and/or interest is in doubt. Loans are not
returned to accrual status until the principal and interest payments are brought
current and future payments appear certain.
Interest accrued and unpaid at the time a loan is placed in non-accrual
status is charged against interest income. While a loan is classified as
non-accrual and the future collectability of the recorded loan balance is
doubtful, collections of interest and principal are generally applied as a
reduction to principal outstanding. When the future collectability of the
recorded loan balance is expected, interest income may be recognized on a cash
basis. In the case where a non-accrual loan had been partially charged off,
recognition of interest on a cash basis is limited to that which would have been
recognized on the recorded loan balance at the contractual interest rate. Cash
interest receipts in excess of that amount are recorded as recoveries to the
allowance for loan losses until prior charge-offs have been fully recovered.
Real estate acquired by Northeast Bancorp as a result of foreclosure or
acceptance of deeds in lieu of foreclosure is classified as foreclosed real
estate. These properties are recorded on the date acquired at the lower of fair
value less estimated selling costs or the recorded investment in the related
loan. If the fair value after deducting the estimated selling costs of the
acquired property is less than the recorded investment in the related loan, the
estimated loss is charged to the allowance for loan losses at that time. The
resulting carrying value established at the date of foreclosure becomes the new
cost basis for subsequent accounting. After foreclosure, if the fair value less
estimated selling costs of the property becomes less than its cost, the
deficiency is charged to the provision for losses on foreclosed real estate.
Costs relating to the developmental improvement of the property are capitalized,
whereas those relating to holding the property for sale are charged as an
expense.
As of June 30, 1999, Northeast Bancorp had 22 loans on non-accrual status
totaling $1,144,000 or 0.36% of total loans, and at June 30, 1998, Northeast
Bancorp had 28 loans on non-accrual status totalling $2,248,000, or 0.80% of
total loans. At June 30, 1999 and 1998, respectively, Northeast Bancorp had
other real estate owned ("OREO") of approximately $193,850 and $350,496, which
consisted of two single family residences each year. Non-performing loans and
OREO together represented 0.37% and 0.81% of total assets at June 30, 1999 and
1998, respectively.
36
<PAGE> 38
The following table represents the Bank's non-performing loans as of June
30, 1999 and 1998:
<TABLE>
<CAPTION>
AT JUNE 30,
---------------
1999 1998
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
LOAN TYPES
1-4 Family mortgages........................................ $ 293 $ 783
Commercial mortgages........................................ 654 956
Commercial loans............................................ 0 509
Consumer and other.......................................... 197 0
------ ------
Total non-performing............................... $1,144 $2,248
====== ======
</TABLE>
In addition, Northeast Bancorp performs ongoing reviews of its new and
existing loans to identify, evaluate, and initiate corrective action for
substandard loans. As of June 30, 1999, Northeast Bancorp has identified
commercial and commercial real estate loans to 7 borrowers to be monitored on
its list of loans classified as substandard, representing aggregate borrowings
of approximately $741,000 (exclusive of non-performing loans). These loans have
been considered by management in its assessment of the allowance for loan losses
and none of these borrowers have failed to comply with their present loan
repayment terms. Management takes an aggressive posture in reviewing its loan
portfolio to determine whether loans should be classified as substandard.
Although non-performing and delinquent loans have decreased in the past few
years, management continues to allocate substantial resources to its collection
area in an effort to control the amount of such non-performing loans. The Bank's
delinquent loan accounts decreased as a percentage of total loans during the
1999 fiscal year. This decrease was largely due to improved collection efforts,
increased charge-offs, and an increase in the Bank's loan portfolio.
The following table reflects the annual trend of total delinquencies 30
days or more past due, including non-performing loans, for the Bank as a
percentage of total loans:
<TABLE>
<CAPTION>
AT JUNE 30,
- --------------------------------------------
1999 1998 1997 1996
- --------- --------- --------- ---------
<S> <C> <C> <C>
0.76% 1.09% 1.93% 3.24%
</TABLE>
At June 30, 1999, loans classified as non-performing included $117,169 of
loan balances that are current and paying as agreed, but which continue to be so
classified until the borrower has demonstrated a sustainable period of
performance. Excluding these loans, the Bank's total delinquencies 30 days or
more past due, as a percentage of total loans, would be 0.72% as of June 30,
1999.
37
<PAGE> 39
The following table sets forth certain information, as of the date
indicated, regarding non-accrual loans, restructured loans, and loans 90 days or
more past due:
<TABLE>
<CAPTION>
AT JUNE 30,
------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NON-ACCRUAL LOANS:
Residential mortgage.................................. $ 235 $ 640 $1,023 $1,043 $ 650
Commercial real estate................................ 595 317 541 895 1,223
Commercial loans...................................... 0 468 54 308 381
Consumer and other.................................... 197 0 41 76 33
------ ------ ------ ------ ------
Total non-accrual loans........................ 1,027 1,425 1,659 2,322 2,287
Accruing loans contractually past due 90 days or more... 117 823 1,222 860 370
------ ------ ------ ------ ------
TOTAL NON-PERFORMING LOANS.............................. 1,144 2,248 2,881 3,182 2,657
Other real estate owned................................. 194 350 563 585 1,169
------ ------ ------ ------ ------
TOTAL NON-PERFORMING ASSETS............................. $1,338 $2,598 $3,444 $3,767 $3,826
====== ====== ====== ====== ======
Non-performing loans to total loans..................... 0.36% 0.80% 1.29% 1.70% 1.42%
Non-performing assets to total assets................... 0.37% 0.81% 1.21% 1.54% 1.65%
</TABLE>
ALLOWANCE FOR LOAN LOSSES
In originating loans, Northeast Bancorp recognizes that loan losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan and, in the case of a collateralized loan, the quality of the
collateral for the loan as well as general economic conditions. The process of
evaluating the allowance involves a high degree of management judgment. The
methods employed to evaluate the allowance for loan losses are quantitative in
nature and consider such factors as the loan mix, the level of non-performing
loans, delinquency trends, past charge-off history, loan reviews and
classifications, collateral, and the current economic climate.
On a regular and ongoing basis management actively monitors Northeast
Bancorp's asset quality to evaluate the adequacy of the allowance for loan
losses and, when appropriate, to charge-off loans against the allowance for loan
losses when appropriate or to provide specific loss allowances when necessary.
Management believes that the allowance for loan losses is adequate
considering the level of risk in the loan portfolio. While management believes
that it uses the best information available to make its determinations with
respect to the allowance, management can not assure you that future adjustments
will not be necessary as a result of changing economic conditions, adverse
markets for real estate, or other factors. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the allowance for loan losses. Such agencies may require additions to the
allowance for loan losses based on their judgments about information available
to them at the time of their examination. The Bank's most recent examination by
the Office of Thrift Supervision was on November 30, 1998. At the time of the
exam the regulators proposed no additions to the allowance for loan losses.
At June 30, 1999, the Bank had a total of $193,850 in OREO as compared to
$350,496 at June 30, 1998. An allowance for losses on OREO was established to
provide for declines in real estate values and to consider estimated selling
costs. The allowance for losses on OREO totaled $27,725, $5,100, and $50,839,
respectively for the years ended June 30, 1999, 1998 and 1997. Northeast Bancorp
provided for this allowance through a charge against earnings of $47,000,
$62,300, and $39,000 for the years ended June 30, 1999, 1998, and 1997,
respectively. In 1999, 1998, and 1997, write downs of OREO totaled $24,375,
$108,039, and $88,161, respectively. Management periodically receives
independent appraisals to assist in its valuation of the OREO portfolio. As a
result of its review of the independent appraisals and the OREO portfolio,
Northeast Bancorp believes the allowance for losses on OREO is adequate to state
the portfolio at lower of cost, or fair value less estimated selling costs.
38
<PAGE> 40
The following table sets forth an analysis of Northeast Bancorp's allowance
for loan losses for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average net loans outstanding during the period....... $294,207 $237,791 $200,919 $183,947 $178,736
======== ======== ======== ======== ========
Net loans at end of period (1)........................ $316,062 $279,053 $219,940 $184,449 $185,116
======== ======== ======== ======== ========
Allowance at beginning of period...................... $ 2,978 $ 2,742 $ 2,761 $ 2,661 $ 2,728
-------- -------- -------- -------- --------
LOANS CHARGED-OFF DURING THE PERIOD:
Residential mortgage................................ (232) (196) (319) (151) (162)
Commercial real estate.............................. (26) (432) (128) (236) (296)
Commercial.......................................... (272) (42) (154) (125) (205)
Consumer and other.................................. (396) (115) (171) (108) (151)
-------- -------- -------- -------- --------
Total loans charged-off...................... (926) (785) (772) (620) (814)
-------- -------- -------- -------- --------
RECOVERIES OF LOANS PREVIOUSLY CHARGED-OFF:
Residential mortgage................................ 12 87 43 10 7
Commercial real estate.............................. 109 83 49 34 1
Commercial.......................................... 20 87 13 12 16
Consumer and other.................................. 121 58 34 25 32
-------- -------- -------- -------- --------
Total recoveries............................. 262 315 139 81 56
-------- -------- -------- -------- --------
Net loans charged-off during the period............... (664) (470) (633) (539) (758)
Provisions for loan losses............................ 610 706 614 639 691
-------- -------- -------- -------- --------
Allowance at end of period............................ $ 2,924 $ 2,978 $ 2,742 $ 2,761 $ 2,661
======== ======== ======== ======== ========
Ratio of net charge-offs to average loans
outstanding......................................... 0.23% 0.20% 0.32% 0.29% 0.42%
Allowance as a percentage of total portfolio loans.... 0.92 1.06 1.23 1.47 1.41
Allowance as a percentage of non-performing and
non-accrual loans................................... 255.59 132.47 95.18 86.77 100.15
</TABLE>
- ---------------
(1) Excludes loans held for sale.
The level of the allowance for loan losses decreased as a percentage of
total loans for 1999 as compared to 1998. This decrease in the level of
allowance as a percentage of total loans reflects the increased volume of loans
in 1999 as compared to 1998, the asset quality, charge-offs experienced, and
credit risk of these loans, and the lower level of delinquencies experienced in
1999. The growth of loans included the purchase of residential mortgages which
carry less credit risk. However, the allowance for loan losses increased as a
percentage of non-performing and non-accrual loans for 1999 as compared to 1998
due to a decrease in non-performing and non-accrued loan balances.
The ratio of net charge-offs to average loans outstanding has remained
relatively constant during the last five fiscal years.
At June 30, 1999, total impaired loans were $612,867, of which $241,420 had
related allowances of $77,200. This compares to total impaired loans of
$1,623,720, of which $927,355 had related allowances of $251,474, at June 30,
1998. During the year ended June 30, 1999, the income recognized related to
impaired loans was $66,030 and the average balance of outstanding impaired loans
was $1,229,987. This compares to income recognized related to impaired loans of
$19,693 and the average balance of impaired loans of $1,956,488 at June 30,
1998. The Bank recognizes interest on impaired loans on a cash basis when the
ability to collect the principal balance is not in doubt; otherwise, cash
received is applied to the principal balance of the loan.
39
<PAGE> 41
The following table sets forth a breakdown of the allowance for loan losses
by loan category for the periods indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of an allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any other category.
<TABLE>
<CAPTION>
AT JUNE 30,
-------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------- ----------------- ----------------- ----------------- -----------------
% OF % OF % OF % OF % OF
LOANS LOANS LOANS LOANS LOANS
TO TO TO TO TO
TOTAL TOTAL TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential mortgage.......... $ 378 57.4% $ 352 61.1% $ 308 62.7% $ 268 62.0% $ 658 64.2%
Commercial mortgage........... 882 17.5 762 16.7 821 20.8 799 19.9 263 17.5
Construction.................. 0 0.5 0 0.8 0 1.2 0 1.5 0 1.3
Commercial.................... 508 10.9 582 9.6 436 8.7 501 8.9 137 8.3
Consumer...................... 497 13.7 380 11.8 159 6.6 152 7.7 279 8.7
Unallocated................... 659 0.0 902 0.0 1,018 0.0 1,041 0.0 1,324 0.0
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total allowance for loan
losses.................. $2,924 100.0% $2,978 100.0% $2,742 100.0% $2,761 100.0% $2,661 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
The measurement of impaired loans is based on the fair value of the loan's
collateral. The measurement of non-collateral dependent loans is based on the
present value of expected future cash flows discounted at the historical
effective interest rate. The components for the allowance for loan losses are as
follows:
<TABLE>
<CAPTION>
AT JUNE 30,
------------------------
1999 1998 1997
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Impaired loans.............................................. $ 77 $ 251 $ 369
Other....................................................... 2,847 2,727 2,373
------ ------ ------
$2,924 $2,978 $2,742
====== ====== ======
</TABLE>
INVESTMENT ACTIVITIES
At June 30, 1999, 1998, and 1997, Northeast Bancorp's investment portfolio
totalled approximately $18,054,000, $13,609,000, and $28,811,000, respectively.
The investment portfolio consists of federal agency securities, mortgage-backed
securities, bonds, and equity securities. Maturities range from one month to
thirty years with a debt portfolio average maturity of approximately 25 years.
Funds generated by Northeast Bancorp as a result of increases in deposits
or decreases in loans which are not immediately used by Northeast Bancorp are
invested in securities held in its investment portfolio. The investment
portfolio is used as a source of liquidity for Northeast Bancorp. The investment
portfolio is structured so that it provides for an ongoing source of funds for
meeting loan and deposit demands and for reinvestment opportunities to take
advantage of changes in the interest rate environment.
Equity securities, and debt securities which may be sold prior to maturity,
are classified as available for sale and are carried at market value. Northeast
Bancorp's investment portfolio has been primarily classified as available for
sale at June 30, 1999 and 1998. Changes in market value, net of applicable
income taxes, are reported as a separate component of stockholders' equity.
Gains and losses on the sale of securities are recognized at the time of the
sale using the specific identification method. The amortized cost and market
value of available for sale securities at June 30, 1999 was $18,720,268 and
$18,054,317, respectively. The increase of $5,013,796 in the cost of securities
available for sale, from June 30, 1998 to June 30, 1999, was due to the purchase
of mortgage-backed securities for collateral for the increased volume in
securities sold under repurchase agreements. The net unrealized loss on
mortgage-backed securities has increased from $9,511 at June 30, 1998 to
$626,274 at June 30, 1999 due to rising interest rates. Substantially all of the
mortgage-backed securities are high grade government backed securities. As in
any long term earning asset in which the interest rate is fixed, the market
value of mortgage-backed securities will fluctuate based on changes in
40
<PAGE> 42
market interest rates from the time of purchase. Since these mortgage-backed
securities are backed by the U.S. Government, there is a minimal risk of loss of
principal. Management believes that the yields currently received on this
portfolio are satisfactory and intends to hold these securities for the
foreseeable future.
Management reviews the portfolio of investments on an ongoing basis to
determine if there has been an other-than-temporary decline in value. Some of
the considerations management makes in the determination are market valuations
of particular securities and economic analysis of the securities' sustainable
market values based on the underlying companies' profitability. If the decline
in value is not considered to be temporary, management writes down the value of
such securities through an adjustment against earnings. Based on management's
assessment of available for sale securities, there has been more than a
temporary decline in fair value of certain securities. For the years ended June
30, 1999, 1998, and 1997, write-downs of available for sale securities were
$95,728, $172,235, and $110,000, respectively, and are included in other
expenses in the consolidated statements of income.
The following table summarizes Northeast Bancorp's investment portfolio as
of the dates indicated.
INVESTMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
AT JUNE 30,
----------------------------
1999 1998 1997
------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
AVAILABLE FOR SALE (1):
U.S. Government agencies.................................. $ 598 $ 4,698 $ 2,905
Mortgage-backed securities................................ 16,027 7,714 24,802
Other bonds............................................... 200 204 253
Equity securities......................................... 1,229 993 851
------- -------- -------
Total available for sale (2):..................... $18,054 $ 13,609 $28,811
======= ======== =======
</TABLE>
- ---------------
(1) Carried at estimated market value. Northeast Bancorp does not have any
securities being held to maturity.
(2) Cost of such securities was $18,720 as of June 30, 1999, $13,706 as of June
30, 1998, and $29,317 as of June 30, 1997.
The following table summarizes Northeast Bancorp's securities (excluding
the restricted FHLB Stock) by maturity and weighted average yields at June 30,
1999. Yields on tax exempt securities are stated at their nominal rates and have
not been adjusted for tax rate differences.
<TABLE>
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
WITHIN ONE BUT WITHIN BUT WITHIN
YEAR 5 YEARS 10 YEARS AFTER 10 YEARS TOTAL
-------------- -------------- ---------------- --------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------- ------ ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AT JUNE 30, 1999:
U.S. Government agencies......... $ 498 4.62% $100 7.23% $ 0 0.00% $ 0 0.00% $ 598 5.06%
Mortgage-backed securities....... 0 0.00 44 5.15 572 7.04 15,411 6.59 16,027 6.60
Other bonds...................... 0 0.00 200 6.28 0 0.00 0 0.00 200 6.28
Equity securities................ 1,229 6.76 0 0.00 0 0.00 0 0.00 1,229 6.76
------ ----- ---- ----- ------ ----- ------- ----- ------- -----
$1,727 6.14% $344 6.41% $ 572 7.04% $15,411 6.59% $18,054 6.56%
====== ===== ==== ===== ====== ===== ======= ===== ======= =====
AT JUNE 30, 1998:
U.S. Government agencies......... $ 347 5.87% $248 5.40% $1,103 7.02% $ 3,000 7.17% $ 4,698 6.95%
Mortgage-backed securities....... 0 0.00 99 5.15 24 8.50 7,591 6.91 7,714 6.89
Other bonds...................... 0 0.00 204 6.28 0 0.00 0 0.00 204 6.28
Equity securities................ 993 2.64 0 0.00 0 0.00 0 0.00 993 2.64
------ ----- ---- ----- ------ ----- ------- ----- ------- -----
$1,340 3.48% $551 5.68% $1,127 7.05% $10,591 6.98% $13,609 6.59%
====== ===== ==== ===== ====== ===== ======= ===== ======= =====
</TABLE>
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
GENERAL. Deposit accounts are the primary source of funds of Northeast
Bancorp for use in lending and other investment purposes. In addition to
deposits, Northeast Bancorp draws funds from interest payments, loan principal
payments, loan and securities sales, securities sold under repurchase
agreements, and funds
41
<PAGE> 43
from operations (including various types of loan fees). Scheduled loan payments
of principal and interest are a relatively stable source of funds, while deposit
inflows and outflows are significantly influenced by general interest rates and
money market conditions. Northeast Bancorp utilizes, as alternative sources of
funds, brokered certificates of deposit when national deposit interest rates are
less than the interest rates on local market deposits. Brokered certificates of
deposit are also used to supplement the growth in earning assets. Brokered
certificates of deposit present the same risk as local certificates of deposit,
in that both are interest rate sensitive with respect to Northeast Bancorp's
ability to retain the funds. Northeast Bancorp uses borrowings on a short-term
basis, if necessary, to compensate for reductions in the availability of other
sources of funds, or borrowings may be used on a longer term basis for general
business purposes. In this regard, Northeast Bancorp also uses FHLB advances as
a source of funds when the interest rates of the advances are less than market
deposit interest rates. FHLB advances are also used to fund short-term liquidity
demands.
DEPOSIT ACTIVITIES. Northeast Bancorp continues to attract new local
deposit relationships. These deposits are attracted principally through the
offering of a broad variety of deposit instruments, including checking accounts,
money market accounts, savings accounts, certificates of deposit (including
jumbo certificates in denominations of $100,000 or more), and retirement savings
plans. Total deposits were $219,364,035 as of June 30, 1999, and $184,024,097 as
of June 30, 1998. The increase in deposits of $35,339,938 from June 30, 1998 to
June 30, 1999 was primarily due to a $7,773,835 increase in NOW demand deposits
and a $22,143,247 increase in time deposits. The increase in NOW deposits was
attributable to the development of a demand account where the interest rate
increases as deposit balances increase. Time deposits increased due to various
special offerings as well as normal growth from the branch market areas.
Brokered certificates of deposit represented $13,458,257 of total deposits at
June 30, 1999, which was an increase of $5,883,547 compared to June 30, 1998.
Maturity terms, service fees, and withdrawal penalties are established by
Northeast Bancorp on a periodic basis. The determination of rates and terms is
predicated on funds acquisition and liquidity requirements, rates paid by
competitors, growth goals and federal regulations.
DEPOSIT FLOWS AND AVERAGE BALANCE AND RATES. The following table sets
forth the average balance and weighted average rates for Northeast Bancorp's
categories of deposits for the period indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------- ----------------------------- -----------------------------
AVERAGE AVERAGE % OF AVERAGE AVERAGE % OF AVERAGE AVERAGE % OF
BALANCE RATE DEPOSITS BALANCE RATE DEPOSITS BALANCE RATE DEPOSITS
-------- ------- -------- -------- ------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand
deposits........................ $ 17,132 0.00% 8.4 $ 15,481 0.00% 8.9 $ 13,380 0.00% 8.0
NOW and money market.............. 40,100 2.85 19.7 29,401 2.50 16.8 30,716 2.45 18.4
Regular savings................... 20,068 2.57 9.9 21,289 2.68 12.2 22,141 2.67 13.3
Time deposits..................... 125,802 5.58 62.0 108,580 5.78 62.1 100,485 5.73 60.3
-------- ---- ----- -------- ---- ----- -------- ---- -----
Total average deposits............ $203,102 4.27% 100.0 $174,751 4.34% 100.0 $166,722 4.26% 100.0
======== ==== ===== ======== ==== ===== ======== ==== =====
</TABLE>
CERTIFICATES OF DEPOSIT. At June 30, 1999, certificates of deposit,
including brokered deposits, represented approximately 64.3% of Northeast
Bancorp's total deposits, as compared to 61.5% of total deposits at June 30,
1998. Northeast Bancorp does not have a concentration of deposits from any one
source, the loss of which would have a material adverse effect on the business
of Northeast Bancorp.
The following table summarizes the amount of Northeast Bancorp's
certificates of deposit of $100,000 or more by time remaining until maturity at
June 30, 1999.
<TABLE>
<CAPTION>
MATURITY PERIOD JUNE 30, 1999
- --------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C>
Less than three months...................................... $ 1,579
Over three months through six months........................ 1,648
Over six months through twelve months....................... 6,944
Over twelve months.......................................... 14,181
-------
Total....................................................... $24,352
=======
</TABLE>
42
<PAGE> 44
DEPOSIT ACTIVITY. The following table sets forth the deposit flows of
Northeast Bancorp during the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------
1999 1998 1997
------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net increase before interest credited....................... $28,090 $ 4,501 $1,848
Net credited................................................ 7,250 6,602 6,218
------- ------- ------
Net deposit increase........................................ $35,340 $11,103 $8,066
======= ======= ======
</TABLE>
BORROWINGS. The Bank relies upon deposits, loan repayments, and loan sales
as its major sources of funds. When Northeast Bancorp's primary sources of funds
are not sufficient to meet deposit outflows, loan originations and purchases,
and other cash requirements, Northeast Bancorp may borrow funds from the FHLB of
Boston or other sources. In addition, Northeast Bancorp uses securities sold
under agreements to repurchase, or repurchase agreements as they are sometimes
called, in order to increase available funds.
The FHLB of Boston functions as a central reserve bank providing credit for
savings and loan associations and certain other member financial institutions.
As a member, the Bank is required to own capital stock in the FHLB of Boston and
is authorized to apply for advances on the security of such stock and certain of
its home mortgages and other assets (principally securities that are obligations
of or guaranteed by the United States), provided that certain standards related
to creditworthiness have been met. FHLB borrowings, known as "advances," are
made on a secured basis, and the terms and rates charged for FHLB advances vary
in response to general economic conditions. A wide variety of borrowing plans
are offered by the FHLB of Boston, each with its own maturity and interest rate.
The FHLB of Boston will consider various factors, including an institution's
regulatory capital position, net income, quality and composition of assets,
lending policies and practices, and level of current borrowings from all sources
in determining the amount of credit to extend to an institution. In addition, an
institution that fails to meet the qualified thrift lender test may have
restrictions imposed on its ability to obtain FHLB advances. The Bank currently
meets the qualified thrift lender test. Northeast Bancorp's current advance
availability, subject to the satisfaction of certain conditions, is
approximately $130 million, of which $104 million has been advanced through June
30, 1999.
Northeast Bancorp has access to the following principal sources of funds:
- borrowing capacity with the FHLB,
- normal growth of Bank deposits,
- issuance of repurchase agreements for cash equivalents, and
- securities available for resale.
43
<PAGE> 45
The following table sets forth information as to Northeast Bancorp's
borrowings activity for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------------------------------
1999 1998 1997
------------------- ------------------- ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- -------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
PERIOD END BALANCE:
Advances from FHLB of Boston................. $103,882 5.36% $104,440 5.55% $80,494 5.81%
Repurchase agreements(1)..................... 11,868 4.07 5,206 4.20 5,099 4.25
-------- ---- -------- ---- ------- ----
Total................................. $115,750 5.23% $109,646 5.49% $85,593 5.72%
======== ==== ======== ==== ======= ====
AVERAGE OUTSTANDING DURING YEAR:
Advances from FHLB of Boston................. $100,074 5.53% $ 85,686 5.86% $67,037 5.95%
Repurchase agreements(1)..................... 8,202 4.15 4,917 4.19 4,566 4.38
-------- ---- -------- ---- ------- ----
Total................................. $108,276 5.43% $ 90,603 5.77% $71,603 5.85%
======== ==== ======== ==== ======= ====
HIGH MAXIMUM OUTSTANDING AT ANY MONTH END:
Advances from FHLB of Boston................. $106,979 5.24% $109,962 5.61% $81,512 5.85%
Repurchase agreements(1)..................... 11,868 4.07 5,737 4.25 5,214 4.42
-------- ---- -------- ---- ------- ----
Total................................. $118,847 5.12% $115,699 5.54% $86,726 5.76%
======== ==== ======== ==== ======= ====
</TABLE>
- ---------------
(1) These borrowings were scheduled to mature within 180 days and were
collateralized by GNMA and FHLMC securities with the market value and
amortized costs at June 30, 1999 of $14,938,000, $15,525,000, at June 30,
1998 of $8,547,000, and $8,558,000 and, at June 30, 1997 of $9,161,000, and
$9,300,000.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is defined as the ability of Northeast Bancorp to generate
sufficient cash to fund current loan demand, deposit withdrawals, other cash
demands and disbursement needs, and otherwise to operate on an ongoing basis.
Northeast Bancorp's principal sources of funds are deposits, principal and
interest payments on loans, sale of loans, interest on investments, and the sale
of investments. During the fiscal years ended June 30, 1999 and 1998, Northeast
Bancorp received $35.3 million and $11.1 million, respectively, from deposit
growth and $6.7 million and $0.1 million, respectively, from the sale of
repurchase agreements (included in deposit balances in 1999 and 1998 was
$13,458,257 and $7,574,710, respectively, in brokered certificates of deposit.)
In addition, through the FHLB advances program Northeast Bancorp also has the
ability to borrow from the FHLB to supplement its liquidity needs. Northeast
Bancorp's current advance availability, subject to the satisfaction of certain
conditions, is approximately $26 million over and above the 1999 end of year
advances.
At June 30, 1999, stockholders' equity was approximately $26,683,115, or
7.32% of total assets, as compared to $25,139,527 at June 30, 1998, or 7.79% of
total assets. Book value per common share was $9.64 as of June 30, 1999, as
compared to $9.23 at June 30, 1998.
In November 1998 Square Lake Holding Corporation converted its Northeast
Bancorp Series A Preferred Stock into 136,362 shares of Northeast Bancorp common
stock. Square Lake Holding Corporation is a Maine corporation and a subsidiary
of a Canadian corporation of which Mr. Ronald Goguen is a 95% shareholder and
director. Mr. Goguen also is a director of, and, through the stock ownership of
his affiliates, a principal shareholder of Northeast Bancorp.
Although no capital requirements are imposed on Northeast Bancorp, as a
savings institution the Bank is subject to such requirements as established by
the OTS. The OTS has issued regulations requiring savings institutions to
maintain a minimum regulatory tangible capital equal to 1.5% of adjusted total
assets, core capital of 3.0%, leverage capital of 4.0% and a risk-based capital
standard of 8.0%. The prompt corrective action regulations define specific
capital categories based on an institution's capital ratios. The capital
44
<PAGE> 46
categories, in declining order, are "well capitalized", "adequately
capitalized", "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." As of June 30, 1999, the Bank met the definition
of a "well capitalized" institution. There are no conditions or events since
that notification that management believes has changed the institution's
category.
At June 30, 1999, the Bank's regulatory capital was in compliance with
regulatory capital requirements as follows:
<TABLE>
<CAPTION>
TO BE "WELL
CAPITALIZED"
UNDER
PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES PROVISIONS
--------------- --------------- ---------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 (Core) Capital (to risk weighted assets)....... $25,615 10.1% $10,159 4.0% $15,239 6.0%
Tier 1 (Core) Capital (to total assets)............... 25,615 7.1 14,533 4.0 18,166 5.0
Total Capital (to risk weighted assets)............... 27,233 10.7 20,318 8.0 25,398 10.0
</TABLE>
Management believes that there are adequate funding sources to meet its
future liquidity needs for the foreseeable future. However, in order to finance
the continued growth of the Bank at current levels, additional funds may be
necessary in order to provide sufficient capital to fund loan growth. In this
regard, Northeast Bancorp will use a portion of the net proceeds from this
offering to, among other things, make contributions to the capital of the Bank
to support its internal growth. Further, Northeast Bancorp may from time to time
consider and evaluate a variety of additional sources of funds, including other
debt financing vehicles, sales of equity securities, and other financing
alternatives. There can be no assurance that Northeast Bancorp will be able to
obtain such additional financing, if needed, or, if available, that it can be
obtained on terms favorable to Northeast Bancorp.
RETURN ON EQUITY AND ASSETS
The following table sets forth certain selected performance ratios of
Northeast Bancorp for the periods indicated:
<TABLE>
<CAPTION>
AT JUNE 30,
------------------------
1999 1998 1997
----- ------ -----
<S> <C> <C> <C>
Return on average assets................................... 0.71% 0.83% 0.57%
Return on average equity................................... 9.18 10.35 7.05
Dividend payout ratios..................................... 24.42 24.42 37.50
Average equity to average assets........................... 7.73 7.99 8.09
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data presented
herein concerning Northeast Bancorp 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 impact of inflation on the operations of Northeast
Bancorp 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 impact on the performance of Northeast Bancorp 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.
45
<PAGE> 47
FUTURE ACCOUNTING REQUIREMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This statement requires all derivatives to
be recorded on the balance sheet at fair value and establishes standard
accounting methodologies for hedging activities. The standard will result in the
recognition of offsetting changes in value or cash flows of both the hedge and
the hedged item in earnings or comprehensive income in the same period. The
statement is effective for Northeast Bancorp's fiscal year ending June 30, 2001.
Management of Northeast Bancorp does not expect this statement to have a
significant effect on its financial position or results of operations based on
current activities of Northeast Bancorp.
FASB also has issued Statement of Financial Accounting Standards No. 134,
"Accounting for Mortgage-Backed Securities retained after the securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Entity" ("SFAS 134"). This
statement amends SFAS No. 65 allowing mortgage-backed securities or other
retained interests arising from the securitization of mortgage loans to be
classified based on the mortgage banking entities' ability and intent to sell or
hold those securities. Previously these securities had to be held within a
trading account. This statement is effective for Northeast Bancorp's fiscal year
ending June 30, 2000. The adoption of this standard is not expected to have a
significant impact on the financial statements.
YEAR 2000 COMPLIANCE
Northeast Bancorp is currently addressing the Year 2000 issue. Many
existing computer programs and hardware configurations use only two digits to
identify a year in the date field. Since these programs did not take into
consideration the upcoming change in the century, many computer applications
could create erroneous results by the year 2000 if not corrected. The Year 2000
issue will affect this company and it will affect virtually all companies and
organizations, including Northeast Bancorp's borrowers. Northeast Bancorp has
organized a Year 2000 committee, comprised of senior officers, to research,
develop and implement a plan that will correct this issue within the time lines
established by Northeast Bancorp's regulators. The OTS has issued a formal
regulation and comprehensive plan concerning the Year 2000 issue for financial
institutions, for which the OTS has oversight. Northeast Bancorp has adopted the
regulatory comprehensive plan which has the following phases:
AWARENESS PHASE. This phase consists of defining the Year 2000 problem,
developing the resources necessary to perform compliance work, establishing a
Year 2000 program committee, and developing an overall strategy that encompasses
in-house systems, service bureaus for systems that are outsourced, vendors,
auditors, customers, and suppliers (including correspondence). This phase has
been completed by Northeast Bancorp's committee.
ASSESSMENT PHASE. This phase involves an assessment of the size and
complexity of the problem and determining the magnitude of the effort necessary
to address the Year 2000 issue. As part of this valuation, Northeast Bancorp
evaluated all hardware, software, networks, automated teller machines, other
various processing platforms, and customer and vendor interdependencies affected
by the Year 2000 date change. This assessment was not limited to a review of
information systems, it also encompassed environmental systems dependent on
embedded microchips, such as security systems, elevators and vaults. Management
also evaluated the Year 2000 effect on other strategic business initiatives,
including the potential effect that mergers and acquisitions, major system
development, corporate alliances, and system interdependencies will have on
existing systems and/or acquired systems. During this phase, both management and
its vendors identified resource needs and established time frames for their Year
2000 efforts. The resource needs for responding to this issue include
appropriately skilled personnel, contractors, vendor support, budget
allocations, and hardware capacity. Finally contingency plans should be
developed to cover unforeseen obstacles during the renovation and validation
phase and include plans to deal with lesser priority systems that would be fixed
later in the renovation phase.
The assessment phase has been completed, but is considered an ongoing phase
for Northeast Bancorp. Northeast Bancorp has instituted a comprehensive plan to
communicate with all its borrowers that it considers to be at risk concerning
the Year 2000 issue. Northeast Bancorp considers this plan necessary to
46
<PAGE> 48
mitigate the risk associated with borrowers not having the ability to make loan
payments due to a Year 2000 issue. Northeast Bancorp currently has estimated the
following costs associated with the Year 2000 issue: (1) computer hardware
replacement $40,000, (2) software replacement $42,000, (3) testing and
administrative costs $94,000, and (4) potential contingency costs $15,000. As of
June 30, 1999 the Company had incurred $37,333 of capitalized purchases and
$92,000 of cumulative Year 2000 expenses. These costs are under periodic review
and will be revised as needed. We cannot assure you that our actual cost will
not exceed our estimates. During the 1999 fiscal year, Northeast Bancorp
replaced its computer mainframe, software, and data communication systems as
planned to accommodate the growth experienced as a result of its merger and
acquisition activity and its branch expansion. The previous mainframe and
software had been fully depreciated through the normal course of its depreciable
life and the costs associated with the replacement of these items was part of
Northeast Bancorp's general business plan for fiscal 1999. The anticipated Year
2000 expenses referred above are in addition to Northeast Bancorp's replacement
costs.
RENOVATION PHASE. This phase includes code enhancements, hardware and
software upgrades, system replacements, vendor certification, and other
associated changes. Work will be prioritized based on information gathered
during the assessment phase. Each of our service providers and vendors has been
contacted and has or will provide information to us concerning their efforts to
comply with the Year 2000 issue. Northeast Bancorp has completed this phase.
However, we cannot assure you that these service providers and vendors will be
Year 2000 compliant in a timely manner.
VALIDATION PHASE. Testing is a multifaceted process that is critical to
the Year 2000 project and inherent in each phase of the project management plan.
This process includes the testing of incremental changes to hardware and
software components. In addition to testing upgraded components, connections
with other systems must be verified, and all changes should be accepted by
internal and external users. Management will establish controls to assure the
effective and timely completion of all hardware and software testing prior to
final implementation. As with the renovation phase, Northeast Bancorp will be in
ongoing discussions with its vendors on the success of their validation efforts.
Northeast Bancorp has completed testing on all of its critical systems and has
completed this phase.
IMPLEMENTATION PHASE. During this phase, systems are to be validated as
Year 2000 compliant and be accepted by the business users. For any system
failing certification, the business effect must be assessed clearly and the
organization's Year 2000 contingency plans should be implemented. Any
potentially noncompliant mission-critical system should be brought to the
attention of executive management immediately for resolution. In addition, this
phase must ensure that any new systems or subsequent changes to verified systems
are compliant with Year 2000 requirements. Northeast Bancorp has completed the
validation of its systems and has completed this phase.
Northeast Bancorp recognizes the Year 2000 problem as a global issue with
potentially catastrophic results if not addressed. We have and will continue to
take all necessary steps to protect Northeast Bancorp and its customers
concerning the Year 2000 issue. Management is confident that all the instituted
phases will be completed and in place prior to the Year 2000. However, the
inability of third party vendors to complete their Year 2000 remediation in a
timely fashion could result in delays in processing daily transactions and could
result in a material and adverse effect on our results of operations. We have
developed a contingency plan to address potential failures in these systems.
However, we cannot assure you that these plans will adequately protect the Bank
from the adverse consequences of such failures.
47
<PAGE> 49
BUSINESS
GENERAL
Northeast Bancorp, a Maine corporation chartered in April 1987, is a
unitary savings and loan holding company whose primary subsidiary and principal
asset is Northeast Bank, F.S.B. Prior to 1996, Northeast Bancorp operated under
the name Bethel Bancorp. Northeast Bancorp, through its ownership of the Bank,
is engaged principally in the business of originating residential real estate
loans, commercial real estate and business loans, and consumer loans, and its
primary source of earnings is derived from the income generated by the Bank.
Although historically the Bank has primarily originated residential and
commercial real estate loans, most of which are local, in the State of Maine, it
also generates commercial and consumer loans and provides other services and
products traditionally furnished to customers by full service banks. As of June
30, 1999, Northeast Bancorp, on a consolidated basis, had total assets of
approximately $364.4 million, total deposits of approximately $219.4 million,
and stockholders' equity of approximately $26.7 million.
The Bank (which was formerly known as Bethel Savings Bank F.S.B.) is a
federally-chartered savings bank which was originally organized in 1872 as a
Maine-chartered mutual savings bank. The Bank received its federal charter in
fiscal 1984. In 1987, Bethel converted to a stock form of ownership and in
subsequent years has engaged in a strategy of both geographic and product
expansion.
In October 1997, Northeast Bancorp completed its combination with Cushnoc
Bank & Trust, a commercial bank located in Augusta, Maine ("Cushnoc"), and
merged it into the Bank. As a result of the merger, the Bank added two branches
which expanded its market area to include Maine's capital city and surrounding
communities, an area that management believes offers significant growth
opportunities. In addition, during the last fiscal quarter, Northeast Bancorp
opened a new full service branch in Lewiston, Maine. With the opening of these
three branches, the Bank now has a total of 12 banking branches. In addition,
the Bank has opened a facility in Falmouth, Maine from which it accepts loan
applications and offers investment, insurance, and financial planning products
to its customers.
The Bank has broad powers, including the power to engage in non-residential
lending activities. In connection with its conversion into a federal savings
bank in fiscal 1984, the Bank retained its then-authorized powers as a
Maine-chartered mutual savings bank. Under applicable regulations, except as
otherwise determined by the OTS, the Bank retains the authority that it was
permitted to exercise as a mutual savings bank under the state law existing at
the time of the conversion. Historically, Maine-chartered savings banks have had
certain lending, investment, and other powers that have only recently been
granted to federal savings institutions, including commercial lending authority
and the ability to offer personal checking and negotiable order of withdrawal
("NOW") accounts.
From its 12 retail banking branches located throughout western, central,
and the mid-coastal regions of the State of Maine, and through the Bank's
subsidiary and other affiliations, the Bank offers its customers, or provides
access to, a broad range of financial services and products including, but not
limited to, real estate, commercial, and consumer loans and financial products,
deposit and investment services, brokerage services, trust services, insurance,
ATMs, debit cards, electronic transfer services, and other related products and
services.
The Bank is subject to examination and comprehensive regulation by the OTS
and its deposits are insured by the FDIC to the extent permitted by law. The
Bank also is a member of the FHLB of Boston. Although the Bank's deposits are
primarily insured through the Bank Insurance Fund, deposits at the Brunswick
branch, which represent approximately 24% of the Bank's total deposits, are
Savings Association Insurance Fund insured. See "Supervision and
Regulation -- Insurance of Deposit Accounts and Assessments."
The principal executive offices of Northeast Bancorp and the Bank are
located at 232 Center Street, Auburn, Maine, 04210, and their telephone number
is (207) 777-6411.
48
<PAGE> 50
STRATEGY
Northeast Bancorp's corporate strategy is to offer a wide array of
financial products and services with an emphasis on a high level of personalized
service. This strategy is designed to attract profitable long-term banking
relationships with its customers and to increase the Bank's core earnings by
developing stronger interest margins, non-interest income, and increasing volume
of banking products and services by expanding the Bank's market areas. In
keeping with this strategy, the Bank is making a concerted effort to become an
all-inclusive financial center that is able to provide its customers with nearly
every financial product and service that they may require. In this regard, the
Bank assists its clients in assessing their financial needs through its
personalized financial planning services. Once the customer's financial needs
have been identified, the Bank provides the customer with financial product or
service solutions designed to meet those needs. Management believes that the
ability to deliver such personalized service and advice will be one of the
primary competitive factors in the financial institutions industry in the
future. Accordingly, over the past few years the Bank has invested a substantial
amount of resources in developing its ability to offer a high level of
personalized service with an emphasis on financial planning and delivery of
financial advisory services that are responsive to a broad range of customer
needs.
To further support the corporate strategy, the Bank has recently expanded
the scope of lending and other financial services that it provides to its
customers. In the past, the Bank has focused primarily on its residential
mortgage lending business. As a result, its business has historically consisted
of attracting deposits from the general public through its retail banking
offices and applying those funds principally to the origination, retention,
servicing, investing in and selling first mortgage loans on single and
multi-family residential real estate. However, during the past several years,
the Bank has expanded the scope of its services by placing additional emphasis
on:
- consumer lending and small business, home equity, and commercial loans;
- lending funds to retail banking customers by means of home equity and
installment loans;
- originating loans secured by commercial property and multi-family
dwellings; and
- generating indirect dealer consumer loans used for the purchase of mobile
homes and automobiles.
Northeast Bancorp also offers to its customers financial planning,
investment services and all lines of insurance products through the Bank's
subsidiary, Northeast Financial Services Corporation. Northeast Financial
Services Corporation, which is located at Northeast Bancorp's headquarters in
Auburn, Maine, offers customers access to investment and annuity products
through an arrangement with Commonwealth Equity Services, Inc., an unaffiliated,
fully licensed New York securities firm, which licenses the brokers who sell
such products and services. It also offers a full line of insurance products to
customers through its relationships with several insurance agencies, including
one owned by Mr. Kendall, who is a director of Northeast Bancorp.
Trust services and employee benefit products are provided to Northeast
Bancorp customers through Northeast Trust, a division of the Bank. Since 1993,
employee benefit products were provided to Northeast Bancorp's customers through
FNEB, a division of the Bank. During fiscal 1999, Northeast Bancorp dissolved
FNEB because it did not attain sufficient revenue growth. These services are now
provided to customers through the Bank's trust department. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
The community banking strategy of Northeast Bancorp emphasizes the
development of long-term full banking relationships with customers at each
branch location by providing consistent, high quality service from:
- persons with local decision-making authority;
- employees who are familiar with the customers' needs, their business
environment and competitive demands;
49
<PAGE> 51
- employees who are able to develop and customize personalized financial
solutions that are tailored to the customers' needs.
We believe that our strategy of providing "one-stop shopping" for our
customers' financial needs, together with our community bank approach, will
continue to foster the development of profitable long-term relationships between
the Bank and its customers.
With the goal of providing a full range of banking services to its
customers and in an effort to develop strong long-term primary banking
relationships with businesses and individuals, the Bank has expanded its
commercial banking operations by selectively making commercial loans to small
and medium sized companies. In this regard, the Bank's business development
efforts have been directed towards full service credit packages and financial
services, as well as competitively priced mortgage packages. At June 30, 1999,
the Bank's loan portfolio consisted of 58% residential real estate mortgages,
17% commercial real estate mortgage, 11% commercial loans, and 14% consumer
loans. At June 30, 1999, the Bank's lending limit was approximately $4.0
million. To the extent that a customer's credit needs exceed these lending
limits, the Bank may seek participations in such loans with other banks.
MARKET AREA
Northeast Bancorp and the Bank are headquartered in Auburn, Maine with full
service branches located in Augusta, Bethel, Brunswick, Buckfield, Harrison,
Lewiston, Lisbon Falls, Mechanic Falls, Richmond, and South Paris, Maine. In
addition, the Bank maintains a facility in Falmouth, Maine, from which loan
applications are accepted and insurance, investment services and financial
planning services are offered. As a result of its recent acquisitions and
branching strategies, Northeast Bancorp's market areas cover western, central
and the mid-coastal regions of the State of Maine. Northeast Bancorp's market
areas are characterized by a diverse economy that have experienced moderate
growth in recent years.
In order to expand its geographic market and to diversify its uses of
funds, Northeast Bancorp has acquired two financial institutions in the State of
Maine and has opened new branches in strategic locations within its market area.
Northeast Bancorp will continue to evaluate other financial institutions as
potential acquisition candidates in geographic areas that management believes
would compliment its existing banking business.
MARKET FOR SERVICES AND COMPETITION
In its local markets, individuals and businesses are solicited through the
personal efforts of the directors and officers of both Northeast Bancorp and the
Bank. Management believes a locally-based independent bank is often perceived by
the local business community as possessing a clearer understanding of local
commerce and its needs. Consequently, Northeast Bancorp believes that it is able
to make prudent lending decisions to customers in its market areas more quickly
than its competitors without compromising asset quality or profitability.
In an effort to attract a broader base of long-term customer relationships
and diversity in its banking operations, Northeast Bancorp has recently expanded
its focus from primarily seeking residential loan customers to becoming a
"one-stop shopping" destination point for our customers' full financial needs.
Accordingly, during the past few years the Bank has significantly increased the
number and type of financial products, loans, and services that it makes
available to its customers.
Northeast Bancorp encounters strong competition in its market areas, both
in making loans and attracting deposits. The deregulation of the banking
industry and the widespread enactment of state laws which permit multi-bank
holding companies, as well as the availability of nationwide interstate banking,
has created a highly competitive environment for financial services providers.
In one or more aspects of its business, the Bank competes with other savings
banks, commercial banks, credit unions, finance companies, mutual funds,
insurance companies, brokerage and investment banking companies, finance
companies, and other financial intermediaries operating in Maine and elsewhere.
Many of the Bank's primary competitors, some of which
50
<PAGE> 52
are affiliated with large bank holding companies or other larger financial-based
institutions, have substantially greater resources and have higher lending
limits.
The principal factors in competing for deposits are convenient office
locations, flexible hours, interest rates and services, while those relating to
loans are interest rates, the range of lending services offered and lending
fees. Additionally, Northeast Bancorp believes that an emphasis on personalized
financial planning and advice tailored to individual customer needs, together
with the local character of the Bank's business and its "community bank"
management philosophy will enhance its ability to compete successfully in its
market areas. Further, Northeast Bancorp now offers a wide range of financial
services to its customers, including not only basic loan and deposit services,
but also investment services, trust services, and insurance products. We believe
that our ability to provide such services and advice, and to provide the
financial services and products required by our customers, will be an attractive
alternative to consumers in our market area.
LENDING ACTIVITIES
GENERAL. The primary source of income generated by the Bank is from the
interest earned from the loan portfolio. The Bank maintains diversification when
considering the granting of loan requests.
The principal lending activities of the Bank are the origination and
purchase of conventional mortgages for the purpose of constructing, financing,
or re-financing one-to-four family residential properties and commercial
properties. The majority of the properties securing the mortgage loan portfolio
are located in the State of Maine. However, in an effort to diversify the
geographic scope of the real estate collateral held by it, the Bank does
purchase in the secondary market residential mortgage loans collateralized by
properties in other states. Interest rates and origination fees charged on loans
originated by the Bank are generally competitive with other financial
institutions and other mortgage originators in its general market area.
Although residential and commercial real estate lending remains a strong
component of the Bank's lending operations, consistent with its business
strategy Northeast Bancorp also actively seeks an increased volume of commercial
and consumer loans. Commercial loans are originated for commercial construction,
acquisition, remodeling, and general business purposes. In this regard, the
Bank, among other things, also originates loans to small businesses in
association with the Small Business Administration. Consumer loans include those
for the purchase of automobiles, boats, home improvements and personal
investments. Northeast Bancorp also pursues quality indirect lending through
local automobile dealerships.
RESIDENTIAL LENDING. The major component of the Bank's lending activities
consists of the origination of single-family residential mortgage loans
collateralized by owner-occupied property, most of which is located in its
primary service areas. The Bank offers a variety of mortgage loan products. Its
originations are generally for adjustable rate mortgages ("ARMs") or fixed rate
mortgage loans having a term of 15 years or 30 years amortized on a monthly
basis, with principal and interest due each month. Additionally, the Bank offers
second mortgage residential loans.
The Bank offers one-year ARMs with rate adjustments tied to the weekly
average rate of U.S. Treasury securities adjusted to a constant one-year
maturity with specified minimum and maximum interest rate adjustments. The
interest rates on a majority of these mortgages are adjusted yearly with
limitations on upward adjustments of 2% per adjustment period and 6% over the
life of the loan. The Bank also originates fixed-rate mortgage loans on
single-family residential real estate. The Bank generally charges a higher
interest rate if the property is not owner-occupied. It has been the Bank's
experience that the proportion of fixed-rate and adjustable-rate loan
originations depend in large part on the level of interest rates. As interest
rates fall, there is generally a reduced demand for ARMs and, as interest rates
rise, there is generally an increased demand for ARMs.
Fixed rate and adjustable rate mortgage loans collateralized by single
family residential real estate generally have been originated in amounts of no
more than 80% of appraised value. The Bank may, however, lend up to 95% of the
value of the property collateralizing the loan, but if such loans are required
to be made in excess of 80% of the value of the property, they must be insured
by private or federally guaranteed mortgage insurance. In the case of mortgage
loans, the Bank will procure mortgagee's title insurance to
51
<PAGE> 53
protect against defects in its lien on the property which may collateralize the
loan. The Bank in most cases requires title, fire, and extended casualty
insurance to be obtained by the borrower, and, where required by applicable
regulations, flood insurance. The Bank maintains its own errors and omissions
insurance policy to protect against loss in the event of failure of a mortgagor
to pay premiums on fire and other hazard insurance policies.
Although the contractual loan payment period for single-family residential
real estate loans is generally for a 15 to 30 year period, such loans often
remain outstanding for significantly shorter periods than their contractual
terms. In addition, the Bank charges no penalty for prepayment of mortgage
loans. Mortgage loans originated by the Bank customarily include a "due on sale"
clause giving the Bank the right to declare a loan immediately due and payable
in the event, among other matters, that the borrower sells or otherwise disposes
of the real property subject to a mortgage. In general, the Bank enforces due on
sale clauses. Borrowers are typically permitted to refinance or prepay loans at
their option without penalty.
The Bank generally applies the same underwriting criteria to residential
mortgage loans whether purchased or originated. In its loan purchases, the Bank
generally reserves the right to reject particular loans from a loan package
being purchased and does reject loans in a package that do not meet its
underwriting criteria. In connection with loan purchases, the Bank receives
various representations and warranties from the sellers of the loans regarding
the quality and characteristics of the loans. In determining whether to purchase
or originate a loan, the Bank assesses both the borrower's ability to repay the
loan and the adequacy of the proposed collateral. On originations, the Bank
obtains appraisals of the property securing the loan. On purchases, the Bank
reviews the appraisal obtained by the loan seller or originator. On purchases
and originations, the Bank reviews information concerning the income, financial
condition, employment and credit history of the applicant.
Northeast Bancorp has adopted written, non-discriminatory underwriting
standards for use in the underwriting and review of every loan considered for
origination or purchase. These underwriting standards are reviewed and approved
annually by its board of directors. Northeast Bancorp's underwriting standards
for fixed rate residential mortgage loans generally conform to standards
established by Fannie Mae ("FNMA") and the Federal Home Loan Mortgage
Corporation (the "FHLMC"). A loan application is obtained or reviewed by the
Bank's underwriters to determine the borrower's ability to repay, and
confirmation of the more significant information is obtained through the use of
credit reports, financial statements, and employment and other verifications.
The Bank generally uses appraisals to determine the value of collateral for
all loans it originates. When originating a real estate mortgage loan, the Bank
obtains a new appraisal of the property from an independent third party to
determine the adequacy of the collateral, and such appraisal is reviewed by one
of the underwriters. Otherwise, the collateral value is determined by reference
to the documentation contained in the original file.
The Bank also requires that a survey be conducted and title insurance be
obtained, insuring the priority of its mortgage lien. Pursuant to its
underwriting standards, the Bank generally requires private mortgage insurance
policies on newly originated mortgage loans with loan-to-value ratios greater
than 80%. All loans are reviewed by the Bank's underwriters to ensure that its
guidelines are met or that waivers are obtained in limited situations where
offsetting factors exist.
COMMERCIAL REAL ESTATE LENDING. The Bank originates both multi-family and
commercial real estate loans. Multi-family and commercial property loans
generally are made in amounts up to 80% of the lesser of the appraised value or
purchase price of the property. Although the largest multi-family or commercial
loan in Northeast Bancorp's portfolio at June 30, 1999 was approximately $2.1
million, the majority of such loans have balances under $500,000.
The Bank's permanent commercial real estate loans are secured by improved
property such as office buildings, medical facilities, retail centers,
warehouses, apartment buildings, condominiums, and other types of buildings,
which are located in its primary market area. Multi-family and commercial real
estate loans
52
<PAGE> 54
generally have fixed or variable interest rates indexed to FHLB rates with fixed
notes having terms of 3-5 years. Mortgage loan maturities have terms up to 15
years.
Loans secured by multi-family and commercial real estate generally are
larger and involve greater risks than one-to-four family residential mortgage
loans. Because payments on loans secured by multi-family and commercial
properties often are dependent on successful operation or management of the
properties, repayment of such loans may be subject to a greater extent to
adverse conditions in the real estate market or the economy. Northeast Bancorp
seeks to minimize these risks in a variety of ways, including limiting the size
of its multi-family and commercial real estate loans and generally restricting
such loans to its primary market area. In determining whether to originate
multi-family or commercial real estate loans, Northeast Bancorp also considers
such factors as the financial condition of the borrower and the debt service
coverage of the property. Northeast Bancorp intends to continue to make
multi-family and commercial real estate loans as the market demands and economic
conditions permit.
COMMERCIAL LENDING. The Bank offers a variety of commercial loan services
including term loans, lines of credit, equipment, and receivables financing. A
broad range of short-to-medium term commercial loans, both collateralized and
uncollateralized, are made available to businesses for working capital
(including inventory and receivables), business expansion (including
acquisitions of real estate and improvements), and the purchase of equipment and
machinery. Equipment loans are typically originated on both a one year line of
credit basis and on a fixed-term basis ranging from one to five years. The
purpose of a particular loan generally determines its structure.
The Bank's commercial loans primarily are underwritten in Northeast
Bancorp's market areas on the basis of the borrowers' ability to service such
debt from income. As a general practice, the Bank takes as collateral a security
interest in any available real estate, equipment, or other chattel, although
such loans may be made on an uncollateralized basis. Collateralized working
capital loans are primarily collateralized by short-term assets whereas term
loans are primarily collateralized by long-term assets.
Unlike residential mortgage loans, which generally are made on the basis of
the borrower's ability to make repayment from the borrower's wages and other
income and which are collateralized by real property whose value tends to be
easily ascertainable, commercial loans typically are made on the basis of the
borrower's ability to make repayment from the cash flow of their business and
generally are collateralized by business assets, such as accounts receivable,
equipment, and inventory. As a result, the availability of funds for the
repayment of commercial loans may be substantially dependent on the success of
the business itself. Further, the collateral underlying the loans, which may
depreciate over time, usually cannot be appraised with as much precision as
residential real estate, and may fluctuate in value based on the success of the
business.
CONSUMER LOANS. Consumer loans made by the Bank have included automobiles,
recreation vehicles, boats, second mortgages, home improvements, home equity
lines of credit, personal (collateralized and uncollateralized), and deposit
account collateralized loans. The Bank's consumer loan portfolio consists
primarily of loans to individuals for various consumer purposes, but includes
some business purpose loans which are payable on an installment basis. A
majority of these loans are for terms of less than 60 months and although
generally collateralized by liens on various personal assets of the borrower,
they may be originated without collateral. Consumer loans are made at fixed and
variable interest rates and may be made based on up to a 5 year amortization
schedule.
Consumer loans are attractive to Northeast Bancorp because they typically
have a shorter term and carry higher interest rates than that charged on other
types of loans. Consumer loans, however, do pose additional risks of
collectability when compared to traditional types of loans granted by commercial
banks such as residential mortgage loans. In many instances, the Bank is
required to rely on the borrower's ability to repay since the collateral may be
of reduced value at the time of collection. Accordingly, the initial
determination of the borrower's ability to repay is of primary importance in the
underwriting of consumer loans.
In 1998, the Bank entered the indirect automobile lending market. Indirect
automobile lending consists of automobile loans made by the Bank through the
purchase of contracts from automobile dealers. Generally,
53
<PAGE> 55
the Bank will obtain fixed-rate automobile loans indirectly through various
automobile dealerships located in its market areas. The indirect origination of
consumer loan products generally requires funding of dealer reserves. These
reserves are maintained for the benefit of the dealer who originated such loans,
but such funding is subject to performance of certain loan conditions. The
dealer is generally responsible to the Bank for the amount of the reserve only
if a loan giving rise to the reserve becomes delinquent or the loan has been
prepaid.
CONSTRUCTION LOANS. The Bank originates residential construction
contractor loans to finance the construction of single-family dwellings. Most of
the residential construction loans are made to individuals who intend to erect
owner-occupied housing on a purchased parcel of real estate. The Bank
construction loans to individuals typically range in size from $100,000 to
$200,000. Construction loans also are made to contractors to erect single-family
dwellings for resale. Construction loans are generally offered on the same basis
as other residential real estate loans, except that a larger percentage down
payment is typically required.
The Bank also may make residential construction loans to real estate
developers for the acquisition, development, and construction of residential
subdivisions. The Bank has limited involvement with this type of loan. Such
loans may involve additional risk attributable to the fact that funds will be
advanced to fund the project under construction, which is of uncertain value
prior to completion and because it is relatively difficult to evaluate
accurately the total amount of funds required to complete a project.
The Bank finances the construction of individual, owner-occupied houses on
the basis of written underwriting and construction loan management guidelines.
Construction loans are structured either to be converted to permanent loans with
the Bank at the end of the construction phase or to be paid off upon receiving
financing from another financial institution. Construction loans on residential
properties are generally made in amounts up to 80% of appraised value.
Construction loans to developers generally have terms of up to 12 months. Loan
proceeds on builders' projects are disbursed in increments as construction
progresses and as inspections warrant. The maximum loan amounts for construction
loans are based on the lesser of the current appraisal value or the purchase
price for the property.
Construction loans are generally considered to involve a higher degree of
risk than long-term financing collateralized by improved, occupied real estate.
A lender's risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at the completion of
construction and estimated cost (including interest) of construction. If the
estimate of construction cost proves to be inaccurate, the lender could be
required to advance funds beyond the amount originally committed in order to
permit completion of the project. If the estimate of anticipated value proves to
be inaccurate, the lender may have collateral which has value insufficient to
assure full repayment.
Loans collateralized by subdivisions and multi-family residential real
estate generally are larger than loans collateralized by single-family,
owner-occupied housing and also generally involve a greater degree of risk.
Payments on these loans depend to a large degree on the results of operations
and management of the properties, and repayment of such loans may be more
subject to adverse conditions in the real estate market or the economy.
LOAN SOLICITATION AND PROCESSING
Loan originations are derived from a number of sources. Residential loan
originations can be attributed to real estate broker referrals, mortgage loan
brokers, direct solicitation by the Bank's loan officers, present savers and
borrowers, builders, attorneys, walk-in customers and, in some instances, other
lenders. Loan applications, whether originated through the Bank or through
mortgage brokers, are underwritten and closed based on the same standards, which
generally meet FNMA underwriting guidelines. Consumer and commercial real estate
loan originations emanate from many of the same sources. The legal lending limit
of the Bank, as of June 30, 1999, was approximately $4 million.
The loan underwriting procedures followed by the Bank conform to regulatory
specifications and are designed to assess the borrower's ability to make
principal and interest payments and the value of any assets or property serving
as collateral for the loan. Generally, as part of the process, a bank loan
officer meets with
54
<PAGE> 56
each applicant to obtain the appropriate employment and financial information as
well as any other required loan information. Upon receipt of the borrower's
completed loan application, the Bank then obtains reports with respect to the
borrower's credit record, and orders and reviews an appraisal of any collateral
for the loan (prepared for the Bank through an independent appraiser). The loan
information supplied by the borrower is independently verified. Loan officers or
other loan production personnel in a position to directly benefit monetarily
through loan solicitation fees from individual loan transactions do not have
approval authority. Once a loan application has been completed and all
information has been obtained and verified, the loan request is submitted to a
final review process. As part of the loan approval process, all uncollateralized
loans of $100,000 or more and all collateralized loans of $500,000 or more
require preapproval by the Bank's loan committee, which is currently comprised
of five directors of the Bank and meets on such basis as is deemed necessary to
promptly service loan demand. All loans of $2,000,000 or more require
preapproval by the Bank's Board of Directors, and borrowers requesting amounts
which will result in a loan relationship of $2,000,000 or more also must be
approved by the board of directors of the Bank.
Loan applicants are notified promptly of the decision of the Bank by
telephone and a letter. If the loan is approved, the commitment letter specifies
the terms and conditions of the proposed loan including the amount of the loan,
interest rate, amortization term, a brief description of the required
collateral, and required insurance coverage. Prior to closing any long-term
loan, the borrower must provide proof of fire and casualty insurance on the
property serving as collateral which insurance must be maintained during the
full term of the loan. Title insurance is required on loans collateralized by
real property. Interest rates on committed loans are normally locked in at the
time of application for a 30 to 45 day period. The commitment issued at the time
of approval will be for the time remaining, based on the application date.
ACTIVITIES OF SUBSIDIARIES
Northeast Financial Services Corporation, a Maine corporation and
wholly-owned subsidiary of the Bank, was originally formed in 1982 as a vehicle
through which the Bank could participate in selected real estate development
projects. At June 30, 1999, investment in, and loans to, Northeast Financial
Services Corporation constituted 0.13% of Northeast Bancorp's total assets.
Generally, any proposed development project will be examined for its profit
potential and its ability to enhance the communities served by the Bank. At the
present time, there are no definitive plans for additional real estate
development projects.
Northeast Financial also supports the Bank's non-banking financial services
through its relationship with Commonwealth Financial Services, Inc., a fully
licensed New York securities firm, and a variety of insurance agencies,
including Kendall Insurance Agency, which allows the Bank to deliver insurance
products to its customers, and for which the Bank receives a flat fee from the
various relationships for referrals. Northeast Financial has not invested any
assets in its business relationship with Commonwealth.
EMPLOYEES
At June 30, 1999, Northeast Bancorp and the Bank together employed 128
full-time and 27 part-time employees. None of these employees are covered by a
collective bargaining agreement and we believe that our employee relations are
good.
PROPERTY OF NORTHEAST BANCORP
The principal executive and administrative offices of Northeast Bancorp and
the Bank are located at 232 Center Street, Auburn, Maine and consist of two
floors, containing a lobby, executive and customer service offices, teller
stations, and vault operations. These office facilities are subject to a lease
which expires in 2007, with an option to renew the lease for two additional
ten-year terms. This lease requires rental payments of $96,072 per year.
The Bank has 12 branching locations, including the banking facility located
at its executive offices. The branches located in Augusta (Western Avenue),
Bethel, Brunswick, Buckfield, Harrison, Lisbon, and Mechanic Falls, Maine, and
the facility located in Falmouth, Maine, are owned by the Bank in fee simple. In
addition to the Auburn facilities, the branches located in Augusta (Bangor
Street) Lewiston, and South
55
<PAGE> 57
Paris, Maine are leased by the Bank. The Bank also owns in fee simple certain
real property and improvements located in Auburn, Maine at which various
accounting and operations functions of Northeast Bancorp and the Bank are
performed. The facilities owned or occupied under lease by the Bank and its
subsidiaries are considered by management to be adequate.
LEGAL PROCEEDINGS
Northeast Bancorp and the Bank are periodically parties to or otherwise
involved in legal proceedings arising in the normal course of business, such as
claims to enforce liens, foreclose on loan defaults, claims involving the making
and servicing of real property loans, and other issues incidental to the Bank's
business. Management does not believe that there is any proceeding threatened or
pending against Northeast Bancorp or the Bank which, if determined adversely,
would have a material effect on the business or financial position of Northeast
Bancorp or the Bank.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
The Bank has had, and expects to have in the future, various loans and
other banking transactions in the ordinary course of business with the
directors, executive officers, and principal shareholders of the Bank and
Northeast Bancorp (or an associate of such person). All such transactions: (i)
have been and will be made in the ordinary course of business; (ii) have been
and will be made on substantially the same terms, including interest rates and
collateral on loans, as those prevailing at the time for comparable transactions
with unrelated persons; and (iii) in the opinion of management do not and will
not involve more than the normal risk of collectability or present other
unfavorable features. At June 30, 1999 and 1998, the total dollar amount of
extensions of credit to directors and executive officers identified above, and
their associates were $3,500,973 and $2,219,800, respectively, which represented
approximately 13.1% and 8.8% respectively, of total stockholders' equity.
In providing the Bank's customers with investment and insurance products,
certain directors of Northeast Bancorp have an interest in businesses which have
furnished such products to the Bank's customers on a non-exclusive basis.
Messrs. Goguen and Schiavi, directors of Northeast Bancorp, each hold a
22.5% equity interest, or an aggregate of 45%, in Saratoga Capital Management
("SCM"), a Delaware general partnership, which serves as the investment manager
of Saratoga Advantage Trust ("SAT"). SAT, an investment company organized under
the Investment Company Act of 1940, operates several mutual fund investments.
SCM has granted a license to the Bank's trust department to use the Saratoga
Capital Management Asset Allocation Software which assists its customers in
selecting an asset allocation mix which is tailored to the customers' specific
needs and investment goals. In addition, the SAT mutual funds are offered to the
trust department's customers on a non-exclusive basis. As a result of this
relationship, the trust department has placed approximately $14 million in SAT
mutual fund investments, which are indirectly under management by SCM. SCM
receives an annual asset allocation fee of 15 basis points, based on the
aggregate placement of funds in SAT portfolios, for the trust department's use
of its asset allocation software.
Except as described in this prospectus, outside of normal customer
relationships none of the directors or officers of Northeast Bancorp, and no
shareholder holding over 5% of the common stock of Northeast Bancorp and no
corporations or firms with which such persons or entities are associated,
currently maintains or has maintained since the beginning of the last fiscal
year, any significant business or personal relationship with Northeast or the
Bank, other than such as arises by virtue of such position or ownership interest
in Northeast Bancorp or the Bank.
56
<PAGE> 58
DESCRIPTION OF PREFERRED SECURITIES
The Trust will issue the preferred securities and the common securities
under the terms of the trust agreement for the Trust. The preferred securities
will represent preferred undivided beneficial interests in the assets of the
Trust which entitle holders of the preferred securities, in certain
circumstances, to a preference over common securities with respect to
distributions and amounts payable on redemption or liquidation, as well as other
benefits as described in the trust agreement.
This summary of the provisions of the preferred securities and the trust
agreement is not complete. You should read the form of trust agreement which is
filed as an exhibit to the registration statement of which this prospectus is a
part. Wherever particular defined terms of the trust agreement are referred to
in this prospectus, such defined terms are incorporated herein by reference. A
copy of the form of the trust agreement is available upon request from the
trustees.
GENERAL
The preferred securities will be limited to $10,500,000 aggregate
liquidation amount (as defined in the trust agreement) outstanding (which amount
may be increased by up to $1,575,000 aggregate liquidation amount of preferred
securities for exercise of the underwriter's over-allotment option). See
"Underwriting." The preferred securities will rank equally, and payments will be
made pro rata, with the common securities except as described under
"--Subordination of Common Securities." The junior subordinated debentures will
be registered in the name of the Trust and held by the property trustee in trust
for the benefit of the holders of the preferred securities and common
securities. The guarantee that Northeast will execute will be a guarantee on a
subordinated basis with respect to the preferred securities but will not
guarantee payment of distributions or amounts payable on redemption or
liquidation of the preferred securities when the Trust does not have funds on
hand available to make such payments. See "Description of Guarantee."
DISTRIBUTIONS
PAYMENT OF DISTRIBUTIONS. You will receive distributions on each preferred
security at the annual rate of % of the stated liquidation amount of $10
per preferred security. The liquidation amount is the amount that holders of the
preferred securities are entitled to receive if the Trust is dissolved and its
assets are distributed to the holders of its securities. The Trust will pay
distributions quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year, to record holders at the close of business on the 15th
day of the month in which the relevant distribution payments occur. Each date on
which distributions will be paid is referred to as a distribution date in this
prospectus. Distributions on the preferred securities will be cumulative.
Distributions will accumulate from , 1999. The first distribution
date for the preferred securities will be , 1999. The amount of
distributions payable for any period less than a full distribution period will
be computed on the basis of a 360-day year of twelve 30-day months and the
actual days elapsed in a partial month in such period. Distributions payable for
each full distribution period will be computed by dividing the rate per annum by
four. If any date on which distributions are payable on the preferred securities
is not a business day, then payment will be made on the next succeeding day that
is a business day (without any additional interest or other payment because of
the delay), except that, if such business day falls in the next calendar year,
such payment will be made on the immediately preceding business day.
EXTENSION PERIOD. So long as Northeast Bancorp is not in default on the
interest payments on the junior subordinated debentures, Northeast Bancorp has
the right to defer the payment of interest on the junior subordinated debentures
at any time, or from time to time, by extending the interest payment period for
an "extension period" not exceeding 20 consecutive quarters with respect to each
extension period, provided that no extension period may extend beyond the
maturity date of the junior subordinated debentures. As a consequence of any
such deferral, the Trust also would defer quarterly distributions on the
preferred securities during the extension period. Distributions payable to
holders of the preferred securities will continue to accumulate additional
distributions thereon at an annual rate of %, compounded quarterly during
the extension period. Such additional distributions will be computed on the
basis of a 360-day year of twelve 30-
57
<PAGE> 59
day months and the actual days elapsed in a partial month in such period.
Additional distributions payable for each full distribution period will be
computed by dividing the rate per annum by four. The term "distributions"
includes any such additional distributions payable unless otherwise stated.
If Northeast Bancorp defers interest payments on the junior subordinated
debentures, Northeast Bancorp would be prohibited from: (1) making any payment
of principal of, or interest or premium, if any, on or repaying, repurchasing,
or redeeming any debt securities of Northeast Bancorp that rank equally in all
respects with or junior in interest to the junior subordinated debentures, or
(2) declaring or paying any dividends or distributions on, or redeeming,
purchasing, acquiring or making a liquidation payment with respect to, any of
Northeast Bancorp's capital stock.
These prohibitions, however, do not apply to:
- repurchases, redemptions, or other acquisitions of shares of capital
stock of Northeast Bancorp in connection with any employment contract,
benefit plan, or other similar arrangement, a dividend reinvestment or
stockholder stock purchase plan, or the issuance of Northeast Bancorp
capital stock (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered
into prior to the applicable extension period;
- a reclassification, exchange, or conversion of any class or series of
Northeast Bancorp's capital stock (or any capital stock of its
subsidiaries) for any class or series of Northeast Bancorp's capital
stock, or of any class or series of Northeast Bancorp's indebtedness for
any class or series of Northeast Bancorp's capital stock;
- the purchase of fractional interests in shares of Northeast Bancorp's
capital stock pursuant to the conversion or exchange provisions of such
capital stock or the security being converted or exchanged;
- any declaration of a dividend in connection with any stockholder's rights
plan, or the issuance of rights, stock or other property under any
stockholder's rights plan, or the redemption or repurchase of rights
pursuant thereto; or
- any dividend in the form of stock, warrants, options or other rights
where the dividend stock or the stock issuable upon exercise of such
warrants, options or other rights is the same stock as that on which the
dividend is being paid or ranks equally with or junior to such stock.
Before the end of an extension period, Northeast Bancorp may further defer
the payment of interest. No extension period may exceed 20 consecutive quarterly
periods or extend beyond the maturity date of the junior subordinated
debentures. Upon the termination of any such extension period and the payment of
all amounts then due, Northeast Bancorp may elect to begin a new extension
period. No interest shall be due and payable during an extension period, except
at the end of the extension period. Northeast Bancorp must give the trustees
notice of its election of an extension period at least one business day prior to
the earlier of (1) the date the distributions on the preferred securities would
have been payable but for the election to begin the extension period and (2) the
date the property trustee is required to give notice to holders of the preferred
securities of the record date or the date such distributions are payable, but in
any event not less than one business day prior to the record date. The property
trustee will give notice to holders of the preferred securities of Northeast
Bancorp's election to begin a new extension period. Subject to the foregoing,
there is no limitation on the number of times that Northeast Bancorp may elect
to begin an extension period. See "Description of Junior Subordinated
Debentures -- Option To Extend Interest Payment Period" and "Certain Federal
Income Tax Consequences -- Interest Income and Original Issue Discount."
Northeast Bancorp currently does not intend to exercise its right to defer
payments of interest by extending the interest payment period on the junior
subordinated debentures.
SOURCE OF DISTRIBUTIONS. The Trust's funds available for distribution to
you will be limited to payments received under the junior subordinated
debentures in which the Trust will invest the proceeds from the issuance and
sale of its preferred securities and common securities. See "Description of
Junior Subordinated Debentures." The Trust pays distributions through the
property trustee. The property trustee holds amounts received from the junior
subordinated debentures in the payment account for the benefit of the holders of
the
58
<PAGE> 60
preferred securities and the common securities. If Northeast Bancorp does not
make payments on the junior subordinated debentures, the Trust will not have
funds available to pay distributions or other amounts payable on the preferred
securities. The payment of distributions and other amounts payable on the
preferred securities (if and to the extent the Trust has funds legally available
for and cash sufficient to make such payments) is guaranteed by Northeast
Bancorp. See "Description of Guarantee."
REDEMPTION
GENERAL. The junior subordinated debentures will mature on ,
2029. Northeast Bancorp will have the right, subject to receipt of prior
regulatory approval if then required, to redeem the junior subordinated
debentures (1) on or after , 2004, in whole at any time or in part
from time to time, or (2) in whole, but not in part, at any time within 90 days
following the occurrence and during the continuation of a Tax Event, Investment
Company Event, or Capital Treatment Event (each as defined below). See
"-- Liquidation Distribution Upon Dissolution." A redemption of the junior
subordinated debentures would cause a mandatory redemption of a proportionate
amount of the preferred securities and common securities at the redemption
price.
If Northeast Bancorp repays or redeems the junior subordinated debentures,
Northeast Bancorp must give the property trustee not less than 30 nor more than
60 days notice so that the property trustee can redeem a proportionate amount of
the preferred securities and the common securities. The redemption price for
each preferred security shall equal $10 plus accumulated but unpaid
distributions through the redemption date and the related amount of the premium,
if any, paid by Northeast Bancorp upon the concurrent redemption of such junior
subordinated debentures. See "Description of Junior Subordinated
Debentures -- Redemption." If less than all the junior subordinated debentures
are to be repaid or redeemed on a redemption date, then the proceeds from the
repayment or redemption shall be allocated to the redemption pro rata of the
preferred securities and the common securities.
If a Tax Event, an Investment Company Event, or a Capital Treatment Event
occurs and Northeast Bancorp does not elect to:
- redeem the junior subordinated debentures and thereby cause a mandatory
redemption of the preferred securities and the common securities, or
- liquidate the Trust and distribute the junior subordinated debentures to
holders of the preferred securities and the common securities as
described below under "-- Liquidation Distribution Upon Dissolution,"
such preferred securities will remain outstanding and Northeast Bancorp will pay
the additional amounts described below upon the occurrence of a Tax Event.
"Tax Event" means the receipt by the Trust of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment to,
or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance of
the preferred securities, there is more than an insubstantial risk that:
- the Trust is, or will be within 90 days of the delivery of such opinion,
subject to United States federal income tax with respect to income
received or accrued on the junior subordinated debentures;
- interest payable by Northeast Bancorp on the junior subordinated
debentures is not, or within 90 days of the delivery of such opinion,
will not be, deductible by Northeast Bancorp, in whole or in part, for
United States federal income tax purposes; or
- the Trust is, or will be within 90 days of the delivery of such opinion,
subject to more than a de minimis amount of other taxes, duties, or other
governmental charges.
59
<PAGE> 61
See "Certain Federal Income Tax Consequences -- Pending Tax Litigation
Affecting the Preferred Securities" for a discussion of pending United States
Tax Court litigation that, if decided adversely to the taxpayer, could give rise
to a Tax Event, which may permit Northeast Bancorp to redeem the junior
subordinated debentures prior to , 2004.
If a Tax Event described in the first or third bullet points described
above has occurred and is continuing and the Trust is holding all of the junior
subordinated debentures, Northeast Bancorp will pay on the junior subordinated
debentures any additional amounts as may be necessary in order that the amount
of distributions then deemed payable by the Trust on the outstanding preferred
securities and common securities will not be reduced as a result of any
additional taxes, duties, or other governmental charges to which the Trust has
become subject as a result of a Tax Event.
"Investment Company Event" means the receipt by the Trust of an opinion of
counsel experienced in such matters to the effect that, as a result of the
occurrence of a change in law or regulation or a written change (including any
announced prospective change) in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority, there is more than an insubstantial risk that the Trust is or will be
considered an "investment company" that is required to be registered under the
Investment Company Act, which change or prospective change becomes effective or
would become effective, as the case may be, on or after the date that the
preferred securities are originally issued.
"Capital Treatment Event" means the reasonable determination by Northeast
Bancorp that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the
preferred securities, there is more than an insubstantial risk that Northeast
Bancorp will not be entitled to treat an amount equal to the liquidation amount
of the preferred securities as Tier 1 Capital (or the then equivalent thereof)
for the purposes of capital adequacy guidelines of the Office of Thrift
Supervision or any successor regulatory authority with jurisdiction over savings
and loan holding companies, or any capital adequacy guidelines as then in effect
and applicable to Northeast Bancorp. Currently no capital adequacy guidelines
apply to savings and loan holding companies such as Northeast Bancorp.
REDEMPTION PROCEDURES
Preferred securities redeemed on each redemption date shall be redeemed at
a price equal to $10 plus accumulated but unpaid distributions, with the
applicable proceeds from the contemporaneous redemption of the junior
subordinated debentures. Redemptions of the preferred securities shall be made
and the redemption price will be payable on each redemption date only to the
extent that the Trust has funds on hand available for the payment of such
redemption price. See also " -- Subordination of Common Securities."
The property trustee will mail to each holder of the preferred securities a
notice of redemption at least 30 days but not more than 60 days before the
redemption date. If the Trust gives a notice of redemption of the preferred
securities, then, by 12:00 noon, Eastern time, on the redemption date, to the
extent funds are available, in the case of preferred securities held in
book-entry form, the property trustee will deposit irrevocably with DTC funds
sufficient to pay the applicable redemption price and will give DTC irrevocable
instructions and authority to pay the redemption price to the beneficial owners
of the preferred securities. With respect to preferred securities not held in
book-entry form, the property trustee, to the extent funds are available, will
irrevocably deposit with the paying agent for the preferred securities funds
sufficient to pay the applicable redemption price and will give such paying
agent irrevocable instructions and authority to pay the redemption price to the
holders of the preferred securities upon surrender of their certificates
evidencing the preferred securities. Notwithstanding the foregoing,
distributions payable on or prior to the redemption date for any preferred
securities called for redemption shall be payable to the holders of the
preferred securities on the relevant record dates for the related distribution
dates.
60
<PAGE> 62
Once the notice of redemption is given and funds deposited as required,
then upon the date of such deposit all rights of the holders of such preferred
securities so called for redemption will cease, except the right of the holders
of such preferred securities to receive the redemption price, but without
interest on such redemption price. At that time, those preferred securities will
cease to be outstanding. If any date fixed for redemption is not a business day,
then payment of the redemption price will be made on the next succeeding day
which is a business day (without any interest or other payment in respect of any
such delay), except that, if such business day falls in the next calendar year,
such payment will be made on the immediately preceding business day. If payment
of the redemption price for the preferred securities called for redemption is
improperly withheld or refused and not paid either by the Trust or by Northeast
Bancorp under the guarantee as described under "Description of Guarantee," then
distributions on such preferred securities will continue to accumulate at the
then applicable rate, from the redemption date originally established by the
Trust to the date of actual payment. In this case, the actual payment date will
be considered the date fixed for redemption for purposes of calculating the
redemption price.
Subject to applicable law (including, without limitation, United States
federal securities laws), Northeast Bancorp or its affiliates may at any time
and from time to time purchase outstanding preferred securities by tender, in
the open market, or by private agreement, and may resell such securities.
If the Trust redeems less than all the preferred securities and common
securities, then the aggregate liquidation amount of such preferred securities
to be redeemed will be allocated pro rata to the preferred securities and the
common securities based upon the relative liquidation amounts of such classes.
The particular preferred securities to be redeemed shall be selected on a pro
rata basis not more than 60 days prior to the redemption date by the property
trustee from the outstanding preferred securities not previously called for
redemption, or in accordance with DTC's customary procedures, if the preferred
securities are then held in the form of a global preferred security. The
property trustee shall promptly notify the securities registrar for the
preferred securities in writing of the preferred securities selected for
redemption and, in the case of any preferred securities selected for partial
redemption, the liquidation amount of the preferred securities to be redeemed.
For all purposes of the trust agreement, unless the context otherwise requires,
all provisions relating to the redemption of preferred securities shall relate,
in the case of any preferred securities redeemed or to be redeemed only in part,
to the portion of the aggregate liquidation amount of preferred securities which
has been or is to be redeemed.
Unless Northeast Bancorp defaults in paying the redemption price on the
junior subordinated debentures, on and after the redemption date, interest will
cease to accrue on the junior subordinated debentures or portions thereof called
for redemption. Unless payment of the redemption price in respect to the
preferred securities is withheld or refused and not paid by the Trust or
Northeast Bancorp pursuant to the guarantee, distributions will cease to
accumulate on the preferred securities or portions of such securities called for
redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the redemption price of, and the
liquidation distribution in respect of, the preferred securities and common
securities, as applicable, shall be made on a proportionate basis, based on the
liquidation amount of such preferred securities and common securities. However,
if an event of default has occurred and is continuing on any distribution date
or redemption date due to the failure of Northeast Bancorp to pay any amounts in
respect of the junior subordinated debentures, then no payments may be made on
the common securities, unless all unpaid amounts due on the preferred securities
have been paid in full or provided for, as appropriate, including payment in
full in cash of all accumulated and unpaid distributions on all the outstanding
preferred securities and payment of the full amount of such redemption price on
all the outstanding preferred securities then called for redemption.
In the case of any event of default under the trust agreement with respect
to the preferred securities (as described below under "-- Events of Default;
Notice") resulting from an event of default under the indenture with respect to
the junior subordinated debentures (as described below under "Description of the
Junior Subordinated Debentures -- Debenture Events of Default"), Northeast
Bancorp, as the holder of the
61
<PAGE> 63
common securities, will have no right to act with respect to any such event of
default under the trust agreement until the effects of all such events of
default with respect to such preferred securities have been cured, waived, or
otherwise eliminated. See "-- Events of Default; Notice" and "Description of
Junior Subordinated Debentures -- Debenture Events of Default." Until all such
events of default under the trust agreement with respect to the preferred
securities have been so cured, waived, or otherwise eliminated, the property
trustee will act solely on behalf of the holders of the preferred securities and
not on behalf of the holders of the common securities, and only the holders of
the preferred securities will have the right to direct the property trustee to
act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The amount payable on the preferred securities in the event of any
liquidation of the Trust is $10 per preferred security plus accumulated and
unpaid distributions, subject to certain exceptions, which may be in the form of
a distribution of such amount in junior subordinated debentures.
Northeast Bancorp, as holder of all the outstanding common securities, has
the right at any time to dissolve the Trust and, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, cause the
junior subordinated debentures to be distributed to the holders of the preferred
securities and common securities in liquidation of the Trust.
Pursuant to the trust agreement, the Trust will automatically dissolve upon
expiration of its term and will dissolve earlier on the first to occur of:
- certain events of bankruptcy, dissolution, or liquidation of Northeast
Bancorp or another holder of the common securities;
- the distribution of a proportionate amount of the junior subordinated
debentures to the holders of the preferred securities and the common
securities, if the holders of common securities have given written
direction to the property trustee to dissolve the Trust (which direction,
subject to the foregoing restrictions, is optional and wholly within the
discretion of the holders of common securities);
- the entry of an order for the dissolution of the Trust by a court of
competent jurisdiction; and
- the redemption of all the preferred securities in connection with the
redemption of all the junior subordinated debentures as described under
"-- Redemption".
If an early dissolution of the Trust occurs as described in any of the
first three bullet points above, the Trust will be liquidated by the property
trustee as expeditiously as the property trustee determines to be possible by
distributing, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, to the holders of the preferred securities and the
common securities a proportionate amount of the junior subordinated debentures,
unless such distribution is not practical.
If distribution of the junior subordinated debentures is not practical, the
holders of the preferred securities and the common securities will be entitled
to receive out of the assets of the Trust available for distribution to holders,
after satisfaction of liabilities to creditors of the Trust as provided by
applicable law, an amount equal to, in the case of holders of preferred
securities, the aggregate of the liquidation amount plus accumulated and unpaid
distributions thereon to the date of payment. If such liquidation distribution
can be paid only in part because the Trust has insufficient assets available to
pay in full the aggregate liquidation distribution, then the amounts payable
directly by the Trust on its preferred securities shall be paid on a pro rata
basis.
The holders of the common securities will be entitled to receive
distributions upon any such liquidation pro rata with the holders of the
preferred securities, except that if an event of default under the junior
subordinated debentures has occurred and is continuing the preferred securities
shall have a priority over the common securities. See "-- Subordination of
Common Securities."
62
<PAGE> 64
After the liquidation date fixed for any distribution of junior
subordinated debentures in exchange for preferred securities:
- the preferred securities will no longer be deemed to be outstanding;
- DTC or its nominee, as the registered holder of preferred securities,
will receive a registered global certificate or certificates representing
the junior subordinated debentures to be delivered upon such distribution
with respect to preferred securities held by DTC or its nominee; and
- any certificates representing the preferred securities not held by DTC or
its nominee will be deemed to represent the junior subordinated
debentures having a principal amount equal to the stated liquidation
amount of the preferred securities and bearing accrued and unpaid
interest in an amount equal to the accumulated and unpaid distributions
on the preferred securities until such certificates are presented to the
security registrar for the preferred securities for transfer or
reissuance.
If Northeast Bancorp does not redeem the junior subordinated debentures
prior to maturity or liquidate the Trust and distribute the junior subordinated
debentures to holders of the preferred securities, then the preferred securities
will remain outstanding until the junior subordinated debentures are paid and
the liquidation distribution has been made to the holders of the preferred
securities.
There can be no assurance as to the market prices for the preferred
securities or the junior subordinated debentures that may be distributed in
exchange for preferred securities if a dissolution and liquidation of the Trust
were to occur. Accordingly, the preferred securities that an investor may
purchase, or the junior subordinated debentures that the investor may receive on
dissolution and liquidation of the Trust, may trade at a discount to the price
that was paid to purchase the preferred securities offered hereby.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an event of default under the
trust agreement with respect to the preferred securities (whatever the reason
for such event of default and whether it is voluntary or involuntary or is
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):
- the occurrence of an event of default with respect to the junior
subordinated debentures (see "Description of Junior Subordinated
Debentures -- Debenture Events of Default");
- default by the Trust in paying any distribution when it becomes due and
payable, and continuation of such default for a period of 30 days;
- default by the Trust in paying any redemption price of any preferred
security or common security when it becomes due and payable;
- default in performing, or breach, in any material respect, of any
covenant or warranty of the trustees in the trust agreement (other than a
covenant or warranty a default in the performance of which or the breach
of which is dealt with the immediately preceding two bullet points), and
continuation of such default or breach for a period of 60 days after
there has been given, by registered or certified mail, to the trustees
and Northeast Bancorp by the holders of at least 25% in aggregate
liquidation amount of the outstanding preferred securities, a written
notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" under the trust
agreement; or
- the occurrence of certain events of bankruptcy or insolvency with respect
to the property trustee if a successor property trustee has not been
appointed within 90 days of such event.
Within five business days after an event of default actually known to the
property trustee occurs, the property trustee will transmit notice of such event
of default to the holders of common and preferred securities and the
administrators, unless such event of default has been cured or waived. Northeast
Bancorp, as depositor, and the administrators are required to file annually with
the property trustee a certificate as to whether or not they are in compliance
with all the conditions and covenants applicable to them under the trust
agreement.
63
<PAGE> 65
If an event of default with respect to the junior subordinated debentures
has occurred and is continuing as a result of any failure by Northeast Bancorp
to pay any amounts in respect of the junior subordinated debentures when due,
the preferred securities will have a preference over the common securities with
respect to payments of any amounts as described above. See "-- Subordination of
Common Securities," "-- Liquidation Distribution Upon Dissolution" and
"Description of Junior Subordinated Debentures -- Debenture Events of Default."
REMOVAL OF TRUSTEES; APPOINTMENT OF SUCCESSORS
The holders of at least a majority in aggregate liquidation amount of the
outstanding preferred securities may remove any trustee for cause or, if an
event of default with respect to the junior subordinated debentures has occurred
and is continuing, with or without cause. If a trustee is removed by the holders
of the outstanding preferred securities, the successor may be appointed by the
holders of at least 25% in aggregate liquidation amount of preferred securities.
If a trustee resigns, such trustee will appoint its successor. If a trustee
fails to appoint a successor, the holders of at least 25% in aggregate
liquidation amount of the outstanding preferred securities may appoint a
successor. If a successor has not been appointed by such holders, then any
holder of preferred securities or the common securities or the other trustee may
petition a court in the State of Delaware to appoint a successor. Any Delaware
trustee must meet the applicable requirements of Delaware law. Any property
trustee must be a national or state-chartered bank, and at the time of
appointment have securities rated in one of the three highest rating categories
by a nationally recognized statistical rating organization and have capital and
surplus of at least $50,000,000. No resignation or removal of a trustee and no
appointment of a successor trustee shall be effective until the acceptance of
appointment by the successor trustee in accordance with the provisions of the
trust agreement.
The holders of the preferred securities will not in any event, however,
have the right to vote, appoint, remove, or replace the administrators of the
Trust. Such voting rights are vested exclusively in Northeast Bancorp as holder
of all of the common securities.
MERGER OR CONSOLIDATION OF TRUSTEES
Any entity into which the property trustee or the Delaware trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion, or consolidation to which such trustee is
a party, or any entity succeeding to all or substantially all the corporate
trust business of such trustee, will be the successor of such trustee under the
trust agreement, provided such entity is otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS, OR REPLACEMENTS OF THE TRUST
The Trust may not merge with or into, consolidate, convert into,
amalgamate, or be replaced by, or convey, transfer, or lease its properties and
assets substantially as an entirety to, any entity, except as described below or
as otherwise set forth in the trust agreement. The Trust may, at the request of
the holders of the common securities and with the consent of the holders of at
least a majority in aggregate liquidation amount of the outstanding preferred
securities, merge with or into, consolidate, convert into, amalgamate, or be
replaced by or convey, transfer, or lease its properties and assets
substantially as an entirety to a trust organized as such under the laws of any
state, so long as:
- such successor entity either (1) expressly assumes all the obligations of
the Trust with respect to the preferred securities, or (2) substitutes
for the preferred securities other securities having substantially the
same terms as the preferred securities so long as the substitute
preferred securities have the same priority as the preferred securities
with respect to distributions and payments upon liquidation, redemption,
and otherwise;
- a trustee of such successor entity, possessing the same powers and duties
as the property trustee, is appointed to hold the junior subordinated
debentures;
64
<PAGE> 66
- such merger, consolidation, conversion, amalgamation, replacement,
conveyance, transfer, or lease does not cause the preferred securities
(including any substitute preferred securities) to be downgraded by any
nationally recognized statistical rating organization, if then rated;
- such merger, consolidation, conversion, amalgamation, replacement,
conveyance, transfer, or lease does not adversely affect the rights,
preferences, and privileges of the holders of the preferred securities
(including any substitute preferred securities) in any material respect;
- such successor entity has a purpose substantially identical to that of
the Trust;
- prior to such merger, consolidation, conversion, amalgamation,
replacement, conveyance, transfer, or lease, the Trust has received an
opinion from independent counsel experienced in such matters to the
effect that (1) such merger, consolidation, conversion, amalgamation,
replacement, conveyance, transfer, or lease does not adversely affect the
rights, preferences, and privileges of the holders of the preferred
securities (including any substitute preferred securities) in any
material respect, and (2) following such merger, consolidation,
conversion, amalgamation, replacement, conveyance, transfer, or lease,
neither the Trust nor such successor entity will be required to register
as an investment company under the Investment Company Act; and
- Northeast Bancorp or any permitted successor or assignee owns all the
common securities of such successor entity and guarantees the obligations
of such successor entity under the substitute preferred securities at
least to the extent provided by the guarantee.
Notwithstanding the foregoing, the Trust may not, except with the consent
of holders of 100% in aggregate liquidation amount of the preferred securities,
consolidate, convert into, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to, any other entity or permit any other entity to consolidate, amalgamate,
merge with or into, or replace it, if such consolidation, conversion,
amalgamation, merger, replacement, conveyance, transfer or lease would cause the
Trust or the successor entity to be taxable as a corporation for United States
federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided above and under " -- Removal of Trustees; Appointment of
Successors" and "Description of Guarantee -- Amendments and Assignment" and as
otherwise required by law and the trust agreement, the holders of the preferred
securities will have no voting rights.
The trust agreement may be amended from time to time by the holders of a
majority of the common securities and the property trustee, without the consent
of the holders of the preferred securities, to:
- cure any ambiguity, correct or supplement any provisions in the trust
agreement that may be inconsistent with any other provision, or to make
any other provisions with respect to matters or questions arising under
the trust agreement, provided that any such amendment does not adversely
affect in any material respect the interests of any holder of common and
preferred securities; or
- modify, eliminate, or add to any provisions of the trust agreement to
such extent as may be necessary to ensure that the Trust will not be
taxable as a corporation for United States federal income tax purposes at
any time that any preferred securities or common securities are
outstanding or to ensure that the Trust will not be required to register
as an "investment company" under the Investment Company Act.
Any such amendments of the trust agreement will become effective when notice of
such amendment is given to the holders of preferred securities and the common
securities.
The trust agreement may be amended by the holders of a majority of the
common securities and the property trustee with:
- the consent of holders representing not less than a majority in aggregate
liquidation amount of the outstanding preferred securities, and
65
<PAGE> 67
- receipt by the trustees of an opinion of counsel to the effect that such
amendment or the exercise of any power granted to the trustees in
accordance with such amendment will not cause the Trust to be taxable as
a corporation for United States federal income tax purposes or affect the
Trust's exemption from status as an "investment company" under the
Investment Company Act.
However, without the consent of each holder of preferred securities or the
common securities affected thereby, the trust agreement may not be amended to:
- change the amount or timing of any distribution on the preferred
securities or the common securities or otherwise adversely affect the
amount of any distribution required to be made in respect of the
preferred securities or the common securities as of a specified date; or
- restrict the right of a holder of preferred securities or the common
securities to institute suit for the enforcement of any such payment on
or after such date.
As long as any junior subordinated debentures are held by the Trust, the
property trustee will not:
- direct the time, method, and place of conducting any proceeding for any
remedy available to the property trustee, or execute any trust or power
conferred on the debenture trustee with respect to the junior
subordinated debentures;
- waive any past default that is waivable under Section 5.13 of the
indenture;
- exercise any right to rescind or annul a declaration that the principal
of all of the junior subordinated debentures shall be due and payable; or
- consent to any amendment, modification, or termination of the indenture
or the junior subordinated debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the
holders of at least a majority in aggregate liquidation amount of the
outstanding preferred securities, except that, if a consent under the
indenture would require the consent of each holder of junior subordinated
debentures affected thereby, no such consent will be given by the
property trustee without the prior consent of each holder of the
preferred securities.
The property trustee may not revoke any action previously authorized or
approved by a vote of the holders of the preferred securities except by
subsequent vote of the holders of the preferred securities. The property trustee
will notify each holder of preferred securities of any notice of default with
respect to the junior subordinated debentures. In addition to obtaining the
approvals of the holders of the preferred securities described above, before
taking any of the actions listed above, the property trustee will obtain an
opinion of counsel experienced in such matters to the effect that the Trust will
not be taxable as a corporation for United States federal income tax purposes on
account of such action.
Any required approval of holders of preferred securities may be given at a
meeting of holders of preferred securities convened for such purpose or pursuant
to written consent. The property trustee will cause a notice of any meeting at
which holders of preferred securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be given
to each registered holder of preferred securities in the manner set forth in the
trust agreement.
No vote or consent of the holders of preferred securities will be required
to redeem and cancel preferred securities in accordance with the trust
agreement.
Notwithstanding that holders of preferred securities are entitled to vote
or consent under any of the circumstances described above, any of the preferred
securities that are owned by Northeast Bancorp, the trustees, or any affiliate
of Northeast Bancorp or any trustees, will, for purposes of such vote or
consent, be treated as if they were not outstanding.
EXPENSES AND TAXES
In the indenture, Northeast Bancorp, has agreed to pay all debts and other
obligations (other than with respect to the preferred securities) and all costs
and expenses of the Trust (including costs and expenses
66
<PAGE> 68
relating to the organization of the Trust, the fees and expenses of the
Trustees, and the costs and expenses relating to the operation of the Trust) and
to pay any and all taxes and all costs and expenses with respect thereto (other
than United States withholding taxes) to which the Trust might become subject.
These obligations of Northeast Bancorp under the indenture are for the benefit
of, and shall be enforceable by, any creditor to whom any such debts,
obligations, costs, expenses, and taxes are owed whether or not such creditor
has received notice thereof. Any such creditor may enforce such obligations of
Northeast Bancorp directly against Northeast Bancorp, and Northeast Bancorp has
irrevocably waived any right or remedy to require that any creditor take any
action against the Trust or any other person before proceeding against Northeast
Bancorp. Northeast Bancorp also has agreed in the indenture to execute such
additional agreements as may be necessary or desirable to give full effect to
the foregoing.
BOOK ENTRY, DELIVERY, AND FORM
The preferred securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf of, DTC
and registered in the name of a DTC nominee. Unless and until it is exchangeable
in whole or in part for the preferred securities in definitive form, a global
security may not be transferred except as a whole by DTC to a nominee of DTC or
by a nominee of DTC to DTC or another nominee of DTC or by DTC or any such
nominee to a successor of DTC or a nominee of such successor.
Ownership of beneficial interests in a global security will be limited to
participants that have accounts with DTC or its nominee or persons that may hold
interests through such participants. Northeast Bancorp expects that, upon the
issuance of a global security, DTC will credit, on its book-entry registration
and transfer system, the participants' accounts with their respective principal
amounts of the preferred securities represented by such global security.
Ownership of beneficial interests in such global security will be shown on, and
the transfer of such ownership interests will be effected only through, records
maintained by DTC (with respect to interests of participants) and on the records
of participants (with respect to interests of the preferred securities held
through the participants). Beneficial owners of the preferred securities will
not receive written confirmation from DTC of their purchase, but are expected to
receive written confirmations from the participants through which the beneficial
owner entered into the transaction. Transfers of ownership interests will be
accomplished by entries on the books of participants acting on your behalf.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the preferred securities represented by such global security
for all purposes under the trust agreement. Except as provided below, owners of
beneficial interests in a global security will not be entitled to receive
physical delivery of the preferred securities in definitive form and will not be
considered the owners or holders of the preferred securities under the trust
agreement. Accordingly, persons owning a beneficial interest in such a global
security must rely on the procedures of DTC and, if such person is not a
participant, on the procedures of the participant through which such person owns
its interest, to exercise any rights of a holder of preferred securities under
the trust agreement. Northeast Bancorp understands that, under DTC's existing
practices, in the event that Northeast Bancorp requests any action of holders,
or an owner of a beneficial interest in such a global security desires to take
any action which a holder is entitled to take under the trust agreement, DTC
would authorize the participants holding the relevant beneficial interests to
take such action, and such participants would authorize beneficial owners owning
the preferred securities through such participants to take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
Redemption notices will also be sent to DTC. If less than all of the preferred
securities are being redeemed, Northeast Bancorp understands that it is DTC's
existing practice to determine by lot the amount of the interest of each
participant to be redeemed.
Distributions on the preferred securities registered in the name of DTC or
its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the global security representing such preferred securities.
Neither Northeast Bancorp, nor the trustees, the administrators, any paying
agent, or any other agent of Northeast Bancorp or the trustees will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global
security for such preferred securities or for maintaining, supervising, or
reviewing any records relating to such beneficial ownership interests.
67
<PAGE> 69
Disbursements of distributions to participants shall be the responsibility
of DTC. DTC's practice is to credit participants' accounts on a payable date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on the payable date. Payments
by participants to beneficial owners will be governed by standing instructions
and customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such participant and not of DTC, Northeast Bancorp, the
trustees, the paying agent, or any other agent of Northeast Bancorp, subject to
any statutory or regulatory requirements as may be in effect from time to time.
DTC may discontinue providing its services as securities depository with
respect to the preferred securities at any time by giving reasonable notice to
Northeast Bancorp or the trustees. If DTC notifies Northeast Bancorp that it is
unwilling to continue as such, or if it is unable to continue or ceases to be a
clearing agency registered under the Exchange Act and a successor depository is
not appointed by the Northeast Bancorp within ninety days after receiving such
notice or becoming aware that DTC is no longer so registered, Northeast Bancorp
will issue the preferred securities in definitive form upon registration of
transfer of, or in exchange for, such global security. In addition, Northeast
Bancorp may at any time and in its sole discretion determine not to have the
preferred securities represented by one or more global securities and, in such
event, will issue preferred securities in definitive form in exchange for all of
the global securities representing such preferred securities.
DTC has advised Northeast Bancorp and the Trust as follows:
- DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of
the Exchange Act;
- DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between
participants through electronic book entry changes to accounts of its
participants, thereby eliminating the need for physical movement of
certificates;
- participants include securities brokers and dealers (such as the
underwriter), banks, trust companies and clearing corporations and may
include certain other organizations;
- certain of such participants (or their representatives), together with
other entities, own DTC; and
- indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with a participant, either directly or indirectly.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the preferred securities will be made by the underwriter in
immediately available funds.
Secondary trading in preferred securities of corporate issuers is generally
settled in clearinghouse or next-day funds. In contrast, the preferred
securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity in the preferred securities will therefore be required
by DTC to settle in immediately available funds. No assurance can be given as to
the effect, if any, of settlement in immediately available funds on trading
activity in the preferred securities.
PAYMENT AND PAYING AGENCY
Payments in respect of the preferred securities will be made to DTC, which
will credit the relevant accounts at DTC on the applicable distribution dates
or, if the preferred securities are not held by DTC, such payments will be made
by check mailed to the address of the holder entitled thereto as such address
appears on the securities register for the preferred securities and common
securities. The paying agent will initially be the property trustee and any
co-paying agent chosen by the property trustee and acceptable to the
administrators. The paying agent will be permitted to resign as paying agent
upon 30 days' written notice to
68
<PAGE> 70
the property trustee and the administrators. If the property trustee is no
longer the paying agent, the property trustee will appoint a successor (which
must be a bank or trust company reasonably acceptable to the administrators) to
act as paying agent.
REGISTRAR AND TRANSFER AGENT
The property trustee will act as registrar and transfer agent for the
preferred securities.
Registration of transfers of preferred securities will be effected without
charge by or on behalf of the Trust, but only upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Trust will not be required to register or cause to be registered
the transfer of the preferred securities after the preferred securities have
been called for redemption.
OBLIGATIONS AND DUTIES OF THE PROPERTY TRUSTEE
The property trustee, other than during the occurrence and continuance of
an event of default under the trust agreement, undertakes to perform only such
duties as are specifically set forth in the trust agreement and, after such
event of default, must exercise the same degree of care and skill as a prudent
person would exercise or use in the conduct of his or her own affairs. Subject
to this provision, the property trustee is under no obligation to exercise any
of the powers vested in it by the trust agreement at the request of any holder
of preferred securities unless it is offered reasonable indemnity against the
costs, expenses, and liabilities that might be incurred thereby.
For information concerning the relationships between Bankers Trust Company,
which will serve as the property trustee, and Northeast Bancorp, see
"Description of Junior Subordinated Debentures -- Information Concerning the
Debenture Trustee."
MISCELLANEOUS
The administrators and the property trustee are authorized and directed to
conduct the affairs of and to operate the Trust in such a way that: (1) the
Trust will not be deemed to be an "investment company" required to be registered
under the Investment Company Act or taxable as a corporation for United States
federal income tax purposes, and (2) the junior subordinated debentures will be
treated as indebtedness of Northeast Bancorp for United States federal income
tax purposes. In this connection, the property trustee and the holders of common
securities are authorized to take any action, not inconsistent with applicable
law, the certificate of trust of the Trust, or the trust agreement, that the
property trustee and the holders of common securities determine in their
discretion to be necessary or desirable for such purposes, as long as such
action does not materially adversely affect the interests of the holders of the
preferred securities.
Holders of the preferred securities have no preemptive or similar rights.
The Trust may not borrow money, issue debt, or mortgage or pledge any of
its assets.
GOVERNING LAW
The trust agreement will be governed by and construed in accordance with
the laws of the State of Delaware.
69
<PAGE> 71
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The junior subordinated debentures will be issued under the indenture
between Bankers Trust Company, acting as the debenture trustee, and Northeast
Bancorp. The indenture is qualified as an indenture under the Trust Indenture
Act of 1939. This summary of certain terms and provisions of the junior
subordinated debentures and the indenture is not complete. Investors should read
the form of indenture that is filed as an exhibit to the registration statement
of which this prospectus is a part. Whenever particular defined terms of the
indenture (as amended or supplemented from time to time) are referred to in this
prospectus, such defined terms are incorporated herein by reference. A copy of
the form of indenture is available from the debenture trustee upon request.
GENERAL
Concurrently with the issuance of the preferred securities, the Trust will
invest the proceeds thereof, together with the consideration paid by Northeast
Bancorp for the common securities, in the junior subordinated debentures issued
by Northeast Bancorp. The junior subordinated debentures are unsecured debt
obligations under the indenture and are limited in aggregate principal amount to
$ . The junior subordinated debentures will bear interest, accruing
from , 1999, at the annual rate of % of the principal amount
thereof. Northeast Bancorp will pay interest quarterly in arrears on March 31,
June 30, September 30, and December 31 of each year, to the person in whose name
each junior subordinated debenture is registered at the close of business on the
15th day of the month in which the relevant interest payment is payable (whether
or not a business day). The first interest payment date for the junior
subordinated debenture will be , 1999. It is anticipated that, until
the liquidation, if any, of the Trust, each junior subordinated debenture will
be registered in the name of the Trust and held by the property trustee in trust
for the benefit of you and holders of the common securities.
The amount of interest payable for any period less than a full interest
period will be computed on the basis of a 360-day year of twelve 30-day months
and the actual days elapsed in a partial month in such period. The amount of
interest payable for any full interest period will be computed by dividing the
rate per annum by four. If any date on which interest is payable on the junior
subordinated debentures is not a business day, then payment of the interest
payable on such date will be made on the next succeeding day that is a business
day (without any interest or other payment in respect of any such delay), or, if
such business day falls in the next calendar year, such payment will be made on
the immediately preceding business day.
Accrued interest that is not paid on the applicable interest payment date
will bear additional interest on the amount thereof (to the extent permitted by
law) at the rate per annum of %, compounded quarterly and computed on the
basis of a 360-day year of twelve 30-day months and the actual days elapsed in a
partial month in such period. The amount of additional interest payable for any
full interest period will be computed by dividing the rate per annum by four.
The term "interest" as used herein includes: (1) quarterly interest
payments, (2) interest on quarterly interest payments not paid on the applicable
interest payment date, and (3) any additional sums Northeast Bancorp pays on the
junior subordinated debentures following a Tax Event (as defined under
"Description of Preferred Securities -- Redemption") that may be required so
that distributions payable by the Trust will not be reduced by any additional
taxes, duties, or other governmental charges resulting from such Tax Event. The
interest payment provisions for the junior subordinated debenture correspond
with the distribution provisions with the preferred securities. See "Description
of Preferred Securities -- Distributions".
The junior subordinated debentures will mature on , 2029, subject
to the right of Northeast Bancorp to shorten the maturity date once at any time
to any date not earlier than , 2004, subject to receipt of any prior
regulatory approval if then required under applicable capital guidelines or
regulatory policies. In the event Northeast Bancorp elects to shorten the
maturity of the junior subordinated debentures, Northeast Bancorp will give
notice to the registered holders of the junior subordinated debentures, the
debenture trustee, and the Trust of such shortening no less than 90 days prior
to the effectiveness thereof. The property trustee must give notice to the
holders of the preferred securities and the common securities of the shortening
of the stated maturity at least 30 but not more than 60 days before such date.
70
<PAGE> 72
The junior subordinated debentures will be unsecured and will rank junior
and be subordinate in right of payment to all senior indebtedness of Northeast
Bancorp. The junior subordinated debentures will not be subject to a sinking
fund. The indenture does not limit the ability of Northeast Bancorp to incur or
issue other secured or unsecured debt, including senior indebtedness, whether
under the indenture or any existing or other indenture that Northeast Bancorp
may enter into in the future or otherwise. See "-- Subordination."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
As long as no event of default under the junior subordinated debenture has
occurred and is continuing, Northeast Bancorp has the right to defer interest
payments in the junior subordinated debentures at any time, or from time to
time, by extending the interest payment period for a period not exceeding 20
consecutive quarters, but not beyond the stated maturity of the junior
subordinated debentures. During any such extension period Northeast Bancorp
shall have the right to make partial payments of interest on any interest
payment date. At the end of such extension period, Northeast Bancorp must pay
all interest then accrued and unpaid (together with interest thereon at the
annual rate of %, compounded quarterly and computed on the basis of a
360-day year of twelve 30-day months and the actual days elapsed in a partial
month in such period, to the extent permitted by applicable law). The amount of
additional interest payable for any full interest period will be computed by
dividing the rate per annum by four. During an extension period, interest will
continue to accrue and holders of junior subordinated debentures (or holders of
preferred securities while such securities are outstanding) will be required to
accrue and recognize interest income for United States federal income tax
purposes. See "Certain Federal Income Tax Consequences -- Interest Income and
Original Issue Discount."
During any such extension period, Northeast Bancorp may not:
- make any payment of principal of or interest or premium, if any, on or
repay, repurchase or redeem any debt securities of Northeast Bancorp that
rank equally in all respects with or junior in interest to the junior
subordinated debentures; or
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital
stock, except that we may:
(a) repurchase, redeem, or make other acquisitions of shares of capital
stock of Northeast Bancorp in connection with any employment contract,
benefit plan, or other similar arrangement with or for the benefit of any
one or more employees, officers, directors, or consultants, in connection
with a dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of capital stock of Northeast Bancorp (or
securities convertible into or exercisable for such capital stock) as
consideration in an acquisition transaction entered into prior to the
applicable extension period;
(b) take any necessary actions in connection with any reclassification,
exchange, or conversion of any class or series of Northeast Bancorp's
capital stock (or any capital stock of a subsidiary of Northeast Bancorp)
for any class or series of Northeast Bancorp's capital stock or of any
class or series of Northeast Bancorp's indebtedness for any class or series
of Northeast Bancorp's capital stock;
(c) purchase fractional interests in shares of Northeast Bancorp's
capital stock pursuant to the conversion or exchange provisions of such
capital stock or the security being converted or exchanged;
(d) declare a dividend in connection with any stockholder's rights plan,
or the issuance of rights, stock or other property under any stockholders
rights plan, or the redemption or repurchase of rights pursuant thereto; or
(e) declare a dividend in the form of stock, warrants, options or other
rights where the dividend stock or the stock issuable upon exercise of such
warrants, options or other rights is the same stock as that on which the
dividend is being paid or ranks equally with or junior to such stock.
Before the end of any such extension period, Northeast Bancorp may further
defer the payment of interest, provided that no extension period may exceed 20
consecutive quarterly periods or extend beyond the
71
<PAGE> 73
maturity date of the junior subordinated debentures. Upon the termination of any
such extension period and the payment of all amounts then due, Northeast Bancorp
may elect to begin a new extension period subject to the above conditions. No
interest shall be due and payable during an extension period, except at the end
of the extension period. Northeast Bancorp must give the trustees notice of its
election of such extension period at least one business day prior to the earlier
of: (1) the date the distributions on the preferred securities would have been
payable but for the election to begin such extension period, and (2) the date
the property trustee is required to give notice to holders of the preferred
securities of the record date or the date such distribution is payable, but in
any event not less than one business day prior to such record date. The property
trustee will give notice to holders of the preferred securities of Northeast
Bancorp's election to begin a new extension period. There is no limitation on
the number of times that Northeast Bancorp may elect to begin an extension
period.
REDEMPTION
Northeast Bancorp may redeem the junior subordinated debentures prior to
maturity at its option (1) on or after , 2004, in whole at any time or
in part from time to time, or (2) in whole, but not in part, at any time within
90 days following the occurrence and during the continuation of a Tax Event,
Investment Company Event, or Capital Treatment Event (each as defined under
"Description of Preferred Securities -- Redemption"). In either case, the
redemption price will equal the outstanding principal amount on the junior
subordinated debentures to be redeemed, plus any accrued and unpaid interest,
including any additional interest on any additional sums paid by Northeast
Bancorp following a Tax Event as described under "-- Additional Sums". The
proceeds of any such redemption will be used by the Trust to redeem the
preferred securities.
Northeast Bancorp will mail a notice of redemption at least 30 days but not
less than 60 days before the redemption date to each holder of the junior
subordinated debentures to be redeemed at its registered address. Unless
Northeast Bancorp defaults in paying the redemption price for the junior
subordinated debentures, on and after the redemption date interest will cease to
accrue on such junior subordinated debentures or portions of the junior
subordinated debentures called for redemption.
ADDITIONAL SUMS
For so long as the Trust is the holder of all junior subordinated
debentures, if the Trust is required to pay any additional taxes, duties, or
other governmental charges as a result of the occurrence of a Tax Event,
Northeast Bancorp will pay as additional sums on the junior subordinated
debentures such amounts as may be required so that the net amounts received and
retained by the Trust after paying additional taxes, duties, or other
governmental charges will not be less than the amount the Trust would have
received had such additional taxes, duties, or governmental charges not been
imposed. See "Description of Preferred Securities -- Redemption."
REGISTRATION, DENOMINATION, AND TRANSFER
The junior subordinated debentures will initially be registered in the name
of the Trust. If the junior subordinated debentures are distributed to holders
of preferred securities, it is anticipated that the depositary arrangements for
the junior subordinated debentures will be substantially identical to those in
effect for the preferred securities. See "Description of Preferred
Securities -- Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
Northeast Bancorp within 90 days of receipt of notice from DTC to such effect,
Northeast Bancorp will cause the junior subordinated debentures to be issued in
definitive form.
Payments on junior subordinated debentures represented by a global security
will be made to Cede & Co., the nominee for DTC, as the registered holder of the
junior subordinated debentures, as described under "Description of Preferred
Securities -- Book Entry, Delivery and Form." If junior subordinated debentures
72
<PAGE> 74
are issued in certified form, principal and interest will be payable, the
transfer of the junior subordinated debentures will be registrable, and junior
subordinated debentures will be exchangeable for junior subordinated debentures
of other authorized denominations of a like aggregate principal amount, at the
corporate trust office of the debenture trustee in New York, New York or at the
offices of any paying agent or transfer agent appointed by Northeast Bancorp,
provided that payment of interest may be made at the option of Northeast Bancorp
by check mailed to the address of the persons entitled thereto. However, a
holder of $1 million or more in aggregate principal amount of junior
subordinated debentures may receive payments of interest (other than interest
payable at the stated maturity) by wire transfer of immediately available funds
upon written request to the debenture trustee not later than 15 calendar days
prior to the date on which the interest is payable.
Junior subordinated debentures are issuable only in registered form without
coupons in integral multiples of $10. The junior subordinated debentures will be
exchangeable for other junior subordinated debentures of like tenor, of any
authorized denominations, and of a like aggregate principal amount.
Junior subordinated debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
indenture or at the office of any transfer agent designated by Northeast Bancorp
for such purpose without service charge and upon payment of any taxes and other
governmental charges as described in the indenture. Northeast Bancorp will
appoint the debenture trustee as securities registrar under the indenture.
Northeast Bancorp may at any time designate additional transfer agents with
respect to the junior subordinated debentures.
In the event of any redemption, neither Northeast Bancorp nor the debenture
trustee will be required to:
- issue, register the transfer of, or exchange junior subordinated
debentures during a period beginning at the opening of business 15 days
before the day of selection for redemption of the junior subordinated
debentures to be redeemed and ending at the close of business on the day
of mailing of the relevant notice of redemption, or
- register the transfer or exchange of any junior subordinated debentures
so selected for redemption, except, in the case of any junior
subordinated debentures being redeemed in part, any portion thereof not
to be redeemed.
Any monies deposited with the debenture trustee or any paying agent, or
then held by Northeast Bancorp in trust, for the payment of the principal of
(and premium, if any) or interest on any junior subordinated debenture and
remaining unclaimed for two years after the principal (and premium, if any) or
interest has become due and payable shall, at the request of Northeast Bancorp,
be repaid to Northeast Bancorp and the holder of such junior subordinated
debenture shall thereafter look, as a general unsecured creditor, only to
Northeast Bancorp for payment thereof.
RESTRICTIONS ON CERTAIN PAYMENTS; CERTAIN COVENANTS OF THE COMPANY
Northeast Bancorp has covenanted that at any time (1) there has occurred
any event (a) of which Northeast Bancorp has actual knowledge that with the
giving of notice or the lapse of time, or both, would constitute an event of
default under the junior subordinated debentures, and (b) that Northeast Bancorp
has not taken reasonable steps to cure, (2) if the junior subordinated
debentures are held by the Trust, Northeast Bancorp is in default with respect
to its payment of any obligations under the guarantee, or (3) Northeast Bancorp
has given notice of its election of an extension period as provided in the
junior subordinated indenture and has not rescinded such notice, or such
extension period, or any extension thereof, is continuing, then Northeast
Bancorp will not:
- make any payment of principal of or interest or premium, if any, on or
repay, repurchase or redeem any debt securities of Northeast Bancorp that
rank equally in all respects with or junior in interest to the junior
subordinated debentures; or
73
<PAGE> 75
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of Northeast
Bancorp's capital stock of Northeast Bancorp, except that Northeast
Bancorp may:
(a) repurchase, redeem, or make other acquisitions of shares of capital
stock of Northeast Bancorp in connection with any employment contract,
benefit plan, or other similar arrangement with or for the benefit of any
one or more employees, officers, directors, or consultants, in connection
with a dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of capital stock of Northeast Bancorp (or
securities convertible into or exercisable for such capital stock) as
consideration in an acquisition transaction entered into prior to the
applicable extension period or other event referred to below;
(b) take any necessary action in connection with any reclassification,
exchange, or conversion of any class or series of Northeast Bancorp's
capital stock (or any capital stock of any subsidiary of Northeast Bancorp)
for any class or series of Northeast Bancorp's capital stock or of any
class or series of Northeast Bancorp's indebtedness for any class or series
of Northeast Bancorp's capital stock;
(c) purchase fractional interests in shares of Northeast Bancorp's
capital stock pursuant to the conversion or exchange provisions of such
capital stock or the security being converted or exchanged;
(d) declare a dividend in connection with any stockholder's rights plan,
or the issuance of rights, stock or other property under any stockholder's
rights plan, or redeem or repurchase rights pursuant thereto; or
(e) declare a dividend in the form of stock, warrants, options, or other
rights where the dividend stock or the stock issuable upon exercise of such
warrants, options, or other rights is the same stock as that on which the
dividend is being paid or ranks equally with or junior to such stock.
Northeast Bancorp has covenanted in the indenture:
- to continue to hold, directly or indirectly, 100% of the common
securities, provided that certain successors that are permitted pursuant
to the indenture may succeed to Northeast Bancorp's ownership of the
common securities;
- as holder of the common securities, not to voluntarily dissolve, wind-up,
or liquidate the Trust, other than:
(a) in connection with a distribution of junior subordinated debentures
to the holders of the preferred securities in liquidation of the Trust; or
(b) in connection with certain mergers, consolidations, conversions, or
amalgamations permitted by the trust agreement; and
- to use reasonable efforts, consistent with the terms and provisions of
the trust agreement, to cause the Trust to continue not to be taxable as
a corporation for United States federal income tax purposes.
MODIFICATION OF INDENTURE
Northeast Bancorp and the debenture trustee may, from time to time without
the consent of any of the holders of the outstanding junior subordinated
debentures, amend, waive, or supplement the provisions of the indenture to:
- evidence the succession of another corporation or association to
Northeast Bancorp and the assumption by such person of the obligations of
Northeast Bancorp under the junior subordinated debentures;
- add further covenants, restrictions, or conditions for the protection of
holders of the junior subordinated debentures;
74
<PAGE> 76
- cure ambiguities or correct the junior subordinated debentures in the
case of defects or inconsistencies in the provisions thereof, so long as
any such cure or correction does not adversely affect the interest of the
holders of the junior subordinated debentures in any material respect;
- facilitate the issuance of the junior subordinated debentures in
certified or other definitive form;
- evidence or provide for the appointment of a successor debenture trustee;
or
- qualify, or maintain the qualification of, the indenture under the Trust
Indenture Act.
The indenture contains provisions permitting Northeast Bancorp and the
debenture trustee, with the consent of the holders of not less than a majority
in principal amount of the junior subordinated debentures, to modify most of the
terms of the indenture. However, each holder of the outstanding junior
subordinated debentures affected by any proposed modification must agree to:
- change the stated maturity date of the junior subordinated debentures;
- reduce the principal amount of the junior subordinated debentures;
- reduce the rate of interest on the junior subordinated debentures or any
premium payable upon the redemption thereof, or change the place of
payment where, or the currency in which, any such amount is payable;
- impair the right to institute suit for the enforcement of any junior
subordinated debenture; or
- reduce the percentage of principal amount of junior subordinated
debentures, the holders of which are required to consent to any such
modification of the indenture.
Furthermore, so long as any of the preferred securities remain outstanding,
no such modification may be made that adversely affects the holders of such
preferred securities in any material respect, and no termination of the
indenture may occur, and no waiver of any event of default under the junior
subordinated debentures or compliance with any covenant under the indenture may
be effective, without the prior consent of the holders of at least a majority of
the aggregate liquidation amount of the outstanding preferred securities unless
and until the principal of (and premium, if any, on) the junior subordinated
debentures and all accrued and unpaid interest thereon have been paid in full
and certain other conditions are satisfied.
DEBENTURE EVENTS OF DEFAULT
The indenture provides that any of the following events with respect to the
junior subordinated debentures that has occurred and is continuing constitutes
an event of default with respect to the junior subordinated debentures:
- failure to pay any interest on the junior subordinated debentures when
due and continuance of such default for a period of 30 days (subject to
the deferral of any due date in the case when Northeast Bancorp extends
any interest payment);
- failure to pay any principal of, or premium, if any, on the junior
subordinated debentures when due whether at maturity, upon redemption, by
a declaration, or otherwise;
- failure to observe or perform in any material respect certain other
covenants contained in the indenture for 90 days after written notice to
Northeast Bancorp from the debenture trustee or the holders of at least
25% in aggregate outstanding principal amount of the outstanding junior
subordinated debentures; or
- Northeast Bancorp consents to the appointment of a receiver or other
similar official in any liquidation, insolvency, or similar proceeding
with respect to Northeast Bancorp or all or substantially all its
property; or a court or other governmental agency shall enter a decree or
order appointing a receiver or similar official and such decree or order
shall remain unstayed and undischarged for a period of 60 days.
75
<PAGE> 77
As described in "Description of Preferred Securities -- Events of Default;
Notice," the occurrence of an event of default in respect of the junior
subordinated debentures also will constitute an event of default in respect of
the preferred securities and the common securities .
The holders of at least a majority in aggregate principal amount of
outstanding junior subordinated debentures have the right to direct the time,
method, and place of conducting any proceeding for any remedy available to the
debenture trustee. The debenture trustee, or the holders of not less than 25% in
aggregate principal amount of outstanding junior subordinated debentures, may
declare the principal due and payable immediately upon an event of default under
the junior subordinated debentures, and, should the debenture trustee or such
holders of junior subordinated debentures fail to make such declaration, the
holders of at least 25% in aggregate liquidation amount of the outstanding
preferred securities shall have such right. The holders of a majority in
aggregate principal amount of outstanding junior subordinated debentures may
annul such declaration and waive the default:
- if all defaults (other than the non-payment of the principal of junior
subordinated debentures which has become due solely by such acceleration)
have been cured or waived, and
- a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration, together with the costs of
the debenture trustee, has been deposited with the debenture trustee.
Should the holders of junior subordinated debentures fail to annul such
declaration and waive such default, the holders of a majority in aggregate
liquidation amount of the outstanding preferred securities shall have such
right.
The holders of at least a majority in aggregate principal amount of the
outstanding junior subordinated debentures affected thereby may, on behalf of
the holders of all the junior subordinated debentures, waive any past default,
except a default in the payment of principal or premium, if any, or interest
(unless this default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the debenture trustee) or a default in respect of a covenant
or provision which under the indenture cannot be modified or amended without the
consent of the holder of each outstanding junior subordinated debenture affected
by the default. See " -- Modification of Junior Subordinated Indenture."
Northeast Bancorp is required to file annually with the debenture trustee a
certificate as to whether or not Northeast Bancorp is in compliance with all the
conditions and covenants applicable to it under the indenture.
If an event of default in respect of the junior subordinated debentures
occurs and is continuing, the property trustee will have the right to declare
the principal of, and the interest on, the junior subordinated debentures, and
any other amounts payable under the indenture, to be due and payable and to
enforce its other rights as a creditor with respect to the junior subordinated
debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
Registered holders of preferred securities may sue Northeast Bancorp
directly for payment to such holders of amounts owed on the junior subordinated
debentures equal to the aggregate liquidation amount of the preferred securities
held by such holder if:
- An event of default under the junior subordinated debentures has occurred
and is continuing, and
- such event is attributable to the failure of Northeast Bancorp to pay
interest on or principal of the junior subordinated debentures when due.
In addition, if holders of at least 25% in liquidation amount of the
preferred securities direct the property trustee to enforce its rights under the
indenture but the property trustee does not enforce its rights as directed,
holders of 25% in liquidation amount of the preferred securities may sue
Northeast Bancorp directly to enforce the property trustee rights.
76
<PAGE> 78
In connection with such direct lawsuit, Northeast Bancorp will have a right
of set-off under the indenture to the extent of any payment made by Northeast
Bancorp to the holders of such preferred securities in any such lawsuit.
Northeast Bancorp may not amend the indenture to remove the right to bring a
direct action against Northeast Bancorp without the prior written consent of all
of the outstanding preferred securities.
You will not be able to exercise directly any remedies available to the
holders of the junior subordinated debentures except under the circumstances
described in the preceding paragraphs. See "Description of Preferred
Securities -- Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS, AND OTHER TRANSACTIONS
The indenture provides that Northeast Bancorp may not consolidate with or
merge into any other entity, or convey, transfer, or lease its properties and
assets substantially as an entirety to any entity, and no entity may consolidate
with or merge into Northeast Bancorp, or convey, transfer or lease its
properties and assets substantially as an entirety to Northeast Bancorp, unless:
- in the event Northeast Bancorp consolidates with or merges into another
entity or conveys or transfers its properties and assets substantially as
an entirety to any entity, the successor entity is organized under the
laws of the United States or any state or the District of Columbia, and
such successor entity expressly assumes the obligations of Northeast
Bancorp in respect of the junior subordinated debentures;
- immediately after giving effect thereto, no event of default with respect
to the junior subordinated debentures, and no event which, after notice
or lapse of time or both, would constitute an event of default with
respect to the junior subordinated debentures, has occurred and is
continuing; and
- certain other conditions as prescribed in the indenture are satisfied.
The provisions of the indenture do not afford holders of the junior
subordinated debentures protection in the event of a highly leveraged or other
transaction involving Northeast Bancorp that may adversely affect holders of the
junior subordinated debentures.
SATISFACTION AND DISCHARGE
The indenture will cease to be of further effect and Northeast Bancorp will
be deemed to have satisfied and discharged the indenture when:
- all junior subordinated debentures not previously delivered to the
debenture trustee for cancellation (1) have become due and payable, or
(2) will become due and payable at the stated maturity date within one
year;
- Northeast Bancorp deposits or causes to be deposited with the debenture
trustee funds, in trust, for the purpose and in an amount sufficient to
pay and discharge the entire indebtedness on the junior subordinated
debentures not previously delivered to the debenture trustee for
cancellation, for the principal, premium, if any, and interest to the
date of the deposit or to the stated maturity date or redemption date;
and
- Northeast Bancorp has paid all other sums payable by it under indenture
and Northeast Bancorp has delivered applicable certificates and opinions
that indicate that Northeast Bancorp has complied with all of its
obligations.
SUBORDINATION
The junior subordinated debentures will be subordinate and junior in right
of payment, to the extent set forth in the indenture, to all senior indebtedness
(as defined below) of Northeast Bancorp. If Northeast Bancorp defaults in the
payment of any principal, premium, if any, or interest, if any, or any other
amount payable on any senior indebtedness when the same becomes due and payable,
whether at maturity or at a date fixed for redemption or by declaration of
acceleration or otherwise, then, unless and until such default has
77
<PAGE> 79
been cured or waived, or has ceased to exist or all senior indebtedness has been
paid, no direct or indirect payment (in cash, property, securities, by set-off
or otherwise) may be made or agreed to be made on the junior subordinated
debentures, or in respect of any redemption, repayment, retirement, purchase, or
other acquisition of any of the junior subordinated debentures.
As used herein, "senior indebtedness" means, whether recourse is to all or
a portion of the assets of Northeast Bancorp and whether or not contingent:
- every obligation of Northeast Bancorp for money borrowed;
- every obligation of Northeast Bancorp evidenced by bonds, debentures,
notes, or other similar instruments, including obligations incurred in
connection with the acquisition of property, assets or businesses;
- every reimbursement obligation of Northeast Bancorp with respect to
letters of credit, bankers' acceptances, or similar facilities issued for
the account of Northeast Bancorp;
- every obligation of Northeast Bancorp issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of
business);
- every capital lease obligation of Northeast Bancorp;
- every obligation of Northeast Bancorp for claims (as defined in Section
101(4) of the United States Bankruptcy Code of 1978) in respect of
derivative products such as interest and foreign exchange rate contracts,
commodity contracts, and similar arrangements; and
- every obligation of the type referred to above of another person and all
dividends of another person the payment of which, in either case,
Northeast Bancorp has guaranteed or is responsible or liable, directly or
indirectly, as obligor or otherwise.
However, senior indebtedness shall not include the following:
- any obligations which, by their terms, are expressly stated to rank
equally in right of payment with, or to not be superior in right of
payment to, the junior subordinated debentures;
- any senior indebtedness of Northeast Bancorp which when incurred and
without respect to any election under Section 1111(b) of the United
States Bankruptcy Code of 1978, was without recourse to Northeast
Bancorp;
- any indebtedness of Northeast Bancorp to any of its subsidiaries;
- indebtedness to any executive officer or director of Northeast Bancorp;
or
- any indebtedness in respect of debt securities issued to any trust, or a
trustee of such trust, partnership or other entity affiliated with
Northeast Bancorp that is a financing entity of Northeast Bancorp in
connection with the issuance of such financing entity of securities that
are similar to the preferred securities.
As of June 30, 1999, the senior indebtedness of Northeast Bancorp was
approximately $687,500. All senior indebtedness (including any interest thereon
accruing after the commencement of any proceeding described below) shall first
be paid in full before any payment or distribution, whether in cash, securities,
or other property, is made on the account of the junior subordinated debentures
in the event of:
- certain events of bankruptcy, dissolution, or liquidation of Northeast
Bancorp or another holder of the common securities:
- any proceeding for the liquidation, dissolution, or other winding-up of
Northeast Bancorp, voluntary or involuntary, whether or not involving
insolvency or bankruptcy proceedings;
- any assignment by Northeast Bancorp for the benefit of creditors; or
- any other marshaling of the assets of Northeast Bancorp.
In such event, any payment or distribution on account of the junior subordinated
debentures, whether in cash, securities, or other property, that would otherwise
(but for the subordination provisions) be payable or
78
<PAGE> 80
deliverable in respect of the junior subordinated debentures will be paid or
delivered directly to the holders of senior indebtedness in accordance with the
priorities then existing among such holders until all senior indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) has been paid in full.
In the event of any such proceeding, after payment in full of all sums
owing with respect to senior indebtedness, the holders of junior subordinated
debentures, together with the holders of any obligations of Northeast Bancorp
ranking on a parity with the junior subordinated debentures, will be entitled to
be paid from the remaining assets of Northeast Bancorp the amounts at the time
due and owing on the junior subordinated debentures and such other obligations
before any payment or other distribution, whether in cash, property, or
otherwise, will be made on account of any capital stock or obligations of
Northeast Bancorp ranking junior to the junior subordinated debentures and such
other obligations. If any payment or distribution on account of the junior
subordinated debentures of any character or any security, whether in cash,
securities or other property is received by any holder of any junior
subordinated debentures in contravention of any of the terms hereof and before
all the senior indebtedness has been paid in full, such payment or distribution
or security will be received in trust for the benefit of, and must be paid over
or delivered and transferred to, the holders of the senior indebtedness at the
time outstanding in accordance with the priorities then existing among such
holders for application to the payment of all senior indebtedness remaining
unpaid to the extent necessary to pay all such senior indebtedness in full.
By reason of such subordination, in the event of the insolvency of
Northeast Bancorp, holders of senior indebtedness may receive more, ratably, and
holders of the junior subordinated debentures may receive less, ratably, than
the other creditors of Northeast Bancorp. Such subordination will not prevent
the occurrence of any event of default in respect of the junior subordinated
debentures.
Further, because Northeast Bancorp is a holding company, the creditors of
its subsidiaries also will have priority over Northeast Bancorp and you in any
distribution of its subsidiaries' assets in a bankruptcy, liquidation,
reorganization, or dissolution, except to the extent that Northeast Bancorp is
recognized as a creditor of its subsidiaries. The junior subordinated debentures
will be effectively subordinated to all existing and future liabilities of
Northeast Bancorp's subsidiaries, and you should look only to Northeast
Bancorp's assets for payments on the junior subordinated debentures.
The indenture places no limitation on the amount of additional senior
indebtedness that may be incurred by Northeast Bancorp. Northeast Bancorp
expects from time to time to incur additional senior indebtedness.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The debenture trustee has and is subject to all the duties and
responsibilities specified with respect to the debenture trustee under the Trust
Indenture Act. Subject to such provisions, the debenture trustee is under no
obligation to exercise any of the powers vested in it by the indenture at the
request of any holder of junior subordinated debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
that might be incurred by such request. The debenture trustee is not required to
expend or risk its own funds or otherwise incur personal financial liability in
the performance of its duties if the debenture trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
Bankers Trust Company, the debenture trustee, may serve from time to time
as trustee under other indentures or trust agreements with Northeast Bancorp or
its subsidiaries relating to other issues of their securities. In addition,
Northeast Bancorp and certain of its affiliates may have other banking
relationships with Bankers Trust Company and its affiliates.
GOVERNING LAW
The indenture and the junior subordinated debentures will be governed by
and construed in accordance with the laws of the State of New York.
79
<PAGE> 81
DESCRIPTION OF GUARANTEE
The guarantee will be executed and delivered by Northeast Bancorp
concurrently with the issuance of preferred securities by the Trust for your
benefit. Bankers Trust Company will act as guarantee trustee under the
guarantee. The guarantee trustee will hold the guarantee for the benefit of the
holders of the preferred securities. This summary of certain provisions of the
guarantee is not complete. Investors should read the form of guarantee that is
filed as an exhibit to the registration statement of which this prospectus is a
part. Whenever particular defined terms of the guarantee are referred to in this
prospectus, such defined terms are incorporated herein by reference. A copy of
the form of guarantee is available upon request from the guarantee trustee.
GENERAL
The guarantee will be an irrevocable guarantee of payment on a subordinated
basis of the Trust's obligations under the preferred securities, but will apply
only to the extent that the Trust has funds sufficient to make such payments,
and is not a guarantee of collection.
In accordance with the guarantee, Northeast Bancorp irrevocably and
unconditionally agrees to pay in full on a subordinated basis, to the extent set
forth in the guarantee and described herein, the Guarantee Payments (as defined
below) to the holders of the preferred securities, as and when due, regardless
of any defense, right of set-off, or counterclaim that the Trust may have or
assert, other than the defense of payment. The following payments on the
preferred securities (the "Guarantee Payments"), to the extent not paid by or on
behalf of the Trust, will be covered by the guarantee:
- any accrued and unpaid distributions required to be paid on such
preferred securities, to the extent that the Trust has funds on hand
available to make the payment;
- the redemption price with respect to any preferred securities called for
redemption, to the extent that the Trust has funds on hand available to
make the payment; and
- upon a voluntary or involuntary dissolution, winding-up, or liquidation
of the Trust (unless the junior subordinated debentures are distributed
to holders of the preferred securities), the lesser of:
(a) the aggregate of the liquidation amount and all accumulated and
unpaid distributions to the date of payment, to the extent that the
Trust has funds on hand available to make payment, and
(b) the amount of assets of the Trust remaining available for
distribution to holders of the preferred securities on liquidation
of the Trust.
The obligation of Northeast Bancorp to make a Guarantee Payment may be satisfied
by direct payment of the required amounts by Northeast Bancorp to you or by
causing the Trust to pay such amounts to you.
The guarantee does not apply to any payment of distributions due if the
Trust lacks funds legally available for payment. If Northeast Bancorp does not
make payments on the junior subordinated debentures held by the Trust, the Trust
will not be able to pay any distributions on the preferred securities and will
not have funds legally available for payment. In that event, holders of the
preferred securities will not be able to rely on the guarantee for payment. The
guarantee will rank subordinate and junior in right of payment to all senior
indebtedness of Northeast Bancorp. See " -- Status of the Guarantee." The
guarantee does not limit the incurrence or issuance of other secured or
unsecured debt of Northeast Bancorp, including senior indebtedness, whether
under the indenture, any other indenture that Northeast Bancorp may enter into
in the future or otherwise.
Northeast Bancorp has, through the guarantee, the trust agreement, the
junior subordinated debentures and the indenture, taken together, fully,
irrevocably and unconditionally guaranteed all the Trust's obligations under the
preferred securities on a subordinated basis. No single document standing alone
or operating in conjunction with fewer than all the other documents constitutes
such guarantee. It is only the combined operation of these documents that has
the effect of providing a full, irrevocable, and unconditional guarantee
80
<PAGE> 82
of the Trust's obligations in respect of the preferred securities. See
"Relationship Among the Preferred Securities, the Junior Subordinated
Debentures, and the Guarantee."
STATUS OF THE GUARANTEE
The guarantee will constitute an unsecured obligation of Northeast Bancorp
and will rank subordinate and junior in right of payment to all senior
indebtedness of Northeast Bancorp in the same manner as the junior subordinated
debentures.
The guarantee will constitute a guarantee of payment and not of collection.
This means that the guaranteed party may institute a legal proceeding directly
against Northeast Bancorp, as the guarantor, to enforce its rights under the
guarantee without first instituting a legal proceeding against any other person
or entity. The guarantee will not be discharged except by payment of the
guarantee payments in full to the extent not paid by the Trust or distribution
to the holders of the preferred securities of the junior subordinated
debentures.
Since the right of Northeast Bancorp to participate in any distribution of
assets of a subsidiary, including the Bank, upon liquidation or reorganization
or otherwise is subject to prior claims of creditors of the subsidiary, the
obligations of Northeast Bancorp under the guarantee are therefore effectively
subordinated to all existing and future liabilities of Northeast Bancorp's
subsidiaries, including the Bank.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the preferred securities (in which case no consent will
be required), the guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate liquidation amount of the
outstanding preferred securities. The manner of obtaining any such approval will
be as set forth under "Description of Preferred Securities -- Voting Rights;
Amendment of Trust Agreement." All guarantees and agreements contained in the
guarantee shall bind the successors, assigns, receivers, trustees and
representatives of Northeast Bancorp and shall inure to the benefit of the
holders of the preferred securities then outstanding.
EVENTS OF DEFAULT
An event of default under the guarantee will occur upon the failure of
Northeast Bancorp to perform any of its payment or other obligations under the
guarantee, or to perform any non-payment obligation if such non-payment default
remains unremedied for 30 days. The holders of not less than a majority in
aggregate liquidation amount of the outstanding preferred securities have the
right to direct the time, method, and place of conducting any proceeding for any
remedy available to the guarantee trustee in respect of the guarantee or to
direct the exercise of any trust or power conferred upon the guarantee trustee
under the guarantee.
Any registered holder of preferred securities may institute a legal
proceeding directly against Northeast Bancorp to enforce its rights under the
guarantee without first instituting a legal proceeding against the Trust, the
guarantee trustee, or any other person or entity.
Northeast Bancorp, as guarantor, is required to file annually with the
guarantee trustee a certificate as to whether or not Northeast Bancorp is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The guarantee trustee, other than during the occurrence and continuance of
a default by Northeast Bancorp in performance of the guarantee, undertakes to
perform only such duties as are specifically set forth in the guarantee and,
after the occurrence of an event of default with respect to the guarantee, must
exercise the same degree of care and skill as a prudent person would exercise or
use in the conduct of his or her own affairs. Subject to this provision, the
guarantee trustee is under no obligation to exercise any of the powers
81
<PAGE> 83
vested in it by the guarantee at the request of any holder of the preferred
securities unless it is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred by such request.
For information concerning the relationship between Bankers Trust Company,
as guarantee trustee, and Northeast Bancorp, see "Description of Junior
Subordinated Debentures -- Information Concerning the Debenture Trustee."
TERMINATION OF THE GUARANTEE
The guarantee will terminate and be of no further force and effect upon:
- full payment of the redemption price of the preferred securities;
- full payment of the amounts payable with respect to the preferred
securities upon liquidation of the Trust; or
- distribution of junior subordinated debentures to the holders of the
preferred securities in exchange for all of the preferred securities.
The guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any holder of the preferred securities must restore
payment of any sums paid under the preferred securities or the guarantee.
GOVERNING LAW
The guarantee will be governed by and construed in accordance with the laws
of the State of New York.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES, AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Northeast Bancorp has irrevocably guaranteed, on a subordinated basis,
payments of distributions and other amounts due on the preferred securities if
the Trust has funds available for such payments, as and to the extent set forth
under "Description of Guarantee." Northeast Bancorp believes that, taken
together, its obligations under the junior subordinated debentures, the
indenture, the trust agreement, and the guarantee provide, in the aggregate, a
full, irrevocable, and unconditional guarantee of payment of distributions and
other amounts due on the preferred securities. No single document standing alone
or operating in conjunction with fewer than all the other documents constitutes
such guarantee. It is only the combined operation of these documents that has
the effect of providing a full, irrevocable, and unconditional guarantee of the
Trust's obligations in respect of the preferred securities.
If and to the extent that Northeast Bancorp does not make payments on the
junior subordinated debentures, the Trust will not have sufficient funds to pay
distributions or other amounts due on the preferred securities. The guarantee
does not cover payments of distributions when the Trust does not have sufficient
funds to pay such distributions. In such event, the remedy of a holder of the
preferred securities is to institute a legal proceeding directly against
Northeast Bancorp for enforcement of payment of Northeast Bancorp's obligations
under junior subordinated debentures having a principal amount equal to the
liquidation amount of the preferred securities held by such holder.
The obligations of Northeast Bancorp under the junior subordinated
debentures and the guarantee are subordinate and junior in right of payment to
all senior indebtedness.
82
<PAGE> 84
SUFFICIENCY OF PAYMENTS
As long as Northeast Bancorp makes payments on the junior subordinated
debentures when they are due, such payments will be sufficient to cover
distributions and other payments distributable on the preferred securities,
primarily because:
- the aggregate principal amount of the junior subordinated debentures will
be equal to the sum of the aggregate liquidation amount of the preferred
securities and common securities;
- the interest rate and the interest payment dates and other payment dates
on the junior subordinated debentures will match the distribution rate,
distribution dates and other payment dates for the preferred securities;
- Northeast Bancorp will pay for any and all costs, expenses, and
liabilities of the Trust except the Trust's obligations to holders of the
preferred securities and the common securities; and
- the trust agreement further provides that the Trust will not engage in
any activity that is not consistent with the limited purposes of the
Trust.
Notwithstanding anything to the contrary in the indenture, Northeast
Bancorp has the right to set-off any payment it is otherwise required to make
thereunder against and to the extent Northeast Bancorp has theretofore made, or
is concurrently on the date of such payment making, a payment under the
guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any preferred security may institute a legal proceeding
directly against Northeast Bancorp to enforce its rights under the guarantee
without first instituting a legal proceeding against the guarantee trustee, the
Trust, or any other person or entity. See "Description of Guarantee."
A default or event of default under any senior indebtedness of Northeast
Bancorp would not constitute a default or event of default in respect of the
preferred securities, the junior subordinated debentures, or the guarantee.
However, in the event of payment defaults under, or acceleration of, senior
indebtedness of Northeast Bancorp, the subordination provisions of the indenture
provide that no payments may be made in respect of the junior subordinated
debentures until such senior indebtedness has been paid in full or any payment
default thereunder has been cured or waived. See "Description of Junior
Subordinated Debentures -- Subordination." If Northeast Bancorp fails to make
required payments on the junior subordinated debentures, such failure would
constitute an event of default under the preferred securities.
LIMITED PURPOSE OF TRUST
The preferred securities represent preferred undivided beneficial interests
in the assets of the Trust. The Trust exists for the sole purpose of issuing the
preferred securities and common securities and investing the proceeds thereof in
the junior subordinated debentures. A principal difference between the rights of
a holder of a preferred security and a holder of a junior subordinated debenture
is that a holder of a junior subordinated debenture is entitled to receive from
Northeast Bancorp payments on junior subordinated debentures held, while a
holder of preferred securities is entitled to receive distributions or other
amounts distributable with respect to the preferred securities from the Trust
(or from Northeast Bancorp under the guarantee) only if and to the extent the
Trust has funds available for the payment of such distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution of the Trust, other than any
such dissolution involving the distribution of the junior subordinated
debentures, after satisfaction of liabilities to creditors of the Trust as
required by applicable law, the holders of the preferred securities will be
entitled to receive, out of assets held by the Trust, the liquidation
distribution in cash. See "Description of Preferred Securities -- Liquidation
Distribution Upon Dissolution." Upon any voluntary or involuntary liquidation or
bankruptcy of Northeast Bancorp, the Trust, as registered holder of the junior
subordinated debentures, would be a subordinated creditor of Northeast Bancorp,
subordinated and junior in right of payment to all senior indebtedness as set
83
<PAGE> 85
forth in the indenture, but entitled to receive payment in full of all amounts
payable with respect to the junior subordinated debentures before any
stockholders of Northeast Bancorp receive payments or distributions. Since
Northeast Bancorp is the guarantor under the guarantee and has agreed under the
indenture to pay for all costs, expenses, and liabilities of the Trust (other
than the obligations of the Trust to the holders of the preferred securities and
common securities), the positions of a holder of the preferred securities and a
holder of such junior subordinated debentures relative to other creditors and to
stockholders of Northeast Bancorp in the event of liquidation or bankruptcy of
Northeast Bancorp are expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The preferred securities and payments on the preferred securities generally
are subject to taxation. Therefore, you should consider the tax consequences of
owning and receiving payment on the preferred securities before purchasing them.
Northeast Bancorp has engaged Carlton, Fields, Ward, Emmanuel, Smith & Cutler,
P.A., Tampa, Florida, as special tax counsel ("Tax Counsel"), to review the
following discussion. They have given Northeast Bancorp their written opinion
that the following discussion correctly describes the United States federal
income tax treatment (a) regarding the characterization of the Trust, (b)
regarding the characterization of the junior subordinated debentures, and (c) of
the purchase, ownership, and disposition of the preferred securities.
The following discussion is general and may not apply to your particular
circumstances for any of the following (or other) reasons:
- This summary is based on federal tax laws in effect on the date of this
prospectus, including Treasury regulations under such laws, and
administrative and judicial interpretations thereof. Changes to any of
these laws, regulations, or interpretations may affect the tax
consequences discussed below.
- This summary discusses only preferred securities acquired at original
issuance at the original offering price and held as a capital asset
(within the meaning of federal tax law). It does not address all the tax
consequences that may be relevant to investors, nor does it address the
tax consequences to investors that may be subject to special tax
treatment, such as banks, thrift institutions, real estate investment
trusts, regulated investment companies, insurance companies, brokers and
dealers in securities or currencies, certain securities traders,
tax-exempt organizations, and certain other financial institutions. This
discussion also does not discuss tax consequences that may be relevant to
an investor in light of their particular circumstances, such as an
investor holding a preferred security as a position in a "straddle," or
as part of a "synthetic security," "hedging," as part of a "conversion"
or other integrated investment.
- This summary does not address:
(a) the income tax consequences to shareholders in, or partners or
beneficiaries of, a holder of the preferred securities,
(b) the United States federal alternative minimum tax consequences of
the purchase, ownership or disposition of the preferred securities, or
(c) any state, local or foreign tax consequences of the purchase,
ownership and disposition of preferred securities.
The authorities on which this summary is based are subject to various
interpretations, and the opinions of Tax Counsel are not binding on the Internal
Revenue Service (the "IRS") or the courts, either of which could take a contrary
position. Moreover, no rulings have been or will be sought from the IRS with
respect to the transactions described herein. Accordingly, there can be no
assurance that the IRS will not challenge the opinions expressed herein or that
a court would not sustain such a challenge.
84
<PAGE> 86
YOU ARE ADVISED TO CONSULT YOUR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER
TAX LAWS.
US HOLDERS
IN GENERAL. For purposes of the following discussion, a "US Holder"
generally is a holder of the preferred securities who or which is
- a citizen or individual resident (or is treated as a citizen or
individual resident) of the United States for income tax purposes;
- a corporation or partnership created or organized (or treated as created
or organized for income tax purposes) in or under the laws of the United
States or any political subdivision thereof;
- an estate the income of which is includible in its gross income for
United States federal income tax purposes without regard to its source;
or
- a trust if (a) a court within the United States is able to exercise
primary supervision over the administration of the trust and (b) one or
more United States persons have the authority to control all substantial
decisions of the trust.
CHARACTERIZATION OF THE TRUST. Tax Counsel has rendered its opinion that,
(1) under then current law and based on the representations, facts, and
assumptions set forth in this prospectus, and (2) assuming full compliance with
the terms of the trust agreement (and other relevant documents), and (3) based
on certain assumptions and qualifications referred to in the opinion, upon the
issuance of the preferred securities the Trust will be characterized for United
States federal income tax purposes as a grantor trust and will not be
characterized as an association taxable as a corporation. Accordingly, for
United States federal income tax purposes, each US Holder purchasing the
preferred securities generally will be considered the owner of an undivided
interest in the junior subordinated debentures owned by the Trust, and each US
Holder will be required to include all income or gain recognized for United
States federal income tax purposes with respect to its allocable share of the
junior subordinated debentures on its own income tax return.
CHARACTERIZATION OF THE JUNIOR SUBORDINATED DEBENTURES. Under current law,
the junior subordinated debentures are debt of Northeast Bancorp for United
States federal income tax purposes. Northeast Bancorp, along with the Trust and
each investor (by acceptance of a beneficial interest in a preferred security)
agree to treat the junior subordinated debentures as Northeast Bancorp's debt
and the preferred securities as evidence of a beneficial ownership in the Trust.
We cannot assure you, however, that such position will not be challenged by the
IRS or, if challenged, that a challenge will not be successful. The remainder of
this discussion assumes that the junior subordinated debentures will be
classified as debt of Northeast Bancorp for federal income tax purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT. Under the terms of the junior
subordinated debentures, Northeast Bancorp has the ability to defer payments of
interest from time to time by extending the interest payment period for a period
not exceeding 20 consecutive quarters, but not beyond the maturity of the junior
subordinated debentures. Treasury regulations provide that debt instruments like
the junior subordinated debentures will not be considered issued with original
issue discount ("OID") even if their issuer can defer payments of interest if
the likelihood of such deferral is "remote."
Northeast Bancorp has concluded, and this discussion assumes, that, as of
the date of this prospectus, the likelihood of deferring payments of interest
under the terms of the junior subordinated debentures is "remote" within the
meaning of the applicable Treasury regulations. This conclusion is based in part
on the fact that exercising that option would prevent Northeast Bancorp from
declaring dividends on its common stock and would prevent Northeast Bancorp from
making any payments with respect to debt securities that rank equally with or
junior to the junior subordinated debentures. Therefore, the junior subordinated
debentures should not be treated as issued with OID by reason of Northeast
Bancorp's deferral option. Rather, US Holders will
85
<PAGE> 87
be taxed on stated interest on the junior subordinated debentures when it is
paid or accrued in accordance with the holder's method of accounting for income
tax purposes. It should be noted, however, that no published rulings or any
other published authorities of the IRS have addressed this issue. Accordingly,
it is possible that the IRS could take a position contrary to the interpretation
described herein.
If Northeast Bancorp exercises its option to defer payments of interest,
the junior subordinated debentures would be treated as redeemed and reissued for
OID purposes. The sum of the remaining interest payments (and any de minimis
OID) on the junior subordinated debentures would thereafter be treated as OID.
The OID would accrue, and be includible in a US Holder's taxable income, on an
economic accrual basis (regardless of the US Holder's method of accounting for
income tax purposes) over the remaining term of the junior subordinated
debentures (including any period of interest deferral), without regard to the
timing of payments under the junior subordinated debentures. Subsequent
distributions of interest on the junior subordinated debentures generally would
not be taxable. The amount of OID that would accrue in any period would
generally equal the amount of interest that accrued on the junior subordinated
debentures in that period at the stated interest rate. Consequently, during any
period of interest deferral, US Holders will include OID in gross income in
advance of the receipt of cash, and if a US Holder disposes of a preferred
security prior to the record date for payment of distributions on the junior
subordinated debentures following that period, such US Holder will be subject to
income tax on OID accrued through the date of disposition (and not previously
included in income), but will not receive cash from the Trust with respect to
the OID.
If the possibility of Northeast Bancorp's exercise of its option to defer
payments of interest is not remote, the junior subordinated debentures would be
treated as initially issued with OID in an amount equal to the aggregate stated
interest (plus any de minimis OID) over the term of the junior subordinated
debentures. A US Holder will include that OID in its taxable income, over the
term of the junior subordinated debentures, on an economic accrual basis.
CHARACTERIZATION OF INCOME. Because the income underlying the preferred
securities will not be characterized as dividends for income tax purposes, if
the investor is a corporate holder of the preferred securities such investor
will not be entitled to a dividends-received deduction for any income that it
recognizes with respect to the preferred securities.
MARKET DISCOUNT AND BOND PREMIUM. Under certain circumstances holders of
the preferred securities may be considered to have acquired their undivided
interests in the junior subordinated debentures with market discount or
acquisition premium (as each phrase is defined for United States federal income
tax purposes).
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE
TRUST. Under certain circumstances described above (See "Description of the
Preferred Securities -- Liquidation Distribution Upon Dissolution"), the Trust
may distribute the junior subordinated debentures to investors in exchange for
the preferred securities and in liquidation of the Trust. Except as discussed
below, such a distribution would not be a taxable event for United States
federal income tax purposes, and each US Holder would have an aggregate adjusted
basis in its junior subordinated debentures for United States federal income tax
purposes equal to such holder's aggregate adjusted basis in its preferred
securities. For United States federal income tax purposes, a US Holder's holding
period in the junior subordinated debentures received in such a liquidation of
the Trust would include the period during which the preferred securities were
held by the US Holder. If, however, the relevant event is a Tax Event which
results in the Trust being treated as an association taxable as a corporation,
the distribution would likely constitute a taxable event to US Holders of the
preferred securities for United States federal income tax purposes.
Under certain circumstances described herein (see "Description of the
Preferred Securities"), Northeast Bancorp may redeem the junior subordinated
debentures for cash and the proceeds of such redemption distributed to investors
in redemption of their preferred securities. Such a redemption would be taxable
for United States federal income tax purposes, and a US Holder would recognize
gain or loss as if it had sold the preferred securities for cash. See " -- Sales
of Preferred Securities" below.
86
<PAGE> 88
SALES OF PREFERRED SECURITIES. A US Holder that sells preferred securities
will recognize gain or loss equal to the difference between its adjusted basis
in the preferred securities and the amount realized on the sale of such
preferred securities. A US Holder's adjusted basis in the preferred securities
generally will be its initial purchase price, increased by OID previously
included (or currently includible) in such holder's gross income to the date of
disposition, and decreased by payments received on the preferred securities
(other than any interest received with respect to the period prior to the
effective date of Northeast Bancorp's first exercise of its option to defer
payments of interest). Any such gain or loss generally will be capital gain or
loss, and generally will be a long-term capital gain or loss if the preferred
securities have been held for more than one year prior to the date of
disposition.
If a holder disposes of their preferred securities between record dates for
payments of distributions thereon, such holder will be required to include
accrued but unpaid interest (or OID) on the junior subordinated debentures
through the date of disposition in its taxable income for United States federal
income tax purposes (notwithstanding that the holder may receive a separate
payment from the purchaser with respect to accrued interest). Such holder may
deduct that amount from the sales proceeds received (including the separate
payment, if any, with respect to accrued interest) for the preferred securities
(or as to OID only, to add such amount to such holder's adjusted tax basis in
its preferred securities). To the extent the selling price is less than the
holder's adjusted tax basis (which will include accrued but unpaid OID, if any),
a holder will recognize a capital loss. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for United States
federal income tax purposes.
PENDING TAX LITIGATION AFFECTING THE PREFERRED SECURITIES
Recently, a taxpayer filed a petition in the United States Tax Court
contesting the IRS' disallowance of interest deductions that taxpayer claimed in
respect of securities issued in 1993 and 1994 that are, in some respects,
similar to the preferred securities of the Trust. (Enron Corp. v. Commissioner,
Docket No. 6149-98, filed April 1, 1998). An adverse decision by the Tax Court
concerning the deductibility of such interest may cause a Tax Event. Such a Tax
Event would give Northeast Bancorp the right to redeem the Junior Subordinated
Debentures. See "Description of Junior Subordinated Debentures -- Redemption"
and "Description of Preferred Securities -- Liquidation Distribution Upon
Dissolution".
NON-US HOLDERS
The following discussion applies only to a Non-US Holder.
Payments to a Non-US Holder on a preferred security will generally not be
subject to withholding of income tax, provided that:
- the beneficial owner of the preferred security does not (directly or
indirectly, actually or constructively) own 10% or more of the total
combined voting power of all classes of stock of Northeast Bancorp
entitled to vote;
- the beneficial owner of the preferred security is not a controlled
foreign corporation that is related to Northeast Bancorp through stock
ownership; and
- either (a) the beneficial owner of the preferred securities certifies to
the Trust or its agent, under penalties of perjury, that it is a Non-US
Holder and provides its name and address, or (b) a securities clearing
organization, bank, or other financial institution that holds customers'
securities in the ordinary course of its trade or business, and holds the
preferred security in such capacity, certifies to the Trust or its agent,
under penalties of perjury, that such a statement has been received from
the beneficial owner by it or by another financial institution between it
and the beneficial owner in the chain of ownership, and furnishes the
Trust or its agent with a copy thereof.
As discussed above, it is possible that changes in the law affecting the
income taxes of junior subordinated debentures could adversely affect the
ability of Northeast Bancorp to deduct interest payable on the junior
subordinated debentures. Such changes also could cause the junior subordinated
debentures to be classified as equity, rather than debt of Northeast Bancorp for
United States federal income tax purposes. This might
87
<PAGE> 89
cause the income derived from the junior subordinated debentures to be
characterized as dividends, generally subject to a 30% income tax (on a
withholding basis) when paid to a Non-US Holder, rather than as interest which,
as discussed above, generally is exempt from income tax in the hands of a person
who is a Non-US Holder.
A Non-US Holder of a preferred security will generally not be subject to
withholding of income tax on any gain realized upon the sale or other
disposition of a preferred security.
A Non-US Holder that holds the preferred securities in connection with the
active conduct of a United States trade or business will be subject to income
tax on all income and gains recognized with respect to its proportionate share
of the junior subordinated debentures.
INFORMATION REPORTING
In general, information reporting requirements will apply to payments made
on, and proceeds from the sale of, the preferred securities held by a
noncorporate US Holder within the United States. In addition, payments made on,
and payments of the proceeds from the sale of, the preferred securities to or
through the United States office of a broker are subject to information
reporting unless the holder thereof certifies as to its Non-US Holder status or
otherwise establishes an exemption from information reporting and backup
withholding. See " -- Backup Withholding." Taxable income on the preferred
securities for a calendar year should be reported to US Holders on the
appropriate forms by the following January 31st.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the preferred securities
may be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification or exemption requirements. Any amounts so withheld
will be allowed as a credit against the holder's income tax liability, or
refunded, provided the required information is provided to the IRS.
THE PRECEDING DISCUSSION IS ONLY A SUMMARY AND DOES NOT ADDRESS ALL THE
CONSEQUENCES TO A PARTICULAR PERSON OF THE PURCHASE, OWNERSHIP, AND DISPOSITION
OF THE PREFERRED SECURITIES. YOU ARE URGED TO CONTACT YOUR OWN TAX ADVISORS TO
DETERMINE YOUR PARTICULAR TAX CONSEQUENCES.
CERTAIN ERISA CONSIDERATIONS
Northeast Bancorp and certain of its affiliates may each be considered a
"party in interest" within the meaning of the Employee Retirement Income
Security Act of 1974 or a "disqualified person" within the meaning of Section
4975 of the Internal Revenue Code with respect to many employee benefit plans
("Plans") that are subject to ERISA and individual retirement accounts ("IRAs").
The purchase of the preferred securities by an employee benefit plan or IRA that
is subject to the fiduciary responsibility provisions of ERISA or the prohibited
transaction provisions of Section 4975(e)(1) of the Internal Revenue Code and
with respect to which Northeast Bancorp, affiliate is a service provider (or
otherwise is a party in interest or a disqualified person) may constitute or
result in a prohibited transaction under ERISA or Section 4975 of the Internal
Revenue Code, unless the preferred securities are acquired pursuant to and in
accordance with an applicable exemption. Any pension or other employee benefit
plan, fiduciary, or IRA holder, proposing to acquire any preferred securities
should consult with its legal counsel.
SUPERVISION AND REGULATION
GENERAL
Northeast Bancorp is a savings and loan holding company that is regulated
and subject to examination by the OTS. The Bank is a federally chartered savings
bank and is subject to the regulations, examinations, and reporting requirements
of the OTS. The Bank is a member of the Federal Home Loan Bank of Boston and the
Bank's deposits are insured by the FDIC through the savings association
insurance fund. As the
88
<PAGE> 90
administrator of the savings association insurance fund, the FDIC has certain
regulatory and full examination authority over OTS regulated savings
associations.
The Bank also is subject to regulation by the Board of Governors of the
Federal Reserve System governing reserves to be maintained against deposits and
certain other matters. The Bank's relationship with its depositors and borrowers
also is regulated to a great extent by both federal and state laws. Any change
in applicable laws or regulations, or a change in the ways these laws and
regulations are interpreted by regulatory agencies or courts, may have a
material adverse impact on the business of Northeast Bancorp and the Bank.
The following information is a summary of some of the laws and regulations
applicable to Northeast Bancorp and the Bank. The applicable statutes and
regulations are summarized and do not purport to be complete, and are qualified
in their entirety by reference to the particular statutes and regulations.
FEDERAL REGULATION OF SAVINGS AND LOAN HOLDING COMPANIES
GENERAL LIMITATIONS. Northeast Bancorp is a unitary savings and loan
holding company within the meaning of the Home Owners' Loan Act of 1933 ("HOLA")
and is registered with the OTS. Northeast Bancorp is subject to OTS regulations,
examinations, supervision and reporting requirements. Further, the OTS has
enforcement authority over Northeast Bancorp and its non-savings institution
subsidiaries. Among other things, this authority permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings institution.
As a unitary savings and loan holding company, Northeast Bancorp generally
is not restricted under existing laws as to the types of business activities in
which it may engage, provided that the Bank continues to be a qualified thrift
lender. See "Supervision and Regulation -- Federal Regulations of Savings
Associations -- Qualified Thrift Lender Test." Nevertheless, various activities
conducted by savings and loan holding companies require OTS authorization.
The HOLA prohibits a savings and loan holding company from directly or
indirectly acquiring control (including through an acquisition by merger,
consolidation or purchase of assets) of any savings association, or any other
savings and loan holding company, without prior OTS approval. In considering
whether to grant approval for any such transaction, the OTS will take into
consideration a number of factors, including:
- competitive effects of the transaction;
- financial and managerial resources;
- future prospects of the holding company and its bank or thrift
subsidiaries following the transaction;
- the effect of the acquisition on the risk to the insurance fund;
- the convenience and needs of the community to be served; and
- compliance history of such subsidiaries with the Community
Reinvestment Act.
Further, a savings and loan holding company may not acquire more than 5% of
the voting shares of any savings association unless by merger, consolidation or
purchase of assets, each of which requires prior OTS approval. In addition,
under other provisions of HOLA, a savings and loan holding company may acquire
up to 15% of the voting shares of certain undercapitalized savings associations.
MULTIPLE SAVINGS AND LOAN HOLDING COMPANIES. At the present time,
Northeast Bancorp is a unitary savings and loan holding company. Upon
acquisition by Northeast Bancorp of a separate subsidiary savings association,
Northeast Bancorp would become a multiple savings and loan holding company and
would be subject to extensive limitations on the types of business activities in
which it could engage. A holding company that acquires another institution and
maintains it as a separate subsidiary or whose sole subsidiary fails to meet the
qualified thrift lender test will become subject to the activities limitations
applicable to multiple savings bank holding companies. In general, a multiple
savings bank holding company (or subsidiary
89
<PAGE> 91
thereof that is not an insured institution) may not commence, or continue for
more than a limited period of time after becoming a multiple savings bank
holding company (or a subsidiary thereof), any business activity other than:
- furnishing or performing management services for a subsidiary insured
institution;
- conducting an insurance agency or an escrow business;
- holding, managing or liquidating assets owned by or acquired from a
subsidiary insured institution;
- holding or managing properties used or occupied by a subsidiary
insured institution;
- acting as trustee under deeds of trust;
- those activities previously directly authorized by the OTS by
regulation as of March 5, 1987 to be engaged in by multiple savings
bank holding companies; or
- subject to prior approval of the OTS, those activities authorized by
the Federal Reserve Board as permissible investments for bank holdings
companies.
These restrictions do not apply to a multiple savings bank holding company if
(a) all, or all but one, of its insured institution subsidiaries were acquired
in emergency thrift acquisitions or assisted acquisitions and (b) all of its
insured institution subsidiaries are qualified thrift lenders.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (a) the approval of interstate
supervisory acquisitions by savings and loan holding companies, and (b) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary with regard to the extent to which they permit interstate savings
and loan holding company acquisitions.
SAFETY AND SOUNDNESS. Under federal law, the Director of the OTS is
authorized to take action when it determines that there is reasonable cause to
believe that the continuation by a savings bank holding company of any
particular activity constitutes a serious risk to the financial safety,
soundness or stability of a savings bank holding company's subsidiary savings
institution. The Director of the OTS has oversight authority for all holding
company affiliates, not just the insured institution. Specifically, the Director
of the OTS may, as necessary:
- limit the payment of dividends by the savings institution to its
parent holding company;
- limit transactions between the savings institution, the holding
company and the subsidiaries or affiliates of either; or
- limit any activities of the savings institution that might create a
serious risk that the liabilities of the holding company and its
affiliates may be imposed on the savings institution.
FEDERAL REGULATION OF SAVINGS INSTITUTIONS
BUSINESS ACTIVITIES. The activities of savings institutions are governed
by the HOLA and, in certain respects, the Federal Deposit Insurance Act and the
rules and regulations issued by the OTS and the FDIC pursuant to these acts.
These laws and regulations delineate the nature and extent of the activities in
which savings associations may engage.
CAPITAL REQUIREMENTS. The OTS capital regulations have three components: a
leverage limit, a tangible capital requirement, and a risk-based capital
requirement. The OTS has broad discretion to impose capital requirements in
excess of minimum applicable ratios.
The leverage limit requires that a savings association maintain core
capital of at least 3% of its adjusted total assets. For purposes of this
requirement, total assets are adjusted to exclude intangible assets and
investments in certain subsidiaries, and to include the assets of certain other
subsidiaries, certain intangibles arising from prior period supervisory
transactions, and permissible mortgage servicing rights. Core capital
90
<PAGE> 92
includes common shareholders' equity and retained earnings, noncumulative
perpetual preferred stock and related surplus and minority interests in
consolidated subsidiaries, minus intangibles, plus certain mortgage servicing
rights, certain goodwill arising from prior regulatory accounting practices, and
certain investments in subsidiaries.
Certain mortgage servicing rights are not deducted in computing core and
tangible capital. Prior to August 10, 1998, generally, the lower of 90% of the
fair market value of readily marketable mortgage servicing rights, or the
current unamortized book value as determined under GAAP could be included in
core and tangible capital up to a maximum of 50% of core capital computed before
the deduction of any disallowed servicing assets and disallowed purchased credit
card relationships. Effective August 10, 1998, the OTS increased the maximum
amount of mortgage servicing rights that are includable in regulatory capital
from 50% to 100% of core capital.
In determining core capital, all investments in and loans to subsidiaries
engaged in activities not permissible for national banks, which are generally
more limited than activities permissible for savings associations and their
subsidiaries, must be deducted. Certain exceptions are provided, including
exceptions for mortgage banking subsidiaries and subsidiaries engaged in agency
activities for customers (unless determined otherwise by the FDIC on safety and
soundness grounds). Generally, all subsidiaries engaged in activities
permissible for national banks are required to be consolidated for purposes of
calculating capital compliance by the parent savings association.
The tangible capital requirement mandates that a savings association
maintain tangible capital of at least 1.5% of adjusted total assets. For
purposes of this requirement, adjusted total assets are calculated on the same
basis as the leverage limit. Tangible capital is defined in the same manner as
core capital, except that all intangible assets must be deducted.
The risk-based requirement promulgated by the OTS pursuant to the HOLA,
tracks the standard applicable to national banks, except that the OTS may
determine to reflect interest rate and other risks not specifically included in
the national bank standard. However, such deviations from the national bank
standard may not result in a materially lower risk-based requirement for savings
associations than for national banks. The risk-based standard adopted by the OTS
is similar to the Office of the Comptroller of the Currency standard for
national banks.
The risk-based standards of the OTS require maintenance of core capital
equal to at least 4% of risk-weighted assets and total capital equal to at least
8% of risk-weighted assets. Total capital includes core capital plus
supplementary capital (to the extent it does not exceed core capital).
Supplementary capital includes (a) cumulative perpetual preferred stock; (b)
mutual capital certificates, income capital certificates and net worth
certificates; (c) nonwithdrawable accounts and pledged deposits to the extent
not included in core capital; (d) perpetual and mandatory convertible
subordinated debt and maturing capital instruments meeting specified
requirements; (e) general loan and lease loss allowances, up to a maximum of
1.25% of risk-weighted assets; and (f) up to 45% of unrealized gains on certain
equity investments.
In determining the amount of risk-weighted assets, savings associations
must assign balance sheet assets to one of four risk-weight categories,
reflecting the relative credit risk inherent in the asset. Off-balance-sheet
items are assigned to one of the four risk-weight categories after a credit
conversion factor is applied.
OTS regulations add an interest rate risk component to the 8% risk-based
capital requirement discussed above. Only savings associations with more than a
normal level of interest rate risk are subject to these requirements.
Specifically, savings associations with interest rate risk exposure in excess of
2% (measured in accordance with an OTS Model and Guidelines) must deduct an
interest rate risk component from total capital prior to calculating their
risk-based capital ratios. The interest rate risk component is calculated as
one-half of the difference between the institution's measured interest rate risk
and 2%, multiplied by the estimated economic value of the institution's assets.
This deduction will have the effect of requiring savings associations with
interest rate risk exposure of more than 2% to hold more capital than those with
less than 2% exposure. On August 21, 1995, the OTS adopted and approved an
appeal process, but delayed the interest rate risk capital deduction
indefinitely.
91
<PAGE> 93
LOANS TO ONE BORROWER. Under the HOLA, savings institutions are generally
subject to the national bank limits on loans to a single or related group of
borrowers. Generally, a savings association may lend to a single borrower or
group of related borrowers, on an unsecured basis, in an amount not greater than
15% of its unimpaired capital and unimpaired surplus. An additional amount, not
greater than 10% of the savings association's unimpaired capital and unimpaired
surplus, may be loaned if the loan is secured by readily marketable collateral,
which is defined to include certain financial instruments and bullion, but
generally does not include real estate. The OTS by regulation has amended the
loans to one borrower rule to permit savings associations meeting certain
requirements to extend loans to one borrower in additional amounts under
circumstances limited essentially to loans to develop or complete residential
housing units. The OTS also may impose more stringent limits on an association's
loans to one borrower, if it determines that such limits are necessary to
protect the safety and soundness of the institution.
QUALIFIED THRIFT LENDER TEST. In general, savings associations are
required to maintain at least 65% of their portfolio assets in certain qualified
thrift investments (which consist primarily of loans and other investments
related to residential real estate and certain other assets). A savings
association that fails the qualified thrift lender test is subject to
substantial restrictions on activities and to other significant penalties.
Recent legislation permits a savings association to qualify as a qualified
thrift lender not only by maintaining 65% of portfolio assets in qualified
thrift investments but also, in the alternative, by qualifying under the HOLA as
a domestic building and loan association.
Recent legislation also expands the qualified thrift lender test to provide
savings associations with greater authority to lend and diversify their
portfolios. In particular, credit card and education loans may now be made by
savings associations without regard to any percentage-of-assets limit, and
commercial loans may be made in an amount up to 10% of total assets, plus an
additional 10% for small business loans. Loans for personal, family and
household purposes (other than credit card, small business and educational
loans) are now included without limit with other assets that, in the aggregate,
may account for up to 20% of total assets. At June 30, 1999, the Bank was in
compliance with current qualified thrift lender requirements.
LIMITATION ON CAPITAL DISTRIBUTIONS. OTS regulations impose limitations
upon all capital distributions by savings institutions, including:
- cash dividends;
- payments to repurchase or otherwise acquire its shares;
- payments to stockholders of another institution in a cash-out merger; and
- other distributions charged against capital.
OTS rules establish three tiers of institutions, which are based primarily
on an institution's capital level. An institution, such as the Bank, that
exceeds all fully phased-in capital requirements before and after a proposed
capital distribution and has not been advised by the OTS that it is in need of
more than normal supervision, could, after prior notice but without the approval
of the OTS, make capital distributions during a calendar year equal to the
greater of: (i) 100% of its net earnings to date during the calendar year plus
the amount that would reduce by one-half its "surplus capital ratio" (the excess
capital over its fully phased-in capital requirements) at the beginning of the
calendar year; or (ii) 75% of its net earnings for the previous four quarters;
provided that the institution would not be undercapitalized, as the term is
defined in the OTS Prompt Corrective Action regulations, following the capital
distribution. Any additional capital distributions would require prior
regulatory approval. In the event the Bank's capital fell below its fully
phased-in requirement or the OTS notified it that it was in need of more than
normal supervision, the Bank's ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS determines that such distribution would constitute an unsafe or unsound
practice.
LIQUIDITY. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a quarterly average of not less than a
specified percentage (currently 4%) of its net withdrawable deposit accounts
plus borrowings payable in one year or less. Monetary penalties may be imposed
for failure to meet
92
<PAGE> 94
these liquidity requirements. The Bank has never been subject to monetary
penalties for failure to meet its liquidity requirements.
COMMUNITY REINVESTMENT ACT AND FAIR LENDING LAWS. Savings associations
have a responsibility under the Community Reinvestment Act and related
regulations of the OTS to help meet the credit needs of their communities,
including low- and moderate-income neighborhoods. In addition, the Equal Credit
Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in
their lending practices on the basis of characteristics specified in those
statutes. A savings institution's failure to comply with the provisions of the
Community Reinvestment Act could, at a minimum, result in regulatory
restrictions on its activities. Failure of a savings association to comply with
the Equal Credit Opportunity Act and the Fair Housing Act could result in
enforcement actions by the OTS, as well as other federal regulatory agencies and
the Department of Justice. The Bank received a satisfactory Community
Reinvestment Act rating under the current regulations in its most recent federal
examination by the OTS.
THE BANK SECRECY ACT AND MONEY LAUNDERING LAWS. The Bank Secrecy Act was
enacted by Congress in 1970. This act requires every financial institution
within the United States to file a Currency Transaction Report with the Internal
Revenue Service for each transaction in currency of more than $10,000 not
exempted by the United States Treasury Department.
The Money Laundering Prosecution Improvements Act requires financial
institutions, typically banks, to verify and record the identity of the
purchaser upon the issuance or sale of bank checks or drafts, cashier's checks,
traveler's checks, or money orders involving $3,000 or more in cash.
Institutions also must verify and record the identity of the originator and
beneficiary of certain funds transfers.
BRANCHING. Subject to certain statutory restrictions in the HOLA and the
Federal Deposit Insurance Act, the Bank is authorized to branch on a nationwide
basis. Branching by savings associations also is subject to other regulatory
requirements, including compliance with the Community Reinvestment Act and its
implementing regulations.
TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with the Bank, including Northeast Bancorp
and any non-savings institution subsidiaries) or to make loans to certain
insiders of the Bank or Northeast Bancorp, is limited by Sections 23A and 23B of
the Federal Reserve Act. Section 23A limits the aggregate amount of transactions
with any individual affiliate to 10% of the capital and surplus of the savings
institution and also limits the aggregate amount of transactions with all
affiliates to 20% of the savings institution's capital and surplus. Certain
transactions with affiliates are required to be secured by collateral in an
amount and of a type described in Section 23A and the purchase of low quality
assets from affiliates is generally prohibited. Section 23B provides that
certain transactions with affiliates, including loans and asset purchases, must
be on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies.
LOANS TO OFFICERS, DIRECTORS, AND PRINCIPAL STOCKHOLDERS. Sections 22(g)
and 22(h) of the Federal Reserve Act and the rules and regulations issued under
that act are applicable to loans from a savings association to any of the
following persons:
- an executive officer of a savings association;
- a director of a savings association;
- a principal stockholder of a savings association (i.e., any person who
directly or indirectly, or acting through or in concert with one or more
persons, owns, controls, or has power to vote more than 10% of any class
of voting securities of a savings association);
- any company controlled by an executive officer, director or principal
stockholder of a savings association; and
93
<PAGE> 95
- any political or campaign committee which is controlled by, or which will
benefit any executive officer, director or principal stockholder.
Among other things, such loans must be made on terms substantially the same as
those prevailing on comparable transactions made to unaffiliated individuals,
and may not involve more than the normal risk of repayment or present other
unfavorable features. Certain extensions of credit to such persons must first be
approved in advance by a disinterested majority of a savings association's
entire board of directors. Section 22(h) of the Federal Reserve Act prohibits
loans to any such individuals where the aggregate amount exceeds an amount equal
to 15% of an insured institution's unimpaired capital and surplus, plus an
additional 10% of unimpaired capital and surplus in the case of loans that are
fully secured by readily marketable collateral, or when the aggregate amount on
all such extensions of credit outstanding to all such persons would exceed the
Bank's unimpaired capital and unimpaired surplus. Section 22(g) establishes
additional limitations on loans to executive officers.
CHANGES IN DIRECTORS AND SENIOR EXECUTIVE OFFICERS. Section 32 of the
Federal Deposit Insurance Act, as amended by the 1996 Act, requires a depository
institution or holding company of a depository institution to give 30 days prior
written notice to its primary federal regulator of any proposed appointment of a
director or senior executive officer if the institution is not in compliance
with the minimum capital requirements or otherwise is in a troubled condition.
The regulator then has the opportunity to disapprove the proposed appointment.
PERMISSIBLE LOANS AND INVESTMENTS. Federally chartered savings banks, such
as the Bank, are authorized to originate, invest in, sell, purchase, service,
participate, and otherwise deal in: (1) loans made on the security of
residential and nonresidential real estate (up to 400% of the Bank's capital),
(2) commercial loans (up to 20% of assets, the last 10% of which must be small
business loans), (3) consumer loans (subject to certain percentage of asset
limitations), and (4) credit card loans. The lending authority of federally
chartered associations is subject to various OTS requirements, including, as
applicable, requirements governing loan-to-value ratio, percentage-of-assets
limits, and loans to one borrower limits. In September 1996, the OTS
substantially revised its investment and lending regulations eliminating many of
their specific requirements in favor of a more general standard of safety and
soundness.
Federally chartered savings associations may invest, without limitation, in
the following assets: (1) obligations of the United States government or certain
agencies thereof; (2) stock issued by or bonds of the FHLB or the FNMA; (3)
obligations issued or guaranteed by the FNMA, the Student Loan Marketing
Association, the GNMA, or any agency of the United States Government; (4)
certain mortgages, obligations, or other securities that have been sold by the
FHLMC; (5) stock issued by a national housing partnership corporation; (6)
demand, time, or savings deposits, shares, or accounts of any insured depository
institution; (7) certain "liquidity" investments approved by the OTS to meet
liquidity requirements; (8) shares of registered investment companies, the
portfolios of which are limited to investments that a federal association is
otherwise authorized to make; (9) certain mortgage-backed securities; (10)
general obligations of any state of the United States or any political
subdivision or municipality thereof, provided that not more than 10% of a
savings association's capital may be invested in the general obligations of any
one issuer; (11) loans secured by residential real property; (12) credit card
loans; and (13) educational loans. Federally chartered savings associations may
invest in secured or unsecured loans for commercial, corporate, business, or
agricultural purposes, up to 20% of assets, provided that the last 10% is
invested in small business loans. The HOLA also limits a federal savings
association's aggregate nonresidential real property loans to 400% of the
savings association's capital as determined pursuant to the OTS's capital
requirements. See "Supervision and Regulation -- Federal Regulation of Savings
Associations -- Capital Requirements." The OTS may allow a savings association
to exceed the aggregate limitation, if the OTS determines that exceeding the
limitation would pose no significant risk to the safe and sound operations of
the association and would be consistent with prudent operating practices.
Federally chartered savings associations also are authorized by the HOLA to make
investments in consumer loans, business development credit corporations, certain
commercial paper and corporate debt securities, service corporations, and small
business investment companies. All of these types of investments are subject to
percentage-of-assets and various other limitations.
94
<PAGE> 96
SERVICE CORPORATIONS. The HOLA authorizes federally chartered savings
associations, such as the Bank, to invest in the capital stock, obligations, or
other securities of service corporations. The HOLA authorizes a savings
association to invest up to a total of 3% of its assets in service corporations.
The last 1% of the 3% statutory investment limit applicable to service
corporations must be primarily invested in community development investments
drawn from a broad list of permissible investments that include, among other
things: (1) government guaranteed loans, (2) loans for investment in small
businesses, (3) investments in revitalization, and rehabilitation projects, and
(4) investments in low- and moderate-income housing developments.
Service corporations are authorized to engage in a variety of preapproved
activities, some of which (e.g., securities brokerage and real estate
development) are ineligible activities for the parent savings association. The
OTS regulations implementing the service corporation authority contained in the
HOLA also provide that activities reasonably related to the activities of a
federally chartered savings association may be approved on a case-by-case basis
by the Director of the OTS.
OPERATING SUBSIDIARIES. All federal savings associations are authorized to
establish or acquire one or more operating subsidiaries. Operating subsidiaries
are subject to examination and supervision by the OTS to the same extent as the
parent thrift. An operating subsidiary is a corporation that meets all of the
following requirements: (1) it engages only in activities that a federal savings
association is permitted to engage in directly; (2) the parent savings
association owns, directly or indirectly, more than 50% of the subsidiary's
voting stock; and (3) no person or entity other than the parent thrift may
exercise effective operating control over the subsidiary. While a savings
association's investment in its service corporations is generally limited to an
amount that does not exceed 3% of the parent savings association's total assets,
OTS regulations do not limit the amount that a parent savings association may
invest in its operating subsidiaries. Operating subsidiaries may be incorporated
and operated in any geographical location where its parent may operate. An
operating subsidiary that is a depository institution may accept deposits in any
location, provided that the subsidiary has federal deposit insurance.
ENFORCEMENT. Under the Federal Deposit Insurance Act, the OTS has primary
enforcement responsibility over savings institutions and has the authority to
bring enforcement action against all "institution-affiliated parties," including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors of the institutions, receivership, conservatorship or the termination
of deposit insurance. Civil penalties cover a wide range of violations and
actions, and range up to $25,000 per day, unless a finding of reckless disregard
is made, in which case penalties may be as high as $1 million per day. Under the
act, the FDIC has the authority to recommend to the Director of OTS that
enforcement action be taken with respect to a particular savings institution. If
action is not taken by the Director, the FDIC has authority to take such actions
under certain circumstances.
STANDARDS FOR SAFETY AND SOUNDNESS. The Federal Deposit Insurance Act
requires each federal banking agency to prescribe for all insured depository
institutions standards relating to, among other things, internal controls,
information systems and audit systems, loan documentation, credit underwriting,
interest rate risk exposure, asset growth, and compensation fees and benefits
and such other operational and managerial standards as the agency deems
appropriate. The federal banking agencies adopted a final regulation and
Interagency Guidelines Prescribing Standards for Safety and Soundness to
implement the safety and soundness standards required under the act. These
guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. Further, the guidelines address (a) internal
controls and information systems; (b) internal audit system; (c) credit
underwriting; (d) loan documentation; (e) interest rate risk exposure; (f) asset
growth; and (g) compensation, fees and benefits. If the appropriate federal
banking agency determines that an institution fails to meet any standard
prescribed by these guidelines, the agency may require the institution to submit
to the agency an acceptable plan to achieve compliance with the standard, as
required by the Federal Deposit Insurance Act. The final regulations establish
deadlines for the submission and review of such safety and soundness compliance
plans.
95
<PAGE> 97
PROMPT CORRECTIVE REGULATORY ACTION
Under the OTS Prompt Corrective Action regulations, the OTS is required to
take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of capitalization.
Generally, a savings institution that has total risk-based capital ratio of less
than 8.0% or a leverage ratio of less than 4.0% (3.0% if the institution has a
composite rating of 1) or a Tier 1 risk-based capital ratio that is less than
4.0% is considered to be undercapitalized. A savings institution that has total
risk-based capital of less than 6.0%, a Tier 1 risk-based capital ratio of less
than 3.0% or a leverage ratio that is less than 3.0% is considered to be
"significantly undercapitalized" and a savings institution that has a tangible
capital to assets ratio equal to or less than 2.0% is deemed to be "critically
undercapitalized."
Subject to a narrow exception, the OTS is required to appoint a receiver or
conservator for an institution that is "critically undercapitalized." The
regulation also provides that a capital restoration plan must be filed with the
OTS within 45 days of the date an institution receives notices that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." In addition, numerous mandatory supervisory actions become
immediately applicable to the institution, including, but not limited to,
restrictions on growth, investment activities, capital distributions, and
affiliate transactions. The OTS also could take any one of a number of
discretionary supervisory actions, including the issuance of a capital directive
and the replacement of senior executive officers and directors.
INSURANCE OF DEPOSIT ACCOUNTS AND ASSESSMENTS
The Bank's deposits are insured by the FDIC through the bank insurance fund
("BIF") and the savings association insurance fund ("SAIF"), for up to $100,000
for each insured account holder, the maximum amount currently permitted by law.
The FDIC establishes premium assessment rates for BIF and SAIF deposit
insurance. There is no statutory limit on the maximum assessment and the percent
of increase in the assessment that the FDIC may impose in any one year,
provided, however, that the FDIC may not collect more than is necessary to reach
or maintain the BIF and SAIF designated reserve ratios and must rebate any
excess collected. Under the FDIC's risk-based insurance system, BIF and
SAIF-assessable deposits are now subject to premiums of between 0 to 27 cents
per $100 of deposits, depending upon the institution's capital position and
other supervisory factors.
To arrive at a risk-based assessment for each bank and thrift, the FDIC
places the institution in one of nine risk categories using a two-step process
based first on capital ratios and then on relevant supervisory information. Each
institution is assigned to one of three groups (well-capitalized, adequately
capitalized, or undercapitalized) based on its capital ratios. A
well-capitalized institution is one that has at least a 10% total risk-based
capital ratio (the ratio of total capital to risk-weighted assets), a 6% Tier 1
risk-based capital ratio (the ratio of tier 1 core capital to risk-weighted
assets), and a 5% Tier 1 leverage ratio (the ratio of core capital to adjusted
total assets). An adequately capitalized institution has at least an 8% total
risk-based capital ratio, a 4% tier 1 core risk-based capital ratio, and a 4%
Tier 1 leverage ratio. An undercapitalized institution is one that does not meet
either the definition of well-capitalized or adequately capitalized.
The FDIC also assigns each institution to one of three supervisory
subgroups based on an evaluation of the risk posed by the institution. These
supervisory evaluations modify premium rates within each of the three capital
groups. The nine risk categories and the corresponding BIF and SAIF assessment
rates are as follows:
<TABLE>
<CAPTION>
SUPERVISORY SUBGROUP
------------------------------
A B C
------------------------------
<S> <C> <C> <C>
Meets numerical standards for:
Well-capitalized.................................... 0 3 17
Adequately capitalized.............................. 3 10 24
Undercapitalized.................................... 10 24 27
</TABLE>
96
<PAGE> 98
For purposes of assessments of FDIC insurance premiums, Northeast Bancorp
believes that the Bank is a well-capitalized institution as of June 30, 1999.
FDIC regulations prohibit disclosure of the supervisory subgroup to which an
insured institution is assigned.
As an insurer, the FDIC issues regulations and conducts examinations of its
insured members. Insurance of deposits by the FDIC may be terminated by the
FDIC, after notice and hearing, upon a finding that an institution (a) has
engaged in unsafe and unsound practices, (b) is in an unsafe and unsound
condition to continue operations, or (c) has violated any applicable law,
regulation, rule, order or condition imposed by the OTS or the FDIC. When
conditions warrant, the FDIC may impose less severe sanctions as an alternative
to termination of insurance.
BROKERED DEPOSITS
Only a well-capitalized depository institution may accept brokered deposits
without prior regulatory approval. Under implementing regulations,
well-capitalized banks may accept brokered deposits without restriction,
adequately capitalized banks may not accept brokered deposits without a waiver
from the FDIC (subject to certain restrictions on payments of rates), while
undercapitalized banks may not accept brokered deposits.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the Federal Home Loan Bank System, which consists
of 12 regional banks. FHLBs provide a central credit facility primarily for
member institutions. The Bank, as a member of the FHLB of Boston, is required to
acquire and hold shares of capital stock in that institution in an amount at
least equal to 1% of the aggregate principal amount of the Bank's unpaid
residential mortgage loans and similar obligations at the beginning of each year
(but not less than $500), or 5% of its advances from the FHLB of Boston,
whichever is greater.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). As of June 30, 1999, the Bank was
in compliance with these requirements. The balances maintained to meet the
reserve requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements imposed by the OTS.
FEDERAL SECURITIES LAWS
Northeast Bancorp's common stock is registered with the SEC under the
Securities Exchange Act of 1934. Accordingly, Northeast Bancorp is subject to
the information, proxy solicitation, insider trading restrictions and other
requirements under the Securities Exchange Act.
MAINE LAW
Northeast Bancorp and the Bank are headquartered in, and qualified to do
business in the State of Maine. Accordingly, the Maine Bureau of Banking has the
authority to impose certain regulations and the power to examine both the Bank
and Northeast Bancorp. In addition to approvals from federal regulatory
agencies, Northeast Bancorp may be required to seek approval of the Maine Bureau
of Banking prior to engaging in certain extraordinary transactions.
LEGISLATION
Federal legislation and regulation have significantly affected the
operations of federally insured savings associations, such as the Bank, and
other federally regulated financial institutions in the past several years and
have increased competition among savings associations, commercial banks, and
other financial institutions. Congress has been considering legislation in
various forms that would require federal thrifts, such as the
97
<PAGE> 99
Bank, to convert their charters to national or state bank charters. The Bank
cannot determine whether, or in what form, such legislation may eventually be
enacted, and there can be no assurance of the effect that any legislation that
is enacted would have on Northeast Bancorp, the Bank, and its affiliates. The
operations of regulated depository institutions will continue to be subject to
changes in applicable statutes and regulations from time to time and could
adversely affect Northeast Bancorp, the Bank, and its affiliates.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, dated
, 1999 among Northeast Bancorp, the Trust, and Advest, Inc., the
underwriter named therein, the Trust has agreed to sell to the underwriter, and
the underwriter has agreed to purchase from the Trust, $10,500,000 aggregate
liquidation amount of preferred securities at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus.
The underwriting agreement provides that the obligations of the underwriter
is subject to certain conditions precedent and that the underwriter will
purchase all of the preferred securities offered hereby if any of such preferred
securities are purchased.
The underwriter has advised Northeast Bancorp and the Trust that the
underwriter proposes to offer the preferred securities directly to the public at
the public offering price set forth on the cover page of this prospectus and to
certain dealers at such price less a concession not to exceed $ per
preferred security. The underwriter may allow, and such dealers may reallow, a
concession not in excess of $ per preferred security to certain other
dealers. After the public offering, the public offering price and the other
selling terms may be changed by the underwriter. No such change shall affect the
amount of proceeds to be received by the Trust as set forth on the cover page of
this prospectus.
Northeast Bancorp and the Trust have granted to the underwriter an option
exercisable during the 30 day period beginning from the date of the underwriting
agreement to purchase up to an additional $1,575,000 aggregate liquidation
amount of the preferred securities, solely to cover over-allotments, if any, at
the public offering price as set forth on the cover page. To the extent that the
underwriter exercises such option, the Trust will be obligated, pursuant to the
option, to sell such preferred securities to the underwriter. If purchased, the
underwriter will offer such additional preferred securities on the same terms as
those on which the $10,500,000 aggregate liquidation amount of the preferred
securities are being offered.
In view of the fact that all of the proceeds from the sale of the preferred
securities will be used to purchase the junior subordinated debentures issued by
Northeast Bancorp, the underwriting agreement provides that Northeast Bancorp
will pay as compensation for the underwriter's arranging the investment therein
of such proceeds an amount of $ per preferred security (or $
($ if the over-allotment option is exercised in full) in the
aggregate). The expenses of this offering (exclusive of the underwriting fees)
are estimated at $ and are payable by Northeast Bancorp.
Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the preferred securities as interests in a direct participation
program, the offering of the preferred securities is being made in compliance
with the applicable provisions of Rule 2810 of the NASD's Conduct Rules.
Subject to certain limitations, Northeast Bancorp, the Trust, and the
underwriter have agreed to indemnify each other against certain liabilities
including liabilities under the Securities Act, or to contribute to payments
that Northeast Bancorp, the Trust, or the underwriter may be required to make in
respect thereof.
The foregoing is a summary of the principal terms of the underwriting
agreement and is not complete. Reference is made to a copy of the underwriting
agreement which is on file as an exhibit to the registration statement.
In connection with this offering, the underwriter and any selling group
members and their respective affiliates may engage in transactions effected in
accordance with Rule 104 of the Securities and Exchange Commission's Regulation
M that are intended to stabilize, maintain, or otherwise affect the market price
of the preferred securities. Such transactions may include over-allotment
transactions in which the underwriter
98
<PAGE> 100
creates a short position for its own account by selling more preferred
securities than it is committed to purchase from the Trust. In such a case, to
cover all or part of the short position, the underwriter may exercise the
over-allotment option described above or may purchase preferred securities in
the open market following completion of the initial offering of the preferred
securities. The underwriter also may engage in stabilizing transactions in which
it bids for, and purchases, shares of the preferred securities at a level above
that which might otherwise prevail in the open market for the purpose of
preventing or retarding a decline in the market price of the preferred
securities. The underwriter also may reclaim any selling concessions allowed to
a dealer if the underwriter repurchases shares distributed by that dealer. Any
of the foregoing transactions may result in the maintenance of a price for the
preferred securities at a level above that which might otherwise prevail in the
open market. Neither Northeast Bancorp nor the underwriter makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the preferred
securities. The underwriter is not required to engage in any of the foregoing
transactions and, if commenced, such transactions may be discontinued at any
time without notice.
The preferred securities are a new issue of securities with no established
trading market. Northeast Bancorp and the Trust have been advised by the
underwriter that it intends to make a market in the preferred securities.
However, the underwriter is not obligated to do so and such market making may be
interrupted or discontinued at any time without notice at the sole discretion of
the underwriter. We have applied to have the preferred securities listed on the
American Stock Exchange. Accordingly, no assurance can be given as to the
development or liquidity of any market for the preferred securities.
The underwriter has in the past, and may in the future, perform various
services for Northeast Bancorp, including investment banking services, for which
they have and may receive customary fees. The underwriter also served as
managing underwriter for a secondary offering of Northeast Bancorp's common
stock in 1998.
VALIDITY OF SECURITIES
The validity of the guarantee and the junior subordinated debentures and
certain tax matters will be passed upon for Northeast Bancorp by Carlton,
Fields, Ward, Emmanuel, Smith & Cutler, P.A., Tampa, Florida, and certain legal
matters will be passed upon for the Underwriter by Tyler Cooper & Alcorn, LLP,
Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. will rely as to certain
matters of Maine law on the opinion of Lipman & Katz, P.A. Certain matters of
Delaware law relating to the validity of the preferred securities, the
enforceability of the trust agreement, and the creation of the Trust will be
passed upon by Richards, Layton & Finger, P.A., special Delaware counsel to
Northeast Bancorp and the Trust. Carlton, Fields, Ward, Emmanuel, Smith &
Cutler, P.A., and Tyler Cooper & Alcorn, LLP will rely as to certain matters of
Delaware law on the opinion of Richards, Layton & Finger, P.A.
EXPERTS
Baker Newman & Noyes Limited Liability Company, independent auditors, have
audited our consolidated financial statements included in this Prospectus and
Registration Statement as of June 30, 1999 and 1998 and for each of the three
years in the period ended June 30, 1999, as set forth in their report, which is
included elsewhere in this Prospectus and Registration Statement. Our financial
statements are included in reliance on Baker Newman & Noyes Limited Liability
Company's report, given on their authority as experts in accounting and
auditing.
WHERE CAN YOU FIND MORE INFORMATION
Northeast Bancorp is subject to the reporting requirements of the
Securities Exchange Act of 1934 and, as a result, Northeast Bancorp files
reports, proxy statements, and other information with the Securities and
Exchange Commission. You may read, without charge, or copy, at prescribed rates,
any document that Northeast Bancorp files with the SEC at the public reference
facilities maintained by the SEC in Washington, D.C. and at its regional offices
in New York, New York and Chicago, Illinois. Please call the SEC at 1-800-732-
0330 for further information on the public reference rooms and their copy
charges. Northeast Bancorp's
99
<PAGE> 101
electronic filings with the SEC also are available to the public over the
Internet at a World Wide Web Site maintained by the SEC at http://www.sec.gov.
Further, Northeast Bancorp's common stock trades on the American Stock Exchange
and, as a result, reports, proxy statements, and other information concerning
Northeast Bancorp also can be inspected at the offices of The American Stock
Exchange at 86 Trinity Place, New York, New York 10006.
In addition, Northeast Bancorp and the Trust have jointly filed with the
SEC a Registration Statement on Form S-2 under the Securities Act of 1933
covering the preferred securities, the junior subordinated debentures, and the
guarantee. This prospectus, which is part of the Registration Statement, does
not contain all the information included in the Registration Statement. For
further information with respect to Northeast Bancorp, the Trust, or the
securities offered in this prospectus, you should refer to the Registration
Statement and its exhibits. This prospectus summarizes material provisions of
contracts and other documents to which we refer you. Since the prospectus may
not contain all the information that you may find important, you should review
the full text of these documents. We have included copies of these documents as
exhibits to the Registration Statement. The full Registration Statement may be
obtained from the SEC as indicated above or from us.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus some
information in documents that are filed by Northeast Bancorp with the SEC. This
means we can disclose important information to you by referring to another
document filed separately with the SEC. Any information that we incorporate by
reference is considered part of this prospectus. We incorporate by reference in
this prospectus the following document of Northeast Bancorp listed below:
- Annual Report on Form 10-K for the fiscal year ended June 30, 1999, filed
with the SEC on September 28, 1999;
We also incorporate by reference any filings that Northeast Bancorp makes
with the SEC under Section 13(a) or 15(d) of the Securities Exchange Act of 1934
prior to the termination of this offering. Any information incorporated by
reference this way will automatically be deemed to update and supercede any
information previously disclosed in this prospectus or in an earlier filed
document also incorporated by reference in this prospectus.
You may request a copy of any or all documents which are incorporated by
reference to this prospectus and we will provide it to you at no cost. You
should make your request in writing or by telephone to Richard E. Wyman, Jr.,
Northeast Bancorp, 158 Court Street, Auburn, Maine 04210.
This prospectus does not contain or incorporate by reference any separate
financial statements of the Trust. We do not consider that financial statements
of the Trust are material to holders of the preferred securities because the
Trust is a newly formed special purpose entity, has no operating history or
independent operations, and is not engaged in and does not propose to engage in
any activity other than holding the junior subordinated debentures of Northeast
Bancorp and issuing the preferred securities and the common securities. For more
information, see the information under the captions "Prospectus Summary -- NBN
Capital Trust," "Description of the Preferred Securities," "Description of
Junior Subordinated Debentures" and "Description of Guarantee." In addition, we
do not expect that the Trust will be filing reports under the Securities
Exchange Act of 1934 with the SEC.
100
<PAGE> 102
NORTHEAST BANCORP AND SUBSIDIARY
Audited Consolidated Financial Statements
Years Ended June 30, 1999, 1998 and 1997
With Independent Auditors' Report
<PAGE> 103
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
----------
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Statements of Financial Condition at June 30,
1999 and 1998............................................. F-3
Consolidated Statements of Income for the Years Ended June
30, 1999, 1998 and 1997................................... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended June 30, 1999, 1998 and 1997.......... F-5
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1999, 1998 and 1997.............................. F-6
Notes to Consolidated Financial Statements.................. F-7 - F-29
</TABLE>
F-1
<PAGE> 104
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Northeast Bancorp and Subsidiary
We have audited the consolidated statements of financial condition of
Northeast Bancorp and Subsidiary as of June 30, 1999 and 1998, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 1999. These
financial statements are the responsibility of Northeast Bancorp's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Northeast
Bancorp and Subsidiary as of June 30, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1999, in conformity with generally accepted accounting
principles.
Baker Newman & Noyes
Limited Liability Company
Portland, Maine
July 30, 1999
F-2
<PAGE> 105
NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 4,963,985 $ 6,821,574
Interest bearing deposits................................... 345,585 421,392
Federal Home Loan Bank overnight deposits................... 6,784,000 4,909,000
------------ ------------
Total cash and cash equivalents..................... 12,093,570 12,151,966
Trading account securities, at market value................. -- 50,000
Available for sale securities, at market value (notes 2, 7
and 9).................................................... 18,054,317 13,608,823
Loans held for sale......................................... 311,600 369,500
Loans receivable (notes 3 and 7):
Mortgage loans:
Residential real estate................................. 182,244,336 171,903,751
Construction loans...................................... 3,187,642 3,521,427
Commercial real estate.................................. 55,437,983 47,052,134
------------ ------------
240,869,961 222,477,312
Undisbursed portion of construction loans............... (1,501,993) (1,421,847)
Net deferred loan origination costs..................... 220,337 7,270
------------ ------------
Total mortgage loans................................ 239,588,305 221,062,735
Commercial loans.......................................... 34,814,252 27,068,416
Consumer and other loans.................................. 44,583,690 33,899,799
------------ ------------
318,986,247 282,030,950
Less allowance for loan losses............................ (2,924,000) (2,978,000)
------------ ------------
Net loans........................................... 316,062,247 279,052,950
Premises and equipment -- net (note 4)...................... 5,037,026 4,473,885
Other real estate owned -- net (note 5)..................... 193,850 350,496
Accrued interest receivable -- loans........................ 1,803,379 1,710,704
Accrued interest receivable -- investments.................. 187,281 222,994
Federal Home Loan Bank stock, at cost (note 7).............. 5,680,500 5,680,500
Goodwill, net of accumulated amortization of $1,662,588 in
1999 and $1,532,807 in 1998 (note 13)..................... 1,462,346 1,923,915
Other assets (note 14)...................................... 3,496,789 2,936,861
------------ ------------
Total assets........................................ $364,382,905 $322,532,594
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (note 6):
Demand.................................................. $ 17,891,552 $ 15,209,219
NOW..................................................... 31,203,347 23,429,512
Money market............................................ 7,156,424 11,993,110
Regular savings......................................... 21,999,615 20,305,953
Brokered time deposits.................................. 13,458,257 7,574,710
Certificates of deposit under $100,000.................. 103,302,505 86,156,463
Certificates of deposit $100,000 or more................ 24,352,335 19,355,130
------------ ------------
Total deposits...................................... 219,364,035 184,024,097
FHLB Borrowings (note 7).................................. 103,881,716 104,439,952
Note payable (note 8)..................................... 687,500 993,055
Securities sold under repurchase agreements (notes 2 and
9)...................................................... 11,867,839 5,205,594
Other liabilities......................................... 1,898,700 2,730,369
------------ ------------
Total liabilities................................... 337,699,790 297,393,067
Commitments and contingent liabilities (notes 8, 16 and 17)
Stockholders' equity (notes 10, 12 and 16):
Series A cumulative convertible preferred stock; $1 par
value, 1,000,000 shares authorized; 45,454 shares issued
and outstanding at June 30, 1998........................ -- 999,988
Common stock, $1 par value, 15,000,000 shares authorized;
2,768,624 and 2,614,285 shares issued and outstanding at
June 30, 1999 and 1998, respectively.................... 2,768,624 2,614,285
Additional paid-in capital................................ 10,208,299 9,258,107
Retained earnings......................................... 14,145,720 12,331,595
Accumulated other comprehensive income (loss) (note 2).... (439,528) (64,448)
------------ ------------
Total stockholders' equity.......................... 26,683,115 25,139,527
------------ ------------
Total liabilities and stockholders' equity.......... $364,382,905 $322,532,594
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 106
NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest and dividend income:
Interest on loans..................................... $25,178,587 $21,988,864 $18,973,560
Interest on Federal Home Loan Bank overnight
deposits........................................... 328,981 514,113 429,531
Interest and dividends on available for sale
securities......................................... 957,558 1,461,024 2,277,573
Dividends on Federal Home Loan Bank stock............. 364,245 300,664 227,360
Other interest and dividend income.................... 27,422 18,346 27,697
----------- ----------- -----------
Total interest and dividend income............ 26,856,793 24,283,011 21,935,721
Interest expense:
Deposits (note 6)..................................... 8,680,297 7,586,717 7,103,375
Repurchase agreements................................. 339,556 206,651 199,453
Borrowed funds........................................ 5,530,389 5,016,703 3,988,060
----------- ----------- -----------
Total interest expense........................ 14,550,242 12,810,071 11,290,888
----------- ----------- -----------
Net interest income before provision for loan
losses...................................... 12,306,551 11,472,940 10,644,833
Provision for loan losses (note 3)...................... 610,017 706,100 614,427
----------- ----------- -----------
Net interest income after provision for loan
losses...................................... 11,696,534 10,766,840 10,030,406
Noninterest income:
Fees and service charges on loans..................... 288,720 206,961 194,020
Fees for other services to customers.................. 660,045 596,110 657,705
Net securities gains (note 2)......................... 84,133 285,716 171,080
Gain on trading activities............................ 10,732 1,797 88,350
Gain on sales of loans................................ 817,084 726,599 201,418
Loan servicing fees................................... 160,811 227,409 275,496
Other income.......................................... 694,827 626,939 498,172
----------- ----------- -----------
Total noninterest income...................... 2,716,352 2,671,531 2,086,241
----------- ----------- -----------
Noninterest expense:
Salaries and employee benefits (notes 15 and 16)...... $ 4,889,172 $ 4,638,813 $ 4,614,802
Occupancy expense (note 4)............................ 975,086 903,978 783,434
Equipment expense (note 4)............................ 888,423 863,580 893,605
FDIC insurance expense (note 10)...................... 63,441 60,097 390,494
Other (notes 2, 13 and 15)............................ 3,753,721 3,265,249 3,036,002
----------- ----------- -----------
Total noninterest expense..................... 10,569,843 9,731,717 9,718,337
----------- ----------- -----------
Income before income taxes.............................. 3,843,043 3,706,654 2,398,310
Income tax expense (note 14)............................ 1,432,591 1,302,871 908,565
----------- ----------- -----------
Net income.................................... $ 2,410,452 $ 2,403,783 $ 1,489,745
=========== =========== ===========
Earnings per share (notes 11 and 16):
Basic................................................. $ .88 $ 1.00 $ .63
Diluted............................................... $ .86 $ .86 $ .56
</TABLE>
See accompanying notes.
F-4
<PAGE> 107
NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
ADDITIONAL COMPREHENSIVE
PREFERRED STOCK COMMON PAID-IN TREASURY RETAINED INCOME
SERIES A AND B STOCK CAPITAL STOCK EARNINGS (LOSS) TOTAL
--------------- ---------- ----------- -------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996...... $1,999,980 $1,421,950 $ 7,516,227 $(52,277) $10,315,041 $(837,354) $20,363,567
Net income................... -- -- -- -- 1,489,745 -- 1,489,745
Other comprehensive income
net of tax:
Net unrealized income
on investments
available for sale,
net of
reclassification
adjustment (note
19).................. -- -- -- -- -- 503,179 503,179
-----------
Total comprehensive
income............... -- -- -- -- -- -- 1,992,924
Issuance of common stock
through exercise of stock
options and purchase of
treasury stock............. -- 20,000 83,450 (28,420) -- -- 75,030
Exercise of stock warrants... -- 19,940 88,005 67,055 -- -- 175,000
Treasury stock issued --
employee stock bonus....... -- -- (268) 13,642 -- -- 13,374
Issuance of common stock..... -- 1,019 12,468 -- -- -- 13,487
Dividends on preferred
stock...................... -- -- -- -- (139,997) -- (139,997)
Dividends on common stock at
$0.21 per share............ -- -- -- -- (397,805) -- (397,805)
---------- ---------- ----------- -------- ----------- --------- -----------
Balance at June 30, 1997...... 1,999,980 1,462,909 7,699,882 -- 11,266,984 (334,175) 22,095,580
Net income................... -- -- -- -- 2,403,783 -- 2,403,783
Other comprehensive income
net of tax:
Net unrealized income
on investments
available for sale,
net of
reclassification
adjustment (note
19).................. -- -- -- -- -- 269,727 269,727
-----------
Total comprehensive
income............... -- -- -- -- -- -- 2,673,510
Issuance of common stock..... -- 939 15,730 -- -- -- 16,669
Conversion of preferred stock
Series B (note 12)......... (999,992) 214,284 785,708 -- -- -- --
Stock split in the form of a
dividend................... -- 740,807 -- -- (741,902) -- (1,095)
Stock options exercised and
treasury stock purchased... -- 32,200 158,500 (44,988) -- -- 145,712
Treasury stock sold.......... -- -- -- 44,988 -- -- 44,988
Exercise of stock warrants... -- 163,146 598,287 -- -- -- 761,433
Dividends on preferred
stock...................... -- -- -- -- (125,827) -- (125,827)
Dividends on common stock at
$0.21 per share............ -- -- -- -- (471,443) -- (471,443)
---------- ---------- ----------- -------- ----------- --------- -----------
Balance at June 30, 1998...... 999,988 2,614,285 9,258,107 -- 12,331,595 (64,448) 25,139,527
Net income................... -- -- -- -- 2,410,452 -- 2,410,452
Other comprehensive income
net of tax:
Net unrealized loss on
investments available for
sale, net of reclassification
adjustment (note 19)......... -- -- -- -- -- (375,080) (375,080)
-----------
Total comprehensive
income............... -- -- -- -- -- -- 2,035,372
Issuance of common stock..... -- 1,477 14,780 -- -- -- 16,257
Stock options exercised...... -- 16,500 71,786 -- -- -- 88,286
Dividends on preferred
stock...................... -- -- -- -- (25,667) -- (25,667)
Dividends on common stock at
$0.21 per share............ -- -- -- -- (570,660) -- (570,660)
Conversion of preferred stock
Series A (note 12)......... (999,988) 136,362 863,626 -- -- -- --
---------- ---------- ----------- -------- ----------- --------- -----------
Balance at June 30, 1999...... $ -- $2,768,624 $10,208,299 $ -- $14,145,720 $(439,528) $26,683,115
========== ========== =========== ======== =========== ========= ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 108
NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 2,410,452 $ 2,403,783 $ 1,489,745
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses............................... 610,017 706,100 614,427
Provision for losses on other real estate owned......... 47,000 62,300 39,000
Deferred income tax expense (benefit)................... 86,398 (14,949) (72,290)
Depreciation of premises and equipment and other........ 755,956 617,628 665,193
Goodwill amortization and impairment provision.......... 461,569 296,374 296,374
Net gain on sale of available for sale securities....... (84,133) (285,716) (171,080)
Net gains on sales of loans............................. (817,084) (726,599) (201,418)
Originations of loans held for sale..................... (17,476,548) (7,251,700) (2,178,115)
Proceeds from sale of loans held for sale............... 17,908,553 7,287,744 2,430,823
Net change in trading account securities................ 50,000 (25,000) 172,621
Other................................................... (118,171) 41,035 (103,988)
Change in other assets and liabilities:
Interest receivable................................... (56,962) (293,605) (125,996)
Other assets and liabilities.......................... (1,241,063) 466,597 (17,869)
------------ ------------ ------------
Net cash provided by operating activities................. 2,535,984 3,283,992 2,837,427
Cash flows from investing activities:
Proceeds from the sale of available for sale securities... 6,930,743 27,974,991 12,377,154
Purchases of available for sale securities................ (15,992,030) (15,666,889) (12,129,135)
Proceeds from maturities and principal payments on
available for sale securities........................... 4,086,624 3,588,092 3,256,713
Proceeds from sale of loans............................... 11,278,496 17,479,139 --
Purchases of loans........................................ (27,913,995) (66,283,950) (25,425,642)
Net increase in loans..................................... (20,629,306) (10,509,720) (10,910,942)
Additions to premises and equipment....................... (1,424,307) (363,562) (1,043,176)
Proceeds from sale of other real estate owned............. 422,787 214,884 519,871
Purchase of Federal Home Loan Bank stock.................. -- (1,559,500) (1,362,700)
------------ ------------ ------------
Net cash used by investing activities............... (43,240,988) (45,126,515) (34,717,857)
------------ ------------ ------------
Cash flows from financing activities:
Net increase in deposits.................................. $ 35,339,938 $ 11,102,811 $ 8,066,043
Net (repayments) borrowings from the Federal Home Loan
Bank.................................................... (558,236) 23,945,481 27,856,994
Net increase in repurchase agreements..................... 6,662,245 106,972 1,335,656
Dividends paid............................................ (596,327) (597,270) (537,802)
Treasury stock purchased.................................. -- (44,988) (28,420)
Treasury stock sold....................................... -- 44,988 --
Stock options exercised................................... 88,286 190,700 103,450
Warrants exercised........................................ -- 761,433 175,000
Issuance of common stock.................................. 16,257 16,669 13,487
Stock split -- payment for fractional shares.............. -- (1,095) --
Principal payments on note payable........................ (305,555) (305,556) (203,581)
------------ ------------ ------------
Net cash provided by financing activities........... 40,646,608 35,220,145 36,780,827
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents........ (58,396) (6,622,378) 4,900,397
Cash and cash equivalents, beginning of year................ 12,151,966 18,774,344 13,873,947
------------ ------------ ------------
Cash and cash equivalents, end of year...................... $ 12,093,570 $ 12,151,966 $ 18,774,344
============ ============ ============
Supplemental schedule of cash flow information:
Interest paid............................................. $ 14,610,453 $ 12,727,917 $ 11,159,387
Income taxes paid......................................... 1,524,000 972,000 641,000
Supplemental schedule of noncash investing and financing
activities:
Transfer from loans to other real estate owned............ $ 301,537 $ 56,861 $ 538,019
Change in valuation allowance for unrealized losses on
available for sale securities, net of tax............... 375,080 269,727 503,179
Net change in deferred taxes for unrealized losses on
available for sale securities........................... 193,222 138,949 259,214
Transfer of nonmarketable investment security to other
assets.................................................. 45,000 -- --
</TABLE>
See accompanying notes.
F-6
<PAGE> 109
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Northeast Bancorp and Subsidiary
(the Company) conform to generally accepted accounting principles and general
practice within the banking industry.
Business
Northeast Bancorp provides a full range of banking services to individual
and corporate customers throughout south central and western Maine through its
wholly owned subsidiary, Northeast Bank, F.S.B. The bank is subject to
competition from other financial institutions. The bank is subject to the
regulations of the Federal Deposit Insurance Corporation (FDIC) and the Office
of Thrift Supervision (OTS) and undergoes periodic examinations by these
agencies.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Northeast Bancorp, a savings and loan holding company, and its wholly-owned
subsidiary, Northeast Bank, F.S.B. (including the Bank's wholly-owned
subsidiary, Northeast Financial Services, Inc.) All significant intercompany
transactions and balances have been eliminated in consolidation.
Use of Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities as of the date of the balance sheet and income and
expenses for the period. Actual results could differ significantly from those
estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowance for loan losses and
the carrying value of real estate acquired through foreclosure, management
obtains independent appraisals for significant properties.
A substantial portion of the Company's loans are secured by real estate in
the State of Maine. In addition, all of the real estate acquired through
foreclosure is located in the same market. Accordingly, the ultimate
collectibility of a substantial portion of the Company's loan portfolio and the
recovery of the carrying amount of real estate acquired through foreclosure are
susceptible to changes in market conditions in Maine.
Merger
On October 24, 1997, the Company merged with Cushnoc Bank and Trust Company
in a transaction accounted for as a pooling of interests. All financial
information includes the accounts of Cushnoc Bank and Trust Company for all
periods presented prior to the date of the merger (See note 15). Cushnoc Bank
and Trust Company had a fiscal year based on the twelve months ending December
31. Upon consummation of the merger, Cushnoc Bank and Trust Company was merged
into the Company's banking subsidiary, Northeast Bank, F.S.B.
Cash and Cash Equivalents
For purposes of presentation in the cash flow statements, cash and cash
equivalents consist of cash and due from banks, Federal Home Loan Bank overnight
deposits and interest bearing deposits. The Company is
F-7
<PAGE> 110
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
required to maintain a certain reserve balance in the form of cash or deposits
with the Federal Reserve Bank. At June 30, 1999, the reserve balance was
approximately $1,211,000.
Available for Sale Securities
Marketable equity securities, and debt securities which may be sold prior
to maturity, are classified as available for sale and are carried at market
value. Market value is determined based on bid prices published in financial
newspapers or bid quotations received from securities dealers. Changes in market
value, net of applicable income taxes, are reported as a separate component of
stockholders' equity. When a decline in market value of a security is considered
other than temporary, the loss is charged to other expense in the consolidated
statements of income and is treated as a writedown of the security's "cost".
Gains and losses on the sale of securities are recognized on the trade date
using the specific identification method.
Federal Home Loan Bank Stock
Federal Home Loan Bank stock is carried at cost.
Loans Held for Sale and Mortgage Banking Activities
Loans originated for sale are specifically identified and carried at the
lower of aggregate cost or market value, estimated based on bid quotations from
loan dealers. The carrying value of loans held for sale approximates the market
value at June 30, 1999 and 1998. Gains and losses on sales of loans are
determined using the specific identification method and are reflected as gain on
sales of loans in the consolidated statements of income.
The Company recognizes as separate assets the rights to service mortgage
loans for others, and performs an assessment of capitalized mortgage servicing
rights for impairment based on the current fair value of those rights. The
Company capitalizes mortgage servicing rights at their allocated cost (based on
the relative fair values of the rights and the related loans) upon the sale of
the related loans.
The Company's mortgage servicing rights asset at June 30, 1999 and 1998 was
approximately $569,000 and $363,000, respectively, and is included in other
assets in the consolidated statements of financial position. Mortgage servicing
rights are amortized on an accelerated method over the estimated weighted
average life of the loans. The Company's assumptions with respect to
prepayments, which affect the estimated average life of the loans, are adjusted
periodically to reflect current circumstances. The Company evaluates the
estimated life of its servicing portfolio based on data which is disaggregated
to reflect note rate, type and term on the underlying loans.
Loans
Loans are carried at the principal amounts outstanding plus net premiums
paid and net deferred loan costs. Loan origination fees and certain direct loan
origination costs are deferred and recognized in interest income as an
adjustment to the loan yield over the life of the related loans. Loan premiums
paid to acquire loans are recognized as a reduction of interest income over the
estimated life of the loans. Loans are generally placed on nonaccrual status
when they are past due 90 days as to either principal or interest, or when in
management's judgment the collectibility of interest or principal of the loan
has been significantly impaired. When a loan has been placed on nonaccrual
status, previously accrued and uncollected interest is reversed against interest
on loans. A loan can be returned to accrual status when collectibility of
principal is reasonably assured and the loan has performed for a period of time,
generally six months. Loans are classified as impaired when it is probable that
the Company will not be able to collect all amounts due according to the
contractual
F-8
<PAGE> 111
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
terms of the loan agreement. Factors considered by management in determining
impairment include payment status and collateral value.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged to operations. Loan losses are charged against the allowance when
management believes that the collectibility of the loan principal is unlikely.
Recoveries on loans previously charged off are credited to the allowance.
The allowance is an amount that management believes will be adequate to
absorb possible loan losses based on evaluations of collectibility and prior
loss experience. The evaluation takes into consideration such factors as changes
in the nature and volume of the portfolio, overall portfolio quality, specific
problem loans, and current and anticipated economic conditions that may affect
the borrowers' ability to repay.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, changing
economic conditions and the economic prospects of the borrowers might
necessitate future additions to the allowance. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Company's allowance for loan losses. Such agencies may require the Company
to recognize additions to the allowance based on their judgments about
information available to them at the time of their examination.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line and accelerated methods over the
estimated useful lives of the assets. Maintenance and repairs are charged to
expense as incurred and the cost of major renewals and betterments are
capitalized.
Long-lived assets are evaluated periodically for impairment. An assessment
of recoverability is performed prior to any writedown of the asset. If
circumstances suggest that their value may be impaired, then an expense would be
charged in the then current period.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period that
includes the enactment date.
Other Real Estate Owned
Other real estate owned is comprised of properties acquired through
foreclosure proceedings, or acceptance of a deed or title in lieu of
foreclosure. Other real estate owned is carried at the lower of cost or fair
value of the collateral less estimated selling expenses. Losses arising from the
acquisition of such properties are charged against the allowance for loan
losses. Operating expenses and any subsequent provisions to reduce the carrying
value are charged against current period earnings. Gains and losses upon
disposition are reflected in earnings as realized.
F-9
<PAGE> 112
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
Goodwill
Goodwill arising from acquisitions is being amortized on a straight-line
basis over ten to fifteen year periods. Goodwill is reviewed for possible
impairment when events or changed circumstances may affect the underlying basis
of the asset (See note 13).
Advertising Expense
Advertising costs are expensed as incurred. Advertising costs were
approximately $218,000, $172,000 and $187,000 for the years ended June 30, 1999,
1998 and 1997, respectively.
Stock-Based Compensation
Compensation expense for the Stock Option Plans is accounted for in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. The Stock Option Plans are noncompensatory plans and no
expense is recognized. Shares not yet awarded are not considered outstanding for
purposes of computing earnings per share.
Comprehensive Income
In 1999, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income. No
adjustments to recorded amounts were required by adoption of this statement.
Accumulated other comprehensive income or loss consists solely of net unrealized
gains or losses on investment securities available for sale.
New Accounting Pronouncements Not Yet Implemented
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
is scheduled to be effective in fiscal 2001. SFAS No. 134, Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise, is scheduled to be effective in
fiscal 2000. Management of the Company does not expect these statements to have
a significant effect on the Company's financial position or results of
operations based on the Company's current activities.
2. AVAILABLE FOR SALE SECURITIES
A summary of the cost and approximate fair values of available for sale
securities at June 30, 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999 1998
------------------------- -------------------------
FAIR FAIR
COST VALUE COST VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Debt securities issued by the U.S.
Treasury and other U.S. Government
corporations and agencies......... $ 596,626 $ 598,445 $ 4,696,659 $ 4,698,266
Corporate bonds..................... 201,916 199,527 202,952 203,484
Mortgage-backed securities.......... 16,653,302 16,027,028 7,723,843 7,714,332
Equity securities................... 1,268,424 1,229,317 1,083,018 992,741
----------- ----------- ----------- -----------
$18,720,268 $18,054,317 $13,706,472 $13,608,823
=========== =========== =========== ===========
</TABLE>
F-10
<PAGE> 113
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
The gross unrealized gains and unrealized losses on available for sale
securities are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999 JUNE 30, 1998
----------------------- -----------------------
GROSS GROSS GROSS GROSS
UNREALIZED UNREALIZED UNREALIZED UNREALIZED
GAINS LOSSES GAINS LOSSES
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt securities issued by the U.S.
Treasury and other U.S.
Government corporations and agencies.......... $ 2,752 $ 933 $ 4,157 $ 2,550
Corporate bonds............................... 681 3,070 789 257
Mortgage-backed securities.................... 3,287 629,561 27,730 37,241
Equity securities............................. 15,631 54,738 16,676 106,953
------- -------- ------- --------
$22,351 $688,302 $49,352 $147,001
======= ======== ======= ========
</TABLE>
At June 30, 1999, investment securities with a market value of
approximately $14,938,000 were pledged as collateral to secure outstanding
repurchase agreements.
At June 30, 1999 and 1998, included in accumulated other comprehensive
income (loss) as a reduction to stockholders' equity are net unrealized losses
of $665,951 and $97,649, respectively, net of the deferred tax effect of
$226,423 and $33,201, respectively.
The cost and fair values of available for sale securities at June 30, 1999
by contractual maturity are shown below. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Due in one year............................................. $ 496,626 $ 497,820
Due after one year through five years....................... 301,916 300,152
----------- -----------
798,542 797,972
Mortgage-backed securities (including securities with
interest rates ranging from 5.15% to 9.0% maturing
September 2003 to March 2029)............................. 16,653,302 16,027,028
Equity securities........................................... 1,268,424 1,229,317
----------- -----------
$18,720,268 $18,054,317
=========== ===========
</TABLE>
Realized gains and losses on available for sale securities for the year
ended June 30, 1999 were $85,891 and $1,758, respectively, for the year ended
June 30, 1998 were $288,196 and $2,480, respectively, and for the year ended
June 30, 1997 were $171,205 and $125, respectively.
Based on management's assessment of available for sale securities, there
has been more than a temporary decline in fair value of certain securities. For
the years ended June 30, 1999, 1998 and 1997, write-downs of available for sale
securities were $95,728, $172,235 and $110,000, respectively, and are included
in other expense in the consolidated statements of income.
3. LOANS RECEIVABLE
The Company's lending activities are predominantly conducted in south
central and western Maine. However, the Company does purchase residential
mortgage loans in the open market out of this geographical area. The Company
grants single-family and multi-family residential loans, commercial real estate
loans, commercial loans and a variety of consumer loans. In addition, the
Company grants loans for the construction of residential homes, multi-family
properties, commercial real estate properties and for land development.
F-11
<PAGE> 114
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
Also, the Company participates in indirect lending arrangements for automobile,
equipment and mobile home loans. The Company's indirect lending activities are
conducted in south central and western Maine. Most loans granted by the Company
are collateralized by real estate. The ability and willingness of residential
and commercial real estate, commercial and construction loan borrowers to honor
their repayment commitments is generally dependent on the health of the real
estate sector in the borrowers' geographic area and/or the general economy.
In the ordinary course of business, the Company has loan transactions with
its officers, directors and their associates and affiliated companies ("related
parties") at substantially the same terms as those prevailing at the time for
comparable transactions with others. Such loans amounted to $3,500,973 and
$2,219,800 at June 30, 1999 and 1998, respectively. In 1999, new loans granted
to related parties totaled $2,008,528; payments and reductions amounted to
$727,355.
Included in the loan portfolio are unamortized premiums on purchased loans
of approximately $742,000 and $1,016,000 at June 30, 1999 and 1998,
respectively.
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year....................... $2,978,000 $2,741,809 $2,760,872
Provision charged to operating expenses............ 610,017 706,100 614,427
Loans charged off.................................. (926,364) (785,111) (772,250)
Recoveries on loans charged off.................... 262,347 315,202 138,760
---------- ---------- ----------
Net loans charged off............................ (664,017) (469,909) (633,490)
---------- ---------- ----------
Balance at end of year............................. $2,924,000 $2,978,000 $2,741,809
========== ========== ==========
</TABLE>
Commercial and commercial real estate loans with balances greater than
$25,000 are considered impaired when it is probable that the Company will not
collect all amounts due in accordance with the contractual terms of the loan.
Loans that are returned to accrual status are no longer considered to be
impaired. Certain loans are exempt from individual impairment evaluation,
including large groups of smaller-balance homogenous loans that are collectively
evaluated for impairment, such as consumer and residential mortgage loans and
commercial loans with balances less than $25,000.
The allowance for loan losses includes impairment reserves related to loans
that are identified as impaired, which are based on discounted cash flows using
the loan's effective interest rate, the fair value of the collateral for
collateral-dependent loans, or the observable market price of the impaired loan.
When foreclosure is probable, impairment is measured based on the fair value of
the collateral. Loans that experience insignificant payment delays (less than 60
days) and insignificant shortfalls in payment amounts (less than 10%) generally
are not classified as impaired. Restructured loans are reported as impaired in
the year of restructuring. Thereafter, such loans may be removed from the
impaired loan disclosure if the loans were paying a market rate of interest at
the time of restructuring and are performing in accordance with their
renegotiated terms.
At June 30, 1999, total impaired loans were $612,867 of which $241,420 had
related allowances of $77,200. During the year ended June 30, 1999, the income
recognized related to impaired loans was $66,030 and the average balance of
outstanding impaired loans was $1,229,987. At June 30, 1998, total impaired
loans were $1,623,720 of which $927,355 had related allowances of $251,474.
During the year ended June 30, 1998, the income recognized related to impaired
loans was $19,693 and the average balance of outstanding impaired loans was
$1,956,488. At June 30, 1997, total impaired loans were $1,661,698 of which
$844,457 had related allowances of $369,474. During the year ended June 30,
1997, the income recognized related to
F-12
<PAGE> 115
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
impaired loans was $50,690 and the average balance of outstanding impaired loans
was $1,330,983. The Company recognizes interest on impaired loans on a cash
basis when the ability to collect the principal balance is not in doubt;
otherwise, cash received is applied to the principal balance of the loan.
Loans on nonaccrual status, including impaired loans described above, at
June 30, 1999 and 1998 totaled approximately $1,144,000 and $2,248,000,
respectively. Interest income that would have been recorded under the original
terms of such loans, net of interest income actually recognized for the years
ended June 30, 1999, 1998 and 1997, totaled approximately $71,000, $165,000 and
$203,000, respectively.
The Company has no material outstanding commitments to lend additional
funds to customers whose loans have been placed on nonaccrual status or the
terms of which have been modified.
The Company was servicing for others mortgage loans of approximately
$64,690,000, $55,581,000 and $42,509,000 at June 30, 1999, 1998 and 1997,
respectively.
4. PREMISES AND EQUIPMENT
Premises and equipment at June 30, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Land........................................................ $1,012,503 $1,037,503
Buildings................................................... 2,586,996 2,503,254
Leasehold and building improvements......................... 1,272,732 1,130,270
Furniture, fixtures and equipment........................... 3,818,358 4,480,402
---------- ----------
8,690,589 9,151,429
Less accumulated depreciation............................... 3,653,563 4,677,544
---------- ----------
Net premises and equipment........................ $5,037,026 $4,473,885
========== ==========
</TABLE>
Depreciation and amortization of premises and equipment, included in
occupancy and equipment expense, was $754,665, $615,591 and $660,871 for the
years ended June 30, 1999, 1998 and 1997, respectively.
5. OTHER REAL ESTATE OWNED
The following table summarizes the composition of other real estate owned
at June 30:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Real estate properties acquired in settlement of loans $221,575 $355,596
Less allowance for losses 27,725 5,100
-------- --------
$193,850 $350,496
======== ========
</TABLE>
Activity in the allowance for losses on other real estate owned was as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- --------
<S> <C> <C> <C>
Balance at beginning of year $ 5,100 $ 50,839 $100,000
Provision for losses on other real estate owned 47,000 62,300 39,000
Other real estate owned write-downs (24,375) (108,039) (88,161)
-------- --------- --------
Balance at end of year $ 27,725 $ 5,100 $ 50,839
======== ========= ========
</TABLE>
F-13
<PAGE> 116
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
6. DEPOSITS
Deposits at June 30 are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE RATE 1999 1998
AT JUNE 30, ---------------------- ----------------------
1999 AMOUNT PERCENT AMOUNT PERCENT
------------ ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C>
Demand......................... . 0.00% $ 17,891,552 8.2% $ 15,209,219 8.3%
NOW............................. 2.66 31,203,347 14.2 23,429,512 12.7
Money market.................... 2.16 7,156,424 3.3 11,993,110 6.5
Regular savings................. 2.15 21,999,615 10.0 20,305,953 11.0
Certificates of deposit:
1.00 - 3.75%.................. 2.35 1,093,801 .5 360,674 .2
3.76 - 5.75%.................. 5.12 103,086,863 47.0 55,603,422 30.2
5.76 - 7.75%.................. 6.10 36,924,752 16.8 57,105,075 31.0
7.76 - 9.75%.................. 8.00 7,681 .0 17,132 .1
---- ------------ ----- ------------ -----
4.47% $219,364,035 100.0% $184,024,097 100.0%
==== ============ ===== ============ =====
</TABLE>
At June 30, 1999, scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 THEREAFTER
----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1.00 - 3.75%......... $ 1,090,387 $ 3,414 $ -- $ -- $ -- $ --
3.76 - 5.75%......... 76,299,359 22,282,660 2,072,149 1,358,661 1,036,081 37,953
5.76 - 7.75%......... 21,051,009 8,118,697 7,117,931 637,115 -- --
7.76 - 9.75%......... 7,681 -- -- -- -- --
</TABLE>
Interest expense on deposits for the years ended June 30, 1999, 1998 and
1997 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
NOW................................................ $ 932,896 $ 269,412 $ 216,437
Money market 209,733 466,453 536,623
Regular savings.................................... 514,917 569,901 592,148
Certificates of deposit............................ 7,022,751 6,280,951 5,758,167
---------- ---------- ----------
$8,680,297 $7,586,717 $7,103,375
========== ========== ==========
</TABLE>
7. FEDERAL HOME LOAN BANK BORROWINGS
A summary of borrowings from the Federal Home Loan Bank are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999
- ---------------------------------------------------
PRINCIPAL AMOUNTS INTEREST RATES MATURITY DATES
- ----------------- -------------- --------------
<S> <C> <C>
$ 42,000,000 4.64% - 6.27% 2000
3,148,288 4.98 - 6.40 2001
2,815,780 5.38 - 6.49 2002
9,515,546 5.69 - 6.64 2003
3,402,102 5.55 - 6.67 2004
9,000,000 5.25 - 6.65 2005
34,000,000 4.89 - 5.68 2008
------------
$103,881,716
============
</TABLE>
F-14
<PAGE> 117
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
JUNE 30, 1998
- ---------------------------------------------------
PRINCIPAL AMOUNTS INTEREST RATES MATURITY DATES
- ----------------- -------------- --------------
<S> <C> <C>
$ 43,745,440 5.55% - 6.00% 1999
4,000,000 5.88 - 6.27 2000
1,212,676 5.56 - 6.40 2001
1,138,627 6.21 - 6.49 2002
9,631,854 5.69 - 6.64 2003
1,711,355 6.36 - 6.67 2004
9,000,000 5.25 - 6.65 2005
34,000,000 4.89 - 5.68 2008
------------
$104,439,952
============
</TABLE>
Residential mortgages on one to four family owner occupied homes, free of
liens, pledges and encumbrances, investment securities not otherwise pledged,
and the Company's Federal Home Loan Bank stock equal to at least 200% of the
borrowings from that bank have been pledged under a blanket agreement to secure
these borrowings. The Company is required to own stock of the Federal Home Loan
Bank of Boston in order to borrow from the Federal Home Loan Bank. Several of
the Federal Home Loan Bank borrowings held at June 30, 1999 are adjustable and,
therefore, the rates are subject to change.
At June 30, 1999, the Company had approximately $2,100,000 available under
a line of credit arrangement with the FHLB. Also, in addition to the FHLB
advances outstanding at June 30, 1999, the Company had approximately $24,000,000
available for long-term advances with the FHLB.
8. NOTE PAYABLE
The note payable at June 30, 1999 and 1998 consists of a loan from an
unrelated financial institution relating to the acquisition of a bank. The note
is payable in eighteen equal quarterly principal payments of $76,389. Interest
is payable monthly at 8%. The Company has pledged Northeast Bank F.S.B. common
stock and a $400,000 key man life insurance policy as collateral for the loan.
The loan agreement contains certain covenants which limit capital
expenditures of the Company and the amount of nonperforming loans, requires
minimum loan loss reserves, capital and return on assets, and the Company is
required to obtain approval from the lender before the Company can commit to a
merger or consolidation with another entity. At June 30, 1999, the Company was
in compliance with these covenants.
9. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
During 1999 and 1998, the Company sold securities under agreements to
repurchase. The weighted average interest rate on repurchase agreements was
4.07% and 4.20% at June 30, 1999 and 1998, respectively. These borrowings, which
were scheduled to mature within 180 days, were collateralized by GNMA securities
with a market value of $14,938,000 and amortized cost of $15,525,000 at June 30,
1999, and a market value of $8,547,000 and amortized cost of $8,558,000 at June
30, 1998. The average balance of repurchase agreements was $8,202,000 and
$4,917,000 during the years ended June 30, 1999 and 1998, respectively. The
maximum amount outstanding at any month-end during 1999 and 1998 was $11,868,000
and $5,737,000, respectively. Securities sold under these agreements were under
the control of the Company during 1999 and 1998.
F-15
<PAGE> 118
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
10. CAPITAL AND REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in declining
order, are "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized."
As of June 30, 1999 and 1998, the most recent notification from the Office
of Thrift Supervision (OTS) categorized the Bank as "well capitalized" under the
regulatory framework for prompt corrective action. To be categorized as "well
capitalized" the Bank must maintain minimum total risk-based, Tier 1 risk-based
and Tier 1 capital as set forth in the table below. There are no conditions or
events since that notification that management believes have changed the
institution's category.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios established by the
Federal Deposit Insurance Corporation (FDIC) as set forth in the table below.
The Bank is also subject to certain capital requirements established by the OTS.
At June 30, 1999 and 1998, the Bank ratios exceeded the OTS regulatory
requirements. Management believes that the Bank meets all capital adequacy
requirements to which it is subject as of June 30, 1999 and 1998.
The Company is also subject to similar capital adequacy requirements and
the regulatory requirements of federal banking agencies.
The following tables illustrate the actual and required amounts and ratios
for the Company and the Bank as set forth by the FDIC at the dates indicated.
<TABLE>
<CAPTION>
TO BE "WELL
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------- ------------------ --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- --------- ----- --------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1999:
Tier 1 (Core) capital (to risk
weighted assets):
Northeast Bancorp........... $25,635 10.1% >=$10,160 >=4.0% >=$15,239 >= 6.0%
Northeast Bank.............. 25,615 10.1 >= 10,159 >=4.0 >= 15,239 >= 6.0
Tier 1 (Core) capital (to total
assets):
Northeast Bancorp........... $25,635 7.1% >=$14,533 >=4.0% >=$18,167 >= 5.0%
Northeast Bank.............. 25,615 7.1 >= 14,533 >=4.0 >= 18,166 >= 5.0
Total capital (to risk weighted
assets):
Northeast Bancorp........... $27,253 10.7% >=$20,319 >=8.0% >=$25,399 >=10.0%
Northeast Bank.............. 27,233 10.7 >= 20,318 >=8.0 >= 25,398 >=10.0
</TABLE>
F-16
<PAGE> 119
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
TO BE "WELL
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------- -------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- --------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998:
Tier 1 (Core) capital (to risk
weighted assets):
Northeast Bancorp........... $22,211 10.2% >=$ 8,713 >=4.0% >=$13,070 >= 6.0%
Northeast Bank.............. 22,695 10.4 >= 8,711 >=4.0 >= 13,067 >= 6.0
Tier 1 (Core) capital (to total
assets):
Northeast Bancorp........... $22,211 6.9% >=$12,839 >=4.0% >=$16,049 >= 5.0%
Northeast Bank.............. 22,695 7.1 >= 12,837 >=4.0 >= 16,046 >= 5.0
Total capital (to risk weighted
assets):
Northeast Bancorp........... $23,891 11.0% >=$17,427 >=8.0% >=$21,784 >=10.0%
Northeast Bank.............. 24,374 11.2 >= 17,422 >=8.0 >= 21,778 >=10.0
</TABLE>
The Company may not declare or pay a cash dividend on, or repurchase, any
of its capital stock if the effect thereof would cause the capital of the
Company to be reduced below the capital requirements imposed by the regulatory
authorities. The amount of dividends paid per share on common stock in the
consolidated statements of changes in stockholders' equity for the years ended
June 30, 1998 and 1997 have been restated for the effects of the stock split
effected in the form of a dividend in December 1997.
In September of 1996, Congress enacted comprehensive legislation amending
the FDIC BIF-SAIF deposit insurance assessments on savings and loan institution
deposits. The legislation imposed a one-time assessment on institutions holding
SAIF deposits at March 31, 1995. As a result of this legislation, the Company
incurred a special assessment of approximately $297,000 during 1997. This
assessment is included in FDIC insurance expense in the 1997 consolidated
statement of income.
F-17
<PAGE> 120
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
11. EARNINGS PER SHARE
Basic earnings per share (EPS) are computed by dividing net income
available to common stockholders by the weighted average number of shares
outstanding. The following table shows the weighted average number of shares
outstanding for each of the last three years. The 1998 and 1997 amounts have
been restated to reflect the three-for-two stock split effected in the form of a
dividend in December 1997. EPS amounts for 1997 have also been restated to give
effect to Statement of Financial Accounting Standards No. 128, Earnings Per
Share, adopted by the Company in fiscal 1998. Shares issuable relative to stock
options granted and outstanding warrants have been reflected as an increase in
the shares outstanding used to calculate diluted EPS, after applying the
treasury stock method. The number of shares outstanding for Basic and Diluted
EPS are presented as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Average shares outstanding, used in computing Basic
EPS................................................. 2,710,117 2,277,165 2,152,564
Effect of Dilutive Securities:
Stock warrants and options outstanding.............. 26,188 41,797 122,937
Options and warrants exercised...................... 8,177 167,116 42,063
Convertible preferred stock......................... 50,062 309,165 350,646
--------- --------- ---------
Average equivalent shares outstanding, used in
computing Diluted EPS............................... 2,794,544 2,795,243 2,668,210
========= ========= =========
</TABLE>
There is a difference between net income and net income available to common
stockholders which is used in the calculation of Basic EPS. The following table
illustrates the difference:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income......................................... $2,410,452 $2,403,783 $1,489,745
Preferred stock dividends.......................... (25,667) (125,827) (139,997)
---------- ---------- ----------
Net income available to common stockholders........ $2,384,785 $2,277,956 $1,349,748
========== ========== ==========
</TABLE>
12. PREFERRED STOCK
In November of 1998, the preferred stock, Series A, was converted to common
stock at a three to one ratio. There were no warrants attached to the Series A
preferred stock. In April of 1998, the preferred stock, Series B, was converted
into common stock at a three to one ratio. The Series B preferred stock was
issued with warrants attached and during 1998, 163,146 warrants were exercised
for a total capital contribution of $761,443. At June 30, 1998, all Series B
preferred stock warrants had been exercised. No preferred stock is outstanding
at June 30, 1999.
F-18
<PAGE> 121
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
13. OTHER EXPENSES
Other expenses includes the following for the years ended June 30, 1999,
1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Merger expense(note 15).................................... $ -- $ 318,061 $ --
Professional fees.......................................... 471,083 310,390 398,704
General insurance.......................................... 81,830 104,391 125,670
Printing and office supplies............................... 300,888 265,954 263,648
Real estate owned expenses................................. 44,219 50,912 64,907
Provision for losses on OREO............................... 47,000 62,300 39,000
Goodwill amortization...................................... 461,569 296,374 296,374
Write-down of investment securities........................ 95,728 172,235 110,000
Other...................................................... 2,251,404 1,684,632 1,737,699
---------- ---------- ----------
$3,753,721 $3,265,249 $3,036,002
========== ========== ==========
</TABLE>
The goodwill amortization for 1999 included an impairment write-down of
approximately $165,000.
14. INCOME TAXES
The current and deferred components of income tax expense (benefit) were as
follows for the years ended June 30, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Federal:
Current................................................... $1,290,783 $1,265,879 $942,244
Deferred.................................................. 86,398 (14,949) (72,290)
---------- ---------- --------
1,377,181 1,250,930 869,954
State and local -- current................................ 55,410 51,941 38,611
---------- ---------- --------
$1,432,591 $1,302,871 $908,565
========== ========== ========
</TABLE>
Total income tax expense is different from the amounts computed by applying
the U.S. federal income tax rates in effect to income before income taxes. The
reasons for these differences are as follows for the years ended June 30, 1999,
1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -----------------
% OF % OF % OF
PRETAX PRETAX PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
---------- ------ ---------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Expected income tax expense
at federal tax rate...... $1,306,635 34.0% $1,260,262 34.0% $815,425 34.0%
State tax, net of federal
tax benefit.............. 36,571 1.0 34,281 .9 25,483 1.1
Non-deductible goodwill.... 98,358 2.6 42,192 1.1 42,192 1.8
Dividend received
deduction................ (19,367) (.5) (7,848) (.2) (6,873) (.3)
Low income/rehabilitation
credit................... (20,000) (.5) (20,000) (.5) (20,000) (.8)
Other...................... 30,394 .8 (6,016) (.2) 52,338 2.1
---------- ---- ---------- ---- -------- ----
$1,432,591 37.4% $1,302,871 35.1% $908,565 37.9%
========== ==== ========== ==== ======== ====
</TABLE>
F-19
<PAGE> 122
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Loans, principally due to allowance for loan losses....... $ 994,000 $1,013,000
Deferred gain on loan sales............................... 46,000 51,000
Interest on nonperforming loans........................... 24,000 56,000
Difference in tax and financial statement bases of
investments............................................ 331,000 154,000
Difference in tax and financial statement amortization of
deductible goodwill.................................... 107,000 100,000
Other..................................................... 99,000 57,000
---------- ----------
Total deferred tax assets......................... 1,601,000 1,431,000
Deferred tax liabilities:
Loan loss reserve -- tax basis............................ (74,000) (89,000)
Mortgage servicing rights................................. (193,000) (124,000)
Other..................................................... (41,000) (53,000)
---------- ----------
Total deferred tax liabilities.................... (308,000) (266,000)
---------- ----------
Net deferred tax assets, included in other
assets.......................................... $1,293,000 $1,165,000
========== ==========
</TABLE>
The Company has sufficient refundable taxes paid in available carryback
years to fully realize its recorded deferred tax asset. Accordingly, no
valuation allowance has been recorded at June 30, 1999 and 1998.
Tax legislation requires that all thrift institutions recapture all or a
portion of their tax bad debt reserves added since the base year (last taxable
year beginning before January 1, 1988). The Company has previously recorded a
deferred tax liability equal to the tax bad debt recapture and as such, the
rules will have no effect on net income or federal income tax expense. The
unrecaptured base year reserves will not be subject to recapture as long as the
Company continues to carry on the business of banking. In addition, the balance
of the pre-1988 tax bad debt reserves continue to be subject to provisions of
present law that require recapture in the case of certain excess distributions
to stockholders. For federal income tax purposes, the Company has designated
approximately $2,400,000 of net worth as a reserve for tax bad debts on loans.
The use of this amount for purposes other than to absorb losses on loans would
result in taxable income and financial statement tax expense at the then current
tax rate, since no deferred taxes have been provided for base year reserve
recapture.
15. MERGER
In October 1997, the Company issued approximately 188,000 shares of its
common stock for all the outstanding common stock of Cushnoc Bank and Trust
Company, of Augusta, Maine (Cushnoc). Cushnoc shareholders received 2.089 shares
of the Company's common stock for each share of Cushnoc common stock. The merger
qualified as a tax-free reorganization and was accounted for as a pooling of
interests. Accordingly, the Company's consolidated financial statements were
restated for all periods prior to the business combination to include the
results of operations, financial position and cash flows of Cushnoc. No
adjustments were necessary to conform Cushnoc's methods of accounting to the
methods used by the Company. There were no significant intercompany transactions
prior to consummation of the merger. The costs associated with the merger
totaled approximately $435,000, with $117,000 included in salaries and employee
benefits and $318,000 included in other expense in the 1998 consolidated
statement of income.
F-20
<PAGE> 123
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
The results of operations previously reported by the separate companies and
the combined amounts presented in the accompanying consolidated financial
statements are summarized below:
<TABLE>
<CAPTION>
THROUGH YEAR ENDED
OCTOBER 24, 1997 JUNE 30, 1997
---------------- -------------
<S> <C> <C>
Interest Income:
Northeast Bancorp....................................... $7,280,300 $20,029,140
Cushnoc Bank............................................ 613,733 1,906,581
---------- -----------
Combined................................................ $7,894,033 $21,935,721
========== ===========
Net Income (Loss):
Northeast Bancorp....................................... $ 432,319 $ 1,507,103
Cushnoc Bank............................................ 29,435 (17,358)
---------- -----------
Combined................................................ $ 461,754 $ 1,489,745
========== ===========
</TABLE>
There were no other changes in stockholders' equity prior to consummation
of the merger in fiscal 1998 that were material to the financial position of the
Company.
16. EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
The Company has a profit sharing plan which covers substantially all
full-time employees. Contributions and costs are determined as a percent of each
covered employee's salary and are at the Board of Directors discretion. Expenses
related to the profit sharing plan for the years ended June 30, 1999, 1998 and
1997 were $53,590, $43,500 and $130,000, respectively.
401(k) Plan
The Company offers a contributory 401(k) plan which is available to all
full-time salaried and hourly-paid employees who are regularly scheduled to work
1,000 hours or more in a Plan year, have attained age 21, and have completed one
year of employment. Employees may contribute between 1% and 15% of their base
compensation to which the Company will match 50% up to the first 6% contributed.
For the years ended June 30, 1999, 1998 and 1997, the Company contributed
approximately $74,115, $60,700 and $38,300, respectively.
Stock Option Plans
The Company has adopted Stock Option Plans in 1987, 1989 and 1992. Both
"incentive stock options" and "nonqualified stock options" may be granted
pursuant to the Option Plans. Under the Option Plans, incentive stock options
may only be granted to employees of the Company and nonqualified stock options
may be granted to employees and nonemployee directors. All options granted under
the Option Plans will be required to have an exercise price per share equal to
at least the fair market value per share of common stock on the date the option
is granted. Options immediately vest upon being granted. The options are
exercisable for a maximum of ten years after the options are granted in the case
of all incentive stock options, three years for nonqualified stock options in
the 1987 plan and five years for nonqualified stock options in the 1989 and 1992
plans.
In accordance with the Stock Option Plans, a total of 354,000 shares of
unissued common stock were reserved for issuance pursuant to incentive stock
options with 6,250 shares at June 30, 1999 available to be granted and 90,000
shares of unissued common stock were reserved for issuance pursuant to
nonqualified stock options with 1,000 shares at June 30, 1999 available to be
granted.
F-21
<PAGE> 124
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
The number of shares and the exercise prices in the following table for
1998 and 1997 have been retroactively restated for the stock split effected in
the form of a dividend in December 1997. A summary of the qualified and
non-qualified option activity for the years ended June 30 follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year......................... 123,000 $10.44 130,500 $ 6.01 139,500 $5.11
Granted........................ 11,500 9.92 41,250 18.50 22,500 8.33
Exercised...................... (16,500) 5.35 (46,000) 5.11 (30,000) 3.45
Expired........................ (7,750) 18.50 (2,750) 10.18 (1,500) 8.33
------- ------ ------- ------ ------- -----
Outstanding at end of year..... 110,250 $10.59 123,000 $10.44 130,500 $6.01
======= ====== ======= ====== ======= =====
Options exercisable at year
end.......................... 110,250 $10.59 123,000 $10.44 130,500 $6.01
======= ====== ======= ====== ======= =====
</TABLE>
The following table summarizes information about stock options outstanding
at June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------
NUMBER WEIGHTED-AVERAGE
OUTSTANDING AT REMAINING WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES JUNE 30, 1999 CONTRACTUAL LIFE EXERCISE PRICE
- ------------------------ -------------- ---------------- ----------------
<S> <C> <C> <C>
$3.58...................................... 15,000 .5 year $ 3.58
$7.50 to $10.50............................ 61,250 6.0 7.90
$15.31 to $18.50........................... 34,000 8.5 18.41
------- -------- ------
$3.58 to $18.50............................ 110,250 7.0 $10.59
======= ======== ======
</TABLE>
The per share weighted average fair value of stock options granted during
1999 and 1998 was $3.44 and $6.24, respectively, on the date of the grants using
the Black Scholes option-pricing model as a valuation technique with the
following average assumptions: expected dividend yield, 2.13% and 1.40%;
risk-free interest rate, 5.79% and 5.46%; expected life, 8 years and 8 years;
and expected volatility, 27.82% and 22.49%, respectively.
For financial statement purposes, the Company measures the compensation
costs of its stock option plans under Accounting Principles Board (APB) Opinion
No. 25, whereby no compensation cost is recorded if, at the grant date, the
exercise price of the options is equal to the fair market value of the Company's
common stock. Had the Company determined cost based on the fair value at the
grant date for its stock options under SFAS No. 123, Accounting for Stock-Based
Compensation, the Company's net income and earnings per share for the year ended
June 30, 1999 and June 30, 1998 would have been reduced to the pro forma amounts
indicated below.
<TABLE>
<CAPTION>
EARNINGS PER SHARE
NET --------------------
INCOME BASIC DILUTED
---------- -------- ---------
<S> <C> <C> <C>
JUNE 30, 1999:
As reported........................................... $2,410,452 $0.88 $0.86
Pro forma............................................. 2,376,947 0.87 0.85
JUNE 30, 1998:
As reported........................................... $2,403,783 $1.00 $0.86
Pro forma............................................. 2,225,811 0.92 0.80
</TABLE>
F-22
<PAGE> 125
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
The pro forma amounts reflect only stock options granted in 1997 and
subsequent years. Therefore, the full impact of calculating the cost for stock
options under Statement No. 123 is not reflected in the pro forma amounts
presented above because the cost for options granted prior to July 1, 1995 is
not considered under the requirements of Statement No. 123.
Stock Purchase Plan
The Company has a stock purchase plan which covers substantially all
full-time employees with one year of service. Offerings under the Plan are made
quarterly at the market value of the Company's common stock on the offering
termination date. The maximum number of shares which may be purchased under the
plan is 156,000 shares.
17. COMMITMENTS, CONTINGENT LIABILITIES AND OTHER OFF-BALANCE-SHEET RISKS
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit and standby letters
of credit. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated
statements of financial condition. The contract amounts of those instruments
reflect the extent of involvement the Company has in particular classes of
financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Financial instruments with contract amounts which represent credit risk:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Commitments to originate loans:
Residential real estate mortgages......................... $ 9,392,000 $ 6,392,000
Commercial real estate mortgages, including multi-family
residential real estate................................ 10,314,000 1,510,000
Commercial business loans................................. 4,725,000 3,460,000
----------- -----------
24,431,000 11,362,000
Unused lines of credit...................................... 18,941,000 14,585,000
Standby letters of credit................................... 1,501,000 329,000
Unadvanced portions of construction loans................... 1,502,000 1,422,000
</TABLE>
At June 30, 1999, $925,000 of the stand-by letters of credit have been
granted to related parties.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on management's
credit evaluation of the counter party. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those guarantees
are issued to support private borrowing
F-23
<PAGE> 126
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
Derivative Financial Instruments
The Company has only limited involvement with derivative financial
instruments and they are used for trading purposes. The derivative financial
instruments used by the Company are covered call and put contracts on its equity
securities portfolio. Gains and losses from entering into these types of
contracts have been immaterial to the results of operations of the Company. The
total value of securities under call and put contracts at any one time is
immaterial to the Company's financial position, liquidity, or results of
operations.
Legal Proceedings
The Company and its subsidiary are parties to litigation and claims arising
in the normal course of business. Management believes that the liabilities, if
any, arising from such litigation and claims will not be material to the
Company's consolidated financial position.
Lease Obligations
The Company leases certain properties and equipment used in operations
under terms of operating leases which include renewal options. Rental expense
under these leases approximated $373,000, $380,000 and $246,000 for the years
ended June 30, 1999, 1998 and 1997, respectively.
Approximate future minimum lease payments over the remaining terms of the
leases at June 30, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 266,000
2001........................................................ 251,000
2002........................................................ 251,000
2003........................................................ 194,000
2004........................................................ 182,000
2005 and after.............................................. 828,000
----------
$1,972,000
==========
</TABLE>
F-24
<PAGE> 127
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
18. CONDENSED PARENT INFORMATION
Condensed financial statements for Northeast Bancorp at June 30, 1999 and
1998 and for each of the years in the three year period ended June 30, 1999 are
presented below.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash (deposited with subsidiary)............................ $ 80,758 $ 1,104,504
Investment in subsidiary.................................... 26,051,816 23,908,576
Goodwill, net............................................... 611,845 713,819
Other assets................................................ 632,094 413,620
----------- -----------
Total assets...................................... $27,376,513 $26,140,519
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable................................................ $ 687,500 $ 993,055
Other liabilities........................................... 5,898 7,937
----------- -----------
693,398 1,000,992
Stockholders' equity........................................ 26,683,115 25,139,527
----------- -----------
Total liabilities and stockholders' equity........ $27,376,513 $26,140,519
=========== ===========
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income:
Dividends from banking subsidiary........................ $ 98,314 $ -- $ --
Other income............................................. 758 76,556 16,232
---------- ---------- ----------
Total income..................................... 99,072 76,556 16,232
Expenses:
Amortization expense..................................... 101,974 101,974 101,973
Interest on note payable................................. 65,100 89,884 112,753
Occupancy expense........................................ -- 46,611 65,257
General and administrative expenses...................... 95,558 97,969 86,457
---------- ---------- ----------
Total expenses................................... 262,632 336,438 366,440
---------- ---------- ----------
Loss before income tax benefit and equity in
undistributed net income of subsidiary................ (163,560) (259,882) (350,208)
Income tax benefit......................................... 55,692 53,967 82,371
---------- ---------- ----------
Loss before equity in undistributed net income of
subsidiary............................................ (107,868) (205,915) (267,837)
Equity in undistributed net income of subsidiary........... 2,518,320 2,609,698 1,757,582
---------- ---------- ----------
Net income....................................... $2,410,452 $2,403,783 $1,489,745
========== ========== ==========
</TABLE>
F-25
<PAGE> 128
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 2,410,452 $ 2,403,783 $ 1,489,745
Adjustments to reconcile net income to net cash used
by operations:
Depreciation and amortization...................... 101,974 110,658 114,775
Treasury stock bonused............................. -- -- 13,374
Undistributed earnings of subsidiary............... (2,518,320) (2,609,698) (1,757,582)
(Increase) decrease in other assets................ (218,474) (46,502) 17,467
Decrease in other liabilities...................... (2,039) (4,911) (56,337)
----------- ----------- -----------
Net cash used by operating activities......... (226,407) (146,670) (178,558)
Cash flows from investing activities:
Proceeds from sale of premises and equipment to
subsidiary......................................... -- 367,696 245,167
Purchase of premises and equipment.................... -- (368) (7,086)
----------- ----------- -----------
Net cash provided by investing activities..... -- 367,328 238,081
Cash flows from financing activities:
Principal payments on note payable.................... (305,555) (305,556) (201,389)
Stock options exercised............................... 88,286 190,700 103,450
Proceeds from issuance of common stock................ 16,257 16,669 13,487
Treasury stock purchased.............................. -- (44,988) (28,420)
Treasury stock sold................................... -- 44,988 --
Dividends paid to stockholders........................ (596,327) (597,270) (537,802)
Warrants exercised.................................... -- 761,433 175,000
Stock split -- payment for fractional shares.......... $ -- $ (1,095) $ --
----------- ----------- -----------
Net cash (used) provided by financing
activities.................................. (797,339) 64,881 (475,674)
----------- ----------- -----------
Net (decrease) increase in cash............... (1,023,746) 285,539 (416,151)
Cash, beginning of year................................. 1,104,504 818,965 1,235,116
----------- ----------- -----------
Cash, end of year....................................... $ 80,758 $ 1,104,504 $ 818,965
=========== =========== ===========
Supplemental schedule of cash flow information:
Interest paid......................................... $ 67,100 $ 91,921 $ 111,490
</TABLE>
F-26
<PAGE> 129
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
19. OTHER COMPREHENSIVE INCOME
Beginning in 1999, SFAS No. 130, Reporting Comprehensive Income, requires
display in financial statements of amounts of total comprehensive income and
accumulated other comprehensive income. The components of other comprehensive
income for the years ended 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Unrealized gains (losses) arising during the period,
net of tax effect of $197,195 in 1999, $177,534 in
1998 and $279,981 in 1997........................... $(382,733) $344,624 $543,492
Less: reclassification adjustment for gains, net of
write-downs, included in net income, net of tax
effect of $3,942 in 1999, $38,584 in 1998 and
$20,767 in 1997..................................... 7,653 (74,897) (40,313)
--------- -------- --------
Other comprehensive income............................ $(375,080) $269,727 $503,179
========= ======== ========
</TABLE>
20. SEGMENT REPORTING
Northeast Bancorp through its subsidiary, Northeast Bank and it's
subsidiary Northeast Financial Services, Inc., provide a broad range of
financial services to individuals and companies in western and south central
Maine. These services include lending, demand, savings and time deposits, cash
management and trust services. While the Company's senior management team
monitors the operations of the subsidiaries, the subsidiaries are primarily
organized to operate in the banking industry. Substantially all income and
services are derived from banking products and services in Maine. Accordingly,
the Company's subsidiaries are considered by management to be aggregated in one
reportable operating segment.
21. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods and assumptions are set forth below for the
Company's significant financial instruments.
Cash and Cash Equivalents
The fair value of cash, due from banks, interest bearing deposits and FHLB
overnight deposits approximates their relative book values, as these financial
instruments have short maturities.
Available for Sale Securities
The fair value of available for sale securities is estimated based on bid
prices published in financial newspapers or bid quotations received from
securities dealers. Fair values are calculated based on the value of one unit
without regard to any premium or discount that may result from concentrations of
ownership of a financial instrument, possible tax ramifications, or estimated
transaction costs. If these considerations had been incorporated into the fair
value estimates, the aggregate fair value amounts could have changed.
Federal Home Loan Bank Stock
This financial instrument does not have a market nor is it practical to
estimate the fair value without incurring excessive costs.
F-27
<PAGE> 130
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. The fair value of performing loans is calculated by discounting
scheduled cash flows through the estimated maturity using estimated market
discount rates that reflect the credit and interest rate risk inherent in the
loan. The estimates of maturity are based on the Company's historical experience
with repayments for each loan classification, modified, as required, by an
estimate of the effect of current economic conditions, lending conditions and
the effects of estimated prepayments.
Fair value for significant non-performing loans is based on estimated cash
flows and is discounted using a rate commensurate with the risk associated with
the estimated cash flows. Assumptions regarding credit risk, cash flows and
discount rates are judgmentally determined using available market information
and historical information.
The fair value of loans held for sale is estimated based on bid quotations
received from loan dealers.
Management has made estimates of fair value using discount rates that it
believes to be reasonable. However, because there is no market for many of these
financial instruments, management has no basis to determine whether the fair
value presented would be indicative of the value negotiated in an actual sale.
Accrued Interest Receivable
The fair value of this financial instrument approximates the book value as
this financial instrument has a short maturity. It is the Company's policy to
stop accruing interest on loans past due by more than ninety days. Therefore
this financial instrument has been adjusted for estimated credit loss.
Deposits
The fair value of deposits with no stated maturity, such as
non-interest-bearing demand deposits, savings, NOW accounts and money market
accounts, is equal to the amount payable on demand. The fair values of
certificates of deposit are based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates currently offered for
deposits of similar remaining maturities.
The fair value estimates do not include the benefit that results from the
low-cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market. If that value was considered, the fair value of
the Company's net assets could increase.
Borrowed Funds, Note Payable and Repurchase Agreements
The fair value of the Company's borrowings with the Federal Home Loan Bank
is estimated by discounting the cash flows through maturity or the next
repricing date based on current rates available to the Company for borrowings
with similar maturities. The fair value of the note payable approximates the
carrying value, as the interest rate approximates market rates. The fair value
of repurchase agreements approximates the carrying value, as these financial
instruments have a short maturity.
Commitments to Originate Loans
The Company has not estimated the fair value of commitments to originate
loans due to their short term nature and their relative immateriality.
F-28
<PAGE> 131
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999, 1998 AND 1997
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These values do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Company's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that are not
considered financial instruments include the deferred tax asset, premises and
equipment, other real estate owned and intangible assets, including the customer
base. In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of the estimates.
The following table presents the estimated fair value of the Company's
significant financial instruments at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
JUNE 30, 1999 JUNE 30, 1998
--------------------------- ---------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents..... $ 12,094,000 $ 12,094,000 $ 12,152,000 $ 12,152,000
Available for sale
securities................. 18,054,000 18,054,000 13,609,000 13,609,000
Loans held for sale........... 312,000 315,000 370,000 372,000
Loans......................... 316,062,000 308,687,000 279,053,000 282,020,000
Interest receivable........... 1,991,000 1,991,000 1,934,000 1,934,000
Financial liabilities:
Deposits (with no stated
maturity).................. 78,251,000 78,251,000 70,938,000 70,938,000
Time deposits................. 141,113,000 141,352,000 113,086,000 113,488,000
Borrowed funds................ 103,882,000 99,986,000 104,440,000 102,052,000
Note payable.................. 688,000 688,000 993,000 993,000
Repurchase agreements......... 11,868,000 11,868,000 5,206,000 5,206,000
</TABLE>
F-29
<PAGE> 132
------------------------------------------------------
------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT, AND THE UNDERWRITER HAS NOT, AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU
WITH DIFFERENT INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL, NOR IS IT
AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED. THE INFORMATION IN THIS PROSPECTUS IS COMPLETE AND ACCURATE AS OF THE
DATE ON THE FRONT COVER PAGE, BUT THE INFORMATION MAY HAVE CHANGED SINCE THAT
DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
A Note About Forward-Looking
Statements.......................... 3
Prospectus Summary.................... 5
Risk Factors.......................... 11
NBN Capital Trust..................... 18
Use of Proceeds....................... 19
Capitalization........................ 20
Accounting Treatment.................. 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 48
Description of Preferred Securities... 57
Description of Junior Subordinated
Debentures.......................... 70
Description of Guarantee.............. 80
Relationship Among the Preferred
Securities, the Junior Subordinated
Debentures, and the Guarantee....... 82
Certain Federal Income Tax
Consequences........................ 84
Certain ERISA Considerations.......... 88
Supervision and Regulation............ 88
Underwriting.......................... 98
Validity of Securities................ 99
Experts............................... 99
Where Can You Find More Information... 99
Documents Incorporated by Reference... 100
Index to Financial Statements......... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
$10,500,000
NBN CAPITAL TRUST
% PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
GUARANTEED, AS DESCRIBED HEREIN, BY
NORTHEAST BANCORP
-------------------------
PROSPECTUS
------------------------
ADVEST, INC.
, 1999
------------------------------------------------------
------------------------------------------------------
<PAGE> 133
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses expected to be incurred in
connection with this offering, other than underwriting discounts and
commissions. All amounts, except the SEC registration fee, are estimated.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 3,357
NASD Filing Fees............................................ 1,708
AMEX Listing Fees........................................... 15,000
Accounting Fees and Expenses................................ *
Legal Fees and Expenses..................................... *
Printing and Expenses....................................... *
Blue Sky Fees and Expenses.................................. *
Trustee Fees and Expenses................................... *
Miscellaneous............................................... *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 719 of the Maine Business Corporation Act provides as follows:
1. A corporation shall have power to indemnify or, if so provided in
the bylaws, shall in all cases indemnify, any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, trustee, partner,
fiduciary, employee or agent of another corporation, partnership, joint
venture, trust, pension or other employee benefit plan or other enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement actually and reasonably incurred by that person in
connection with such action, suit or proceeding; provided that no
indemnification may be provided for any person with respect to any matter
as to which that person shall have been finally adjudicated:
A. Not to have acted honestly or in the reasonable belief that
such person's action was not in or not opposed to the best interests
of the corporation or its shareholders or, in the case of a person
serving as a fiduciary of an employee benefit plan or trust, in or
not opposed to the best interest of that plan or trust, or its
participants or beneficiaries; or
B. With respect to any criminal action or proceeding, to have had
reasonable cause to believe that person's conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order or
conviction adverse to that person, or by settlement or plea of nolo
contendere or its equivalent, shall not of itself create a presumption that
a person did not act honestly or in the reasonable belief that such
person's action was in or not opposed to the best interest of the
corporation or its shareholders or, in the case of a person serving as a
fiduciary of an employee benefit plan or trust, in or not opposed to the
best interests of that plan or trust or its participants or beneficiaries
and, with respect to any criminal action or proceeding, had reasonable
cause to believe that person's conduct was unlawful.
1-A. Notwithstanding any provision of subsection 1, a corporation
shall not have the power to indemnify any person with respect to any claim,
issue or matter asserted by or in the right of the
II-1
<PAGE> 134
corporation as to which that person is finally adjudicated to be liable to
the corporation unless the court in which the action, suit or proceeding
was brought shall determine that, in view of all the circumstances of the
case, that person is fairly or reasonably entitled to indemnity for such
amounts as the court shall deem reasonable.
2. Any provision of subsection 1, 1-A or 3 to the contrary
notwithstanding, to the extent that a director, officer, employee or agent
of a corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsection 1 or 1-A, or in
defense of any claim, issue or matter therein, that director, officer,
employee or agent shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred by that director,
officer, employee or agent in connection therewith. The right to
indemnification granted by this subsection may be enforced by a separate
action against the corporation, if an order for indemnification is not
entered by a court in the action, suit or proceeding wherein that director,
officer, employee or agent was successful on the merits or otherwise.
3. Any indemnification under subsection 1, unless ordered by a court
or required by the bylaws, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
and in the best interest of the corporation. That determination shall be
made by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to that action, suit or proceeding, or if
such a quorum is not obtainable, or even if obtainable, if a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or by the shareholders. Such a determination once made may
not be revoked and, upon the making of that determination, the director,
officer, employee or agent may enforce the indemnification against the
corporation by a separate action notwithstanding any attempted or actual
subsequent action by the board of directors.
4. Expenses incurred in defending a civil, criminal, administrative
or investigative action, suit or proceeding may be authorized and paid by
the corporation in advance of the final disposition of that action, suit or
proceeding made in accordance with the procedure established in subsection
3 that, based solely on the facts then known to those making the
determination and without further investigation, the person seeking
indemnification satisfied the standard of conduct prescribed by subsection
1, or if so provided by the bylaws, these expenses shall in all cases be
authorized and paid by the corporation in advance of the final disposition
of that action, suit or proceeding upon receipt by the corporation of:
A. A written undertaking by or on behalf of the officer,
director, employee or agent to repay that amount if that person is
finally adjudicated:
(1) Not to have acted honestly or in the reasonable belief
that such person's action was in or not opposed to the best
interests of the corporation or its shareholders or, in the case
of a person serving as a fiduciary of an employee benefit plan or
trust, in or not opposed to the best interests of such plan or
trust or its participants or beneficiaries;
(2) With respect to any criminal action or proceeding, to
have had reasonable cause to believe that the person's conduct
was unlawful; or
(3) With respect to any claim, issue or matter asserted in
any action, suit or proceeding brought by or in the right of the
corporation, to be liable to the corporation, unless the court in which
that action, suit or proceeding was brought permits indemnification in
accordance with subsection 2; and
B. A written affirmation by the officer, director, employee or
agent that the person has met the standard of conduct necessary for
indemnification by the corporation as authorized in this section.
The undertaking required under paragraph A shall be an unlimited general
obligation of the person seeking the advance, but need not be secured and
may be accepted without reference to financial ability to make the
repayment.
II-2
<PAGE> 135
5. The indemnification and entitlement to advances of expenses
provided by this section shall not be deemed exclusive of any other rights
to which those indemnified may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in that person's official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased
to be a director, officer, employee, agent, trustee, partner or fiduciary
and shall inure to the benefit of the heirs, executors and administrators
of such a person. A right to indemnification required by the bylaws may be
enforced by a separate action against the corporation, if an order for
indemnification has not been entered by a court in any action, suit or
proceeding in respect to which indemnification is sought.
6. A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, trustee, partner, fiduciary, employee
or agent of another corporation, partnership, joint venture, trust, pension
or other employee benefit plan or other enterprise against any liability
asserted against that person and incurred by that person in any such
capacity, or arising out of that person's status as such, whether or not
the corporation would have the power to indemnify that person against such
liability under this section.
7. For purposes of this section, references to the "corporation"
shall include, in addition to the surviving corporation or new corporation,
any participating corporation in a consolidation or merger.
Northeast Bancorp's Bylaws provide for the indemnification of directors and
officers. The general effect of the Bylaw provisions is to indemnify any
director or officer against any liability arising from any action or suit to the
full extent permitted by Maine law as referenced above. Advances against
expenses may be made under the Bylaws and any other indemnification agreement
that may be entered into by Northeast Bancorp and the indemnity coverage
provided thereunder may include liabilities under the federal securities laws as
well as in other contexts. Reference is made to Article X of Northeast Bancorp's
Bylaws filed as Exhibit 3.2 hereto.
Northeast Bancorp has purchased and maintains insurance on behalf of any
person who is or was a director or officer against any loss arising from any
claim asserted against any such person and incurred by such person in any such
capacity, subject to certain exclusions.
Under the Amended and Restated Trust Agreement of NBN Capital Trust (the
"Trust Agreement"), Northeast Bancorp will agree to indemnify each of the
trustees of the Trust or any predecessor trustee for the trust, and to hold each
trustee harmless against, any loss, damage, claim, liability, or expense
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the Trust Agreement,
including costs and expenses of defending itself against any claim or liability
in connection with the exercise or performance of any of its powers or duties
under the Trust Agreement.
Pursuant to the Underwriting Agreement, Northeast Bancorp, the Trust, and
the underwriter have agreed to indemnify each other under certain circumstances
and conditions against and from certain liabilities, including liabilities under
the Securities Act of 1933, as amended. Reference is made to Section 11 of the
Underwriting Agreement filed as Exhibit 1.1 hereto.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Articles of Incorporation of Northeast Bancorp, as amended
November 10, 1998, incorporated by reference to Exhibit 3.1
of Northeast Bancorp's Form 10-KSB for the fiscal quarter
ended December 31, 1998 previously filed with the
Commission.
</TABLE>
II-3
<PAGE> 136
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C> <C>
3.2 -- Bylaws of Northeast Bancorp, incorporated herein by
reference to Exhibit 3.2 to Amendment No. 1 to Northeast
Bancorp's Registration Statement on Form S-4 (Registration
No. 333-31797) previously filed with the Commission.
4.1 -- Form of Indenture with respect to Northeast Bancorp's %
Junior Subordinated Debentures.*
4.2 -- Form of Junior Subordinated Debentures (included in Exhibit
4.1).*
4.3 -- Trust Agreement of NBN Capital Trust (including Certificate
of Trust of NBN Capital Trust).*
4.4 -- Form of Amended and Restated Trust Agreement of NBN Capital
Trust.*
4.5 -- Form of % Preferred Securities of NBN Capital Trust
(included in Exhibit 4.4).*
4.6 -- Form of Guarantee Agreement.*
5.1 -- Opinion of Carlton, Fields, Ward, Emmanuel, Smith & Cutler,
P.A., Re: Validity of Securities.*
5.2 -- Opinion of Richards, Layton & Finger, P.A.*
8.1 -- Opinion of Carlton, Fields, Ward, Emmanuel, Smith & Cutler,
P.A., Re: Tax Opinion.*
10.1 -- 1987 Stock Option Plan of Northeast Bancorp (formerly known
as Bethel Bancorp), incorporated herein by reference to
Exhibit 10.4 to the Bethel Bancorp's Registration Statement
on Form S-1 (Registration No. 33-12815) previously filed
with the Commission.
10.2 -- 1989 Stock Option Plan of Northeast Bancorp (formerly known
as Bethel Bancorp), incorporated by reference to Exhibit
10.6 to Bethel Bancorp's Form 10-Q for the quarter ended
September 30, 1994 previously filed with the Commission.
10.4 -- 1992 Stock Option Plan of Northeast Bancorp (formerly known
as Bethel Bancorp), incorporated by reference to Exhibit
10.7 to Bethel Bancorp's Form 10-K for the fiscal year ended
June 30, 1992 previously filed with the Commission.
10.5 -- 1994 Stock Purchase Plan incorporated by reference to the
definitive proxy statement of Northeast Bancorp previously
filed with the Commission on September 23, 1994.
11.1 -- Statement regarding computation of per share earnings,
incorporated herein by reference to Exhibit 11 to Northeast
Bancorp's Form 10-K for the fiscal year ended June 30, 1999
previously filed with the Commission.
12.1 -- Calculation of Earnings to Fixed Charges.*
21.1 -- Subsidiaries of Northeast Bancorp, incorporated herein by
reference to Exhibit 21 to Northeast Bancorp's Form 10-K for
the fiscal year ended June 30, 1998 previously filed with
the Commission.
23.1 -- Consent of Baker Newman & Noyes Limited Liability Company.*
23.2 -- Consent of Carlton, Fields, Ward, Emmanuel, Smith & Cutler,
P.A. (included in Exhibit 5.1).*
23.3 -- Consent of Richards, Layton & Finger, P.A. (included in
Exhibit 5.2).*
24.1 -- Power of Attorney (contained in Signature section of this
Registration Statement).*
25.1 -- Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939, as amended, of Bankers
Trust Company, as trustee under the Junior Subordinated
Indenture, the Amended and Restated Trust Agreement, and the
Guarantee Agreement relating to the NBN Capital Trust.*
27.1 -- Financial Data Schedule (for SEC use only), incorporated
herein by reference to Exhibit 27 to Northeast Bancorp's
Form 10-K for the fiscal year ended June 30, 1998 previously
filed with the Commission.
</TABLE>
- ---------------------
* Exhibit filed herewith.
II-4
<PAGE> 137
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of the
registration statement in reliance on Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing a Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Auburn, State of Maine, on the 12th day of October,
1999.
NORTHEAST BANCORP
By: /s/ JAMES D. DELAMATER
------------------------------------
James D. Delamater
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints John W. Trinward, D.M.D., and James D.
Delamater and each or any one of them, his or her true and lawful
attorney-in-fact and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place, and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
or she might or would do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent, or any of them, or his, her or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date(s) indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN B. BOUCHARD Director October 12, 1999
- -----------------------------------------------------
John B. Bouchard
/s/ A. WILLIAM CANNAN Director and Executive Vice October 12, 1999
- ----------------------------------------------------- President
A. William Cannan
/s/ JAMES D. DELAMATER Director, President and October 12, 1999
- ----------------------------------------------------- Chief Executive Officer
James D. Delamater (Principal Executive
Officer)
/s/ RONALD J. GOGUEN Director October 12, 1999
- -----------------------------------------------------
Ronald J. Goguen
/s/ JUDITH W. HAYES Director October 12, 1999
- -----------------------------------------------------
Judith W. Hayes
/s/ PHILIP C. JACKSON Director and Vice President October 12, 1999
- -----------------------------------------------------
Philip C. Jackson
/s/ RONALD C. KENDALL Director October 12, 1999
- -----------------------------------------------------
Ronald C. Kendall
</TABLE>
<PAGE> 139
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN ROSMARIN Director October 12, 1999
- -----------------------------------------------------
John Rosmarin
/s/ JOHN SCHIAVI Director October 12, 1999
- -----------------------------------------------------
John Schiavi
/s/ JOHN W. TRINWARD Director and Chairman of the October 12, 1999
- ----------------------------------------------------- Board
John W. Trinward
/s/ STEPHEN W. WIGHT Director October 12, 1999
- -----------------------------------------------------
Stephen W. Wight
/s/ DENNIS A. WILSON Director October 12, 1999
- -----------------------------------------------------
Dennis A. Wilson
/s/ RICHARD E. WYMAN, JR. Chief Financial Officer October 12, 1999
- ----------------------------------------------------- (Principal Financial and
Richard E. Wyman, Jr. Accounting Officer)
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, the Trust
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing a Form S-2 and has duly caused the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Auburn, State of Maine, on the 12th day of October,
1999.
NBN CAPITAL TRUST
BY: NORTHEAST BANCORP, as Depositor
By: /s/ JAMES D. DELAMATER
------------------------------------
James D. Delamater
President and Chief Executive
Officer
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Articles of Incorporation of Northeast Bancorp, as amended
November 10, 1998, incorporated by reference to Exhibit 3.1
of Northeast Bancorp's Form 10-KSB for the fiscal quarter
ended December 31, 1998 previously filed with the
Commission.
3.2 -- Bylaws of Northeast Bancorp, incorporated herein by
reference to Exhibit 3.2 to Amendment No. 1 to Northeast
Bancorp's Registration Statement on Form S-4 (Registration
No. 333-31797) previously filed with the Commission.
4.1 -- Form of Indenture with respect to Northeast Bancorp's %
Junior Subordinated Debentures.*
4.2 -- Form of Junior Subordinated Debentures (included in Exhibit
4.1).*
4.3 -- Trust Agreement of NBN Capital Trust (including Certificate
of Trust of NBN Capital Trust).*
4.4 -- Form of Amended and Restated Trust Agreement of NBN Capital
Trust.*
</TABLE>
<PAGE> 140
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C> <C>
4.5 -- Form of % Preferred Securities of NBN Capital Trust
(included in Exhibit 4.4).*
4.6 -- Form of Guarantee Agreement.*
5.1 -- Opinion of Carlton, Fields, Ward, Emmanuel, Smith & Cutler,
P.A., Re: Validity of Securities.*
5.2 -- Opinion of Richards, Layton & Finger, P.A.*
8.1 -- Opinion of Carlton, Fields, Ward, Emmanuel, Smith & Cutler,
P.A., Re: Tax Opinion.*
10.1 -- 1987 Stock Option Plan of Northeast Bancorp (formerly known
as Bethel Bancorp), incorporated herein by reference to
Exhibit 10.4 to the Bethel Bancorp's Registration Statement
on Form S-1 (Registration No. 33-12815) previously filed
with the Commission.
10.2 -- 1989 Stock Option Plan of Northeast Bancorp (formerly known
as Bethel Bancorp), incorporated by reference to Exhibit
10.6 to Bethel Bancorp's Form 10-Q for the quarter ended
September 30, 1994 previously filed with the Commission.
10.4 -- 1992 Stock Option Plan of Northeast Bancorp (formerly known
as Bethel Bancorp), incorporated by reference to Exhibit
10.7 to Bethel Bancorp's Form 10-K for the fiscal year ended
June 30, 1992 previously filed with the Commission.
10.5 -- 1994 Stock Purchase Plan incorporated by reference to the
definitive proxy statement of Northeast Bancorp previously
filed with the Commission on September 23, 1994.
11.1 -- Statement regarding computation of per share earnings,
incorporated herein by reference to Exhibit 11 to Northeast
Bancorp's Form 10-K for the fiscal year ended June 30, 1999,
previously filed with the Commission.
12 -- Calculation of Earnings to Fixed Charges.*
21.1 -- Subsidiaries of Northeast Bancorp, incorporated herein by
reference to Exhibit 21 to Northeast Bancorp's Form 10-K for
the fiscal year ended June 30, 1998 previously filed with
the Commission.
23.1 -- Consent of Baker Newman & Noyes Limited Liability Company*
23.2 -- Consent of Carlton, Fields, Ward, Emmanuel, Smith & Cutler,
P.A. (included in Exhibit 5.1).*
23.3 -- Consent of Richards, Layton & Finger, P.A. (included in
Exhibit 5.2).*
24.1 -- Power of Attorney (contained in Signature section of this
Registration Statement).*
25.1 -- Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939, as amended, of Bankers
Trust Company, as trustee under the Junior Subordinated
Indenture, the Amended and Restated Trust Agreement, and the
Guarantee Agreement relating to the NBN Capital Trust.*
27.1 -- Financial Data Schedule (for SEC use only), incorporated
herein by reference to Exhibit 27 to Northeast Bancorp's
Form 10-K for the fiscal year ended June 30, 1998 previously
filed with the Commission.
</TABLE>
- ---------------
- -- * Exhibit filed herewith.
<PAGE> 1
EXHIBIT 1.1
$ 10,500,000
NBN CAPITAL TRUST
NORTHEAST BANCORP
_____% Preferred Securities
(Liquidation Amount $10 per Preferred Security)
UNDERWRITING AGREEMENT
----------------------
____________, 1999
ADVEST, INC.
One Rockefeller Plaza, 20th Floor
New York, New York 10020
Ladies and Gentlemen:
NBN Capital Trust (the "Trust"), a statutory business trust organized
under the Business Trust Act (the "Delaware Act") of the State of Delaware
(Chapter 38, Title 12, of the Delaware Code, 12 Del. C. Section 3801 et seq.),
and Northeast Bancorp, a Maine corporation (the "Company"), as depositor of the
Trust and as guarantor, hereby confirm their agreement with you, as the
underwriter ("Underwriter"), as follows:
1. INTRODUCTION. Upon the terms and conditions set forth in this
Underwriting Agreement (this "Agreement"), the Trust agrees to, and the Company
agrees to cause the Trust to, issue and sell to the Underwriter, an aggregate
liquidation amount of $10,500,000 (the "Firm Securities") of the Trust's ____%
preferred securities (the "Preferred Securities") . The Trust also proposes to,
and the Company also proposes to cause the Trust to, issue and sell to the
Underwriter, at the Underwriter's option, up to an additional $1,575,000
aggregate liquidation amount of Preferred Securities (the "Option Securities")
as set forth herein. The term "Preferred Securities" as used herein, unless
indicated otherwise, shall mean the Firm Securities and the Option Securities.
The Preferred Securities and the Common Securities (as defined herein)
are to be issued pursuant to the terms of an Amended and Restated Trust
Agreement to be dated as of ____________, 1999 (the "Trust Agreement"), among
the Company, as depositor, and, together with the Trust, the "Offerors," and
Bankers Trust Company ("Trust Company"), a New York banking corporation, as
property trustee ("Property Trustee") and Bankers Trust (Delaware) ("Trust
Delaware"), a Delaware
<PAGE> 2
banking corporation, as Delaware trustee ("Delaware Trustee"), the
administrators as named therein and the holders from time to time of undivided
beneficial interests in the assets of the Trust. The Preferred Securities will
be guaranteed by the Company on a subordinated basis and subject to certain
limitations with respect to distributions and payments upon liquidation,
redemption or otherwise (the "Guarantee") pursuant to the Guarantee Agreement
to be dated as of ___________, 1999 (the "Guarantee Agreement"), between the
Company and the Trust Company, as Trustee (the "Guarantee Trustee"). The assets
of the Trust will consist of ____% junior subordinated deferrable interest
debentures of the Company due ___________ 2029 (the "Subordinated Debentures"),
which will be issued under a Junior Subordinated Indenture to be dated as of
__________, 1999 (the "Indenture"), between the Company and the Trust Company,
as Trustee (the "Indenture Trustee"). Under certain circumstances, the
Subordinated Debentures will be distributable to the holders of undivided
beneficial interests in the assets of the Trust. The entire proceeds from the
sale of the Preferred Securities will be combined with the entire proceeds from
the sale by the Trust to the Company of the Trust's common securities (the
"Common Securities"), and will be used by the Trust to purchase an equivalent
amount of the Subordinated Debentures.
2. REPRESENTATIONS AND WARRANTIES. Each of the Offerors represents and
warrants to, and agrees with, the Underwriter as follows:
(a) The Offerors meet the requirements for the use of Form S-2 under
the Securities Act. The Offerors have filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-2
(Nos. 333-____ and 333-____ 01) and a related preliminary prospectus for the
registration of the Preferred Securities, the Guarantee and the Subordinated
Debentures under the Securities Act of 1933, as amended (the "Securities Act"),
and the rules and regulations thereunder (the "Securities Act Regulations").
The Offerors have prepared and filed such amendments thereto, if any, and such
amended preliminary prospectuses, if any, as may have been required to the date
hereof, and will file such additional amendments thereto and such amended
prospectuses as may hereafter be required. The registration statement has been
declared effective under the Securities Act by the Commission. The registration
statement as amended at the time it became effective (including the prospectus
and all information deemed to be a part of the registration statement at the
time it became effective pursuant to Rule 430A(b) of the Securities Act
Regulations) is hereinafter called the "Registration Statement," except that,
if the Company files a post-effective amendment to such registration statement
which becomes effective prior to the Closing Date (as defined below),
"Registration Statement" shall refer to such registration statement as so
amended. Each prospectus included in the registration statement, or amendments
thereof, before it became effective under the Securities Act and any prospectus
filed with the Commission by the Company with the consent of the Underwriter
pursuant to Rule 424(a) of the Securities Act Regulations (including the
documents incorporated by reference therein) is hereinafter called the
"Preliminary Prospectus." The term "Prospectus" means the final prospectus
(including the documents incorporated by reference therein, if any), as first
filed with the Commission pursuant to paragraph (1) or (4) of Rule 424(b) of
the Securities Act Regulations. The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus.
2
<PAGE> 3
(b) The Company is duly incorporated and validly existing as a
corporation in good standing under the laws of the State of Maine with full
power and authority (corporate and other) to own, lease, and operate its
properties and conduct its business as described in the Prospectus (as defined
in Section 2(a) of this Agreement); the Company is a unitary savings and loan
holding company regulated by the Office of Thrift Supervision under the Home
Owners Loan Act; the Company has no subsidiaries except those described in the
Registration Statement (each a "Subsidiary"); the Company owns, directly or
indirectly, beneficially and of record all of the outstanding capital stock of
each Subsidiary free and clear of any claim, lien, encumbrance or security
interest, except as described in the Prospectus. The Company and each of its
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which any of them own or lease
properties, has an office, or in which the business conducted by any of them
make such qualification necessary, except where the failure to so qualify would
not have a material adverse effect on the condition (financial or otherwise),
business, assets, properties, results of operations, or net worth of the
Company and its Subsidiaries taken as a whole ("Material Adverse Effect"); and
no proceeding has been instituted in any jurisdiction revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and authority or
qualification.
(c) The Preferred Securities have been duly and validly authorized for
issuance and sale to the Underwriter pursuant to this Agreement and, when
executed and authenticated in accordance with the terms of the Trust Agreement
and delivered to the Underwriter against payment of the consideration set forth
herein, will constitute valid and legally binding obligations of the Trust
enforceable in accordance with their terms and entitled to the benefits
provided by the Trust Agreement (except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, receivership,
readjustment of debt, moratorium, fraudulent conveyance or similar laws
relating to or affecting creditors' rights generally or general equity
principles (whether considered in a proceeding in equity or at law)). The Trust
Agreement has been duly authorized and, when duly executed by the Trust and
delivered by the Trust, will have been duly executed and delivered by the Trust
and, assuming due authorization and execution of the Trust Agreement by each
other party thereto, will constitute the valid and legally binding instrument
of the Trust, enforceable in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, readjustment of debt, moratorium, fraudulent
conveyance or similar laws relating to or affecting creditors' rights generally
or general equity principles (whether considered in a proceeding in equity or
at law)). The Subordinated Debentures have been duly and validly authorized for
delivery by the Company and, when duly authenticated in accordance with the
terms of the Indenture and delivered to the Trust against payment of the
consideration set forth herein, will constitute valid and legally binding
obligations of the Company enforceable against the Company in accordance with
their terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, readjustment of debt,
moratorium, fraudulent conveyance or similar laws relating to or affecting
creditors' rights generally or general equity principles (whether considered in
a proceeding in equity or at law)) and entitled to the benefits provided by the
Indenture. The Indenture has been duly authorized and, when duly executed by
the Company and delivered by the Company, will have been duly executed and
delivered by the Company and, assuming due authorization and execution of the
Indenture by each
3
<PAGE> 4
other party thereto, will constitute the valid and legally binding instrument
of the Company, enforceable in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, readjustment of debt, moratorium, fraudulent
conveyance or similar laws relating to or affecting creditors' rights generally
or general equity principles (whether considered in a proceeding in equity or
at law)). The Guarantee Agreement has been duly authorized and, when duly
executed by the Company and delivered by the Company, will have been duly
executed and delivered by the Company and, assuming due authorization and
execution of the Guarantee by each other party thereto, will constitute the
valid and legally binding instrument of the Company, enforceable in accordance
with its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, readjustment of debt,
moratorium, fraudulent conveyance or similar laws relating to or affecting
creditors' rights generally or general equity principles (whether considered in
a proceeding in equity or at law)). The Trust Agreement, the Guarantee
Agreement, and the Indenture have been duly qualified under the Trust Indenture
Act; and the Preferred Securities, the Common Securities, the Trust Agreement,
the Guarantee Agreement, the Subordinated Debentures and the Indenture conform
in all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus.
(d) Neither the Trust nor the Company or any Subsidiary, is, or with
the giving of notice or lapse of time or both will be, in violation or breach
of, or in default under, nor will the execution or delivery of, or the
performance and consummation of the transactions contemplated by this Agreement
(including the offer, sale, or delivery of the Preferred Securities), conflict
with, or result in a violation or breach of, or constitute a default under, any
provision of the organizational documents of the Trust or the Articles of
Incorporation (as amended or restated), Bylaws (as amended or restated) of the
Company, or other governing documents of the Trust, the Company or any
Subsidiary, or of any provision of any material agreement, contract, mortgage,
deed of trust, lease, loan agreement, indenture, note, bond, or other evidence
of indebtedness, or other material agreement or instrument to which the Trust,
the Company or any Subsidiary is a party or by which any of them is bound or to
which any of their properties is subject, nor will the performance by the
Offerors of their obligations hereunder violate any rule, regulation, order, or
decree, applicable to the Trust, the Company or any Subsidiary of any court or
any regulatory body, administrative agency, or other governmental body having
jurisdiction over the Trust, the Company or any Subsidiary or any of their
respective properties, or any order of any court or governmental agency or
authority entered in any proceeding to which the Trust, the Company or any
Subsidiary was or is now a party or by which it is bound, except, with respect
to any of the foregoing, as described in the Prospectus or which are not
reasonably likely to have a Material Adverse Effect. No consent, approval,
filing, authorization, registration, qualification, or order, including with or
by any bank regulatory agency, is required for the execution, delivery, and
performance of this Agreement or the consummation of the transactions
contemplated by this Agreement, other than such that have been obtained or
made, except as described in the Prospectus and except for compliance with the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the Blue Sky Laws applicable to the public offering of the Preferred
Securities by the Underwriter, the clearance of such offering and the
underwriting arrangements evidenced hereby with the National Association of
Securities Dealers, Inc. ("NASD"), and the listing of the Preferred Securities
on the American Stock
4
<PAGE> 5
Exchange ("AMEX"). This Agreement has been duly authorized, executed and
delivered by the Company and the Trust and constitutes a valid and binding
obligation of the Company and the Trust and is enforceable against the Company
and the Trust in accordance with its terms (except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, readjustment of
debt, moratorium, fraudulent conveyance or similar laws relating to or
affecting creditors' rights generally or general equity principles (whether
considered in a proceeding in equity or at law) and except as the
enforceability of rights to indemnity and contribution under this Agreement may
be limited by applicable securities laws or public policy underlying such
laws).
(e) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus complies
in all material respects with the requirements of the Securities Act and the
Securities Act Regulations. As of the effective date of the Registration
Statement, and at all times subsequent thereto up to the Closing Date or any
Option Closing Date (as defined below), the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained or will
contain all material statements that are required to be stated therein in
accordance with the Securities Act and the Securities Act Regulations and
conformed or will conform in all material respects to the requirements of the
Securities Act and the Securities Act Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto included
or will include any untrue statement of a material fact or omitted or will omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that no representation or
warranty is made as to information contained in or omitted from the
Registration Statement, the Prospectus or any amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company and the Trust by or on behalf of the Underwriter.
(f) Baker, Newman & Noyes, Limited Liability Company, which has
audited, reviewed, and expressed its opinion with respect to certain of the
financial statements and schedules filed with the Commission as a part of the
Registration Statement and included or to be included, as the case may be, in
the Prospectus and in the Registration Statement, and whose report is included
in the Prospectus and the Registration Statement, are independent accountants
as required by the Securities Act and the Securities Act Regulations.
(g) The financial statements and schedules and the related notes
thereto included or to be included, as the case may be, in the Registration
Statement, the Preliminary Prospectus, and the Prospectus present fairly the
financial position of the entities purported to be shown thereby as of the
respective dates of such financial statements and schedules, and the results of
operations and changes in equity and in cash flows of the entities purported to
be shown thereby for the respective periods covered thereby, all in conformity
with generally accepted accounting principles consistently applied throughout
the periods involved, except as may be disclosed in the Prospectus. All
adjustments necessary for a fair presentation of the results of such periods
have been made. The Company had an outstanding capitalization as set forth
under "Capitalization" in the Prospectus as of the date indicated therein and
there has been no material change therein since such date except as disclosed
in the Prospectus. The financial, operating, and statistical information set
forth in the
5
<PAGE> 6
Prospectus under captions "Prospectus Summary," "Selected Consolidated
Financial Information," "Use of Proceeds," and "Capitalization" are fairly
presented and prepared on a basis consistent with the audited financial
statements of the Company.
(h) There is no litigation or, to the knowledge of the Trust or the
Company, any governmental proceeding, action, or investigation pending or
threatened, to which the Trust, the Company or any Subsidiary is or may be a
party or to which property owned or leased by the Company or any Subsidiary is
or may be subject, or related to environmental or discrimination matters, which
is required to be disclosed in the Registration Statement or the Prospectus by
the Securities Act or the Securities Act Regulations and is not so disclosed,
or which questions the validity of this Agreement or any action taken or to be
taken pursuant hereto.
(i) Either the Company or a Subsidiary, as the case may be, has good
and marketable title in fee simple to all items of real property and good and
marketable title to all the personal properties and assets reflected as owned
by the Company or a Subsidiary in the Prospectus (or elsewhere in the
Registration Statement), in each case clear of all liens, mortgages, pledges,
charges, or encumbrances of any kind or nature except those, if any, reflected
in the financial statements described above (or elsewhere in the Registration
Statement) or which are not material to the Company and its Subsidiaries taken
as a whole; all properties held or used by the Company or a Subsidiary under
leases, licenses, franchises or other agreements are held by them under valid,
existing, binding, and enforceable leases, franchises, licenses, or other
agreements with respect to which it is not in default, except where the failure
to do so, or such default, is not reasonably likely to have a Material Adverse
Effect.
(j) Neither the Trust nor the Company or any Subsidiary has taken or
will take, directly or indirectly, any action designed to cause or result in,
or which has constituted or which might reasonably be expected to constitute,
stabilization or manipulation, under the Exchange Act or otherwise, of the
price of the Preferred Securities.
(k) Except as reflected in or contemplated by the Registration
Statement, since the respective dates as of which information is given in the
Registration Statement and prior to the Closing Date and Option Closing Date
(as such terms are hereinafter defined):
(i) neither the Company nor any Subsidiary has or will have
incurred any material liabilities or obligations, direct or contingent, or
entered into any material transaction not in the ordinary course of business
without the prior consent of the Underwriter;
(ii) neither the Company nor any Subsidiary has or will have
paid or declared any dividend or other distribution with respect to its capital
stock (other than the payment of regular quarterly dividends by the Company to
its stockholders consistent with past practices) and neither the Company nor
any Subsidiary has or will be delinquent in the payment of principal or
interest on any material outstanding debt obligations; and
6
<PAGE> 7
(iii) there has not been and will not be any material change in
the capital stock or any material change in the indebtedness of the Company or
any Subsidiary (except as may result from the closing of the transactions
contemplated by this Agreement or as described in the Prospectus), or any
adverse change in the condition (financial or otherwise), or any development
involving a prospective adverse change in their respective businesses
(resulting from litigation or otherwise), properties, condition (financial or
otherwise), net worth, or results of operations which is reasonably likely to
have a Material Adverse Effect.
(l) There is no contract or other document, transaction, or
relationship required to be described in the Registration Statement, or to be
filed as an exhibit to the Registration Statement, by the Securities Act or by
the Securities Act Regulations that has not been described or filed as
required.
(m) All documents delivered or to be delivered by the Offerors or any
of their representatives in connection with the issuance and sale of the
Preferred Securities were on the dates on which they were delivered, or will be
on the dates on which they are to be delivered, true, complete, and correct in
all material respects.
(n) The Company and each Subsidiary have filed all necessary federal
and all state and foreign income and franchise tax returns and paid all taxes
shown as due thereon; and no tax deficiency has been asserted or threatened
against the Company or any Subsidiary that would have a Material Adverse
Effect, except as described in the Prospectus.
(o) Neither the Trust nor the Company or any Subsidiary has, directly
or indirectly, at any time:
(i) made any unlawful contribution to any candidate for
political office, or failed to disclose any contribution in violation of law;
or
(ii) made any payment to any federal, state, local, or foreign
government officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws of
the United States or any jurisdiction thereof or applicable foreign
jurisdictions.
(p) The Company or a Subsidiary owns or possesses adequate rights to
use all material patents, patent applications, trademarks, service marks, trade
names, trademark registrations, servicemark registrations, copyrights, and
licenses necessary for the conduct of the business of the Company and the
Subsidiaries or ownership of their respective properties, and neither the
Company nor any Subsidiary has received notice of conflict with the asserted
rights of others in respect thereof which has not been resolved.
(q) The Company and each Subsidiary have in place and effective such
policies of insurance, with limits of liability in such amounts, as are normal
and prudent in the ordinary scope
7
<PAGE> 8
of business similar to that of the Company and such Subsidiary in the
respective jurisdiction in which they conduct business.
(r) The Company and each Subsidiary have and hold, and at the Closing
Date or Option Closing Date will have and hold, and are operating in
substantial compliance with, and have fulfilled and performed all of their
material obligations with respect to, all permits, certificates, franchises,
grants, easements, consents, licenses, approvals, charters, registrations,
authorizations, and orders (collectively, "Permits") required under all laws,
rules, and regulations in connection with their respective businesses, and all
of such Permits are in full force and effect except any such Permits the
absence of which is not likely to have a Material Adverse Effect; and there is
no pending proceeding, and neither the Company nor any Subsidiary has received
notice of any threatened proceeding, relating to the revocation or modification
of any such Permits. Neither the Company nor any Subsidiary is (by virtue of
any action, omission to act, contract to which it is a party or by which it is
bound, or any occurrence or state of facts whatsoever) in violation of any
applicable federal, state, municipal, or local statutes, laws, ordinances,
rules, regulations and/or orders issued pursuant to foreign, federal, state,
municipal, or local statutes, laws, ordinances, rules, or regulations
(including those relating to any aspect of banking, bank holding companies,
environmental protection, occupational safety and health, and equal employment
practices) heretofore or currently in effect, except such violation that has
been fully cured or satisfied without recourse or that is not reasonably likely
to have a Material Adverse Effect.
(s) The provisions of any employee pension benefit plan ("Pension
Plan") as defined in Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), in which the Company or any Subsidiary is a
participating employer are in substantial compliance with ERISA, and neither
the Company nor any Subsidiary is in violation of ERISA. The Company, each
Subsidiary, or the plan sponsor thereof, as the case may be, has duly and
timely filed the reports required to be filed by ERISA in connection with the
maintenance of any Pension Plans in which the Company or any Subsidiary is a
participating employer, and no facts, including any "reportable event" as
defined by ERISA and the regulations thereunder, exist in connection with any
Pension Plan in which the Company or any Subsidiary is a participating employer
which might constitute grounds for the termination of such plan by the Pension
Benefit Guaranty Corporation or for the appointment by the appropriate U.S.
District Court of a trustee to administer any such plan. The provisions of any
employee benefit welfare plan, as defined in Section 3(1) of ERISA, in which
the Company or any Subsidiary is a participating employer, are in substantial
compliance with ERISA, and the Company, any Subsidiary, or the plan sponsor
thereof, as the case may be, has duly and timely filed the reports required to
be filed by ERISA in connection with the maintenance of any such plans.
(t) Neither the Company nor the Trust is an open-end investment
company, unit investment trust or face-amount certificate company that is, or
is required to be, registered under Section 8 of the Investment Company Act of
1940, as amended, or subject to regulation under such Act.
8
<PAGE> 9
(u) Northeast Bank, F.S.B. holds deposits that are insured by the
Federal Deposit Insurance Corporation ("FDIC") up to the legal limits.
(v) Neither this Agreement nor any certificate delivered or to be
delivered by the Offerors or any Subsidiary, to the extent appropriate contains
or will contain any untrue statement of a material fact or omits or will omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
Any certificate signed by any director or officer of the Company or
the Trust, as the case may be, and delivered to the Underwriter or to counsel
for the Underwriter shall be deemed a representation and warranty of the
Company or the Trust, as the case may be, to the Underwriter as to the matters
covered thereby as of the date thereof.
Any certificate delivered by the Company or the Trust, as the case may
be, to their respective counsel for purposes of enabling such counsel to render
an opinion pursuant to Section 8 will also be furnished to the Underwriter and
counsel for the Underwriter and shall be deemed to be additional
representations and warranties to the Underwriter by the Company and the Trust
as to the matters covered thereby as of the date thereof.
3. PURCHASE, SALE AND DELIVERY TO UNDERWRITER; CLOSING. On the basis
of the representations and warranties herein contained and subject to the terms
and conditions herein set forth, the Trust and the Company, as the case may be,
agree that the Trust will issue and sell to the Underwriter, and the
Underwriter agrees to purchase from the Trust the Firm Securities at a purchase
price of $10.00 per Firm Security.
Payment of the purchase price for, and delivery of, the Firm
Securities shall be made at the offices of Tyler Cooper & Alcorn, LLP, City
Place, Hartford, Connecticut, or at such other place as shall be agreed upon by
the Underwriter, the Trust and the Company, at 9:00 A.M. local time on the
fourth business day following the date of this Agreement, or such other time
not later than ten (10) business days after such date as shall be agreed upon
by the Underwriter, the Trust and the Company (such time and date of payment
and delivery being herein called the "Closing Date").
As compensation (the "Underwriting Commission") for the commitments of
the Underwriter contained in this Section 3, the Company hereby agrees to pay
to the Underwriter an amount equal to ____% of the public offering price of the
Preferred Securities. Such payment will be made on the Closing Date with
respect to the Firm Securities and on the Option Closing Date (as defined
below) with respect to the Option Securities.
Payment for the Firm Securities shall be made to the Trust by wire
transfer of immediately available funds, against delivery to the Underwriter of
the Firm Securities to be purchased by it. The Firm Securities shall be issued
in the form of one or more fully registered global securities (the "Global
Securities") in book-entry form in such denominations and registered in the
name of the nominee of The Depository Trust Company (the "DTC") or in such
names as the Underwriter may
9
<PAGE> 10
request in writing at least two (2) business days before the Closing Date. The
Global Securities representing the Firm Securities shall be made available for
examination by the Underwriter and counsel to the Underwriter not later than
9:30 A.M. Eastern Time on the last business day prior to the Closing Date.
In addition, on the basis of the representations, warranties, and
agreements contained herein, but subject to the terms and conditions set forth
herein, the Trust hereby grants to the Underwriter an option to purchase from
the Trust the Option Securities at the same purchase price per Preferred
Security to be paid for the Firm Securities, for use solely in covering any
over-allotments made by the Underwriter in the sale and distribution of the
Firm Securities. The option granted hereunder may be exercised at any time (but
not more than once) within thirty (30) days after the date of this Agreement,
upon notice by the Underwriter to the Trust which sets forth the aggregate
liquidation amount of Option Securities as to which the Underwriter is
exercising the option, and the time and place at which the certificate
representing the Option Securities will be delivered. Such time of delivery may
not be earlier than the Closing Date and herein is called the "Option Closing
Date." The Option Closing Date shall be determined by the Underwriter, but if
at any time other than the Closing Date, shall not be earlier than three (3)
nor later than five (5) full business days after delivery of such notice to
exercise. Certificates for the Option Securities will be made available for
inspection at least 24 hours prior to the Option Closing Date at the offices of
the DTC, or its designated custodian, or at such other location as specified by
the Underwriter. The manner of payment for a delivery of the Option Securities
shall be the same as for the Firm Securities as specified in this Section 3.
4. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITER. The Underwriter
represents and warrants to the Company that the information set forth in the
third and ninth paragraphs of the section in the Prospectus entitled
"Underwriting" was the only written information furnished to the Company by and
on behalf of the Underwriter expressly for use in connection with the
preparation of the Registration Statement, and is correct and complete in all
material respects and does not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading.
5. OFFERING BY THE UNDERWRITER. The Trust and the Company are advised
by the Underwriter that the Underwriter proposes to make a public offering of
the Preferred Securities, on the terms and conditions set forth in the
Registration Statement from time to time as and when the Underwriter deems
advisable after the Registration Statement becomes effective. Because the NASD
is expected to view the Preferred Securities as interests in a direct
participation program, the offering of the Preferred Securities is being made
in compliance with the applicable provisions of Rule 2810 of the NASD's Conduct
Rules.
6. AGREEMENTS OF THE OFFERORS. Each of the Offerors covenants and
agrees with the Underwriter that:
10
<PAGE> 11
(a) If any information shall have been omitted from the
Registration Statement in reliance upon Rule 430A, the Company, at the earliest
possible time, will furnish the Underwriter with a copy of the Prospectus to be
filed by the Offerors with the Commission to comply with Rule 424(b) and Rule
430A under the Securities Act, and will file such Prospectus with the
Commission in compliance with such Rules. Upon compliance with such Rules, the
Company will so advise the Underwriter promptly. The Company will advise the
Underwriter and counsel to the Underwriter promptly of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of the institution of any proceedings for that purpose, or of any
notification received by the Company of the suspension of qualification of the
Preferred Securities for sale in any jurisdiction or the initiation or
threatening of any proceedings for that purpose, or of any notification
received by the Company of the suspension of qualification of the Preferred
Securities for sale in any jurisdiction or the initiation or threatening of any
proceedings for that purpose. The Company also will advise the Underwriter and
counsel to the Underwriter promptly of any request of the Commission for
amendment or supplement of the Registration Statement, of any Preliminary
Prospectus, or of the Prospectus, or for additional information, and the
Offerors will not file any amendment or supplement to the Registration
Statement (either before or after it becomes effective), to any Preliminary
Prospectus, or to the Prospectus (including a prospectus filed pursuant to Rule
424(b)) if the Underwriter has not been furnished with a copy prior to such
filing or if the Underwriter reasonably objects to such filing.
(b) For the period during which a Prospectus relating to the
Preferred Securities is required to be delivered under the Securities Act, the
Offerors shall comply with all requirements imposed on them by the Securities
Act, as now and hereafter amended, and by the Securities Act Regulations, as
from time to time in force, so far as is necessary to permit the continuance of
sales or dealings in the Preferred Securities as contemplated by the provisions
hereof and the Prospectus. If any event occurs as a result of which the
Prospectus, including any subsequent amendment or supplement, would include an
untrue statement of a material fact, or would omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or
if it becomes necessary at any time to amend the Prospectus, including any
amendment or supplement thereto, to comply with the Securities Act, the Company
promptly will advise the Underwriter and counsel to the Underwriter thereof and
the Offerors will promptly prepare and file with the Commission an amendment or
supplement that will correct such statement or omission or an amendment that
will effect such compliance; and, if the Underwriter is required to deliver a
prospectus nine (9) months or more after the effective date of the Registration
Statement, the Company, upon request of the Underwriter but at the expense of
the Underwriter, will prepare promptly such prospectus or prospectuses as may
be necessary to permit compliance with the requirements of Section 10(a) (3) of
the Securities Act.
(c) The Offerors will not, prior to the Option Closing Date or
thirty (30) days after the date of this Agreement, whichever occurs first,
without the prior consent of the Underwriter, incur any material liability or
obligation, direct or contingent, or enter into any material transaction, other
than in the ordinary course of business, or any transaction with a related
party which is required
11
<PAGE> 12
to be disclosed in the Prospectus pursuant to Item 404 of Regulation S-K under
the Securities Act, except as disclosed in or as contemplated by the
Prospectus.
(d) The Company will make generally available to its security
holders and the Underwriter an earnings statement of the Company as soon as
practicable, but in no event later than fifteen (15) months after the end of
the Company's current fiscal quarter, covering a period of twelve (12)
consecutive calendar months beginning after the effective date of the
Registration Statement, but beginning not later than four (4) months after such
effective date, which will satisfy the provisions of the last subsection of
Section 11(a) of the Securities Act and Rule 158 promulgated thereunder.
(e) During such period as a prospectus is required by law to be
delivered in connection with sales by an underwriter or dealer, the Company
will furnish to the Underwriter, at the expense of the Company, copies of the
Registration Statement, the Prospectus, any Preliminary Prospectus, and all
amendments and supplements to any such documents, in each case as soon as
available and in such quantities as the Underwriter may reasonably request, for
the purposes contemplated by the Securities Act.
(f) The Offerors will use their reasonable best efforts to take
or cause to be taken in cooperation with the Underwriter and counsel to the
Underwriter all actions required in qualifying or registering the Preferred
Securities for sale under the Blue Sky Laws of such jurisdictions as the
Underwriter may reasonably designate, provided the Offerors shall not be
required to qualify generally as foreign corporations or as a dealer in
securities or to consent generally to the service of process under the law of
any such state (except with respect to the offering and sale of the Preferred
Securities), and will continue such qualifications or registrations in effect
so long as reasonably requested by the Underwriter to effect the distribution
of the Preferred Securities (including, without limitation, compliance with all
undertakings given pursuant to such qualifications or registrations). In each
jurisdiction where any of the Preferred Securities shall have been qualified as
provided above, the Offerors will file such reports and statements as may be
required to continue such qualification for a period of not less than one (1)
year from the date of this Agreement.
(g) The Company will furnish to holders of Preferred Securities
annual reports containing financial statements audited by independent public
accountants. During the period ending three (3) years after the date of this
Agreement, (i) as soon as practicable after the end of the fiscal year, the
Company will furnish to the Underwriter a copy of the annual report of the
Company containing the audited consolidated balance sheet of the Company as of
the close of such fiscal year and corresponding audited consolidated statements
of earnings, stockholders' equity and cash flows for the year then ended, and
(ii) the Company will file promptly and will furnish to the Underwriter at or
before the filing thereof copies of all reports and any definitive proxy or
information statements required to be filed by the Company with the Commission
pursuant to Section 13, 14, or 15 of the Exchange Act. During such three-year
period the Company also will furnish to the Underwriter one copy of the
following:
12
<PAGE> 13
(i) as soon as practicable after the filing thereof, each
other report, written statement, or other document filed by the Company with
the Commission;
(ii) as soon as practicable after the filing thereof, all
reports, statements, other documents and financial statements furnished by the
Company to AMEX pursuant to requirements of or agreements with AMEX; and
(iii) as soon as available, each report, written statement,
or other document of the Company mailed to its stockholders as a group and in
such capacity as stockholders.
(h) The Offerors will use their reasonable best efforts to
satisfy or cause to be satisfied the conditions to the obligations of the
Underwriter in Section 8 hereof.
(i) The Offerors shall deliver the requisite notice of issuance
to the AMEX and shall take all reasonable necessary or appropriate action
within their power to maintain the authorization for trading of the Preferred
Securities on the AMEX for a period of at least thirty-six (36) months after
the date of this Agreement.
(j) The Trust shall comply in all respects with the undertakings
given by the Trust in connection with the qualification or registration of the
Preferred Securities for offering and sale under the Blue Sky Laws.
(k) The Trust shall apply the proceeds from its sale of the
Preferred Securities, combined with the entire proceeds from the sale by the
Trust to the Company of the Trust's Common Securities, to purchase an
equivalent amount of Subordinated Debentures. All the proceeds to be received
by the Company from the sale of the Subordinated Debentures will be used in the
manner and for the purposes specified under the heading "Use of Proceeds" in
the Prospectus. The Offerors shall file, and will furnish or cause to be
furnished to the Underwriter and counsel to the Underwriter copies of all
reports as may be required in accordance with Rule 463 under the Securities
Act.
(1) Except for the sale of Preferred Securities pursuant to this
Agreement, neither the Company nor any Subsidiary shall, directly or
indirectly, offer, sell, contract to sell, issue, distribute, grant any option,
right, or warrant to purchase or otherwise dispose of any shares of the
Preferred Securities or substantially similar securities of the Trust, in the
open market or otherwise, for a period of one hundred eighty (180) days after
the later of the effective date of the Registration Statement or the date of
this Agreement, without the express prior written consent of the Underwriter.
7. PAYMENT OF EXPENSES AND FEES.
13
<PAGE> 14
(a) Whether or not the transactions contemplated hereunder are
consummated, or if this Agreement is terminated for any reason, the Company
will pay or cause to be paid the costs, fees, and expenses incurred in
connection with the offering of the Preferred Securities as follows:
(i) All costs, fees, and expenses incurred in connection
with the performance of the obligations of the Company and the Trust hereunder,
including all fees and expenses of the Company's and the Trust's accountants
and counsel, all costs and expenses incurred in connection with the
preparation, printing, filing, and distribution (including delivery and
shipping costs) of the Registration Statement, each Preliminary Prospectus, and
the Prospectus (including all amendments and exhibits thereto and the financial
statements therein), and agreements and supplements provided for herein, this
Agreement and other underwriting documents, including various Underwriter's
letters, and the Preliminary and Supplemental Blue Sky Memoranda;
(ii) All filing and registration fees and expenses,
including the legal fees and disbursements of counsel, incurred in connection
with qualifying or registering all or any part of the Preferred Securities, the
Guarantee and the Subordinated Debentures for offer and sale under the Blue Sky
Laws;
(iii) All fees and expenses of the Offerors' registrar and
transfer agent; all transfer taxes, if any, and all other fees and expenses
incurred in connection with the sale and delivery of the Preferred Securities
to the Underwriter;
(iv) The filing fees of the NASD and applicable fees
charged by AMEX for inclusion of the Preferred Securities for quotation on the
AMEX; and
(v) All other costs and expenses incident to the
performance of the obligations of the Company and the Trust hereunder which are
not otherwise provided for in this Section 7 (a).
8. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITER. The obligations
of the Underwriter under this Agreement shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Trust set
forth herein as of the Closing Date, and if applicable, as of the Option
Closing Date, as the case may be, to the accuracy of the statements of the
Offerors' directors and officers, to the performance by the Company and the
Trust of their obligations hereunder, and to the following additional
conditions, except to the extent expressly waived in writing by the
Underwriter:
(a) The Registration Statement and all post-effective amendments
thereto shall have been declared effective by the Commission no later than 5:30
p.m. Eastern Time, on the date of this Agreement, or such later time as shall
have been consented to by the Underwriter, but in any event not later than 5:30
p.m., Eastern Time, on the third full business day following the date hereof;
if the Offerors omitted information from the Registration Statement at the time
it became effective in reliance on Rule 430A under the Securities Act, the
Prospectus shall have been filed with the
14
<PAGE> 15
Commission in compliance with Rule 424(b) and Rule 430A under the Securities
Act; no stop order suspending the effectiveness of the Registration Statement
or any amendment or supplement thereto shall have been issued; to the knowledge
of the Offerors or the Underwriter, no proceeding for the issuance of such an
order shall have been initiated or shall be pending or threatened or
contemplated by the Commission; and any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been disclosed to the Underwriter and
complied with to the Underwriter's satisfaction.
(b) The Preferred Securities, the Guarantee and the Subordinated
Debentures shall have been qualified or registered for sale, or subject to an
available exemption from such qualification or registration, under the Blue Sky
Laws of such jurisdictions as shall have been reasonably specified by the
Underwriter and the offering contemplated by this Agreement shall have been
cleared by the NASD.
(c) Since the dates as of which information is given in the
Registration Statement:
(i) There shall not have been any adverse change, or any
development involving a prospective adverse change, in the ability of the
Company or any Subsidiary to conduct their respective businesses (whether by
reason of any court, legislative, or other governmental action, order, decree,
or otherwise), or in the general affairs, condition (financial and otherwise),
business, properties, management, financial position or earnings, results of
operations, or net worth of the Company or any Subsidiary, whether or not
arising from transactions in the ordinary course of business, except for those
changes or developments which are not reasonably likely to have a Material
Adverse Effect; and
(ii) Neither the Company nor any Subsidiary shall have
sustained any loss or interference from any labor dispute, strike, fire, flood,
windstorm, accident, or other calamity (whether or not insured) or from any
court or governmental action, order, or decree that is reasonably likely to
have a Material Adverse Effect;
which, in any such case described under Section 8 (c) (i) or (ii) above, is in
the reasonable opinion of the Underwriter so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Preferred Securities on the terms and in the manner
contemplated in the Registration Statement and the Prospectus.
(d) There shall have been furnished to the Underwriter on the Closing
Date and the Option Closing Date, except as otherwise expressly provided below:
(i) An opinion of Carlton, Fields, Ward, Emmanuel, Smith &
Cutler, P.A., counsel to the Company, dated as of the Closing Date and any
Option Closing Date, in form and substance substantially in the form attached
hereto as Exhibit A;
15
<PAGE> 16
(ii) An opinion, dated the Closing Date and the Option
Closing Date, of White & Case, counsel to the Trust Company and Trust Delaware,
substantially in the form attached hereto as Exhibit B;
(iii) An opinion, dated the Closing Date and the Option
Closing Date, of Richards, Layton & Finger, P.A. , special Delaware counsel to
the Company and the Trust, substantially to the effect and in the form attached
hereto as Exhibit C;
(iv) An opinion, dated the Closing Date and the Option
Closing Date, of Richards, Layton & Finger, P.A. substantially to the effect
and in the form attached hereto as Exhibit D; and
(v) An opinion, dated the Closing Date and the Option
Closing Date, of Tyler Cooper & Alcorn, LLP, counsel to the Underwriter, as to
such matters as the Underwriter shall reasonably request.
In rendering such opinions, the counsel involved may either (a) rely
upon an opinion or opinions, dated as of the Closing Date or the Option Closing
Date, as appropriate, of other counsel retained by them or their client as to
the laws of any jurisdiction in which counsel is not licensed to practice,
provided a copy of each such opinion is delivered to the Underwriter and
counsel shall state in their opinion that both they and the Underwriter are
justified in relying thereon; or (b) assume that the laws of the jurisdiction
in question are identical in all respects material to the opinion being
rendered by such counsel, provided that such assumption is expressly disclosed
in the opinion. Insofar as such opinions involve factual matters, such counsel
may rely, to the extent such counsel deems proper, upon certificates of
officers of the Company, its Subsidiaries and the Trust and certificates of
public officials.
(e) At the time this Agreement is executed and also on the
Closing Date and the Option Closing Date, as the case may be, there shall be
delivered to the Underwriter a letter from Baker, Newman & Noyes, Limited
Liability Company, the Company's independent accountants, the first letter to
be dated the date of this Agreement, the second letter to be dated the Closing
Date, and the third letter to be dated the Option Closing Date, if any, which
shall be in form and substance reasonably satisfactory to the Underwriter and
shall contain information as of a date within five days of the date of such
letter. There shall not have been any change set forth in any letter referred
to in this Section 8(e) that makes it impracticable or inadvisable in the
judgment of the Underwriter to proceed with the public offering or purchase of
the Preferred Securities as contemplated hereby.
(f) On the Closing Date and on the Option Closing Date, a
certificate signed by the Chairman of the Board, the President, a Vice Chairman
of the Board or any Executive or Senior Vice President and the principal
financial or accounting officer of the Company, dated the Closing Date or the
Option Closing Date, as the case may be, to the effect that the signers of such
certificate have carefully examined the Registration Statement and this
Agreement and that:
16
<PAGE> 17
(i) The representations and warranties of the Offerors in
this Agreement are true and correct in all material respects on and as of the
Closing Date or the Option Closing Date, as the case may be, with the same
effect as if made on the Closing Date or the Option Closing Date, as the case
may be, and the Offerors have complied in all material respects with all the
agreements and satisfied in all material respects all the conditions on their
part to be performed or satisfied at or prior to the Closing Date or the Option
Closing Date, as the case may be;
(ii) The Commission has not issued an order preventing or
suspending the use of the Prospectus or any Preliminary Prospectus or any
amendment thereto; no stop order suspending the effectiveness of the
Registration Statement has been issued; and, to the knowledge of the respective
signatories, no proceeding for that purpose has been instituted or is pending
or contemplated under the Securities Act;
(iii) Each of the respective signatories of the certificate
has carefully examined the Registration Statement, the Prospectus, and any
amendments or supplements thereto, and such documents contain all material
statements and information required to be made therein, and neither the
Registration Statement nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading and, since the date on which the Registration Statement was
initially filed, no event has occurred that was required to be set forth in an
amended or supplemented prospectus or in an amendment to the Registration
Statement that has not been so set forth; provided, however, that no
representation need be made as to information contained in or omitted from the
Registration Statement or any amendment or supplement in reliance upon and in
conformity with written information furnished to the Company and the Trust by
or on behalf of the Underwriter; and
(iv) Since the date on which the Registration Statement was
initially filed with the Commission, there has not been any material adverse
change or a development involving a prospective material adverse change in the
business, properties, financial condition, or earnings of the Company and its
Subsidiaries taken as a whole, whether or not arising from transactions in the
ordinary course of business, except as disclosed in the Registration Statement
as heretofore amended or (but only if the Underwriter expressly consents
thereto in writing) as disclosed in an amendment or supplement thereto filed
with the Commission and delivered to the Underwriter after the execution of
this Agreement; since such date and except as so disclosed or in the ordinary
course of business, neither the Company nor any Subsidiary has incurred any
liability or obligation, direct or indirect, or entered into any transaction
that is material to the Company or such Subsidiary, as the case may be, not
contemplated in the Prospectus; since such date and except as so disclosed
there has not been any material change in the outstanding capital stock of the
Company, or any change that is material to the Company and its Subsidiaries
taken as a whole in the short-term debt or long-term debt of the Company or any
Subsidiary; since such date and except as so disclosed, neither the Company nor
any of its Subsidiaries have incurred any material contingent obligations, and
no material litigation is pending or, to their knowledge, threatened against
the Company or any Subsidiary; and, since such date and except as so disclosed,
neither the Company nor any of its
17
<PAGE> 18
Subsidiaries have sustained any material loss or interference from any strike,
fire, flood, windstorm, accident or other calamity (whether or not insured) or
from any court or governmental action, order, or decree.
(g) Prior to the Closing Date and any Option Closing Date, the
Company shall have furnished to the Underwriter such further information,
certificates and documents as the Underwriter may reasonably request in
connection with the offering of the Preferred Securities.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Underwriter by notice from the Underwriter to the Company at
any time without liability on the part of the Underwriter or the Company,
except for expenses to be paid by the Company pursuant to Section 7 of this
Agreement or reimbursed by the Company pursuant to Section 9 of this Agreement
and except to the extent provided in Section 11 of this Agreement.
9. REIMBURSEMENT OF UNDERWRITER'S EXPENSES. If the sale of the
Preferred Securities to the Underwriter on the Closing Date is not consummated
because the offering is terminated or indefinitely suspended by the Company or
by the Underwriter for any reason permitted by this Agreement, other than the
Underwriter's inability to legally act as Underwriter, the Company will
reimburse the Underwriter for the Underwriter's reasonable out-of-pocket
expenses, including fees and disbursements of its counsel, that shall have been
incurred by the Underwriter in connection with the proposed purchase and sale
of the Preferred Securities. Any such termination or suspension shall be
without liability of any party to the other except that the provisions of this
Section 9, and Sections 7 and 11 of this Agreement shall remain effective and
shall apply.
10. MAINTAIN EFFECTIVENESS OF REGISTRATION STATEMENT. The Underwriter
and the Company will use their respective best efforts to prevent the issuance
of any stop order or other such order suspending the effectiveness of the
Registration Statement and, if such stop order is issued, to obtain the lifting
thereof as soon as possible.
11. INDEMNIFICATION AND CONTRIBUTION.
(a) The Offerors agree to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, expenses, liabilities, or actions in respect thereof ("Claims"), joint
or several, to which the Underwriter or each such controlling person may become
subject under the Securities Act, the Exchange Act, the Securities Act
Regulations, Blue Sky Laws or other federal or state statutory laws or
regulations, at common law or otherwise (including payments made in settlement
of any litigation, if such settlement is effected with the written consent of
the Company, which consent shall not be unreasonably withheld), insofar as such
Claims arise out of or are based upon the inaccuracy or breach of any
representation, warranty, or covenant of the Company or the Trust contained in
this Agreement, any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the
18
<PAGE> 19
Prospectus, or any amendment or supplement thereto, or in any application filed
under any Blue Sky Law or other document executed by the Offerors for that
purpose or based upon written information furnished by the Offerors and filed
in any state or other jurisdiction to qualify or register any or all of the
Preferred Securities under the securities laws thereof (any such document,
application, or information being hereinafter called a "Blue Sky Application"),
or arise out of or are based upon the omission or alleged omission to state in
any of the foregoing a material fact required to be stated therein or necessary
to make the statements therein not misleading. The Company agrees to reimburse
the Underwriter and each such controlling person promptly for any legal fees or
other expenses incurred by the Underwriter or any such controlling person in
connection with investigating or defending any such Claim or appearing as a
third-party witness in connection with any such Claim; provided, however, that
the Company will not be liable in any such case to the extent that:
(i) Any such Claim arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, the Preliminary Prospectus, the Prospectus,
or any amendment or supplement thereto or in any Blue Sky Application in
reliance upon and in conformity with the written information furnished by or on
behalf of the Underwriter to the Offerors expressly for use therein pursuant to
Section 4 of this Agreement; or
(ii) Such statement or omission was contained or made in
any Preliminary Prospectus and corrected in the Prospectus and (1) any such
Claim suffered or incurred by the Underwriter (or any person who controls the
Underwriter) resulted from an action, claim, or suit by any person who
purchased Preferred Securities that are the subject thereof from the
Underwriter in the offering of the Preferred Securities, and (2) the
Underwriter failed to deliver a copy of the Prospectus (as then amended if the
Offerors shall have amended the Prospectus) to such person at or prior to the
confirmation of the sale of such Preferred Securities in any case where such
delivery is required by the Securities Act, unless such failure was due to
failure by the Company and the Trust to provide copies of the Prospectus (as so
amended) to the Underwriter as required by this Agreement.
(b) The Underwriter agrees to indemnify and hold harmless each of
the Offerors, each of their directors, each of their officers who sign the
Registration Statement, and each person who controls the Company or the Trust
within the meaning of the Securities Act, against any Claim to which the
Offerors, or any such director, officer, or controlling person may become
subject under the Securities Act, the Exchange Act, the Securities Act
Regulations, Blue Sky Laws, or other federal or state statutory laws or
regulations, at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Underwriter, which consent shall not be unreasonably withheld), insofar as such
Claim arises out of or is based upon any untrue or alleged untrue statement of
any material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or in any
Blue Sky Application, or arises out of or is based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
19
<PAGE> 20
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, in reliance upon and in
conformity with the written information furnished by or on behalf of the
Underwriter to the Offerors pursuant to Section 4 of this Agreement. The
Underwriter will severally reimburse any legal fees or other expenses
reasonably incurred by the Offerors, or any such director, officer, or
controlling person in connection with investigating or defending any such
Claim, and from any and all Claims resulting from failure of the Underwriter to
deliver a copy of the Prospectus, if the person asserting such Claim purchased
Preferred Securities from the Underwriter and a copy of the Prospectus (as then
amended if the Offerors shall have amended the Prospectus) was not sent or
given by or on behalf of the Underwriter to such person, if required by law so
to have been delivered, at or prior to the written confirmation of the sale of
the Preferred Securities to such person, and if the Prospectus (as so amended)
would have cured the defect giving rise to such Claim (unless such failure was
due to a failure by the Company and the Trust to provide sufficient copies of
the Prospectuses (as so amended) to the Underwriter).
(c) Promptly after receipt by an indemnified party under Sections
11 (a) or (b) of this Agreement of notice of the commencement of any action in
respect of a Claim, such indemnified party will, if a Claim in respect thereof
is to be made against an indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof. In case any such
action is brought against any indemnified party, and such indemnified party
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in and, to the extent that it may wish,
jointly with all other indemnifying parties, similarly notified, assume the
defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to the
indemnified party and/or other indemnified parties that are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf
of such indemnified party or parties.
(d) Upon receipt of notice from the indemnifying party to such
indemnified party of the indemnifying party's election to assume the defense of
such action and upon approval by the indemnified party of counsel selected by
the indemnifying party, the indemnifying party will not be liable to such
indemnified party under Sections 11 (a) or (b) of this Agreement for any legal
fees or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof, unless:
(i) the indemnified party shall have employed separate
counsel in connection with the assumption of legal defenses in accordance with
the proviso to the last sentence of Section 11 (c) hereof (it being understood,
however, that the indemnified party shall not be liable for the legal fees and
expenses of more than one separate counsel (plus local counsel), approved by
the Underwriter if the Underwriter or its controlling persons are the
indemnified parties); or
20
<PAGE> 21
(ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after the indemnified party's notice to the
indemnifying party of commencement of the action;
(e) If the indemnification provided for in this Section 11 is
unavailable to an indemnified party or insufficient to hold harmless an
indemnified party under Sections 11 (a) or (b) of this Agreement in respect of
any Claim referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall, subject to the limitations
hereinafter set forth, contribute to the amount paid or payable by such
indemnified party as a result of such Claim:
(i) in such proportion as is appropriate to reflect the
relative benefits received by the Offerors on the one hand and the Underwriter
on the other hand from the offering of the Preferred Securities; or
(ii) if the allocation provided by Section 11 (e) (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in Section 11 (e) (i) above,
but also the relative fault of the Offerors on the one hand and the Underwriter
on the other hand in connection with the statements or omissions that resulted
in such Claim, as well as any other relevant equitable considerations.
The respective relative benefits received by the Offerors on the one
hand and the Underwriter on the other hand shall be deemed to be in such
proportion that the Underwriter is responsible for that portion of a Claim
represented by the percentage that the amount of the Underwriting Commission
bears to the public offering price of the Preferred Securities, and the Company
(including the Company's directors, officers, and controlling persons) is
responsible for the remaining portion of such Claim.
The relative fault of the Offerors on the one hand and the Underwriter
on the other hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Offerors on the one hand or the Underwriter on the other hand
and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such untrue statement or omission. The amount
paid or payable by a party as a result of the Claims referred to above shall be
deemed to include, subject to the limitations set forth in Sections 11 (c) and
(d) of this Agreement, any legal or other fees or expenses reasonably incurred
by such party in connection with investigating or defending any action or
claim.
(f) The Offerors and the Underwriter agree that it would not be
just and equitable if contribution pursuant to this Section 11 were determined
by pro rata or per capita allocation or by any other method or allocation that
does not take into account the equitable considerations referred to in Section
11 (e) of this Agreement. Notwithstanding the other provisions of this Section
11, the Underwriter shall not be required to contribute any amount in excess of
the amount by which the total price at which the Preferred Securities
underwritten by it and distributed to the public exceeds
21
<PAGE> 22
the amount of any damages which the Underwriter has otherwise been required to
pay by reason of such untrue or alleged untrue omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(g) The obligations of the Company, the Trust and the Underwriter
under this Section 11 shall be in addition to any liability that the Company,
the Trust or the Underwriter may otherwise have.
12. EFFECTIVE DATE. This Agreement shall become effective immediately
on the date hereof.
13. TERMINATION. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof, this Agreement may be
terminated by the Underwriter prior to the Closing Date and the option from the
Trust referred to in Section 3 of this Agreement, if exercised, may be canceled
by the Underwriter at any time prior to the Option Closing Date, if:
(a) The Offerors shall have failed, refused, or been unable, at
or prior to the Closing Date or Option Closing Date, as the case may be, to
perform any material agreement on its part to be performed hereunder;
(b) Any other condition to the obligations of the Underwriter
hereunder is not fulfilled in all material respects; or
(c) In the Underwriter's reasonable judgment, payment for and
delivery of the Preferred Securities is rendered impracticable or inadvisable
because:
(i) Additional governmental restrictions, not in force and
effect on the date hereof, shall have been imposed upon trading in securities
generally or minimum or maximum prices shall have been generally established on
any national securities exchange or over-the-counter market, or trading in
securities generally shall have been suspended on any national securities
exchange or on the Nasdaq Stock Market, or a general banking moratorium shall
have been established by federal or state authorities;
(ii) Any event shall have occurred or shall exist that
makes untrue or incorrect in any material respect any statement or information
contained in the Registration Statement or that is not reflected in the
Registration Statement but should be reflected therein to make the statements
or information contained therein not misleading in any material respect; or
(iii) Any outbreak or escalation of major hostilities or
other national or international calamity or any substantial change in
political, financial or economic conditions shall have occurred or shall have
accelerated to such extent, in the Underwriter's reasonable judgment, as to
have a material adverse effect on the general securities market of the United
States or make it
22
<PAGE> 23
impracticable or inadvisable to proceed with completion of the sale and payment
for the Preferred Securities as provided in this Agreement.
Any termination pursuant to this Section 13 shall be without liability
on the part of the Underwriter to the Company or on the part of the Company to
the Underwriter (except for expenses to be paid by the Company pursuant to
Section 7 of this Agreement or reimbursed by the Company pursuant to Section 9
of this Agreement and except as to indemnification and contribution to the
extent provided in Section 11 of this Agreement).
14. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnity and contribution agreements of the Company and the
Underwriter, and the representations, warranties, covenants, other written
statements of the Offerors and of their directors and officers set forth in or
made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of the Underwriter, the
Offerors, or any of its or their partners, officers, directors, or any
controlling person, as the case may be, and will survive delivery of and
payment for the Preferred Securities sold hereunder. The respective indemnity
and contribution agreements of the Company and the Underwriter, the provisions
of Section 7(a) and Section 9 of this Agreement, and the representations and
warranties of the Offerors will survive the termination or cancellation of this
Agreement.
15. NOTICES. All communications hereunder shall be in writing and, if
sent to the Underwriter, will be mailed, delivered, or telecopied (with receipt
confirmed) to Advest, Inc., at One Rockefeller Plaza, 20th Floor, New York, NY
10020, Attention: Thomas G. Rudkin, Managing Director (Fax No. (212) 584-4292)
with a copy to William W. Bouton, III, Tyler Cooper & Alcorn, LLP, City Place,
Hartford, CT 06103-3488, (Fax No. (860) 278-3802); and if sent to the Company
or the Trust will be mailed, delivered, or telecopied (with receipt confirmed)
to Northeast Bancorp, 232 Center Street, Auburn, ME 04210, Attention: James D.
Delamater, President and CEO (Fax No. (207) 777-5936) with a copy to Richard A.
Denmon, Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A.,One Harbour
Place, 777 South Harbor Island Boulevard, Tampa FL 33602 (Fax No. (813)
229-4133).
16. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors or assigns, and
to the benefit of the directors and officers (and their personal
representatives) and controlling persons referred to in Section 11 of this
Agreement, and no other person shall acquire or have any right or obligation
hereunder. The terms "successors" or "assigns," as used in this Agreement,
shall not include any purchaser of the Preferred Securities from any
Underwriter merely by reason of such purchase.
17. PARTIAL UNENFORCEABILITY. If any section, subsection, clause, or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other section, subsection, clause, or provision hereof.
23
<PAGE> 24
18. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
19. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
among the parties hereto with respect to the transactions contemplated herein,
and there have been and are no agreements among the parties with respect to
such transactions other than as set forth or provided for herein.
20. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
24
<PAGE> 25
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed counterparts hereof,
whereupon it will become a binding agreement among the Company, the Trust and
the Underwriter in accordance with its terms.
Very truly yours,
NORTHEAST BANCORP
By:
----------------------------------
Title:
-------------------------------
NBN CAPITAL TRUST
By: NORTHEAST BANCORP
as Depositor
By:
----------------------------------
Title:
-------------------------------
ADVEST, INC.
By:
----------------------------------
Title:
-------------------------------
25
<PAGE> 26
EXHIBIT A
The opinion of special counsel to the Company to be delivered pursuant to
Section 8(d) (i) of the Underwriting Agreement shall be substantially to the
effect that:
1. The Company is a corporation existing and in good standing under
the laws of the State of Maine, with requisite corporate power and authority to
own its properties and conduct its business as described in the Registration
Statement, except for such power and authority the absence of which would not
have a Material Adverse Effect, and is registered as unitary thrift holding
company with the Office of Thrift Supervision.
2. Each Subsidiary of the Company has been duly incorporated or
organized and is validly existing as a corporation or savings and loan
association in good standing under the laws of the jurisdiction of
organization, with full corporate power and authority to own, lease, and
operate its properties and conduct its business as described in the
Registration Statement; the Company and each Subsidiary are qualified to do
business as foreign corporations under the corporation laws of each
jurisdiction in which the Company or such Subsidiary, as the case may be, owns
or leases properties, has an office, or in which business is conducted and such
qualification is required, except where the failure to so qualify would not
have a Material Adverse Effect.
3. The Company has full corporate power and authority to execute,
deliver, and perform the Underwriting Agreement; the Underwriting Agreement has
been duly authorized, executed and delivered by the Company, and constitutes a
legal, valid, and binding obligation of the Company and is enforceable against
each of the Company and the Trust in accordance with its terms.
4. The Trust Agreement has been duly authorized, executed and
delivered by the Company, and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
5. The Guarantee Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.
6. The Indenture has been duly authorized, executed and delivered by
the Company, has been duly qualified under the Trust Indenture Act, and is a
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms.
7. The Subordinated Debentures have been duly authorized, executed and
delivered by the Company and when duly authenticated in accordance with the
Indenture and delivered and paid for in accordance with the Debenture Purchase
Agreement, will be valid and binding obligations of the Company, entitled to
the benefits of the Indenture and enforceable against the Company in accordance
with their terms.
<PAGE> 27
8. The Trust is not an "investment company" or an entity "controlled"
by an "investment company," as such terms are defined in Investment Company Act
of 1940, as amended.
9. The statements set forth in the Registration Statement under the
captions "Supervision and Regulation," "Description of Preferred Securities,"
"Description of Junior Subordinated Debentures," "Description of Guarantee" and
"Relationship Among the Preferred Securities, the Junior Subordinated
Debentures and the Guarantee," insofar as they purport to describe the
provisions of the laws referred to therein, fairly summarize the legal matters
described therein.
10. The statements of law or legal conclusions and opinions set forth
in the Registration Statement under the caption "Certain Federal Income Tax
Consequences," subject to the assumptions and conditions described therein,
constitute such counsel's opinion.
11. The Registration Statement was declared effective under the
Securities Act as of the date and time specified in such opinion and, to such
counsel's knowledge and information, no stop order suspending the effectiveness
of the Registration Statement has been issued under the Securities Act and no
proceedings therefor have been initiated or threatened by the Commission.
12. The Registration Statement and the Prospectus and any amendment or
supplement thereto made by the Company prior to the Closing Date or any Option
Closing Date (other than the financial statements and financial and statistical
data included therein, as to which no opinion need be rendered), when it or
they became effective or were filed with the Commission, as the case may be,
and in each case at the Closing Date or any Option Closing Date, complied as to
form in all material respects with the requirements of the Securities Act, the
Trust Indenture Act and the applicable rules and regulations under said acts.
13. Except as disclosed or contemplated by the Registration Statement,
such counsel knows of no material legal or governmental proceedings pending to
which the Company or any Subsidiary is a party or of which any property of the
Company or any Subsidiary is the subject which would affect the consummation of
the transactions contemplated in this Agreement, the Indenture or the Preferred
Securities; and such counsel knows of no such proceedings which are threatened
or contemplated by governmental authorities or threatened by others.
14. Such counsel knows of no contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments required to be described in the
Registration Statement or to be filed as exhibits thereto other than those
described therein or filed or incorporated by reference as exhibits thereto,
and such instruments as are summarized in the Registration Statement are fairly
summarized in all material respects.
15. To counsel's knowledge, no approval, authorization, consent,
registration, qualification or other order of any public board or body is
required in connection with the execution and delivery of this Agreement, the
Trust Agreement, the Guarantee Agreement, and the Indenture or the issuance and
sale of the Preferred Securities or the consummation by the
2
<PAGE> 28
Company of the other transactions contemplated by this Agreement, the Trust
Agreement, the Guarantee Agreement, or the Indenture, except such as have been
obtained under the Securities Act, the Exchange Act and the Trust Indenture Act
or such as may be required under the blue sky or securities laws of various
states in connection with the offering and sale of the Preferred Securities (as
to which such counsel need express no opinion).
16. The execution and delivery of this Agreement, the Trust Agreement,
the Guarantee Agreement, and the Indenture, the issue and sale of the Preferred
Securities and the Subordinated Debentures, the compliance by the Company with
the provisions of the Preferred Securities, the Subordinated Debentures, the
Indenture and this Agreement and the consummation of the transactions herein
and therein contemplated will not conflict with or constitute a breach of, or
default under, the articles of incorporation or bylaws of the Company or a
breach or default under any contract, indenture, mortgage, loan agreement,
note, lease or other instrument known to such counsel to which either the
Company or any Subsidiary is a party or by which any of them or any of their
respective properties may be bound except for such breaches as would not have a
Material Adverse Effect, nor will such action result in a violation on the part
of the Company or any Subsidiary of any applicable law or regulation or of any
administrative, regulatory or court decree known to such counsel.
Counsel will also provide a representation that, although counsel will
not pass on or assume any responsibility for the accuracy, completeness, or
fairness of the statements contained in the Registration Statement or
Prospectus and although counsel has not undertaken to verify independently the
accuracy or completeness of the statements in the Registration Statement or
Prospectus, nothing has come to counsel's attention to lead it to believe that:
(i) the Registration Statement (other than the financial statements and
financial and statistical data included therein, as to which no opinion need be
rendered), at the time it became effective, contained any untrue statement of a
material fact or omitted to state a material fact necessary in order to make
the statements contained therein, not misleading, or (2) the Prospectus (other
than the financial statements and financial and statistical data included
therein, as to which no opinion need be rendered), at the time it was filed
with the Commission or at the Closing Date or any Option Closing Date,
contained any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements contained therein, in
the light of the circumstances under which they were made, not misleading.
3
<PAGE> 29
EXHIBIT B
The opinion of counsel to the Trust Company and Trust Delaware to be delivered
pursuant to Section 8(d) (ii) of the Underwriting Agreement shall be
substantially to the effect that:
1. The Trust Company is duly incorporated and is validly existing in
good standing as a banking corporation with trust powers under the laws of the
State of New York.
2. The Indenture Trustee has the requisite power and authority to
execute, deliver and perform its obligations under the Indenture, and has taken
all necessary corporate action to authorize the execution, delivery and
performance by it of the Indenture.
3. The Guarantee Trustee has the requisite power and authority to
execute, deliver and perform its obligations under the Guarantee Agreement, and
has taken all necessary corporate action to authorize the execution, delivery
and performance by it of the Guarantee Agreement.
4. The Property Trustee has the requisite power and authority to
execute and deliver the Trust Agreement, and has taken all necessary corporate
action to authorize the execution and delivery of the Trust Agreement.
5. Each of the Indenture and the Guarantee Agreement has been duly
executed and delivered by the Indenture Trustee and the Guarantee Trustee,
respectively, and constitutes a legal, valid and binding obligation of the
Indenture Trustee and the Guarantee Trustee, respectively, enforceable against
the Indenture Trustee and the Guarantee Trustee, respectively in accordance
with its respective terms, except that certain payment obligations may be
enforceable solely against the assets of the Trust and except that such
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, liquidation, fraudulent conveyance and transfer or other similar
laws affecting the enforcement of creditors' rights generally, and by general
principles of equity, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing (regardless of whether such
enforceability is considered in a proceeding in equity or at law), and by the
effect of applicable public policy on the enforceability of provisions relating
to indemnification or contribution.
6. The Subordinated Debentures delivered on the date hereof have been
duly authenticated by the Indenture Trustee in accordance with the terms of the
Indenture.
<PAGE> 30
Exhibit C
(LETTERHEAD OF RICHARDS, LAYTON & FINGER)
____________, 1999
ADVEST, INC.
One Rockefeller Plaza, 20th Floor
New York, New York 10020
RE: NBN Capital Trust
Ladies and Gentlemen:
We have acted as special Delaware counsel for Northeast Bancorp, a
Maine corporation (the "Company"), and NBN Capital Trust, a Delaware business
trust (the "Trust"), in connection with the matters set forth herein. At your
request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust, dated as of _________, 1999
(the "Certificate"), as filed in the office of the Secretary of State of the
State of Delaware (the "Secretary of State") on ________, 1999;
(b) The Trust Agreement of the Trust, dated as of ________,1999, among
the Company, as depositor, and the trustees of the Trust named therein;
(c) The Amended and Restated Trust Agreement of the Trust, dated as of
___________, 1999 (including Exhibits A, C and D thereto) (the "Trust
Agreement"), among the Company, as depositor, the trustees of the Trust named
therein (the "Trustees"), the administrators named therein and the holders, from
time to time, of undivided beneficial interests in the assets of the Trust;
(d) The Underwriting Agreement, dated _________, 1999, among the
Company, the Trust and ADVEST, INC. (the "Underwriting Agreement");
<PAGE> 31
ADVEST, INC.
_________, 1999
Page 2
(e) The Prospectus, dated _________, 1999 (the "Prospectus"), relating
to the ___% Preferred Securities of the Trust, representing undivided beneficial
interests in the assets of the Trust (each, a "Preferred Security" and
collectively, the "Preferred Securities"); and
(f) A Certificate of Good Standing for the Trust, dated _______, 1999,
obtained from the Secretary of State.
Capitalized terms used herein and not otherwise defined in the Trust
Agreement.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed in paragraphs (a) through (f) above. In particular,
we have not reviewed any document (other than the documents listed in
paragraphs (a) through (f) above) that is referred to in or incorporated by
reference into the documents reviewed by us. We have assumed that there exists
no provision in any document that we have not reviewed that is inconsistent
with the opinions stated herein. We have conducted no independent factual
investigation of our own but rather have relied solely upon the foregoing
documents, the statements and information set forth therein and the additional
matters recited or assumed herein, all of which we have assumed to be true,
complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as originals, (ii) the conformity
with the originals of all documents submitted to us as copies or forms, and
(iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust
Agreement constitutes the entire agreement among the parties thereto with
respect to the subject matter thereof, including with respect to the creation,
operation and termination of the Trust, and that the Trust Agreement and the
Certificate are in full force and effect and have not been amended, (ii) except
to the extent as provided in paragraph 1 below, the due creation, due formation
or due organization, as the case may be, and valid existence in good standing
of each party to the documents examined by us under the laws of the
jurisdiction governing its creation, formation or organization, (iii) the legal
capacity of each natural person who is a party to the documents examined by us,
(iv) except to the extent provided in paragraphs 2 and 4 below, that each of
the parties to the documents examined by us has the power and authority to
execute and deliver, and to perform its obligations under, such documents, (v)
except to the extent provided in paragraph 5 below, that each of the parties to
the documents examined by us has duly authorized, executed and delivered such
documents, (vi) the receipt by each Person to whom a Preferred Security is to
be issued by the Trust (the "Preferred Security Holders") of a Preferred
Securities Certificate for the Preferred Security and the payment for the
Preferred Security acquired by it, in accordance with the Trust Agreement, and
as described in the Prospectus, (vii) that the Preferred Securities
<PAGE> 32
ADVEST, INC.
__________, 1999
Page 3
are issued and sold to the Preferred Security Holders in accordance with the
Trust Agreement, and as described in the Prospectus, (viii) the receipt by the
Person (the "Common Security Holder") to whom a Common Security of the Trust
representing common undivided beneficial interests in the assets of the Trust
(each, a "Common Security" and collectively, the "Common Securities") (the
Common Securities and the Preferred Securities are hereinafter collectively
referred to as the "Trust Securities") is to be issued by the Trust of a Common
Securities Certificate for the Common Security and the payment for the Common
Security acquired by it, in accordance with the Trust Agreement, and as
described in the Prospectus, and (ix) that the Common Securities are issued and
sold to the Common Security Holder in accordance with the Trust Agreement, and
as described in the Prospectus. We have not participated in the preparation of
the Prospectus and assume no responsibility for its contents.
This opinion is limited to the laws of the State of Delaware (excluding
the securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal laws
and rules and regulations relating thereto. Our opinions are rendered only with
respect to Delaware laws and rules, regulations and orders thereunder that are
currently in effect.
Based upon the foregoing, and upon our examination of such questions
of law and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
expectations set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act, and all
filings required under the laws of the State of Delaware with respect to the
creation and valid existence of the Trust as a business trust have been made.
2. Under the Delaware Business Trust Act and the Trust Agreement, the
Trust has the trust power and authority to own its property and to conduct its
business, all as described in the Prospectus.
3. The Trust Agreement constitutes a valid and binding obligation of
the Company and the Trustees, and is enforceable against the Company and the
Trustees, in accordance with its terms.
4. Under the Delaware Business Trust Act and the Trust Agreement, the
Trust has the trust power and authority (i) to execute and deliver, and to
perform its obligations
<PAGE> 33
ADVEST, INC.
___________, 1999
Page 4
under, the Underwriting Agreement, and (ii) to issue and perform its
obligations under the Trust Securities.
5. Under the Delaware Business Trust Act and the Trust Agreement,
the execution and delivery by the Trust of the Underwriting Agreement, and the
performance by the Trust of its obligations thereunder, have been duly
authorized by all necessary trust action on the part of the Trust.
6. The Preferred Securities have been duly authorized by the Trust
Agreement and are duly and validly issued and, subject to the qualifications
set forth herein, fully paid and nonassessable undivided beneficial interests
in the assets of the Trust and are entitled to the benefits of the Trust
Agreement. The Preferred Security Holders, as beneficial owners of the Trust,
will be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note that the Preferred Security
Holders may be obligated, pursuant to the Trust Agreement, (i) to provide
indemnity and/or security in connection with and pay taxes or governmental
charges arising from transfers or exchanges of Preferred Securities
Certificates and the issuance of replacement Preferred Securities Certificates,
and (ii) to provide security or indemnity in connection with requests of or
directions to the Property Trustee to exercise its rights and powers under the
Trust Agreement.
7. Under the Delaware Business Trust Act and the Trust Agreement,
the issuance of the Trust Securities is not subject to preemptive rights.
8. The Common Securities have been duly authorized by the Trust
Agreement and are duly and validly issued undivided beneficial interests in the
assets of the Trust and are entitled to the benefits of the Trust Agreement.
9. The issuance and sale by the Trust of the Trust Securities, the
purchase by the Trust of the Junior Subordinated Debentures, the execution,
delivery and performance by the Trust of the Underwriting Agreement, the
consummation by the Trust of the transactions contemplated by the Underwriting
Agreement and the compliance by the Trust with its obligations thereunder will
not violate (i) any of the provisions of the Certificate or the Trust
Agreement, or (ii) any applicable Delaware law or Delaware administrative
regulation.
The opinion expressed in paragraph 3 above is subject, as to
enforcement, to the effect upon the Trust Agreement of (i) bankruptcy,
insolvency, moratorium, receivership, reorganization, liquidation, fraudulent
conveyance or transfer and other similar laws relating to or affecting the
rights and remedies of creditors generally, (ii) principles of equity,
including
<PAGE> 34
ADVEST, INC.
___________, 1999
Page 5
applicable law relating to fiduciary duties (regardless of whether
considered and applied in a proceeding in equity or at law), and (iii) the
effect of applicable public policy on the enforceability of provisions relating
to indemnification or contribution.
We consent to your relying as to matters of Delaware law upon this
opinion in connection with the Underwriting Agreement. We also consent to
Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A.'s and Tyler Cooper &
Alcorn, LLP's relying as to matters of Delaware law upon this opinion in
connection with opinions to be rendered by them on the date hereof pursuant to
the Underwriting Agreement. Further, we consent to Bankers Trust Company's and
Bankers Trust (Delaware)'s relying as to matters of Delaware law upon this
opinion in connection with the matters set forth herein. Except as stated
above, without our prior written consent, this opinion may not be furnished or
quoted to, or relied upon by, any other Person for any purpose.
Very truly yours,
<PAGE> 35
Exhibit D
(LETTERHEAD OF RICHARD, LAYTON & FINGER, P.A.)
______________, 1999
ADVEST, INC.
One Rockefeller Plaza, 20th Floor
New York, New York 10020
Re: NBN Capital Trust
Ladies and Gentlemen:
We have acted as Delaware counsel to Bankers Trust (Delaware), a
Delaware banking corporation ("Bankers Trust"), in connection with NBN Capital
Trust (the "Trust"), a Delaware business trust created pursuant to a
Certificate of Trust of the Trust, dated as of ________________, 1999, as
filed in the office of the Secretary of State of the State of Delaware on
______________, 1999, and the Trust Agreement of the Trust, dated as of
______________, 1999, as amended and restated by the Amended and Restated Trust
Agreement of the Trust, dated as of ______________, 1999 (the "Trust
Agreement"), by and among Northeast Bancorp, a Maine corporation (the
"Company"), as depositor, the trustees of the Trust named therein, the
administrators named therein and the holders, from time to time, of undivided
beneficial interests in the assets of the Trust. This opinion is being
delivered to you pursuant to Section 8(d)(iv) of the Underwriting Agreement,
dated ______________, 1999, among the Company, the Trust and ADVEST, INC.
Capitalized terms used herein and not otherwise defined are used as defined in,
or by reference in, the Trust Agreement.
We have examined a copy of the Trust Agreement. We have also examined
originals or copies of such other documents and such corporate records,
certificates and other statements of governmental officials and corporate
officers and other representatives of the corporations or entities referred to
herein as we have deemed necessary or appropriate for the purposes of this
opinion. Moreover, as to certain facts material to the opinions expressed
herein, we have relied upon the representations and warranties contained in the
documents referred to in this paragraph.
<PAGE> 36
ADVEST, INC.
____________, 1999
Page 2
Based upon the foregoing and upon an examination of such questions of
law as we have considered necessary or appropriate, and subject to the
assumptions, exceptions and qualifications set forth below, we advise you that,
in our opinion:
1. Bankers Trust is duly incorporated and is validly existing in
good standing as a banking corporation with trust powers under the laws of the
State of Delaware.
2. Bankers Trust has the requisite power and authority to execute
and deliver the Trust Agreement, and has taken all necessary corporate action
to authorize the execution and delivery of the Trust Agreement.
The foregoing opinions are subject to the following assumptions,
exceptions and qualifications:
A. We are admitted to practice law in the State of Delaware and we
do not hold ourselves out as being experts on the law of any other
jurisdiction. The foregoing opinions are limited to the laws of the State of
Delaware (excluding state securities or blue sky laws), and we have not
considered and express no opinion on the laws, rules and regulations of any
other jurisdiction. We express no opinion with respect to federal laws
(including, without limitation, federal securities laws).
B. We have assumed the due authorization, execution and delivery by
the parties thereto (other than Bankers Trust) of the Trust Agreement and that
each such party has the power and authority to execute, deliver and perform
such document.
C. We have assumed that all signatures on documents submitted to us
are genuine, that all documents submitted to us as originals are authentic and
that all documents submitted to us as copies or specimens conform with the
originals, which facts we have not independently verified.
D. We express no opinion as to the creation, attachment, perfection
or priority of any mortgage or security interest or as to the nature or
validity of title to any property.
This opinion may be relied upon by you in connection with the matters
set forth herein. Otherwise, without our prior written consent, this opinion
may not be furnished or quoted to, or relied upon by, any other person or
entity for any purpose.
Very truly yours,
<PAGE> 1
EXHIBIT 4.1
JUNIOR SUBORDINATED INDENTURE
Between
NORTHEAST BANCORP
and
BANKERS TRUST COMPANY
(as Trustee)
dated as of
________, 1999
<PAGE> 2
NBN CAPITAL TRUST
Certain Sections of this Junior Subordinated Indenture relating
to Sections 310 through 318 of the
Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Junior Subordinated
Act Section Indenture Section
- --------------- -------------------
<S> <C> <C>
Section 310 (a) (1) ....................................................................... 6.9
(a) (2) ....................................................................... 6.9
(a) (3) ....................................................................... Not Applicable
(a) (4)........................................................................ Not Applicable
(a) (5)........................................................................ 6.9
(b)............................................................................ 6.8, 6.10
Section 311 (a)............................................................................ 6.13
(b)............................................................................ 6.13
(b) (2)........................................................................ 7.3(a)
Section 312 (a)............................................................................ 7.1, 7.2(a)
(b)............................................................................ 7.2(b)
(c)............................................................................ 7.2(c)
Section 313 (a)............................................................................ 7.3(a)
(a)............................................................................ 7.3(b)
(a) (4)........................................................................ 7.3(a)
(b)............................................................................ 7.3(a)
(c)............................................................................ 7.3(a)
(d)............................................................................ 7.3(c)
Section 314 (a)............................................................................ 7.4
(b)............................................................................ 7.4
(c) (1)........................................................................ 1.2
(c) (2)........................................................................ 1.2
(c) (3)........................................................................ Not Applicable
(e)............................................................................ 1.2
Section 315 (a)............................................................................ 6.1(a)
(b)............................................................................ 6.2, 7.3
(c)............................................................................ 6.1(b)
(d)............................................................................ 6.1(c)
(e)............................................................................ 5.14
Section 316 (a)............................................................................ 5.12
(a) (1) (A).................................................................... 5.12
(a) (1) (B).................................................................... 5.13
(a) (2)........................................................................ Not Applicable
(b)............................................................................ 5.8
(c)............................................................................ 1.4(f)
Section 317 (a) (1)........................................................................ 5.3
(a) (2)........................................................................ 5.4
(b)............................................................................ 10.3
Section 318 (a)............................................................................ 1.7
</TABLE>
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION .....................................................1
Section 1.1 Definitions.....................................................................................1
Section 1.2 Compliance Certificate and Opinions............................................................11
Section 1.3 Forms of Documents Delivered to Trustee........................................................12
Section 1.4 Acts of Holders................................................................................12
Section 1.5 Notices, Etc. to Trustee and Company...........................................................15
Section 1.6 Notice to Holders; Waiver......................................................................15
Section 1.7 Conflict with Trust Indenture Act..............................................................15
Section 1.8 Effect of Headings and Table of Contents.......................................................16
Section 1.9 Successors and Assigns.........................................................................16
Section 1.10 Separability Clause............................................................................16
Section 1.11 Benefits of Indenture..........................................................................16
Section 1.12 Governing Law..................................................................................16
Section 1.13 Non-Business Days..............................................................................16
ARTICLE II
SECURITY FORMS..............................................................................................17
Section 2.1 Forms Generally................................................................................17
Section 2.2 Form of Face of Security.......................................................................17
Section 2.3 Form of Reverse of Security....................................................................22
Section 2.4 Additional Provisions Required in Global Security..............................................25
Section 2.5 Form of Trustee's Certificate of Authentication................................................25
ARTICLE III
THE SECURITIES..............................................................................................25
Section 3.1 Title and Terms................................................................................25
Section 3.2 Denominations..................................................................................26
Section 3.3 Execution, Authentication, Delivery and Dating.................................................26
Section 3.4 Temporary Securities...........................................................................28
Section 3.5 Global Securities..............................................................................28
Section 3.6 Registration, Transfer and Exchange Generally; Certain Transfers and Exchanges;
Securities Act Legends.........................................................................29
Section 3.7 Mutilated, Lost and Stolen Securities..........................................................32
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 3.8 Payment of Interest and Additional Interest; Interest Rights Preserved.........................33
Section 3.9 Persons Deemed Owners..........................................................................34
Section 3.10 Cancellation...................................................................................35
Section 3.11 Computation of Interest........................................................................35
Section 3.12 Deferrals of Interest Payment Dates............................................................35
Section 3.13 Right of Set-Off...............................................................................36
Section 3.14 Agreed Tax Treatment...........................................................................37
Section 3.15 CUSIP Numbers..................................................................................37
Section 3.16 Shortening of Stated Maturity..................................................................37
ARTICLE IV
SATISFACTION AND DISCHARGE..................................................................................37
Section 4.1 Satisfaction and Discharge of Indenture........................................................37
Section 4.2 Application of Trust Money.....................................................................38
ARTICLE V
REMEDIES....................................................................................................39
Section 5.1 Events of Default..............................................................................39
Section 5.2 Acceleration of Maturity; Rescission and Annulment.............................................39
Section 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee................................41
Section 5.4 Trustee May File Proofs of Claim...............................................................42
Section 5.5 Trustee May Enforce Claim Without Possession of Securities.....................................42
Section 5.6 Application of Money Collected.................................................................43
Section 5.7 Limitation on Suits............................................................................43
Section 5.8 Unconditional Right of Holders to Receive Principal, Premium and Interest;
Direct Action by Holders of Preferred Securities...............................................44
Section 5.9 Restoration of Rights and Remedies.............................................................44
Section 5.10 Rights and Remedies Cumulative.................................................................44
Section 5.11 Delay or Omission Not Waiver...................................................................45
Section 5.12 Control by Holders.............................................................................45
Section 5.13 Waiver of Past Defaults........................................................................45
Section 5.14 Undertaking for Costs..........................................................................46
Section 5.15 Waiver of Usury, Stay or Extension Laws........................................................46
ARTICLE VI
THE TRUSTEE.................................................................................................47
Section 6.1 Certain Duties and Responsibilities............................................................47
Section 6.2 Notice of Defaults.............................................................................48
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 6.3 Certain Rights of Trustee......................................................................48
Section 6.4 Responsibility for Recitals or Issuance of Securities..........................................49
Section 6.5 May Hold Securities............................................................................49
Section 6.6 Money Held in Trust............................................................................50
Section 6.7 Compensation and Reimbursement.................................................................50
Section 6.8 Disqualification; Conflicting Interests........................................................51
Section 6.9 Corporate Trustee Required; Eligibility........................................................51
Section 6.10 Resignation and Removal; Appointment of Successor..............................................52
Section 6.11 Acceptance of Appointment by Successor.........................................................53
Section 6.12 Merger, Conversion, Consolidation or Succession to Business....................................53
Section 6.13 Preferential Collection of Claims Against Company..............................................54
Section 6.14 Appointment of Authenticating Agent............................................................54
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE,
PAYING AGENT AND COMPANY....................................................................................56
Section 7.1 Company to Furnish Trustee Names and Addresses of Holders......................................56
Section 7.2 Preservation of Information; Communications to Holders.........................................56
Section 7.3 Reports by Trustee and Paying Agent............................................................56
Section 7.4 Reports by Company.............................................................................57
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE........................................................57
Section 8.1 Company May Consolidate, Etc., Only on Certain Terms...........................................57
Section 8.2 Successor Company Substituted..................................................................58
ARTICLE IX
SUPPLEMENTAL INDENTURES.....................................................................................59
Section 9.1 Supplemental Indentures Without Consent of Holders.............................................59
Section 9.2 Supplemental Indentures with Consent of Holders................................................60
Section 9.3 Execution of Supplemental Indentures...........................................................61
Section 9.4 Effect of Supplemental Indentures..............................................................61
Section 9.5 Conformity with Trust Indenture Act............................................................61
ARTICLE X
COVENANTS...................................................................................................62
Section 10.1 Payment of Principal, Premium and Interest.....................................................62
Section 10.2 Maintenance of Office or Agency................................................................62
Section 10.3 Money for Security Payments to be Held in Trust................................................63
</TABLE>
iii
<PAGE> 6
<TABLE>
<S> <C> <C>
Section 10.4 Statement of Compliance........................................................................64
Section 10.5 Waiver of Certain Covenants....................................................................64
Section 10.6 Additional Sums................................................................................65
Section 10.7 Additional Covenants...........................................................................65
Section 10.8 Federal Tax Reports............................................................................66
ARTICLE XI
REDEMPTION OF SECURITIES....................................................................................66
Section 11.1 Applicability of this Article..................................................................66
Section 11.2 Election to Redeem; Notice to Trustee..........................................................67
Section 11.3 Selection of Securities to be Redeemed.........................................................67
Section 11.4 Notice of Redemption...........................................................................67
Section 11.5 Deposit of Redemption Price....................................................................68
Section 11.6 Payment of Securities Called for Redemption....................................................68
Section 11.7 Right of Redemption of Securities Initially Issued to the Issuer Trust.........................69
ARTICLE XII
SINKING FUNDS...............................................................................................69
ARTICLE XIII
SUBORDINATION OF SECURITIES.................................................................................70
Section 13.1 Securities Subordinate to Senior Indebtedness..................................................70
Section 13.2 No Payment When Senior Indebtedness in Default; Payment Over of Proceeds
Upon Dissolution, Etc..........................................................................70
Section 13.3 Payment Permitted if No Default................................................................72
Section 13.4 Subrogation to Rights of Holders of Senior Indebtedness........................................72
Section 13.5 Provisions Solely to Define Relative Rights....................................................72
Section 13.6 Trustee to Effectuate Subordination............................................................73
Section 13.7 No Waiver of Subordination Provisions..........................................................73
Section 13.8 Notice to Trustee..............................................................................73
Section 13.9 Reliance on Judicial Order or Certificate of Liquidating Agent.................................74
Section 13.10 Trustee Not Fiduciary for Holders of Senior Indebtedness.......................................74
Section 13.11 Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's
Rights.........................................................................................75
Section 13.12 Article Applicable to Paying Agents............................................................75
Section 13.13 Certain Conversions or Exchanges Deemed Payment................................................75
</TABLE>
iv
<PAGE> 7
JUNIOR SUBORDINATED INDENTURE
THIS JUNIOR SUBORDINATED INDENTURE, dated as of __________, 1999
between NORTHEAST BANCORP, a Maine corporation (the "Company"), having its
principal office at 232 Center Street, Auburn, Maine 04210 and BANKERS TRUST
COMPANY, as Trustee, having its principal office at Four Albany Street, 4th
Floor, New York, New York 10006 (the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance of its unsecured junior subordinated
deferrable interest debentures due _____________, 2029 (the "Securities") of
substantially the tenor hereinafter provided, including Securities issued to
evidence loans made to the Company from the proceeds from the issuance from
time to time by NBN Capital Trust, a Delaware business trust (the "Issuer
Trust") of undivided preferred beneficial interests in the assets of such
Issuer Trust (the "Preferred Securities") and common undivided interests in the
assets of such Issuer Trust (the "Common Securities" and, collectively with the
Preferred Securities, the "Trust Securities"), and to provide the terms and
conditions upon which the Securities are to be authenticated, issued and
delivered; and
WHEREAS, all things necessary to make this Indenture a valid agreement
of the Company, in accordance with its terms, have been done.
NOW THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders (as such term is defined in Section 1.1 hereof)
thereof, it is mutually covenanted and agreed, for the equal and proportionate
benefit of all Holders of the Securities or of any series thereof, and
intending to be legally bound hereby, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
Section 1.1 Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article I have the meanings assigned to
them in this Article, and include the plural as well as the singular;
1
<PAGE> 8
(b) all other terms used herein that are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) the words "include," "includes" and "including" shall be deemed to
be followed by the phrase "without limitation";
(d) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles as in effect at the time of computation;
(e) whenever the context may require, any gender shall be deemed to
include the other;
(f) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may be,
of this Indenture; and
(g) the words "hereby", "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.
"25% Capital Limitation" means the limitation imposed by the Federal
Reserve that the proceeds of certain qualifying securities similar to the Trust
Securities will qualify as Tier 1 capital of the Company up to an amount not to
exceed, when taken together with all cumulative preferred stock of the Company,
if any, 25% of the Company's Tier 1 capital, or any subsequent limitation
adopted by the Office of Thrift Supervision.
"Act" when used with respect to any Holder has the meaning specified
in Section 1.4.
"Additional Interest" means the interest, if any, that shall accrue on
any interest on the Securities of any series the payment of which has not been
made on the applicable Interest Payment Date and which shall accrue at the rate
per annum specified or determined as specified in such Security.
"Additional Sums" has the meaning specified in Section 10.6.
"Additional Taxes" means any additional taxes, duties and other
governmental charges to which the Issuer Trust has become subject from time to
time as a result of a Tax Event.
"Administrator" means, in respect of the Issuer Trust, each Person
appointed in accordance with the Trust Agreement, solely in such Person's
capacity as Administrator of the Issuer Trust and not in such Person's
individual capacity, or any successor Administrator appointed as therein
provided.
"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
2
<PAGE> 9
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.
"Agent Member" means any member of, or participant in, the Depositary.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Global Security, in each case
to the extent applicable to such transaction and as in effect from time to
time.
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 6.14 to act on behalf of the Trustee to authenticate
Securities.
"Board of Directors" means the board of directors of the Company or
the executive committee of the board of directors of the Company (or any other
committee of the board of directors of the Company performing similar
functions) or, for purposes of this Indenture, a committee designated by the
board of directors of the Company (or such committee), comprised of two or more
members of the board of directors of the Company or officers of the Company, or
both.
"Board Resolution" means a copy of a resolution or action by written
consent certified by the Secretary or any Assistant Secretary of the Company to
have been duly adopted or approved by the Board of Directors, or such committee
of the Board of Directors or officers of the Company to which authority to act
on behalf of the Board of Directors has been delegated, and to be in full force
and effect on the date of such certification, and delivered to the Trustee.
"Business Day" means any day other than (a) a Saturday or Sunday, (b)
a day on which banking institutions in the State of Maine or the City of New
York are authorized or required by law or executive order to remain closed, or
(c) a day on which the Corporate Trust Office of the Trustee, or, with respect
to the Securities initially issued to the Issuer Trust, the "Corporate Trust
Office" (as defined in the Trust Agreement) of the Property Trustee or the
Delaware Trustee under the Trust Agreement, is closed for business.
"Capital Treatment Event" means, in respect of the Issuer Trust, the
reasonable determination by the Company that, as a result of the occurrence of
any amendment to, or change (including any announced prospective change) in,
the laws (or any rules or regulations thereunder) of the United States or any
political subdivision thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such pronouncement, action or decision is announced on or after the date of the
issuance of the Preferred Securities of the Issuer Trust, there is more than an
insubstantial risk that the Company will not be entitled to treat an amount
equal to the Liquidation Amount (as such term is defined in the Trust
Agreement) of such Preferred Securities as "Tier 1 Capital" (or the then
equivalent thereof), except as otherwise restricted under the 25% Capital
3
<PAGE> 10
Limitation, for purposes of the risk-based capital adequacy guidelines of the
Office of Thrift Supervision, as then in effect and applicable to the Company.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties on such date.
"Common Securities" has the meaning specified in the first recital of
this Indenture.
"Common Stock" means the common stock, $1.00 par value per share, of
the Company.
"Company" means the Person named as the "Company" in the preamble of
this instrument until a successor entity shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor entity.
"Company Request" and "Company Order" mean, respectively, the written
request or order signed in the name of the Company by any Chairman of the Board
of Directors, any Vice Chairman of the Board of Directors, its Chief Executive
Officer, President or a Vice President, and by its Chief Financial Officer, its
Treasurer, its Clerk or an Assistant Clerk, and delivered to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be
administered, which office at the date hereof is located at Four Albany Street,
4th Floor, New York, New York 10006.
"Creditor" has the meaning specified in Section 6.7.
"Defaulted Interest" has the meaning specified in Section 3.8.
"Delaware Trustee" means, with respect to the Issuer Trust, the Person
identified as the "Delaware Trustee" in the Trust Agreement, solely in its
capacity as Delaware Trustee of the Issuer Trust under the Trust Agreement and
not in its individual capacity, or its successor in interest in such capacity,
or any successor Delaware trustee appointed as therein provided.
"Depositary" means, with respect to the Securities issuable or issued
in whole or in part in the form of one or more Global Securities, the Person
designated as Depositary by the Company pursuant to Section 3.1 (or any
successor thereto).
"Discount Security" means any security that provides for an amount
less than the principal amount thereof to be due and payable upon a declaration
of acceleration of the Maturity thereof pursuant to Section 5.2.
4
<PAGE> 11
"Dollar" or "$" means the currency of the United States of America
that, as at the time of payment, is legal tender for the payment of public and
private debts.
The term "entity" includes a bank, corporation, association, company,
limited liability company, joint-stock company or business trust.
"Event of Default," has the meaning specified in Article V.
"Exchange Act" means the Securities Exchange Act of 1934 and any
successor statute thereto, in each case as amended from time to time.
"Expiration Date" has the meaning specified in Section 1.4.
"Extension Period" has the meaning specified in Section 3.12.
"Global Security" means a Security in the form prescribed in Section
2.4 evidencing all or part of the Securities, issued to the Depositary or its
nominee, and registered in the name of such Depositary or its nominee.
"Guarantee" means, with respect to the Issuer Trust, the Guarantee
Agreement, dated ____________, 1999, executed by the Company for the benefit of
the holders of the Preferred Securities issued by the Issuer Trust as modified,
amended or supplemented from time to time.
"Holder" means a Person in whose name a Security is registered in the
Securities Register.
"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.
"Institutional Accredited Investor" means an institutional accredited
investor within the meaning of Rule 501(a) (1), (2), (3) or (7) of Regulation D
under the Securities Act.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on such Securities.
"Investment Company Act" means the Investment Company Act of 1940 and
any successor statute thereto, in each case as amended from time to time.
"Investment Company Event" means the receipt by the Issuer Trust of an
Opinion of Counsel, rendered by counsel experienced in such matters, to the
effect that, as a result of the occurrence of a change in law or regulation or
a written change (including any announced prospective change) in interpretation
or application of law or regulation by any legislative body, court,
governmental agency or regulatory authority, there is more than an
insubstantial risk that the
5
<PAGE> 12
Issuer Trust is or will be considered an "investment company" that is required
to be registered under the Investment Company Act, which change or prospective
change becomes effective or would become effective, as the case may be, on or
after the date of the issuance of the Preferred Securities of the Issuer Trust.
"Issuer Trust" has the meaning specified in the first recital of this
Indenture.
"Liquidation Amount" has the meaning assigned in the Trust Agreement.
"Maturity" when used with respect to any Security means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"Notice of Default" means a written notice of the kind specified in
Section 5.1(c).
"Office of Thrift Supervision" means the Office of Thrift Supervision,
a division of the United States Department of the Treasury.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chairman of the Board, Chief Executive Officer,
President or a Vice President, and by the Chief Financial Officer, Treasurer,
an Associate Treasurer, an Assistant Treasurer, the Secretary (or Clerk) or an
Assistant Secretary (or Clerk) of such Person, and delivered to the Trustee.
Any Officers' Certificate delivered with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(a) a statement by each officer signing the Officers' Certificate that
such officer has read the covenant or condition and the definitions relating
thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by such officer in rendering the Officers'
Certificate;
(c) a statement that such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of such officer, such
condition or covenant has been complied with;
provided, however, that the Officers' Certificate delivered pursuant to the
provisions of Section 10.4 hereof shall comply with the provisions of Section
314 of the Trust Indenture Act.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for or an employee of the Company or any Affiliate of the Company.
6
<PAGE> 13
"Original Issue Date" means the date of issuance specified as such in
each Security.
"Outstanding" means, when used in reference to any Securities, as of
the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(a) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(b) Securities for whose payment money in the necessary amount has
been theretofore deposited with the Trustee or any Paying Agent in trust for
the Holders of such Securities; and
(c) Securities in substitution for or in lieu of other Securities
which have been authenticated and delivered or that have been paid pursuant to
Section 3.6, unless proof satisfactory to the Trustee is presented that any
such Securities are held by Holders in whose hands such Securities are valid,
binding and legal obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor (other than, for the avoidance of doubt, the
Issuer Trust to which Securities of the applicable series were initially
issued) 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
Securities that the Trustee knows to be so owned shall be so disregarded.
Securities so owned that 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 Securities and that the pledgee
is not the Company or any other obligor upon the Securities or any Affiliate of
the Company or such other obligor (other than, for the avoidance of doubt, the
Issuer Trust). Upon the written request of the Trustee, the Company shall
furnish to the Trustee promptly an Officers' Certificate listing and
identifying all Securities, if any, known by the Company to be owned or held by
or for the account of the Company, or any other obligor on the Securities or
any Affiliate of the Company or such obligor (other than, for the avoidance of
doubt, the Issuer Trust), and, subject to the provisions of Section 6.1, the
Trustee shall be entitled to accept such Officers' Certificate as conclusive
evidence of the facts therein set forth and of the fact that all Securities not
listed therein are Outstanding for the purpose of any such determination.
"Paying Agent" means the Trustee or any Person authorized by the
Company to pay the principal of (or premium, if any) or interest on, or other
amounts in respect of any Securities on behalf of the Company.
"Person" means any individual, partnership, trust, unincorporated
organization or entity (as defined herein) or government or any agency or
political subdivision thereof.
7
<PAGE> 14
"Place of Payment" means, with respect to the Securities, the place or
places where the principal of (and premium, if any) and interest on the
Securities are payable pursuant to Section 3.1.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security. For the purposes of this definition, any security
authenticated and delivered under Section 3.7 in lieu of a mutilated,
destroyed, lost or stolen Security shall be deemed to evidence the same debt as
the mutilated, destroyed, lost or stolen Security.
"Preferred Securities" has the meaning specified in the first recital
of this Indenture.
"Principal Subsidiary Bank" means each of (a) Northeast Bank, F.S.B.,
(b) any other banking subsidiary of the Company the consolidated assets of
which constitute 20% or more of the consolidated assets of the Company and its
consolidated subsidiaries, (c) any other banking subsidiary designated as a
Principal Subsidiary Bank pursuant to a Board Resolution and set forth in an
Officers' Certificate delivered to the Trustee, and (d) any subsidiary of the
Company that owns, directly or indirectly, any voting securities, or options,
warrants or rights to subscribe for or purchase voting securities, of any
Principal Subsidiary Bank under clause (a), (b) or (c), and in the case of
clause (a), (b), (c) or (d) their respective successors (whether by
consolidation, merger, conversion, transfer of substantially all their assets
and business or otherwise) so long as any such successor is a banking
subsidiary (in the case of clause (a), (b) or (c)) or a subsidiary (in the case
of clause (d)) of the Company.
"Proceeding" has the meaning specified in Section 13.2.
"Property Trustee" means, with respect to the Issuer Trust, the Person
identified as the "Property Trustee" in the Trust Agreement, solely in its
capacity as Property Trustee of the Issuer Trust under the Trust Agreement and
not in its individual capacity, or its successor in interest in such capacity,
or any successor property trustee appointed as therein provided.
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture or the terms of such Security.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date with respect to the Securities means, unless otherwise provided pursuant
to Section 3.1 with respect to the Securities, the close of business on March
15, June 15, September 15 or December 15 next preceding such Interest Payment
Date (whether or not a Business Day).
"Responsible Officer", when used with respect to the Property Trustee
means any officer assigned to the Corporate Trust Office, including any
managing director, principal, vice president,
8
<PAGE> 15
assistant vice president, assistant treasurer, assistant secretary or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and having direct
responsibility for the administration of this Indenture, and also, with respect
to a particular matter, any other officer to whom such matter is referred
because of such officer's knowledge of and familiarity with the particular
subject.
"Restricted Security" means each Security required pursuant to Section
3.6(c) to bear a Restricted Securities Legend.
"Restricted Securities Certificate" means a certificate substantially
in the form set forth in Annex A.
"Restricted Securities Legend" means a legend substantially in the
form of the legend required in the form of Security set forth in Section 2.2 to
be placed upon a Restricted Security.
"Rights Plan" means any plan of the Company providing for the issuance
by the Company to all holders of its Common Stock, $1.00 par value per share,
of rights entitling the holders thereof to subscribe for or purchase shares of
any class or series of capital stock of the Company which rights (a) are deemed
to be transferred with such shares of such Common Stock, (b) are not
exercisable, and (c) are also issued in respect of future issuances of such
Common Stock, in each case until the occurrence of a specified event or events.
"Securities" or "Security" means any debt securities or debt security,
as the case may be, authenticated and delivered under this Indenture.
"Securities Act" means the Securities Act of 1933 and any successor
statute thereto, in each case as amended from time to time.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 3.6.
"Senior Indebtedness" means, whether recourse is to all or a portion
of the assets of the Company and whether or not contingent, (a) every
obligation of the Company for money borrowed; (b) every obligation of the
Company evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (c) every reimbursement obligation of the Company with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of the Company; (d) every obligation of the Company issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (e) every capital lease obligation of the Company; (f) every
obligation of the Company for claims (as defined in Section 101(4) of the
United States Bankruptcy Code of 1978, as amended) in respect of derivative
products such as interest and foreign exchange rate contracts, commodity
contracts and similar arrangements; and (g) every obligation of the type
referred to in clauses (a) through (f) of
9
<PAGE> 16
another person and all dividends of another person the payment of which, in
either case, the Company has guaranteed or is responsible or liable, directly
or indirectly, as obligor or otherwise. Without limiting the generality of the
foregoing, Senior Indebtedness shall include ___________________. Senior
Indebtedness shall not include (a) any obligations which, by their terms, are
expressly stated to rank pari passu in right of payment with, or to not be
superior in right of payment to, the Junior Subordinated Debentures, (b) any
Senior Indebtedness of the Company which when incurred and without respect to
any election under Section 1111(b) of the United States Bankruptcy Code of
1978, as amended, was without recourse to the Company, (c) any indebtedness of
the Company to any of its subsidiaries, (d) indebtedness to any executive
officer or director of the Company, or (e) any indebtedness in respect of debt
securities issued to any trust, or a trustee of such trust, partnership or
other entity affiliated with the Company that is a financing entity of the
Company in connection with the issuance of such financing entity of securities
that are similar to the Preferred Securities, including the obligations
associated with the Outstanding Preferred Securities.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 3.8.
"Stated Maturity," when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
pursuant to the terms of such Security as the fixed date on which the principal
of such Security or such installment of principal or interest is due and
payable, as such date may, in the case of such principal, be shortened or
extended as provided pursuant to the terms of such Security and this Indenture.
"Subsidiary" means an entity more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries, or by the Company and one or more other Subsidiaries.
For purposes of this definition, "voting stock" means stock that ordinarily has
voting power for the election of directors, whether at all times or only so
long as no senior class of stock has such voting power by reason of any
contingency.
"Successor Security" of any particular Security means every Security
issued after, and evidencing all or a portion of the same debt as that
evidenced by, such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 3.7 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Security
shall be deemed to evidence the same debt as the mutilated, destroyed, lost or
stolen Security.
"Tax Event" means the receipt by the Issuer Trust of an Opinion of
Counsel, rendered by counsel experienced in such matters, to the effect that,
as a result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or
any political subdivision or taxing authority thereof or therein, or as a
result of any official or administrative pronouncement or action or judicial
decision interpreting or applying such laws or regulations, which amendment or
change is effective or which pronouncement or decision is announced on or after
the date of issuance of the Preferred Securities of the Issuer Trust, there is
10
<PAGE> 17
more than an insubstantial risk that (a) the Issuer Trust is, or will be within
90 days of the delivery of such Opinion of Counsel, subject to United States
federal income tax with respect to income received or accrued on the
corresponding series of Securities issued by the Company to the Issuer Trust,
(b) interest payable by the Company on the Securities is not, or within 90 days
of the delivery of such Opinion of Counsel will not be, deductible by the
Company, in whole or in part, for United States federal income tax purposes, or
(c) the Issuer Trust is, or will be within 90 days of the delivery of such
Opinion of Counsel, subject to more than a de minimis amount of other taxes,
duties or other governmental charges.
"Trust Agreement" means the Amended and Restated Trust Agreement,
dated as of ___________, 1999, as amended, modified or supplemented from time
to time, among the trustees of the Issuer Trust named therein, the Company, as
depositor, the administrators named therein, and the holders from time to time
of undivided beneficial ownership interests in the assets of the Issuer Trust.
"Trustee" means the Person named as the "Trustee" in the preamble of
this Indenture, solely in its capacity as such and not in its individual
capacity, 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 and, if at any time there
is more than one such Person, "Trustee" as used with respect to the Securities
shall mean the Trustee with respect to Securities.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended by the Trust Indenture Reform Act of 1990, or any successor statute, in
each case as amended from time to time, except as provided in Section 9.5.
"Trust Securities" has the meaning specified in the first recital of
this Indenture.
"Vice President," when used with respect to the Company, means any
duly appointed vice president, whether or not designated by a number or a word
or words added before or after the title "vice president."
Section 1.2 Compliance Certificate and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent
(including covenants compliance with which constitutes a condition 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 (including covenants compliance
with which constitutes a condition 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.
11
<PAGE> 18
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than the
certificates provided pursuant to Section 10.4) shall include:
(a) a statement by each individual signing such certificate or opinion
that such individual has read such covenant or condition and the definitions
herein relating thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions of such individual
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of 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
(d) a statement as to whether, in the opinion of such individual, such
condition or covenant has been complied with.
Section 1.3 Forms of Documents Delivered to Trustee.
(a) 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.
(b) 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 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.
(c) 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.
12
<PAGE> 19
Section 1.4 Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given, made 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 an agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments is or
are delivered to the Trustee, and, where it is hereby expressly required, 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 6.1) conclusive in favor
of the Trustee and the Company, if made in the manner provided in this Section
1.4.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer
authorized by law to take acknowledgments of deeds, certifying that the
individual signing such instrument or writing acknowledged to him or her the
execution thereof. Where such execution is by a Person acting in other than his
or her individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his or her authority.
(c) The fact and date of the execution by any Person of any such
instrument or writing, or the authority of the Person executing the same, may
also be provided in any other manner that the Trustee deems sufficient and in
accordance with such reasonable rules as the Trustee may determine.
(d) The ownership of Securities shall be proved by the Securities
Register.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Security shall bind every future
Holder of the same Security and the Holder of every Security issued upon the
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done or suffered to be done by the Trustee or the Company in reliance
thereon, whether or not notation of such action is made upon such Security.
(f) The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to give, make or
take any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by this Indenture to be given, made or taken
by Holders of Securities, provided that the Company may not set a record date
for, and the provisions of this Section 1.4(f) shall not apply with respect to,
the giving or making of any notice, declaration, request or direction referred
to in Section 1.4(g). If any record date is set pursuant to this Section
1.4(f), the Holders of Outstanding Securities on such record date, and no other
Holders, shall be entitled to take the relevant action, whether or not such
Holders remain Holders after such record date, provided, however that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date (as defined below) by Holders of the requisite principal amount
of Outstanding Securities on such record date. Nothing in this Section 1.4(f)
shall be construed to prevent the Company from setting a new record date for
any action for which a
13
<PAGE> 20
record date has previously been set pursuant to this Section 1.4(f) (whereupon
the record date previously set shall automatically and with no action by any
Person be canceled and of no effect), and nothing in this Section 1.4(f) shall
be construed to render ineffective any action taken by Holders of the requisite
principal amount of Outstanding Securities on the date such action is taken.
Promptly after any record date is set pursuant to this Section 1.4(f), the
Company, at its own expense, shall cause notice of such record date, the
proposed action by Holders and the applicable Expiration Date to be given to
the Trustee in writing and to each Holder of Securities in the manner set forth
in Section 1.6.
(g) The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to join in the
giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 5.2, (iii) any request to institute
proceedings referred to in Section 5.7(b), or (iv) any direction referred to in
Section 5.12, in each case with respect to Securities. If any record date is
set pursuant to this Section 1.4(g), the Holders of Outstanding Securities on
such record date, and no other Holders, shall be entitled to join in such
notice, declaration, request or direction, whether or not such Holders remain
Holders after such record date, provided, however, that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
by Holders of the requisite principal amount of Outstanding Securities on such
record date. Nothing in this Section 1.4(g) shall be construed to prevent the
Trustee from setting a new record date for any action for which a record date
has previously been set pursuant to this Section 1.4(g) (whereupon the record
date previously set shall automatically and with no action by any Person be
canceled and of no effect) and nothing in this paragraph shall be construed to
render ineffective any action taken by Holders of the requisite principal
amount of Outstanding Securities on the date such action is taken. Promptly
after any record date is set pursuant to this paragraph, the Trustee, at the
Company's expense, shall cause notice of such record date, the proposed action
by Holders and the applicable Expiration Date to be given to the Company in
writing and to each Holder of Securities in the manner set forth in Section
1.6.
(h) With respect to any record date set pursuant to this Section 1.4,
the party hereto that sets such record date may designate any day as the
"Expiration Date" and from time to time may change the Expiration Date to any
earlier or later day, provided that no such change shall be effective unless
notice of the proposed new Expiration Date is given to the other party hereto
in writing, and to each Holder of Securities in the manner set forth in Section
1.6 on or prior to the existing Expiration Date. If an Expiration Date is not
designated with respect to any record date set pursuant to this Section, the
party hereto that set such record date shall be deemed to have initially
designated the 180th day after such record date as the Expiration Date with
respect thereto, subject to its right to change the Expiration Date as provided
in this Section 1.4(h). Notwithstanding the foregoing, no Expiration Date shall
be later than the 180th day after the applicable record date.
(i) Without limiting the foregoing, a Holder entitled hereunder to
take any action hereunder with regard to any particular Security may do so with
regard to all or any part of the principal amount of such Security or by one or
more duly appointed agents each of which may do so pursuant to such appointment
with regard to all or any part of such principal amount.
14
<PAGE> 21
Section 1.5 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:
(a) the Trustee by any Holder, any holder of Preferred Securities or
the Company shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee at its Corporate Trust
Office, or
(b) the Company by the Trustee, any Holder or any holder of Preferred
Securities shall be sufficient for every purpose (except as otherwise provided
in Section 5.1) hereunder 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 or at any other address
previously furnished in writing to the Trustee by the Company.
Section 1.6 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 the address of such Holder as it appears in the Securities
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. If, by reason of the suspension
of or irregularities in regular mail services or for any other reason, it shall
be impossible or impracticable to mail notice of any event to Holders when said
notice is required to be given pursuant to any provision of this Indenture or
of the Securities, then any manner of giving such notice as shall be
satisfactory to the Trustee shall be deemed to be a sufficient 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.
Section 1.7 Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required thereunder to be a part
of and govern this Indenture, the provision of the Trust Indenture Act 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, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
15
<PAGE> 22
Section 1.8 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Section 1.9 Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
Section 1.10 Separability Clause.
If any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 1.11 Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
and assigns, the holders of Senior Indebtedness, the Holders of the Securities
and, to the extent expressly provided in Sections 5.2, 5.8, 5.9, 5.11, 5.13,
9.1 and 9.2, the holders of Preferred Securities, any benefit or any legal or
equitable right, remedy or claim under this Indenture.
Section 1.12 Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 1.13 Non-Business Days.
If any Interest Payment Date, Redemption Date or Stated Maturity of
any Security shall not be a Business Day, then (notwithstanding any other
provision of this Indenture or the Securities) payment of interest or principal
(and premium, if any) or other amounts in respect of such Security need not be
made on such date, but may be made on the next succeeding Business Day (and no
interest shall accrue in respect of the amounts whose payment is so delayed for
the period from and after such Interest Payment Date, Redemption Date or Stated
Maturity, as the case may be, until such next succeeding Business Day) except
that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day (in each case
with the same force and effect as if made on the Interest Payment Date or
Redemption Date or at the Stated Maturity).
16
<PAGE> 23
ARTICLE II
SECURITY FORMS
Section 2.1 Forms Generally.
(a) The Securities and the Trustee's certificate of authentication
shall be in substantially the forms set forth in this Article II, or in such
other form or forms as shall be established by or pursuant to a Board
Resolution or in one or more indentures supplemental hereto, in each case with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture and may have such letters, numbers
or other marks of identification and such legends or endorsements placed
thereon as may be required to comply with applicable tax laws or the rules of
any securities exchange or as may, consistently herewith, be determined by the
officers executing such securities, as evidenced by their execution of the
Securities. If the form of Securities is established by action taken pursuant
to a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Clerk or an Assistant Clerk of the Company and delivered to
the Trustee at or prior to the delivery of the Company Order contemplated by
Section 3.3 with respect to the authentication and delivery of such Securities.
(b) The definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods, if required by any
securities exchange on which the Securities may be listed, on a steel engraved
border or steel engraved borders or may be produced in any other manner
permitted by the rules of any securities exchange on which the Securities may
be listed, all as determined by the officers executing such Securities, as
evidenced by their execution of such Securities.
(c) Securities distributed to holders of Global Preferred Securities
(as defined in the Trust Agreement) upon the dissolution of the Issuer Trust
shall be distributed in the form of one or more Global Securities registered in
the name of a Depositary or its nominee, and deposited with the Securities
Registrar, as custodian for such Depositary, or with such Depositary, for
credit by the Depositary to the respective accounts of the beneficial owners of
the Securities represented thereby (or such other accounts as they may direct).
Securities distributed to holders of Preferred Securities other than Global
Preferred Securities upon the dissolution of the Issuer Trust shall not be
issued in the form of a Global Security or any other form intended to
facilitate book-entry trading in beneficial interests in such Securities.
Section 2.2 Form of Face of Security.
NORTHEAST BANCORP
_____% Junior Subordinated Deferrable Interest Debentures due _____________,
2029
17
<PAGE> 24
[If the Security is a Restricted Security, insert - THE SECURITIES
EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT (A) BY AN INITIAL INVESTOR THAT IS NOT A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT,
(I) TO A PERSON WHO THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (II) IN AN OFFSHORE TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903
OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR (III) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE), OR (B) BY AN INITIAL INVESTOR THAT IS A QUALIFIED
INSTITUTIONAL BUYER OR BY ANY SUBSEQUENT INVESTOR, AS SET FORTH IN (A) ABOVE
AND, IN ADDITION, TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND, IN EACH
CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER
JURISDICTIONS OF THE UNITED STATES. THE HOLDER OF THIS SECURITY AGREES THAT IT
WILL COMPLY WITH THE FOREGOING RESTRICTIONS. SECURITIES OWNED BY AN INITIAL
INVESTOR THAT IS NOT A QUALIFIED INSTITUTIONAL BUYER MAY NOT BE HELD IN GLOBAL
FORM AND MAY NOT BE TRANSFERRED WITHOUT CERTIFICATION THAT THE TRANSFER
COMPLIES WITH THE FOREGOING RESTRICTIONS, AS PROVIDED IN THE INDENTURE REFERRED
TO BELOW. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION
PROVIDED BY RULE 144 FOR RESALES OF THE SECURITIES.]
No. $________________
Northeast Bancorp, a Maine corporation (hereinafter called the
"Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to NBN
Capital Trust, or registered assigns, the principal sum of ___________ Dollars
on _____________, 2029, or such other principal amount represented hereby as
may be set forth in the records of the Securities Registrar hereinafter
referred to in accordance with the Indenture provided that the Company may
shorten the Stated Maturity of the principal of this Security to a date not
earlier than ___________ 2004. The Company further promises to pay interest on
said principal from ___________, 1999, or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, quarterly (subject
to deferral as set forth herein) in arrears on March 31, June 30, September 30
and December 31 of each year, commencing _____________, 1999 at the rate of
_____ per annum, together with Additional Sums, if any, as provided in Section
10.6 of the Indenture, until the principal hereof is paid or duly provided for
or made available for payment; provided that any overdue principal, premium or
Additional Sums and any overdue
18
<PAGE> 25
installment of interest shall bear Additional Interest at the rate of _____%
per annum (to the extent that the payment of such interest shall be legally
enforceable), compounded quarterly from the dates such amounts are due until
they are paid or made available for payment, and such interest shall be payable
on demand. The amount of interest payable for any period less than a full
interest period shall be computed on the basis of a 360-day year of twelve
30-day months and the actual days elapsed in a partial month in such period.
The amount of interest payable for any full interest period shall be computed
by dividing the applicable rate per annum by four. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest installment, which shall be the
15th day of March, June, September and December (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to
be payable to the Holder on such Regular Record Date and may either be paid to
the Person in whose name this Security (or one or more Predecessor Securities)
is registered at the close of business on a Special Record Date for the payment
of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities of this series not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture.
So long as no Event of Default has occurred and is continuing, the
Company shall have the right, at any time during the term of this Security,
from time to time to defer the payment of interest on this Security for up to
20 consecutive quarterly interest payment periods with respect to each deferral
period (each an "Extension Period"), during which Extension Periods the Company
shall have the right to make partial payments of interest on any Interest
Payment Date, and at the end of which the Company shall pay all interest then
accrued and unpaid including Additional Interest, as provided below; provided
however, that no Extension Period shall extend beyond the Stated Maturity of
the principal of this Security, as then in effect, and no such Extension Period
may end on a date other than an Interest Payment Date; and provided further,
however, that during any such Extension Period, the Company shall not (a)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of the Company's capital
stock, or (b) make any payment of principal of or interest or premium, if any,
on or repay, repurchase or redeem any debt securities of the Company that rank
pari passu in all respects with or junior in interest to this Security,
including the Company's obligation associated with the Outstanding Preferred
Securities (other than (i) repurchases, redemptions or other acquisitions of
shares of capital stock of the Company in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, in connection
with a dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period,
(ii) as a result of a reclassification, an exchange or conversion of any class
or series of the Company's capital stock (or any capital stock of a Subsidiary
of the
19
<PAGE> 26
Company) for any class or series of the Company's capital stock or of any class
or series of the Company's indebtedness for any class or series of the
Company's capital stock, (iii) the purchase of fractional interests in shares
of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(iv) any declaration of a dividend in connection with any Rights Plan, or the
issuance of rights, stock or other property under any Rights Plan, or the
redemption or repurchase of rights pursuant thereto, or (v) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or
the stock issuable upon exercise of such warrants, options or other rights is
the same stock as that on which the dividend is being paid or ranks pari passu
with or junior to such stock). Prior to the termination of any such Extension
Period, the Company may further defer the payment of interest, provided that no
Extension Period shall exceed 20 consecutive quarterly interest payment
periods, extend beyond the Stated Maturity of the principal of this Security or
end on a date other than an Interest Payment Date. Upon the termination of any
such Extension Period and upon the payment of all accrued and unpaid interest
and any Additional Interest then due on any Interest Payment Date, the Company
may elect to begin a new Extension Period, subject to the above conditions. No
interest shall be due and payable during an Extension Period, except at the end
thereof, but each installment of interest that would otherwise have been due
and payable during such Extension Period shall bear Additional Interest (to the
extent that the payment of such interest shall be legally enforceable) at the
rate of _____% per annum, compounded quarterly and calculated as set forth in
the first paragraph of this Security, from the date on which such amounts would
otherwise have been due and payable until paid or made available for payment.
The Company shall give the Holder of this Security and the Trustee notice of
its election to begin any Extension Period at least one Business Day prior to
the next succeeding Interest Payment Date on which interest on this Security
would be payable but for such deferral or so long as such securities are held
by NBN Capital Trust, or at least one Business Day prior to the earlier of (a)
the next succeeding date on which Distributions on the Preferred Securities of
the Issuer Trust would be payable but for such deferral, and (b) the date on
which the Property Trustee of the Issuer Trust is required to give notice to
holders of such Preferred Securities of the record date or the date such
Distributions are payable, but in any event not less than one Business Day
prior to such record date.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for
that purpose in the United States, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts; provided however, that at the option of the Company
payment of interest may be made (a) by check mailed to the address of the
Person entitled thereto as such address shall appear in the Securities
Register, or (b) if to a Holder of $1,000,000 or more in aggregate principal
amount of this Security, by wire transfer in immediately available funds upon
written request to the Trustee not later than 15 calendar days prior to the
date on which the interest is payable.
The indebtedness evidenced by this Security is, to the extent provided
in the Indenture, subordinate and subject in right of payments to the prior
payment in full of all Senior Indebtedness, and this Security is issued subject
to the provisions of the Indenture with respect thereto. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound by such
provisions,
20
<PAGE> 27
(b) authorizes and directs the Trustee on his or her behalf to take such
actions as may be necessary or appropriate to effectuate the subordination so
provided, and (c) appoints the Trustee his or her attorney-in-fact for any and
all such purposes. Each Holder hereof, by his or her acceptance hereof, waives
all notice of the acceptance of the subordination provisions contained herein
and in the Indenture by each holder of Senior Indebtedness, whether now
outstanding or hereafter incurred, and waives reliance by each such holder upon
said provisions.
Reference is hereby made to the further provisions of this Security
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 executed by
the Trustee referred to on the reverse hereof by manual or facsimile signature,
this Security shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
NORTHEAST BANCORP
By:
-----------------------------
Name:
Title:
Attest:
- ----------------------------------
Clerk or Assistant Clerk
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
Dated:
BANKERS TRUST COMPANY,
as Trustee
By:
-----------------------------
Name:
Title:
21
<PAGE> 28
Section 2.3 Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued under the
Junior Subordinated Indenture, dated as of __________, 1999 (herein called the
"Indenture"), between the Company and Bankers Trust Company, as Trustee (herein
called the "Trustee", which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee, the
holders of Senior Indebtedness and the Holders of the Securities, and of the
terms upon which the Securities are, and are to be, authenticated and
delivered. This Security is one of the series designated on the face hereof,
limited in aggregate principal amount to $_____________.
All terms used in this Security that are defined in the Indenture or,
if not defined in the Indenture, in the Amended and Restated Trust Agreement
dated as of __________, 1999 (as modified, amended or supplemented from time to
time the "Trust Agreement"), relating to NBN Capital Trust (the "Issuer Trust")
among the Company, as Depositor, the Trustees named therein, the administrators
named therein, and the holders from time to time of the Trust Securities issued
pursuant thereto shall have the meanings assigned to them in the Indenture or
the Trust Agreement, as the case may be.
The Company has the right to redeem this Security (a) on or after
____________ 2004, in whole at any time or in part from time to time, or (b) in
whole (but not in part), at any time within 90 days following the occurrence
and during the continuation of a Tax Event, Investment Company Event, or
Capital Treatment Event, in each case at the Redemption Price described below,
and subject to possible regulatory approval. The Redemption Price shall equal
100% of the principal amount hereof being redeemed, together with accrued
interest to but excluding the date fixed for redemption.
In the event of redemption of this Security in part only, a new
Security or Securities for the unredeemed portion hereof will be issued in the
name of the Holder hereof upon the cancellation hereof.
[If applicable, insert - The Indenture contains provisions for
defeasance at any time [of the entire indebtedness of this Security] [or]
[certain restrictive covenants and Events of Default with respect to this
Security] [, in each case] upon compliance by the Company with certain
conditions set forth in the Indenture.]
The Indenture permits, with certain exceptions as therein provided,
the Company and the Trustee at any time to enter into a supplemental indenture
or indentures for the purpose of modifying in any manner the rights and
obligations of the Company and of the Holders of the Securities, with the
consent of the Holders of not less than a majority in principal amount of the
Outstanding Securities to be affected by such supplemental indenture. The
Indenture also contains provisions
22
<PAGE> 29
permitting Holders of specified percentages in principal amount of the
Securities at the time Outstanding, on behalf of the Holders of all Securities,
to waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and
binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Security.
[If the Security is not a Discount Security, insert - As provided in
and subject to the provisions of the Indenture, if an Event of Default with
respect to the Securities at the time Outstanding occurs and is continuing,
then and in every such case the Trustee or the Holders of not less than 25% in
aggregate principal amount of the Outstanding Securities may declare the
principal amount of all the Securities to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by Holders),
provided that, if upon an Event of Default, the Trustee or such Holders fail to
declare the principal of all the Outstanding Securities to be immediately due
and payable, the holders of at least 25% in aggregate Liquidation Amount of the
Preferred Securities then outstanding shall have the right to make such
declaration by a notice in writing to the Company and the Trustee; and upon any
such declaration the principal amount of and the accrued interest (including
any Additional Interest) on all the Securities shall become immediately due and
payable, provided that the payment of principal and interest (including any
Additional Interest) on such Securities shall remain subordinated to the extent
provided in Article XIII of the Indenture.]
[If the Security is a Discount Security, insert - As provided in and
subject to the provisions of the Indenture, if an Event of Default with respect
to the Securities at the time Outstanding occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Outstanding Securities may declare an amount of
principal of the Securities to be due and payable immediately, by a notice in
writing to the Company (and to the Trustee if given by Holders), provided that,
if upon an Event of Default, the Trustee or such Holders fail to declare such
principal amount of the Outstanding Securities to be immediately due and
payable, the Holders of at least 25% in aggregate Liquidation Amount of the
Preferred Securities then outstanding shall have the right to make such
declaration by a notice in writing to the Company and the Trustee. The
principal amount payable upon such acceleration shall be equal to [insert
formula for determining the amount]. Upon any such declaration, such amount of
the principal of and the accrued interest (including any Additional Interest)
on all the Securities shall become immediately due and payable, provided that
the payment of such principal and interest (including any Additional Interest)
on all the Securities shall remain subordinated to the extent provided in
Article XIII of the Indenture. Upon payment (a) of the amount of principal so
declared due and payable and (b) of interest on any overdue principal, premium
and interest (in each case to the extent that the payment of such interest
shall be legally enforceable), all of the Company's obligations in respect of
the payment of the principal of and premium and interest, if any, on this
Security shall terminate.]
23
<PAGE> 30
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any)
and interest (including Additional Interest) on this Security at the times,
place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the
Securities Register, upon surrender of this Security for registration of
transfer at the office or agency of the Company maintained under Section 10.2
of the Indenture for such purpose, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Securities Registrar duly executed by the Holder hereof or such Holder's
attorney duly authorized in writing, and thereupon one or more new Securities,
of like tenor, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.
As provided in the Indenture and subject to certain limitations
therein set forth, Securities are exchangeable for a like aggregate principal
amount of Securities and of like tenor of a different authorized denomination,
as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Company and, by its acceptance of this Security or a beneficial
interest therein, the Holder of, and any Person that acquires a beneficial
interest in, this Security agrees that for United States federal, state and
local tax purposes it is intended that this Security constitute indebtedness.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
THIS SECURITY IS A DIRECT AND UNSECURED OBLIGATION OF THE COMPANY,
DOES NOT EVIDENCE DEPOSITS AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
24
<PAGE> 31
Section 2.4 Additional Provisions Required in Global Security.
Unless otherwise specified as contemplated by Section 3.1, any Global
Security issued hereunder shall, in addition to the provisions contained in
Sections 2.2 and 2.3, bear a legend in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE
ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY
OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
Section 2.5 Form of Trustee's Certificate of Authentication.
The Trustee's certificates of authentication shall be in substantially
the following form:
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated: BANKERS TRUST COMPANY,
as Trustee
By:
-----------------------------
Authorized Signatory
ARTICLE III
THE SECURITIES
Section 3.1 Title and Terms.
(a) The aggregate principal amount of Securities that may be
authenticated and delivered under this Indenture is $____________.
(b) Subject to Section 3.16, the Securities' Stated Maturity shall be
__________, 2029.
25
<PAGE> 32
(c) The Securities, established pursuant to a Board Resolution, shall
bear interest at a per annum rate equal to ______% from ___________, 1999 or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, as the case may be, payable quarterly (subject to deferral
as set forth in Section 3.12), in arrears, on March 31, June 30, September 30
and December 31 of each year, commencing _____________, 1999, until the
principal thereof is paid or made available for payment. Interest will compound
quarterly and will accrue at a per annum rate equal to ______% to the extent
permitted by applicable law, on any interest installment in arrears for more
than one quarterly period or during an extension of an interest payment period
as set forth below in Section 3.12.
(d) The principal of (and premium, if any) and interest on the
Securities shall be payable at the office or agency of the Paying Agent in the
United States maintained for such purpose and at any other office or agency
maintained by the Company for such purpose in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided, however, that at the option of the
Company payment of interest may be made (i) by check mailed to the address of
the Person entitled thereto as such address shall appear in the Security
Register or (ii) if to a Holder of $1,000,000 or more in aggregate principal
amount of this Security, by wire transfer in immediately available funds upon
written request to the Trustee not later than 15 calendar days prior to the
date on which the interest is payable, at such place and to such account as may
be designated by the Person entitled thereto as specified in the Security
Register.
(e) Securities may be issuable in whole or in part in the form of one
or more Global Securities and, in such case, the Depositary for such Global
Securities shall be The Depository Trust Company.
(f) The securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article XIII.
Section 3.2 Denominations.
The Securities shall be in registered form without coupons and shall
be issuable in denominations of $10 and any integral multiple thereof.
Section 3.3 Execution, Authentication, Delivery and Dating.
(a) The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Vice Chairman of the Board, its Chief Executive
Officer, President or one of its Vice Presidents, and attested by its Clerk or
one of its Assistant Clerks. The signature of any of these officers on the
Securities may be manual or facsimile.
(b) Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such
26
<PAGE> 33
Securities or did not hold such offices at the date of such Securities. At any
time and from time to time after the execution and delivery of this Indenture,
the Company may deliver Securities executed by the Company to the Trustee for
authentication, together with a Company Order for the authentication and
delivery of such Securities, and the Trustee in accordance with the Company
Order shall authenticate and deliver such Securities. If the form or terms of
the Securities have been established by or pursuant to one or more Board
Resolutions as permitted by Sections 2.1 and 3.1, in authenticating such
Securities, and accepting the additional responsibilities under this Indenture
in relation to such Securities, the Trustee shall be entitled to receive, and
(subject to Section 6.1) shall be fully protected in relying upon, an Opinion
of Counsel stating:
(i) if the form of such Securities has been established by or
pursuant to Board Resolution as permitted by Section 2.1, that such
form has been established in conformity with the provisions of this
Indenture;
(ii) if the terms of such Securities have been established by
or pursuant to Board Resolution as permitted by Section 3.1, that such
terms have been established in conformity with the provisions of this
Indenture; and
(iii) that such Securities, when authenticated and delivered
by the Trustee and issued by the Company in the manner and subject to
any conditions specified in such Opinion of Counsel, will constitute
valid and legally binding obligations of the Company enforceable in
accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and
to general equity principles.
(c) If such form or terms have been so established, the Trustee shall
not be required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
that is not reasonably acceptable to the Trustee.
(d) Notwithstanding the provisions of Section 3.1 and Section 3.3(b),
if all Securities are not to be originally issued at one time, it shall not be
necessary to deliver the Officers' Certificate otherwise required pursuant to
Section 3.1 or the Company Order and Opinion of Counsel otherwise required
pursuant to Section 3.3(b) at or prior to the authentication of each Security
if such documents are delivered at or prior to the authentication upon original
issuance of the first Security to be issued.
(e) Each Security shall be dated the date of its authentication.
(f) No Security shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose, unless there appears on such
Security a certificate of authentication substantially in the form provided for
herein executed by the Trustee by the manual or facsimile signature of one of
its authorized officers, and such certificate upon any Security shall be
conclusive evidence, and
27
<PAGE> 34
the only evidence, that such security has been duly authenticated and delivered
hereunder. Notwithstanding the foregoing, if any Security shall have been
authenticated and delivered hereunder but never issued and sold by the Company,
and the Company shall deliver such Security to the Trustee for cancellation as
provided in Section 3.10, for all purposes of this Indenture such Security
shall be deemed never to have been authenticated and delivered hereunder and
shall never be entitled to the benefits of this Indenture.
Section 3.4 Temporary Securities.
(a) Pending the preparation of definitive Securities, the Company may
execute, and upon receipt of a Company Order the Trustee shall authenticate and
deliver, temporary Securities that are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.
(b) If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for that purpose
without charge to the Holder. Upon surrender for cancellation of any one or
more temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor one or more definitive
securities, of any authorized denominations having the same Original Issue Date
and Stated Maturity and having the same terms as such temporary Securities.
Until so exchanged, the temporary Securities shall in all respects be entitled
to the same benefits under this Indenture as definitive Securities.
Section 3.5 Global Securities.
(a) Each Global Security issued under this Indenture shall be
registered in the name of the Depositary designated by the Company for such
Global Security or a nominee thereof and delivered to such Depositary or a
nominee thereof or custodian therefor, and each such Global Security shall
constitute a single Security for all purposes of this Indenture.
(b) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and no
transfer of a Global Security in whole or in part may be registered, in the
name of any Person other than the Depositary for such Global Security or a
nominee thereof unless (i) such Depositary advises the Trustee in writing that
such Depositary is no longer willing or able to properly discharge its
responsibilities as Depositary with respect to such Global Security, and the
Company is unable to locate a qualified successor within 90 days of receipt of
such notice from the Depositary, (ii) the Company executes and delivers to the
Trustee a Company Order stating that the Company elects to terminate the
book-entry system through the Depositary, or (iii) there shall have occurred
and be continuing an Event of Default.
28
<PAGE> 35
(c) If any Global Security is to be exchanged for other Securities or
cancelled in whole, it shall be surrendered by or on behalf of the Depositary
or its nominee to the Securities Registrar for exchange or cancellation as
provided in this Article III. If any Global Security is to be exchanged for
other Securities or canceled in part, or if another Security is to be exchanged
in whole or in part for a beneficial interest in any Global Security, then
either (i) such Global Security shall be so surrendered for exchange or
cancellation as provided in this Article III or (ii) the principal amount
thereof shall be reduced, or increased by an amount equal to the portion
thereof to be so exchanged or canceled, or equal to the principal amount of
such other Security to be so exchanged for a beneficial interest therein, as
the case may be, by means of an appropriate adjustment made on the records of
the Securities Registrar, whereupon the Trustee, in accordance with the
Applicable Procedures, shall instruct the Depositary or its authorized
representative to make a corresponding adjustment to its records. Upon any such
surrender or adjustment of a Global Security by the Depositary, accompanied by
registration instructions, the Trustee shall, subject to Section 3.6(b) and as
otherwise provided in this Article III, authenticate and deliver any Securities
issuable in exchange for such Global Security (or any portion thereof) in
accordance with the instructions of the Depositary. The Trustee shall not be
liable for any delay in delivery of such instructions and may conclusively rely
on, and shall be fully protected in relying on, such instructions.
(d) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Article III, Section 9.6 or 11.6 or
otherwise, shall be authenticated and delivered in the form of, and shall be, a
Global Security, unless such Security is registered in the name of a Person
other than the Depositary for such Global Security or a nominee thereof.
(e) The Depositary or its nominee, as the registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes under
this Indenture and the Securities, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to the Applicable
Procedures. Accordingly, any such owner's beneficial interest in a Global
Security shall be shown only on, and the transfer of such interest shall be
effected only through, records maintained by the Depositary or its nominee or
agent. Neither the Trustee nor the Securities Registrar shall have any
liability in respect of any transfers effected by the Depositary.
(f) The rights of owners of beneficial interests in a Global Security
shall be exercised only through the Depositary and shall be limited to those
established by law and agreements between such owners and the Depositary and/or
its Agent Members.
Section 3.6 Registration, Transfer and Exchange Generally; Certain
Transfers and Exchanges; Securities Act Legends.
(a) The Company shall cause to be kept at the Corporate Trust Office
of the Trustee a register in which, subject to such reasonable regulations as
it may prescribe, the Company shall provide for the registration of Securities
and transfers of Securities. Such register is herein
29
<PAGE> 36
sometimes referred to as the "Securities Register." The Trustee is hereby
appointed "Securities Registrar" for the purpose of registering Securities and
transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at the
offices or agencies of the Company designated for that 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 Securities of any
authorized denominations of like tenor and aggregate principal amount and
bearing such restrictive legends as may be required by this Indenture.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations, of like tenor and aggregate
principal amount and bearing such restrictive legends as may be required by
this Indenture, upon surrender of the Securities to be exchanged at such office
or agency. Whenever any securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
that the Holder making the exchange is entitled to receive.
All Securities issued upon any 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 Securities
surrendered upon such transfer or exchange.
Every Security presented or surrendered for transfer or exchange shall
(if so required by the Company or the Trustee) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Securities Registrar, duly executed by the Holder thereof or
such Holder's attorney duly authorized in writing.
No service charge shall be made to a Holder for any transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any transfer or exchange of Securities.
Neither the Company nor the Trustee shall be required, pursuant to the
provisions of this Section, (i) to issue, exchange or register the transfer of
any Security during a period beginning at the opening of business 15 days
before the day of selection for redemption of Securities pursuant to Article XI
and ending at the close of business on the day of mailing of the notice of
redemption, or (ii) to register the transfer of or exchange any Security so
selected for redemption in whole or in part, except, in the case of any such
Security to be redeemed in part, any portion thereof not to be redeemed.
(b) Certain Transfers and Exchanges. Notwithstanding any other
provision of this Indenture, transfers and exchanges of Securities and
beneficial interests in a Global Security shall be made only in accordance with
this Section 3.6(b).
(i) Restricted Non-Global Security to Global Security. If the
Holder of a Restricted Security (other than a Global Security) wishes
at any time to transfer all or any
30
<PAGE> 37
portion of such Security to a Person who wishes to take delivery
thereof in the form of a beneficial interest in a Global Security,
such transfer may be effected only in accordance with the provisions
of this clause (b) (i) and subject to the Applicable Procedures. Upon
receipt by the Securities Registrar of (A) such Security as provided
in Section 3.6(a) and instructions satisfactory to the Securities
Registrar directing that a beneficial interest in the Global Security
in a specified principal amount not greater than the principal amount
of such Security be credited to a specified Agent Member's account and
(B) a Restricted Securities Certificate duly executed by such Holder
or such Holder's attorney duly authorized in writing, then the
Securities Registrar shall cancel such Security (and issue a new
Security in respect of any untransferred portion thereof) as provided
in Section 3.6(a) and increase the aggregate principal amount of the
Global Security by the specified principal amount as provided in
Section 3.5(c).
(ii) Non-Global Security to Non-Global Security. A Security
that is not a Global Security may be transferred, in whole or in part,
to a Person who takes delivery in the form of another Security that is
not a Global Security as provided in Section 3.6(a), provided that if
the Security to be transferred in whole or in part is a Restricted
Security, the Securities Registrar shall have received a Restricted
Securities Certificate duly executed by the transferor Holder or such
Holder's attorney duly authorized in writing.
(iii) Exchanges Between Global Security and Non-Global
Security. A beneficial interest in a Global Security may be exchanged
for a Security that is not a Global Security as provided in Section
3.5.
(iv) Initial Transfers of Non-Global Securities. In the case
of Securities initially issued other than in global form, an initial
transfer or exchange of such Securities that does not involve any
change in beneficial ownership may be made to an Institutional
Accredited Investor or Investors as if such transfer or exchange were
not an initial transfer or exchange; provided, however that written
certification shall be provided by the transferee and transferor of
such Securities to the Securities Registrar that such transfer or
exchange does not involve a change in beneficial ownership.
(c) Restricted Securities Legend. Except as set forth below, all
Securities shall bear a Restricted Securities Legend:
(i) subject to the following clauses of this Section 3.6(c),
a Security or any portion thereof that is exchanged, upon transfer or
otherwise, for a Global Security or any portion thereof shall bear the
Restricted Securities Legend while represented thereby;
(ii) subject to the following clauses of this Section 3.6(c),
a new Security which is not a Global Security and is issued in
exchange for another Security (including a Global Security) or any
portion thereof, upon transfer or otherwise, shall, if such new
Security is
31
<PAGE> 38
required pursuant to Section 3.6(b) (ii) or (iii) to be issued in the
form of a Restricted Security, bear a Restricted Securities Legend;
(iii) a new Security (other than a Global Security) that does
not bear a Restricted Security Legend may be issued in exchange for or
in lieu of a Restricted Security or any portion thereof that bears
such a legend if, in the Company's judgment, placing such a legend
upon such new Security is not necessary to ensure compliance with the
registration requirements of the Securities Act, and the Trustee, at
the written direction of the Company in the form of an Officers'
Certificate, shall authenticate and deliver such a new Security as
provided in this Article III;
(iv) notwithstanding the foregoing provisions of this Section
3.6(c), a Successor Security of a Security that does not bear a
Restricted Securities Legend shall not bear such form of legend unless
the Company has reasonable cause to believe that such Successor
Security is a "restricted security" within the meaning of Rule 144, in
which case the Trustee, at the written direction of the Company in the
form of an Officers' Certificate, shall authenticate and deliver a new
Security bearing a Restricted Securities Legend in exchange for such
Successor Security as provided in this Article III; and
(v) Securities distributed to a holder of Preferred
Securities upon dissolution of an Issuer Trust shall bear a Restricted
Securities Legend if the Preferred Securities so held bear a similar
legend.
Section 3.7 Mutilated, Lost and Stolen Securities.
(a) If any mutilated Security, including any temporary Securities, is
surrendered to the Trustee together with such security or indemnity as may be
required by the Company or the Trustee to save each of them harmless, the
Company shall execute and the Trustee shall authenticate and deliver in
exchange therefor a new Security, of like tenor and aggregate principal amount,
bearing the same legends, and bearing a number not contemporaneously
outstanding.
(b) If there shall be delivered to the Company and to the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any
Security, and (ii) such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or
the Trustee that such Security has been acquired by a bona fide purchaser or a
protected purchaser, the Company shall execute and upon its request the Trustee
shall authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security, of like tenor and aggregate principal amount and
bearing the same legends as such destroyed, lost or stolen Security, and
bearing a number not contemporaneously outstanding.
(c) If any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.
32
<PAGE> 39
(d) Upon the issuance of any new Security under this Section 3.7, 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.
(e) Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security 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 Securities duly issued hereunder.
(f) 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 Securities.
Section 3.8 Payment of Interest and Additional Interest; Interest Rights
Preserved.
(a) Interest and Additional Interest on any Security that is payable,
and is punctually paid or duly provided for, on any Interest Payment Date,
shall be paid to the Person in whose name that Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest in respect of Securities, except that, unless
otherwise provided in the Securities, interest payable on the Stated Maturity
of the principal of a Security shall be paid to the Person to whom principal is
paid. The initial payment of interest on any Security that is issued between a
Regular Record Date and the related Interest Payment Date shall be payable as
provided in such Security or in the Board Resolution pursuant to Section 3.1
with respect to the Securities.
(b) Any interest on any Security that is due and payable, but is not
timely paid or duly provided for, on any Interest Payment Date for Securities
(herein called "Defaulted Interest"), shall forthwith cease to be payable to
the registered Holder on the relevant Regular Record Date by virtue of having
been such Holder, and such Defaulted Interest may be paid by the Company, at
its election in each case, as provided in clause (i) or (ii) below:
(i) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities in respect of
which interest is in default (or their respective Predecessor
Securities) 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 Security and the date of the proposed payment, and which shall be
fixed at the same time the Company shall deposit with the Trustee an
amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as in
this clause provided. Thereupon, the Trustee
33
<PAGE> 40
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 a Security at the address of such Holder as
it appears in the Securities Register not less than 10 days prior to
such Special Record Date. The Trustee may, in its discretion, in the
name and at the expense of the Company, cause a similar notice to be
published at least once in a newspaper, customarily published in the
English language on each Business Day and of general circulation in
the Borough of Manhattan, The City of New York, but such publication
shall not be a condition precedent to the establishment of such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been mailed as
aforesaid, such Defaulted Interest shall be paid to the Persons in
whose names the Securities (or their respective Predecessor
Securities) are registered on such Special Record Date and shall no
longer be payable pursuant to the following clause (ii).
(ii) The Company may make payment of any Defaulted Interest
in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities in respect of which
interest is in default may be listed and, upon such notice as may be
required by such exchange (or by the Trustee if the Securities are not
listed), if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this clause (ii), such payment shall be
deemed practicable by the Trustee.
(c) Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon transfer of or in exchange for or in lieu
of any other Security shall carry the rights to interest accrued and unpaid,
and to accrue interest, that were carried by such other Security.
Section 3.9 Persons Deemed Owners.
(a) The Company, the Trustee and any agent of the Company or the
Trustee shall treat the Person in whose name any Security is registered as the
owner of such Security for the purpose of receiving payment of principal of and
(subject to Section 3.8) any interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and none of the
Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
(b) No holder of any beneficial interest in any Global Security held
on its behalf by a Depositary shall have any rights under this Indenture with
respect to such Global Security, and such Depositary may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the owner
of such Global Security for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent
of the Company or
34
<PAGE> 41
the Trustee from giving effect to any written certification, proxy or other
authorization furnished by a Depositary or impair, as between a Depositary and
such holders of beneficial interests, the operation of customary practices
governing the exercise of the rights of the Depositary (or its nominee) as
Holder of any Security.
Section 3.10 Cancellation.
All Securities surrendered for payment, redemption, transfer or
exchange shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee, and any such Securities, and Securities surrendered
directly to the Trustee for any such purpose, shall be promptly canceled by it.
The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder that the Company
may have acquired in any manner whatsoever, and all Securities so delivered
shall be promptly canceled by the Trustee. No Securities shall be authenticated
in lieu of or in exchange for any Securities canceled as provided in this
Section 3.10, except as expressly permitted by this Indenture. All canceled
Securities shall be destroyed by the Trustee and the Trustee shall deliver to
the Company a certificate of such destruction.
Section 3.11 Computation of Interest.
Interest on the Securities for any period shall be computed on the
basis of a 360-day year of twelve 30-day months and the actual number of days
elapsed in any partial month in such period, and interest on the Securities for
a full period shall be computed by dividing the rate per annum by the number of
interest periods that together constitute a full twelve months.
Section 3.12. Deferrals of Interest Payment Dates.
(a) So long as no Event of Default has occurred and is continuing, the
Company shall have the right, at any time during the term of the Securities,
from time to time to defer the payment of interest on such Securities for such
period or periods (each an "Extension Period") not to exceed the number of
consecutive interest periods that equal 20 consecutive quarterly periods with
respect to each Extension Period, during which Extension Periods the Company
shall have the right to make partial payments of interest on any Interest
Payment Date. No Extension Period shall end on a date other than an Interest
Payment Date. At the end of any such Extension Period, the Company shall pay
all interest then accrued and unpaid on the Securities together with Additional
Interest thereon, if any, at the rate specified for the Securities to the
extent permitted by applicable law; provided, however, that no Extension Period
shall extend beyond the Stated Maturity of the principal of the Securities; and
provided further, however, that, during any such Extension Period, the Company
shall not (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stock, or (ii) make any payment of principal of or interest
or premium, if any, on or repay, repurchase or redeem any debt securities of
the Company that rank pari passu in all respects with or junior in interest to
the Securities, including the Company's obligations associated with the
Outstanding Preferred Securities (other than (A) repurchases, redemptions or
other acquisitions of shares of capital stock of the Company
35
<PAGE> 42
in connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of any one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into
prior to the applicable Extension Period, (B) as a result of a
reclassification, an exchange or conversion of any class or series of the
Company's capital stock (or any capital stock of a Subsidiary of the Company)
for any class or series of the Company's capital stock or of any class or
series of the Company's indebtedness for any class or series of the Company's
capital stock, (C) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (D) any
declaration of a dividend in connection with any Rights Plan, or the issuance
of rights, stock or other property under any Rights Plan, or the redemption or
repurchase of rights pursuant thereto, or (E) any dividend in the form of
stock, warrants, options or other rights where the dividend stock or the stock
issuable upon exercise of such warrants, options or other rights is the same
stock as that on which the dividend is being paid or ranks pari passu with or
junior to such stock.) Prior to the termination of any such Extension Period,
the Company may further defer the payment of interest, provided that no Event
of Default has occurred and is continuing and provided further, that no
Extension Period shall exceed the period or periods specified in such
Securities, extend beyond the Stated Maturity of the principal of such
Securities or end on a date other than an Interest Payment Date. Upon the
termination of any such Extension Period and upon the payment of all accrued
and unpaid interest and any Additional Interest then due on any Interest
Payment Date, the Company may elect to begin a new Extension Period, subject to
the above conditions. No interest or Additional Interest shall be due and
payable during an Extension Period, except at the end thereof, but each
installment of interest that would otherwise have been due and payable during
such Extension Period shall bear Additional Interest. The Company shall give
the Holders of the Securities and the Trustee notice of its election to begin
any such Extension Period at least one Business Day prior to the next
succeeding Interest Payment Date on which interest on Securities would be
payable but for such deferral or, with respect to any Securities issued to the
Issuer Trust, so long as any such Securities are held by the Issuer Trust, at
least one Business Day prior to the earlier of (x) the next succeeding date on
which Distributions (as defined in the Trust Agreement) on the Preferred
Securities of the Issuer Trust would be payable but for such deferral, and (y)
the date on which the Property Trustee of the Issuer Trust is required to give
notice to holders of such Preferred Securities of the record date or the date
such Distributions are payable, but in any event not less than one Business Day
prior to such record date.
(b) The Trustee shall promptly give notice of the Company's election
to begin any such Extension Period to the Holders of the Outstanding
Securities.
Section 3.13 Right of Set-Off.
With respect to the Securities initially issued to the Issuer Trust,
notwithstanding anything to the contrary herein, the Company shall have the
right to set off any payment it is otherwise required to make in respect of any
such Security to the extent the Company has theretofore made,
36
<PAGE> 43
or is concurrently on the date of such payment making, a payment under the
Guarantee or to a holder of Preferred Securities pursuant to an action
undertaken under Section 5.8 of this Indenture.
Section 3.14 Agreed Tax Treatment.
Each Security issued hereunder shall provide that the Company and, by
its acceptance of a Security or a beneficial interest therein, the Holder of,
and any Person that acquires a beneficial interest in, such Security agree that
for United States federal, state and local tax purposes it is intended that
such Security constitutes indebtedness.
Section 3.15 CUSIP Numbers.
The Company, in issuing the Securities, may use "CUSIP" numbers (if
then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in
notice of redemption and other similar or related materials as a convenience to
Holders; provided that any such notice or other materials may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of redemption or other
materials and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be
affected by any defect in or omission of such numbers.
Section 3.16 Shortening of Stated Maturity.
The Company shall have the right to shorten the Stated Maturity of the
principal of the Securities at any time to any date not earlier than
____________, 2004, provided that the Company shall give notice to the Holders,
the Trustee and, in the case of Securities issued to an Issuer Trust, the
Issuer Trust of such shortening no less than 90 days prior to the effectiveness
thereof.
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.1 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 Securities herein expressly provided for and as otherwise provided
in this Section 4.1) and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when:
(a) either
37
<PAGE> 44
(i) all Securities theretofore authenticated and delivered
(other than (A) Securities that have been destroyed, lost or stolen
and that have been replaced or paid as provided in Section 3.7 and (B)
Securities for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 10.3) have been delivered to the Trustee for cancellation; or
(ii) all such Securities not theretofore delivered to the
Trustee for cancellation
(A) have become due and payable,
(B) will become due and payable at their Stated
Maturity within one year of the date of deposit, or
(C) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving
of notice of redemption by the Trustee in the name, and at
the expense, of the Company,
and the Company, in the case of subclause (ii) (A), (B) or (C) above, has
deposited or caused to be deposited with the Trustee as trust funds in trust
for such purpose an amount in the currency or currencies in which the
Securities are payable sufficient to pay and discharge the entire indebtedness
on such Securities not theretofore delivered to the Trustee for cancellation,
for the principal (and premium, if any) and interest (including any Additional
Interest) to the date of such deposit (in the case of Securities that have
become due and payable) or to the Stated Maturity or Redemption Date, as the
case may be;
(b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.7, the obligations of
the Company to any Authenticating Agent under Section 6.14 and, if money shall
have been deposited with the Trustee pursuant to subclause (ii) of clause (a)
of this Section, the obligations of the Trustee under Section 4.2 and the last
paragraph of Section 10.3 shall survive.
Section 4.2 Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all
money deposited with the Trustee pursuant to Section 4.1 shall be held in trust
and applied by the Trustee, in accordance with
38
<PAGE> 45
the provisions of the Securities 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 premium, if any) and interest and Additional Interest for
the payment of which such money or obligations have been deposited with or
received by the Trustee.
ARTICLE V
REMEDIES
Section 5.1 Events of Default.
"Event of Default", wherever used herein with respect to the
Securities, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body):
(a) default in the payment of any interest upon any Security,
including any Additional Interest in respect thereof, when it becomes due and
payable and continuance of such default for a period of 30 days (subject to the
deferral of any due date in the case of an Extension Period);
(b) default in the payment of the principal of (or premium, if any,
on) any Security at its Stated Maturity;
(c) failure on the part of the Company duly to observe or perform any
other of the covenants or agreements on the part of the Company in the
Securities or in this Indenture for a period of 90 days after the date on which
written notice of such failure (a "Notice of Default"), requiring the Company
to remedy the same, shall have been given to the Company by the Trustee by
registered or certified mail or to the Company and the Trustee by the Holders
of at least 25% in aggregate principal amount of the Outstanding Securities; or
(d) the occurrence of the appointment of a receiver or other similar
official in any liquidation, insolvency or similar proceeding with respect to
the Company or all or substantially all of its property; or a court or other
governmental agency shall enter a decree or order appointing a receiver or
similar official and such decree or order shall remain unstayed and
undischarged for a period of 60 days.
Section 5.2 Acceleration of Maturity; Rescission and Annulment.
(a) If an Event of Default (other than an Event of Default specified
in Section 5.1(d)) with respect to Securities at the time Outstanding occurs
and is continuing, then, and in every such case, the Trustee or the Holders of
not less than 25% in aggregate principal amount of the
39
<PAGE> 46
Outstanding Securities may declare the principal amount (or, if the Securities
are Discount Securities, such portion of the principal amount as may be
specified in the terms) of all the Securities to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by Holders), provided, however that, if, upon an Event of Default, the Trustee
or the Holders of not less than 25% in principal amount of the Outstanding
Securities fail to declare the principal of all the Outstanding Securities to
be immediately due and payable, the holders of at least 25% in aggregate
Liquidation Amount (as defined in the Trust Agreement) of the Preferred
Securities issued by the Issuer Trust then outstanding shall have the right to
make such declaration by a notice in writing to the Company and the Trustee;
and upon any such declaration such principal amount (or specified portion
thereof) of and the accrued interest (including any Additional Interest) on all
the Securities shall become immediately due and payable. If an Event of Default
specified in Section 5.1(d) with respect to Securities at the time Outstanding
occurs, the principal amount of all the Securities (or, if the Securities are
Discount Securities, such portion of the principal amount of such Securities as
may be specified by the terms) shall automatically, and without any declaration
or other action on the part of the Trustee or any Holder, become immediately
due and payable. Payment of principal and interest (including any Additional
Interest) on such Securities shall remain subordinated to the extent provided
in Article XIII notwithstanding that such amount shall become immediately due
and payable as herein provided.
(b) At any time after such a declaration of acceleration with respect
to the Securities 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
V, provided the Holders of a majority in aggregate principal amount of the
Outstanding Securities, by written notice to the Company and the Trustee, may
rescind and annul such declaration and its consequences if:
(i) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(A) all overdue installments of interest on all
Securities;
(B) any accrued Additional Interest on all
Securities;
(C) the principal of (and premium, if any, on) any
Securities that have become due otherwise than by such
declaration of acceleration and interest and Additional
Interest thereon at the rate borne by the Securities; and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel; and
(ii) all Events of Default with respect to Securities, other
than the non-payment of the principal of Securities that has become
due solely by such acceleration, have been cured or waived as provided
in Section 5.13.
40
<PAGE> 47
(c) If the Holders of Securities fail to annul such declaration and
waive such default, the holders of a majority in aggregate Liquidation Amount
(as defined in the Trust Agreement) of Preferred Securities issued by the
Issuer Trust then outstanding shall also have the right to rescind and annul
such declaration and its consequences by written notice to the Company and the
Trustee, subject to the satisfaction of the conditions set forth in clauses (a)
and (b) above of this Section 5.2.
(d) No such rescission shall affect any subsequent default or impair
any right consequent thereon.
Section 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee.
(a) The Company covenants that if:
(i) default is made in the payment of any installment of
interest (including any Additional Interest) on any Security when such
interest becomes due and payable and such default continues for a
period of 30 days or
(ii) default is made in the payment of the principal of (and
premium, if any, on) any Security at the Stated Maturity thereof,
then the Company will, upon demand of the Trustee, pay to the Trustee,
for the benefit of the Holders of the Securities, the whole amount
then due and payable on the Securities for principal (and premium, if
any) and interest (including any Additional Interest), and, in
addition thereto, all amounts owing the Trustee under Section 6.7.
(b) If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, 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 Securities
and collect the monies adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon the
Securities, wherever situated.
(c) If an Event of Default with respect to Securities occurs and is
continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities 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.
41
<PAGE> 48
Section 5.4 Trustee May File Proofs of Claim.
In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial or
administrative proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors,
(a) the Trustee (irrespective of whether the principal of the
Securities shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
on the Company for the payment of overdue principal (and premium, if any) or
interest (including any Additional Interest)) shall be entitled and empowered,
by intervention in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest (including any Additional
Interest) owing and unpaid in respect to the Securities and to file
such other papers or documents as may be necessary or advisable and to
take any and all actions as are authorized under the Trust Indenture
Act in order to have the claims of the Holders and any predecessor to
the Trustee under Section 6.7 allowed in any such judicial or
administrative proceedings; and
(ii) in particular, the Trustee shall be authorized to
collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same in
accordance with Section 5.6; and
(b) any custodian, receiver, assignee, trustee, liquidator,
sequestrator, conservator (or other similar official) in any such judicial or
administrative proceeding is hereby authorized by each Holder to make such
payments to the Trustee for distribution in accordance with Section 5.6, 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 to it and any
predecessor Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
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 be a member of a creditors' or
other similar committee.
Section 5.5 Trustee May Enforce Claim Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be brought
42
<PAGE> 49
in its own name as trustee of an express trust, and any recovery of judgment
shall, subject to Article XIII and after provision for the payment of all the
amounts owing the Trustee and any predecessor Trustee under Section 6.7, its
agents and counsel, be for the ratable benefit of the Holders of the Securities
in respect of which such judgment has been recovered.
Section 5.6 Application of Money Collected.
Any money or property collected or to be applied by the Trustee with
respect to the Securities pursuant to this Article V 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 or property on account of principal (and premium, if
any) or interest (including any Additional Interest), upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 6.7;
SECOND: Subject to Article XIII, to the payment of the amounts then
due and unpaid upon Securities for principal (and premium, if any) and interest
(including any Additional Interest) in respect of which or for the benefit of
which such money has been collected, ratably, without preference or priority of
any kind, according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest (including any Additional
Interest), respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
Section 5.7 Limitation on Suits.
Subject to Section 5.8, no Holder of any Securities shall have any
right to institute any proceeding, judicial or otherwise, with respect to this
Indenture or for the appointment of a receiver, assignee, trustee, liquidator,
sequestrator (or other similar official) or for any other remedy hereunder,
unless:
(a) such Holder has previously given written notice to the Trustee of
a continuing Event of Default with respect to the Securities, as herein before
provided;
(b) the Holders of not less than 25% in aggregate principal amount of
the Outstanding Securities 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;
(c) 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;
43
<PAGE> 50
(d) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
aggregate principal amount of the Outstanding Securities; 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 itself of, any provision of this
Indenture to affect, disturb or prejudice the rights of any other Holders of
Securities, 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 such
Holders.
Section 5.8 Unconditional Right of Holders to Receive Principal, Premium
and Interest; Direct Action by Holders of Preferred Securities.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any) and (subject to
Sections 3.8 and 3.12) interest (including any Additional Interest) on such
Security on the Stated Maturity (or in the case of redemption, on the
Redemption Date) and to institute suit for the enforcement of any such payment,
and such right shall not be impaired without the consent of such Holder. Any
registered holder of the Preferred Securities issued by the Issuer Trust shall
have the right, upon the occurrence of an Event of Default described in Section
5.1(a) or 5.1(b), to institute a suit directly against the Company for
enforcement of payment to such holder of principal of (and premium, if any) and
(subject to Sections 3.8 and 3.12) interest (including any Additional Interest)
on the Securities having a principal amount equal to the aggregate Liquidation
Amount (as defined in the Trust Agreement) of such Preferred Securities held by
such holder.
Section 5.9 Restoration of Rights and Remedies.
If the Trustee, any Holder or any holder of Preferred Securities
issued by the Issuer Trust 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, such
Holder or such holder of Preferred Securities, then, and in every such case,
the Company, the Trustee, such Holders and such holder of Preferred Securities
shall, subject to any determination in such proceeding, be restored severally
and respectively to their former positions hereunder, and thereafter all rights
and remedies of the Trustee, such Holder and such holder of Preferred
Securities shall continue as though no such proceeding had been instituted.
Section 5.10 Rights and Remedies Cumulative.
Except as otherwise provided in the last paragraph of Section 3.7, no
right or remedy herein conferred upon or reserved to the Trustee or 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
44
<PAGE> 51
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 5.11 Delay or Omission Not Waiver.
(a) No delay or omission of the Trustee, any Holder of any Security
with respect to the Securities or any holder of any Preferred Security to
exercise any right or remedy accruing upon any Event of Default with respect to
the Securities shall impair any such right or remedy or constitute a waiver of
any such Event of Default or an acquiescence therein.
(b) Every right and remedy given by this Article V or by law to the
Trustee or to the Holders and the right and remedy given to the holders of
Preferred Securities by Section 5.8 may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee, the Holders or the holders of
Preferred Securities, as the case may be.
Section 5.12 Control by Holders.
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities 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
Securities, provided that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture,
(b) the Trustee may take any other action deemed proper by the Trustee
that is not inconsistent with such direction, and
(c) subject to the provisions of Section 6.1, the Trustee shall have
the right to decline to follow such direction if a Responsible Officer or
Officers of the Trustee shall, in good faith, determine that the proceeding so
directed would be unjustly prejudicial to the Holders not joining in any such
direction or would involve the Trustee in personal liability.
Section 5.13 Waiver of Past Defaults.
(a) The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities affected thereby and, the holders of a
majority in aggregate Liquidation Amount (as defined in the Trust Agreement) of
the Preferred Securities issued by the Issuer Trust may waive any past default
hereunder and its consequences except a default:
(i) in the payment of the principal of (or premium, if any)
or interest (including any Additional Interest) on any Security
(unless such default has been cured and the Company has paid to or
deposited with the Trustee a sum sufficient to
45
<PAGE> 52
pay all matured installments of interest (including Additional
Interest) and all principal of (and premium, if any on) all Securities
due otherwise than by acceleration), or
(ii) in respect of a covenant or provision hereof that under
Article IX cannot be modified or amended without the consent of each
Holder of any Outstanding Security affected thereby.
(b) Any such waiver shall be deemed to be on behalf of the Holders of
all the Securities, or in the case of waiver by holders of Preferred Securities
issued by the Issuer Trust, by all holders of Preferred Securities issued by
the Issuer Trust.
(c) Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture, but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
Section 5.14 Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security
by his acceptance thereof shall be deemed to have agreed, that any court may,
in its discretion, require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may,
in its discretion, assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant, but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in aggregate principal amount of the Outstanding
Securities, or to any suit instituted by any Holder for the enforcement of the
payment of the principal of (or premium, if any) or interest (including any
Additional Interest) on any Security on or after the Stated Maturity.
Section 5.15 Waiver of Usury, 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 usury, stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law had been
enacted.
46
<PAGE> 53
ARTICLE VI
THE TRUSTEE
Section 6.1 Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(i) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture, but in the case of any such certificates or
opinions that by any provisions hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine
the same to determine whether or not they conform to the requirements
of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct except that:
(i) this subsection shall not be construed to limit the
effect of Section 6.1(a) hereof;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it shall
be proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance
with the direction of Holders pursuant to Section 5.12 relating to the
time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Indenture with respect to the Securities.
47
<PAGE> 54
(d) 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 there shall be reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
Section 6.2 Notice of Defaults.
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Securities, the Trustee shall transmit by mail to all Holders of Securities, as
their names and addresses appear in the Securities Register, notice of such
default, unless such default shall have been cured or waived; provided,
however, that, except in the case of a default in the payment of the principal
of (or premium, if any) or interest (including any Additional Interest) on any
Security, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Trustee in good faith determines
that the withholding of such notice is in the interests of the Holders of
Securities; and provided further, that, in the case of any default of the
character specified in Section 5.1(c), no such notice to Holders of Securities
shall be given until at least 30 days after the occurrence thereof. For the
purpose of this Section 6.2, the term "default" means any event that is, or
after notice or lapse of time or both would become, an Event of Default with
respect to the Securities.
Section 6.3 Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
Security or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its
part, rely upon an Officers' Certificate;
48
<PAGE> 55
(d) the Trustee may consult with counsel of its choice and the advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, 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 security or indemnity against the costs,
expenses and liabilities that might be incurred by it in compliance with such
request or direction; provided, however, that nothing herein shall relieve the
Trustee of its obligations upon the occurrence of an Event of Default that has
not been cured or waived to exercise with respect to the Securities such of the
rights and powers vested in the Trustee by this Indenture, and to use the same
degree of care and skill in exercising such rights and powers as a reasonably
prudent person would use under the circumstances in the conduct of his own
affairs;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, indenture,
Security or other paper or document, but the Trustee in its discretion may make
such inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
Section 6.4 Responsibility for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and neither the Trustee nor any Authenticating Agent assumes any
responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture or of the Securities. Neither
the Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of the Securities or the proceeds thereof.
Section 6.5 May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any
Securities Registrar or any other agent of the Company, in its individual or
any other capacity, may become the owner or pledgee of Securities and, subject
to Sections 6.8 and 6.13, may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Authenticating Agent, Paying
Agent, Securities Registrar or such other agent.
49
<PAGE> 56
Section 6.6 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
Section 6.7 Compensation and Reimbursement.
(a) The Company agrees to pay to the Trustee from time to time
reasonable compensation for all services rendered by it hereunder in such
amounts as the Company and the Trustee shall agree 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).
(b) The Company agrees 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, bad faith or willful misconduct.
(c) Since the Issuer Trust is being formed solely to facilitate an
investment in the Preferred Securities, the Company, as holder of the Common
Securities, hereby covenants to pay all debts and obligations (other than with
respect to the Preferred Securities and the Common Securities) and all
reasonable costs and expenses of the Issuer Trust (including without limitation
all costs and expenses relating to the organization of the Issuer Trust, the
fees and expenses of the trustees and all reasonable costs and expenses
relating to the operation of the Issuer Trust) and to pay any and all taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed on the Issuer Trust by the United States, or any
taxing authority, so that the net amounts received and retained by the Issuer
Trust and the Property Trustee after paying such expenses will be equal to the
amounts the Issuer Trust and the Property Trustee would have received had no
such costs or expenses been incurred by or imposed on the Issuer Trust. The
foregoing obligations of the Company are for the benefit of, and shall be
enforceable by, any person to whom any such debts, obligations, costs, expenses
and taxes are owed (each, a "Creditor") whether or not such Creditor has
received notice thereof. Any such Creditor may enforce such obligations
directly against the Company, and the Company irrevocably waives any right or
remedy to require that any such Creditor take any action against the Issuer
Trust or any other person before proceeding against the Company. The Company
shall execute such additional agreements as may be necessary or desirable to
give full effect to the foregoing.
(d) The Company shall indemnify the Trustee, its directors, officers,
employees and agents for, and hold them harmless against, any loss, liability
or expense (including the reasonable compensation and the expenses and
disbursements of its agents and counsel) incurred without negligence, bad faith
or willful misconduct, arising out of or in connection with the acceptance or
administration of this trust or the performance of its duties hereunder,
including the reasonable costs
50
<PAGE> 57
and expenses of defending against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. This
indemnification shall survive the termination of this Indenture or the
resignation or removal of the Trustee.
(e) When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 5.1(d) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under the Bankruptcy Reform Act of 1978 or any successor
statute.
Section 6.8 Disqualification; Conflicting Interests.
The Trustee for the Securities issued hereunder shall be subject to,
and shall comply fully with, the provisions of Section 310(b) of the Trust
Indenture Act. Nothing herein shall prevent the Trustee from filing with the
Commission the application referred to in the second to last paragraph of said
Section 310(b).
Section 6.9 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee with respect to the Securities
issued hereunder which shall be:
(a) a Person organized and doing business under the laws of the United
States of America or of any state or territory thereof or of the District of
Columbia, authorized under such laws to exercise corporate trust powers and
subject to supervision or examination by federal, state, territorial or
District of Columbia authority, or
(b) an entity organized and doing business under the laws of a foreign
government that is permitted to act as Trustee pursuant to a rule, regulation
or order of the Commission, authorized under such laws to exercise corporate
trust powers, and subject to supervision or examination by authority of such
foreign government or a political subdivision thereof substantially equivalent
to supervision or examination applicable to United States institutional
trustees; in either case having a combined capital and surplus of at least
$50,000,000, subject to supervision or examination by federal or state
authority. If such entity publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then, for the purposes of this Section 6.9, the combined
capital and surplus of such entity 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 VI. Neither the Company nor
any Person directly or indirectly controlling, controlled by or under common
control with the Company shall serve as Trustee for the Securities issued
hereunder.
51
<PAGE> 58
Section 6.10 Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time with respect to the Securities
by giving written notice thereof to the Company. If an instrument of acceptance
by a successor Trustee shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time with respect to the
Securities by Act of the Holders of a majority in aggregate principal amount of
the Outstanding Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 6.8 after
written request therefor by the Company or by any Holder who has been
a bona fide Holder of a Security for at least six months, or
(ii) the Trustee shall cease to be eligible under Section 6.9
and shall fail to resign after written request therefor by the Company
or by any such Holder, or
(iii) the Trustee shall become incapable of acting or shall
be adjudged 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, (x) the Company, acting pursuant to the authority of a
Board Resolution, may remove the Trustee with respect to the Securities issued
hereunder, or (y) subject to Section 5.14, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of such Holder and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee with respect to the Securities issued hereunder 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 Securities, the Company, by a Board Resolution, shall promptly
appoint a successor Trustee with respect to the Securities. If, within one year
after such resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee with respect to the Securities shall be appointed
by Act of the Holders of a majority in aggregate principal amount of the
Outstanding Securities delivered to the Company and
52
<PAGE> 59
the retiring Trustee, the successor Trustee so appointed shall, forthwith upon
its acceptance of such appointment, become the successor Trustee with respect
to the Securities and supersede the successor Trustee appointed by the Company.
If no successor Trustee with respect to the Securities shall have been so
appointed by the Company or the Holders and accepted appointment in the manner
hereinafter provided, any Holder who has been a bona fide Holder of a Security
for at least six months may, subject to Section 5.14, on behalf of such Holder
and all others similarly situated, petition any court of competent jurisdiction
for the appointment of a successor Trustee with respect to the Securities.
(f) The Company shall give notice of each resignation and each removal
of the Trustee with respect to the Securities and each appointment of a
successor Trustee with respect to the Securities by mailing written notice of
such event by first-class mail, postage prepaid, to the Holders of Securities
as their names and addresses appear in the Securities Register. Each notice
shall include the name of the successor Trustee with respect to the Securities
and the address of its Corporate Trust Office.
Section 6.11 Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, 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 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, execute any and all
instruments for more fully and certainly vesting in and confirming to such
successor Trustee all rights, powers and trusts referred to in this Section
6.11(a).
(b) 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 VI.
Section 6.12 Merger, Conversion, Consolidation or Succession to Business.
Any entity into which the Trustee may be merged or converted or with
which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
entity succeeding to all or substantially all of the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
entity shall be otherwise qualified and eligible under this Article VI, without
the execution or filing of any paper or any further act on the part of any of
the parties hereto. In case any Securities 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
53
<PAGE> 60
Securities so authenticated, and in case any Securities shall not have been
authenticated, any successor to the Trustee may authenticate such Securities
either in the name of any predecessor Trustee or in the name of such successor
Trustee, and in all cases the certificate of authentication shall have the full
force which it is provided anywhere in the Securities or in this Indenture that
the certificate of the Trustee shall have.
Section 6.13 Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims
against the Company (or any such other obligor).
Section 6.14 Appointment of Authenticating Agent.
(a) The Trustee may appoint an Authenticating Agent or Agents with
respect to the Securities, which shall be authorized to act on behalf of the
Trustee to authenticate Securities issued upon original issue and upon
exchange, registration of transfer or partial redemption thereof or pursuant to
Section 3.6, and Securities 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 Securities 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
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be an entity organized and doing business under
the laws of the United States of America, or of any state or territory thereof
or of 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 6.14, such Authenticating Agent
shall resign immediately in the manner and with the effect specified in this
Section 6.14.
(b) Any entity into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any entity resulting from
any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any entity succeeding to all or substantially all of the
corporate trust business of an Authenticating Agent shall be the successor
Authenticating Agent hereunder, provided such entity 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.
54
<PAGE> 61
(c) 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 give notice of such
appointment in the manner provided in Section 1.6 to all Holders of Securities.
Any successor Authenticating Agent upon acceptance 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
provision of this Section.
(d) The Company agrees to pay to each Authenticating Agent from time
to time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payment, subject to the
provisions of Section 6.7.
(e) If an appointment is made pursuant to this Section 6.14, the
Securities may have endorsed thereon, in addition to the Trustee's certificate
of authentication, an alternative certificate of authentication in the
following form:
This is one of the Securities referred to in the within mentioned
Indenture.
Dated: BANKERS TRUST COMPANY,
as Trustee
By:
---------------------------------------
As Authenticating Agent
By:
---------------------------------------
As Authenticating Agent
55
<PAGE> 62
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE,
PAYING AGENT AND COMPANY
Section 7.1 Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a) quarterly, not more than 15 days after March 15, June 15,
September 15, and December 15 in each year, a list, in such form as the Trustee
may reasonably require, of the names and addresses of the Holders as of such
dates, excluding from any such list names and addresses received by the Trustee
in its capacity as Securities Registrar, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished, excluding from any such list names and addresses received by the
Trustee in its capacity as Securities Registrar.
Section 7.2 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 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Securities
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.1 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and privileges of the Trustee, shall be as provided in the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
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
the disclosure of information as to the names and addresses of the Holders made
pursuant to the Trust Indenture Act.
Section 7.3 Reports by Trustee and Paying Agent.
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act, at the times and in the manner provided pursuant thereto.
56
<PAGE> 63
(b) Reports so required to be transmitted at stated intervals of not
more than 12 months shall be transmitted within 60 days of January 31 in each
calendar year, commencing with January 31, 2000.
(c) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each securities exchange upon which
any Securities are listed and also with the Commission. The Company will notify
the Trustee when any Securities are listed on any securities exchange.
(d) The Paying Agent shall comply with all withholding, backup
withholding, tax and information reporting requirements under the Internal
Revenue Code of 1986, as amended, and the Treasury Regulations issued
thereunder with respect to payments on, or with respect to, the Securities.
Section 7.4 Reports by Company.
The Company shall file or cause to be filed with the Trustee and with
the Commission, and transmit to Holders, such information, documents and other
reports, and such summaries thereof, as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided in the Trust Indenture
Act. In the case of information, documents or reports required to be filed with
the Commission pursuant to Section 13(a) or Section 15(d) of the Exchange Act,
the Company shall file or cause the filing of such information documents or
reports with the Trustee within 15 days after the same is required to be filed
with the Commission.
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1 Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, and no Person shall consolidate with or merge into the
Company or convey, transfer or lease its properties and assets substantially as
an entirety to the Company, unless:
(a) if the Company shall consolidate with or merge into another Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, the entity formed by such consolidation or into which
the Company is merged or the Person that acquires by conveyance or transfer, or
that leases, the properties and assets of the Company substantially as an
entirety shall be an entity organized and existing under the laws of the United
States of America or any state thereof or the District of Columbia and shall
expressly assume, by an indenture supplemental hereto, executed and delivered
to the Trustee, in form satisfactory to the Trustee, the
57
<PAGE> 64
due and punctual payment of the principal of (and premium, if any), and
interest (including any Additional Interest) on all the Securities of every
series and the performance of every covenant of this Indenture on the part of
the Company to be performed or observed; provided, however, that nothing herein
shall be deemed to restrict or prohibit, and no supplemental indenture shall be
required in the case of, the merger of a Principal Subsidiary Bank with and
into a Principal Subsidiary Bank or the Company, the consolidation of Principal
Subsidiary Banks into a Principal Subsidiary Bank or the Company, or the sale
or other disposition of all or substantially all of the assets of any Principal
Subsidiary Bank to another Principal Subsidiary Bank or the Company, if, in any
such case in which the surviving, resulting or acquiring entity is not the
Company, the Company would own, directly or indirectly, at least 80% of the
voting securities of the Principal Subsidiary Bank (and of any other Principal
Subsidiary Bank any voting securities of which are owned, directly or
indirectly, by such Principal Subsidiary Bank) surviving such merger, resulting
from such consolidation or acquiring such assets;
(b) immediately after giving effect to such transaction, no Event of
Default, and no event that, after notice or lapse of time, or both, would
constitute an Event of Default, shall have occurred and be continuing; and
(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and any such supplemental indenture comply with
this Article and that all conditions precedent herein provided for relating to
such transaction have been complied with and, in the case of a transaction
subject to this Section 8.1 but not requiring a supplemental indenture under
paragraph (a) of this Section 8.1, an Officer's Certificate or Opinion of
Counsel to the effect that the surviving, resulting or successor entity is
legally bound by the Indenture and the Securities; and the Trustee, subject to
Section 6.1, may rely upon such Officers' Certificates and Opinions of Counsel
as conclusive evidence that such transaction complies with this Section 8.1.
Section 8.2 Successor Company Substituted.
(a) Upon any consolidation or merger by the Company with or into any
other Person, or any conveyance, transfer or lease by the Company of its
properties and assets substantially as an entirety to any Person in accordance
with Section 8.1, the successor entity formed by such consolidation or into
which the Company is merged or to which such conveyance, transfer or lease 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 in the event of any
such conveyance, transfer or lease the Company shall be discharged from all
obligations and covenants under the Indenture and the Securities.
(b) Such successor Person may cause to be executed, and may issue
either in its own name or in the name of the Company, any or all of the
Securities issuable hereunder that theretofore shall not have been signed by
the Company and delivered to the Trustee; and, upon the order of such successor
Person instead of the Company and subject to all the terms, conditions and
limitations in
58
<PAGE> 65
this Indenture prescribed, the Trustee shall authenticate and shall deliver any
Securities that previously shall have been signed and delivered by the officers
of the Company to the Trustee for authentication pursuant to such provisions
and any Securities that such successor Person thereafter shall cause to be
executed and delivered to the Trustee on its behalf for the purpose pursuant to
such provisions. All the Securities so issued shall in all respects have the
same legal rank and benefit under this Indenture as the Securities theretofore
or thereafter issued in accordance with the terms of this Indenture.
(c) In case of any such consolidation, merger, sale, conveyance or
lease, such changes in phraseology and form may be made in the Securities
thereafter to be issued as may be appropriate.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1 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 amend
or waive any provision of this Indenture or enter into one or more indentures
supplemental hereto, in form satisfactory to the Trustee, for any of the
following purposes:
(a) 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 Securities contained;
(b) to convey, transfer, assign, mortgage or pledge any property to or
with the Trustee or to surrender any right or power herein conferred upon the
Company;
(c) to facilitate the issuance of Securities in certificated or other
definitive form;
(d) to add to the covenants of the Company for the benefit of the
Holders of the Securities or to surrender any right or power herein conferred
upon the Company;
(e) to add any additional Events of Default for the benefit of the
Holders of the Securities;
(f) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall not apply to any Outstanding
Securities;
(g) to cure any ambiguity, to correct or supplement any provision
herein that may be defective or inconsistent with any other provision herein,
or to make any other provisions with
59
<PAGE> 66
respect to matters or questions arising under this Indenture, provided that
such action pursuant to this clause (g) shall not adversely affect the interest
of the Holders of Securities in any material respect or, in the case of the
Securities issued to the Issuer Trust and for so long as any of the Preferred
Securities issued by the Issuer Trust shall remain outstanding, the holders of
such Preferred Securities;
(h) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities 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 6.11(b); or
(i) 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 9.2 Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Securities 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 of modifying in any manner the rights of the
Holders of Securities under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby:
(a) change the Stated Maturity of the principal of, or any installment
of interest (including any Additional Interest) on, any Security, or reduce the
principal amount thereof or the rate of interest thereon or any premium payable
upon the redemption thereof, or reduce the amount of principal of a Discount
Security that would be due and payable upon a declaration of acceleration of
the Stated Maturity thereof pursuant to Section 5.2, or change the place of
payment where, or the coin or currency in which, any Security 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, in the case of
redemption, on or after the Redemption Date),
(b) reduce the percentage in aggregate principal amount of the
Outstanding Securities, 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
(c) modify any of the provisions of this Section, Section 5.13 or
Section 10.5, 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 Security affected thereby;
60
<PAGE> 67
provided, further, that, in the case of the Securities issued to the Issuer
Trust, so long as any of the Preferred Securities issued by the Issuer Trust
remains outstanding, (i) no such amendment shall be made that adversely affects
the holders of such Preferred Securities in any material respect, and no
termination of this Indenture shall occur, and no waiver of any Event of
Default or compliance with any covenant under this Indenture shall be
effective, without the prior consent of the holders of at least a majority of
the aggregate Liquidation Amount (as defined in the Trust Agreement) of such
Preferred Securities then outstanding unless and until the principal of (and
premium, if any, on) the Securities and all accrued and (subject to Section
3.8) unpaid interest (including any Additional Interest) thereon have been paid
in full, and (ii) no amendment shall be made to Section 5.8 of this Indenture
that would impair the rights of the holders of Preferred Securities issued by
the Issuer Trust provided therein without the prior consent of the holders of
each such Preferred Security then outstanding unless and until the principal of
(and premium, if any, on) the Securities of such series and all accrued and
(subject to Section 3.8) unpaid interest (including any Additional Interest)
thereon have been paid in full.
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 9.3 Execution of Supplemental Indentures.
In executing or accepting the additional trusts created by any
supplemental indenture permitted by this Article IX or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and (subject to Section 6.1) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that the
execution of such supplemental indenture is authorized or permitted by this
Indenture, and that all conditions precedent herein provided for relating to
such action have been complied with. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture that affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Section 9.4 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article
IX, 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 Securities theretofore or thereafter authenticated and
delivered hereunder shall be bound thereby.
Section 9.5 Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article IX
shall conform to the requirements of the Trust Indenture Act as then in effect.
61
<PAGE> 68
Section 9.6 Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article IX may, and shall if required
by the Company, bear a notation in form approved by the Company as to any
matter provided for in such supplemental indenture. If the Company shall so
determine, new Securities so modified as to conform, in the opinion of 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 Securities.
ARTICLE X
COVENANTS
Section 10.1 Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of the Securities
that it will duly and punctually pay the principal of (and premium, if any) and
interest (including any Additional Interest) on the Securities in accordance
with the terms of such Securities and this Indenture.
Section 10.2 Maintenance of Office or Agency.
(a) The Company will maintain in each Place of Payment an office or
agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Company in respect of the Securities
and this Indenture may be served. The Company initially appoints the Trustee,
acting through its Corporate Trust Office, as its agent for said purposes. The
Company will give prompt written notice to the Trustee of any change in the
location of any such office or agency. If at any time the Company shall fail to
maintain such office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be
made or served at the 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.
(b) The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for
any or all of 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 Securities for such purposes. The Company
will give prompt written notice to the Trustee of any such designation and any
change in the location of any such office or agency.
62
<PAGE> 69
Section 10.3 Money for Security Payments to be Held in Trust.
(a) If the Company shall at any time act as its own Paying Agent with
respect to the Securities, it will, on or before each due date of the principal
of (and premium, if any) or interest (including Additional Interest) on any of
the Securities, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal (and premium, if any) or
interest (including Additional Interest) so becoming due until such sums shall
be paid to such Persons or otherwise disposed of as herein provided, and will
promptly notify the Trustee of its failure so to act.
(b) Whenever the Company shall have one or more Paying Agents, it
will, prior to 10:00 a.m., New York City time, on each due date of the
principal of (or premium, if any) or interest, including Additional Interest on
any Securities, deposit with a Paying Agent a sum sufficient to pay the
principal (and premium, if any) or interest, including Additional Interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal (and premium, if any) or interest, including
Additional Interest, and (unless such Paying Agent is the Trustee) the Company
will promptly notify the Trustee of its failure so to act.
(c) The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(i) hold all sums held by it for the payment of the principal
of (and premium, if any) or interest (including Additional Interest)
on the Securities in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided;
(ii) give the Trustee notice of any default by the Company
(or any other obligor upon such Securities) in the making of any
payment of principal (and premium, if any) or interest (including
Additional Interest) in respect of any Security;
(iii) at any time during the continuance of any default with
respect to the Securities, upon the written request of the Trustee,
forthwith pay to the Trustee all sums so held in trust by such Paying
Agent; and
(iv) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent.
(d) 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 terms 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.
63
<PAGE> 70
(e) 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 (and premium,
if any) or interest (including Additional Interest) on any Security and
remaining unclaimed for two years after such principal (and premium, if any) or
interest (including Additional Interest) has become due and payable shall
(unless otherwise required by mandatory provision of applicable escheat or
abandoned or unclaimed property law) be paid on Company Request to the Company,
or (if then held by the Company) shall (unless otherwise required by mandatory
provision of applicable escheat or abandoned or unclaimed property law) be
discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such
trust money, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in the Borough of Manhattan, the City of New York, notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such publication, any unclaimed balance of
such money then remaining will be repaid to the Company.
Section 10.4 Statement of Compliance.
The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year of the Company ending after the date hereof, an
Officers' Certificate covering the preceding calendar year, stating whether or
not to the best knowledge of the signers thereof the Company is in default in
the performance, observance or fulfillment of or compliance with any of the
terms, provisions, covenants and conditions of this Indenture, and if the
Company shall be in default, specifying all such defaults and the nature and
status thereof of which they may have knowledge. For the purpose of this
Section 10.4, compliance shall be determined without regard to any grace period
or requirement of notice provided pursuant to the terms of this Indenture.
Section 10.5 Waiver of Certain Covenants.
Subject to the rights of holders of Preferred Securities specified in
Section 9.2, if any, the Company may omit in any particular instance to comply
with any covenant or condition provided pursuant to Section 3.1, 9.1(c) or
9.1(d) with respect to the Securities, if before or after the time for such
compliance the Holders of at least a majority in aggregate principal amount of
the Outstanding Securities shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver
shall become effective, the obligations of the Company in respect of any such
covenant or condition shall remain in full force and effect.
64
<PAGE> 71
Section 10.6 Additional Sums.
So long as no Event of Default has occurred and is continuing and
except as otherwise specified as contemplated by Section 2.1 or Section 3.1, if
(a) the Issuer Trust is the Holder of all of the Outstanding Securities, and
(b) a Tax Event described in clause (a) or (c) of the definition of "Tax Event
" in Section 1.1 hereof has occurred and is continuing in respect of the Issuer
Trust, the Company shall pay the Issuer Trust (and its permitted successors or
assigns under the Trust Agreement) for so long as the Issuer Trust (or its
permitted successor or assignee) is the registered holder of the Outstanding
Securities, such additional sums as may be necessary in order that the amount
of Distributions (including any Additional Amount (as defined in the Trust
Agreement)) then due and payable by the Issuer Trust on the Preferred
Securities and Common Securities that at any time remain outstanding in
accordance with the terms thereof shall not be reduced as a result of such
Additional Taxes (the "Additional Sums"). Whenever in this Indenture or the
Securities there is a reference in any context to the payment of principal of
or interest on the Securities, such mention shall be deemed to include mention
of the payments of the Additional Sums provided for in this paragraph to the
extent that, in such context, Additional Sums are, were or would be payable in
respect thereof pursuant to the provisions of this paragraph and express
mention of the payment of Additional Sums (if applicable) in any provisions
hereof shall not be construed as excluding Additional Sums in those provisions
hereof where such express mention is not made; provided, however, that the
deferral of the payment of interest pursuant to Section 3.12 or the Securities
shall not defer the payment of any Additional Sums that may be due and payable.
Section 10.7 Additional Covenants.
The Company covenants and agrees with each Holder of Securities that
it shall not: (a) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any shares of
the Company's capital stock, or (b) make any payment of principal of or
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank pari passu in all respects with or junior
in interest to the Securities, including the Company's obligations associated
with the Outstanding Preferred Securities, (other than (i) repurchases,
redemptions or other acquisitions of shares of capital stock of the Company in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of any one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into
prior to the applicable Extension Period or other event referred to below, (ii)
as a result of a reclassification, exchange or conversion of any class or
series of the Company's capital stock (or any capital stock of a Subsidiary of
the Company) for any class or series of the Company's capital stock or of any
class or series of the Company's indebtedness for any class or series of the
Company's capital stock, (iii) the purchase of fractional interests in shares
of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(iv) any declaration of a dividend in connection with any Rights Plan, or the
issuance of rights, stock or other property under any
65
<PAGE> 72
Rights Plan, or the redemption or repurchase of rights pursuant thereto, or (v)
any dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock) if at such time (A) there shall
have occurred any event (x) of which the Company has actual knowledge that with
the giving of notice or the lapse of time, or both, would constitute an Event
of Default with respect to the Securities, and (y) which the Company shall not
have taken reasonable steps to cure, (B) if the Securities are held by the
Issuer Trust, the Company shall be in default with respect to its payment of
any obligations under the Guarantee relating to the Preferred Securities issued
by the Issuer Trust, or (C) the Company shall have given notice of its election
to begin an Extension Period with respect to the Securities as provided herein
and shall not have rescinded such notice, or such Extension Period, or any
extension thereof, shall be continuing.
The Company also covenants with each Holder of Securities issued to
the Issuer Trust (a) to hold, directly or indirectly, 100% of the Common
Securities of the Issuer Trust, provided that any permitted successor of the
Company as provided under Section 8.2 may succeed to the Company's ownership of
such Common Securities, (b) as holder of such Common Securities, not to
voluntarily dissolve, wind-up or liquidate the Issuer Trust, other than (i) in
connection with a distribution of the Securities to the holders of the
Preferred Securities in liquidation of the Issuer Trust, or (ii) in connection
with certain mergers, consolidations, conversions, or amalgamations permitted
by the Trust Agreement, and (c) to use its reasonable efforts, consistent with
the terms and provisions of the Trust Agreement, to cause the Issuer Trust to
continue not to be taxable as a corporation for United States federal income
tax purposes.
Section 10.8 Federal Tax Reports.
On or before December 15 of each year during which any Securities are
outstanding, the Company shall furnish to each Paying Agent such information as
may be reasonably requested by each Paying Agent in order that each Paying
Agent may prepare the information which it is required to report for such year
on Internal Revenue Service Forms 1096 and 1099 pursuant to Section 6049 of the
Internal Revenue Code of 1986, as amended. Such information shall include the
amount of original issue discount, if any, includible in income for each
authorized minimum denomination of principal amount at Stated Maturity of
outstanding Securities during such year.
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1 Applicability of this Article.
Redemption of Securities as permitted or required by any form of
Security issued pursuant to this Indenture shall be made in accordance with
such form of Security and this Article; provided,
66
<PAGE> 73
however, that, if any provision of any such form of Security shall conflict
with any provision of this Article XI, the provision of such form of Security
shall govern.
Section 11.2 Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be
evidenced by or pursuant to a Board Resolution. In case of any redemption at
the election of the Company, the Company shall, not less than 30 nor more than
60 days prior to the Redemption Date (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee and, in the case of Securities
held by the Issuer Trust, the Property Trustee under the Trust Agreement of
such date and of the principal amount of Securities to be redeemed and provide
the additional information required to be included in the notice or notices
contemplated by Section 11.4; provided, that, for so long as such Securities
are held by the Issuer Trust, such notice shall be given not less than 45 nor
more than 75 days prior to such Redemption Date (unless a shorter notice shall
be satisfactory to the Property Trustee under the Trust Agreement). In the case
of any redemption of Securities prior to the expiration of any restriction on
such redemption provided in the terms of such Securities, the Company shall
furnish the Trustee with an Officers' Certificate and an Opinion of Counsel
evidencing compliance with such restriction.
Section 11.3 Selection of Securities to be Redeemed.
(a) If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of a portion
of the principal amount of any Security, provided that the unredeemed portion
of the principal amount of any Security shall be in an authorized denomination
(which shall not be less than the minimum authorized denomination) for such
Security.
(b) The Trustee shall promptly notify the Company in writing of the
Securities selected for partial redemption and the principal amount thereof to
be redeemed. For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Security redeemed or to be redeemed only in part, to the
portion of the principal amount of such Security that has been or is to be
redeemed.
Section 11.4 Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not later than the thirtieth day, and not earlier than the
sixtieth day, prior to the Redemption Date, to each Holder of Securities to be
redeemed, at the address of such Holder as it appears in the Securities
Register.
With respect to Securities to be redeemed, each notice of redemption
shall state:
(a) the Redemption Date;
67
<PAGE> 74
(b) the Redemption Price or, if the Redemption Price cannot be
calculated prior to the time the notice is required to be sent, the estimate of
the Redemption Price provided pursuant to the Indenture together with a
statement that it is an estimate and that the actual Redemption Price will be
calculated on the third Business Day prior to the Redemption Date (if such an
estimate of the Redemption Price is given, a subsequent notice shall be given
as set forth above setting forth the Redemption Price promptly following the
calculation thereof);
(c) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of partial redemption, the respective
principal amounts) of the particular Securities to be redeemed;
(d) that, on the Redemption Date, the Redemption Price will become due
and payable upon each such Security or portion thereof, and that interest
thereon, if any, shall cease to accrue on and after said date;
(e) the place or places where such Securities are to be surrendered
for payment of the Redemption Price;
(f) such other provisions as may be required in respect of the terms
of the Securities; and
(g) that the redemption is for a sinking fund, if such is the case.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company and shall be irrevocable.
The notice, if mailed in the manner provided above, shall be conclusively
presumed to have been duly given, whether or not the Holder receives such
notice, In any case, a failure to give such notice by mail or any defect in the
notice to the Holder of any Security designated for redemption as a whole or in
part shall not affect the validity of the proceedings for the redemption of any
other Security.
Section 11.5 Deposit of Redemption Price.
Prior to 10:00 a.m., New York City time, on the Redemption Date
specified in the notice of redemption given as provided in Section 11.4, the
Company will deposit with the Trustee or with one or more Paying Agents (or if
the Company is acting as its own Paying Agent, the Company will segregate and
hold in trust as provided in Section 10.3) an amount of money sufficient to pay
the Redemption Price of, and any accrued interest (including Additional
Interest) on, all the Securities (or portions thereof) that are to be redeemed
on that date.
Section 11.6 Payment of Securities Called for Redemption.
(a) If any notice of redemption has been given as provided in Section
11.4, the Securities or portion of Securities with respect to which such notice
has been given shall become due and
68
<PAGE> 75
payable on the date and at the place or places stated in such notice at the
applicable Redemption Price, together with accrued interest (including any
Additional Interest) to the Redemption Date. On presentation and surrender of
such Securities at a Place of Payment in said notice specified, the said
Securities or the specified portions thereof shall be paid and redeemed by the
Company at the applicable Redemption Price, together with accrued interest
(including any Additional Interest) to the Redemption Date; provided, however,
that installments of interest (including Additional Interest) whose Stated
Maturity is on or prior to the Redemption Date will be payable to the Holders
of such Securities, or one or more Predecessor Securities, registered as such
at the close of business on the relevant record dates according to their terms
and the provisions of Section 3.8.
(b) Upon presentation of any Security redeemed in part only, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder thereof, at the expense of the Company, a new Security or Securities, of
authorized denominations, in aggregate principal amount equal to the unredeemed
portion of the Security so presented and having the same Original Issue Date,
Stated Maturity and terms.
(c) If any Security called for redemption shall not be so paid under
surrender thereof for redemption, the principal of and premium, if any, on such
Security shall, until paid, bear interest from the Redemption Date at the rate
prescribed therefor in the Security.
Section 11.7 Right of Redemption of Securities Initially Issued to the
Issuer Trust.
(a) The Company, at its option, may redeem such Securities (i) on or
after _________, 2004, in whole at any time or in part from time to time, or
(ii) upon the occurrence and during the continuation of a Tax Event, an
Investment Company Event or a Capital Treatment Event, at any time within 90
days following the occurrence and during the continuation of such Tax Event,
Investment Company Event or Capital Treatment Event, in whole (but not in
part), in each case at a Redemption Price specified in such Security, together
with accrued interest (including Additional Interest) to the Redemption Date.
(b) If less than all the Securities are to be redeemed, the aggregate
principal amount of such Securities remaining Outstanding after giving effect
to such redemption shall be sufficient to satisfy any provisions of the Trust
Agreement.
ARTICLE XII
SINKING FUNDS
Except as may be provided in any supplemental or amended indenture, no
sinking fund shall be established or maintained for the retirement of
Securities.
69
<PAGE> 76
ARTICLE XIII
SUBORDINATION OF SECURITIES
Section 13.1 Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by
its acceptance thereof, likewise covenants and agrees, that, to the extent and
in the manner hereinafter set forth in this Article, the payment of the
principal of (and premium, if any) and interest (including any Additional
Interest) on each and all of the Securities are hereby expressly made
subordinate and subject in right of payment to the prior payment in full of all
Senior Indebtedness.
Section 13.2 No Payment When Senior Indebtedness in Default; Payment Over of
Proceeds Upon Dissolution, Etc.
(a) If the Company shall default in the payment of any principal of
(or premium, if any) or interest on any Senior Indebtedness when the same
becomes due and payable, whether at maturity or at a date fixed for prepayment
or by declaration of acceleration or otherwise, then, upon written notice of
such default to the Company by the holders of Senior Indebtedness or any
trustee therefor, unless and until such default shall have been cured or waived
or shall have ceased to exist, no direct or indirect payment (in cash,
property, securities, by set-off or otherwise) shall be made or agreed to be
made on account of the principal of (or premium, if any) or interest (including
Additional Interest) on any of the Securities, or in respect of any redemption,
repayment, retirement, purchase or other acquisition of any of the Securities.
(b) In the event of (i) any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to the Company, its creditors or its property, (ii) any
proceeding for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of creditors
or (iv) any other marshalling of the assets of the Company (each such event, if
any, herein sometimes referred to as a "Proceeding"), all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made to any Holder on
account thereof. Any payment or distribution, whether in cash, securities or
other property (other than securities of the Company or any other entity
provided for by a plan of reorganization or readjustment, the payment of which
is subordinate, at least to the extent provided in these subordination
provisions with respect to the indebtedness evidenced by the Securities, to the
payment of all Senior Indebtedness at the time outstanding and to any
securities issued in respect thereof under any such plan of reorganization or
readjustment), which would otherwise (but for these subordination provisions)
be payable or deliverable in respect of the Securities shall be paid or
delivered directly to the holders of Senior Indebtedness in accordance with the
priorities then
70
<PAGE> 77
existing among such holders until all Senior Indebtedness (including any
interest thereon accruing after the commencement of any Proceeding) shall have
been paid in full.
(c) In the event of any Proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the Holders of the Securities,
together with the holders of any obligations of the Company ranking on a parity
with the Securities, shall be entitled to be paid from the remaining assets of
the Company the amounts at the time due and owing on account of unpaid
principal of (and premium, if any) and interest on the Securities and such
other obligations before any payment or other distribution, whether in cash,
property or otherwise, shall be made on account of any capital stock or any
obligations of the Company ranking junior to the Securities, and such other
obligations. If, notwithstanding the foregoing, any payment or distribution of
any character or any security, whether in cash, securities or other property
(other than securities of the Company or any other entity provided for by a
plan of reorganization or readjustment the payment of which is subordinate, at
least to the extent provided in these subordination provisions with respect to
the indebtedness evidenced by the Securities, to the payment of all Senior
Indebtedness at the time outstanding and to any securities issued in respect
thereof under any plan of reorganization or readjustment), shall be received by
the Trustee or any Holder in contravention of any of the terms hereof and
before all Senior Indebtedness shall have been paid in full, such payment or
distribution or security shall be received in trust for the benefit of, and
shall be paid over or delivered and transferred to, the holders of the Senior
Indebtedness at the time outstanding in accordance with the priorities then
existing among such holders for application to the payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay all such Senior
Indebtedness in full. In the event of the failure of the Trustee or any Holder
to endorse or assign any such payment, distribution or security, each holder of
Senior Indebtedness is hereby irrevocably authorized to endorse or assign the
same.
(d) The Trustee and the Holders shall take such action (including,
without limitation, the delivery of this Indenture to an agent for the holders
of Senior Indebtedness or consent to the filing of a financing statement with
respect hereto) as may, in the opinion of counsel designated by the holders of
a majority in principal amount of the Senior Indebtedness at the time
outstanding, be necessary or appropriate to assure the effectiveness of the
subordination effected by these provisions.
(e) The provisions of this Section 13.2 shall not impair any rights,
interests, remedies or powers of any secured creditor of the Company in respect
of any security interest the creation of which is not prohibited by the
provisions of this Indenture.
(f) The securing of any obligations of the Company, otherwise ranking
on a parity with the Securities or ranking junior to the Securities shall not
be deemed to prevent such obligations from constituting, respectively,
obligations ranking on a parity with the Securities or ranking junior to the
Securities.
71
<PAGE> 78
Section 13.3 Payment Permitted if No Default.
Nothing contained in this Article XIII or elsewhere in this Indenture
or in any of the Securities shall prevent (a) the Company, at any time, except
during the pendency of the conditions described in the first paragraph of
Section 13.2 or of any Proceeding referred to in Section 13.2, from making
payments at any time of principal of (and premium, if any) or interest
(including Additional Interest) on the Securities, or (b) the application by
the Trustee of any monies deposited with it hereunder to the payment of or on
account of the principal of (and premium, if any) or interest (including any
Additional Interest) on the Securities or the retention of such payment by the
Holders, if, at the time of such application by the Trustee, it did not have
knowledge that such payment would have been prohibited by the provisions of
this Article.
Section 13.4 Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all amounts due or to become due on
all Senior Indebtedness, or the provision for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, the Holders of the Securities shall be subrogated to the extent
of the payments or distributions made to the holders of such Senior
Indebtedness pursuant to the provisions of this Article (equally and ratably
with the holders of all indebtedness of the Company that by its express terms
is subordinated to Senior Indebtedness of the Company to substantially the same
extent as the Securities are subordinated to the Senior Indebtedness and is
entitled to like rights of subrogation by reason of any payments or
distributions made to holders of such Senior Indebtedness) 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 (including Additional Interest)
on the Securities 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 Securities or the
Trustee would 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 Securities or the Trustee, shall, as among the
Company, its creditors other than holders of Senior Indebtedness, and the
Holders of the Securities, be deemed to be a payment or distribution by the
Company to or on account of the Senior Indebtedness.
Section 13.5 Provisions Solely to Define Relative Rights.
The provisions of this Article XIII are and are intended solely for
the purpose of defining the relative rights of the Holders of the Securities on
the one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article XIII or elsewhere in this Indenture or in the
Securities is intended to or shall (a) impair, as between the Company and the
Holders of the Securities, the obligations of the Company, which are absolute
and unconditional, to pay to the Holders of the Securities the principal of
(and premium, if any) and interest (including any Additional Interest) on the
Securities 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
72
<PAGE> 79
Securities and creditors of the Company other than their rights in relation to
the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of
any Security (or to the extent expressly provided herein, the holder of any
Preferred Security) from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, including filing and voting
claims in any Proceeding, subject to the rights, if any, under this Article
XIII of the holders of Senior Indebtedness to receive cash, property and
securities otherwise payable or deliverable to the Trustee or such Holder.
Section 13.6 Trustee to Effectuate Subordination.
Each Holder of a Security by his or her acceptance thereof authorizes
and directs the Trustee on his or her behalf to take such action as may be
necessary or appropriate to acknowledge or effectuate the subordination
provided in this Article XIII and appoints the Trustee his or her
attorney-in-fact for any and all such purposes.
Section 13.7 No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof that any such holder may
have or be otherwise charged with.
(b) Without in any way limiting the generality of Section 13.7(a), the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Securities,
without incurring responsibility to such Holders of the Securities and without
impairing or releasing the subordination provided in this Article XIII or the
obligations hereunder of such Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, Senior Indebtedness, or otherwise amend or supplement in any manner
Senior Indebtedness or any instrument evidencing the same or any agreement
under which Senior Indebtedness 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; and (iv) exercise or refrain from exercising
any rights against the Company and any other Person.
Section 13.8 Notice to Trustee.
(a) The Company shall give prompt written notice to a Responsible
Officer of the Trustee of any fact known to the Company that would prohibit the
making of any payment to or by the Trustee in respect of the Securities.
Notwithstanding the provisions of this Article XIII or any other provision of
this Indenture, the Trustee shall not be charged with knowledge of the
existence of any
73
<PAGE> 80
facts that would prohibit the making of any payment to or by the Trustee in
respect of the Securities, unless and until the Trustee shall have received
written notice thereof from the Company or a holder of Senior Indebtedness or
from any trustee, agent or representative therefor; provided, however, that if
the Trustee shall not have received the notice provided for in this Section at
least two Business Days prior to the date upon which by the terms hereof any
monies may become payable for any purpose (including, the payment of the
principal of (and premium, if any, on) or interest (including any Additional
Interest) on any Security), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive
such monies and to apply the same to the purpose for which they were received
and shall not be affected by any notice to the contrary that may be received by
it within two Business Days prior to such date.
(b) Subject to the provisions of Section 6.1, the Trustee shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself or herself to be a holder of Senior Indebtedness (or a
trustee or attorney-in-fact therefor) to establish that such notice has been
given by a holder of Senior Indebtedness (or a trustee or attorney-in-fact
therefor). 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 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
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article, and if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
Section 13.9 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, subject to the provisions of Section 6.1, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, conservator,
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 Securities, 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, the amount thereof
or payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article XIII.
Section 13.10 Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee, in its capacity as trustee under this Indenture, shall
not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness
and shall not be liable to any such holders if it shall in good faith
mistakenly pay over or distribute to Holders of Securities or to the Company or
74
<PAGE> 81
to any other Person cash, property or securities to which any holders of Senior
Indebtedness shall be entitled by virtue of this Article or otherwise.
Section 13.11 Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness that
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
Section 13.12 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 XIII 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.
Section 13.13 Certain Conversions or Exchanges Deemed Payment.
For purposes of this Article only, (a) the issuance and delivery of
junior securities upon conversion or exchange of Securities shall not be deemed
to constitute a payment or distribution on account of the principal of (or
premium, if any, on) or interest (including any Additional Interest) on such
Securities or on account of the purchase or other acquisition of such
Securities, and (b) the payment, issuance or delivery of cash, property or
securities (other than junior securities) upon conversion or exchange of a
Security shall be deemed to constitute payment on account of the principal of
such security. For the purposes of this Section, the term "junior securities"
means (i) shares of any stock of any class of the Company, and (ii) securities
of the Company that are subordinated in right of payment to all Senior
Indebtedness that may be outstanding at the time of issuance or delivery of
such securities to substantially the same extent as, or to a greater extent
than, the Securities are so subordinated as provided in this Article.
* * * *
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
75
<PAGE> 82
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the day and year first above written.
NORTHEAST BANCORP
By:
-----------------------------
Name:
Title:
BANKERS TRUST COMPANY,
as Trustee
By:
-----------------------------
Name:
Title:
76
<PAGE> 83
ANNEX A
FORM OF RESTRICTED SECURITIES CERTIFICATE
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to Section 3.6(b) of
the Indenture referred to below)
[ ]
as Securities Registrar
[address]
Re: ___% Junior Subordinated Debentures of Northeast Bancorp (the "Securities")
Reference is made to the Junior Subordinated Indenture, dated as of
_________, 1999 (the "Indenture"), between Northeast Bancorp, a Maine
corporation, and Bankers Trust Company, as Trustee. Terms used herein and
defined in the Indenture or in Regulation 5, Rule 144A or Rule 144 under the
U.S. Securities Act of 1933, as amended (the "Securities Act") are used here as
so defined.
This certificate relates to $_________ aggregate principal amount of
Securities, which are evidenced by the following certificate(s) (the "Specified
Securities")
CUSIP No(s).
CERTIFICATE No(s).
CURRENTLY IN GLOBAL FORM: Yes ____ No ____ (check one)
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (a) it is the sole beneficial owner
of the Specified Securities or (b) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so.
Such beneficial owner or owners are referred to herein collectively as the
"Owner". If the Specified Securities are represented by a Global Security, they
are held through a Depositary or an Agent Member in the name of the
Undersigned, as or on behalf of the Owner. If the Specified Securities are not
represented by a Global Security, they are registered in the name of the
Undersigned, as or on behalf of the Owner.
77
<PAGE> 84
The Owner has requested that the Specified Securities be transferred
to a person (the "Transferee") who will take delivery in the form of a
Restricted Security. In connection with such transfer, the Owner hereby
certifies that, unless such transfer is being effected pursuant to an effective
registration statement under the Securities Act, it is being effected in
accordance with Rule 144A, Rule 904 of Regulation S or Rule 144 under the
Securities Act and all applicable securities laws of the states of the United
States and other jurisdictions. Accordingly, the Owner hereby further certifies
that:
(a) Rule 144A Transfers. If the transfer is being effected in
accordance with Rule 144A:
(i) the Specified Securities are being transferred to a
person that the Owner and any person acting on its behalf reasonably
believe is a "qualified institutional buyer" within the meaning of
Rule 144A, acquiring for its own account or for the account of a
qualified institutional buyer; and
(ii) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the Owner
may be relying on Rule 144A in connection with the transfer; and
(b) Rule 904 Transfers. If the transfer is being effected in
accordance with Rule 904:
(i) the Owner is not a distributor of the Securities, an
affiliate of the Company or any such distributor or a person acting in
behalf of any of the foregoing;
(ii) the offer of the Specified Securities was not made to a
person in the United States;
(iii) either
(A) at the time the buy order was originated, the
Transferee was outside the United States or the Owner and any
person acting on its behalf reasonably believed that the
Transferee was outside the United States, or
(B) the transaction is being executed in, on or
through the facilities of the Eurobond market, as regulated
by the Association of International Bond Dealers, or another
designated offshore securities market and neither the Owner
nor any person acting on its behalf know that the transaction
has been prearranged with a buyer in the United States;
(iv) no directed selling efforts within the meaning of Rule
902 of Regulation S have been made in the United States by or on
behalf of the Owner or any affiliate thereof; and
78
<PAGE> 85
(v) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act.
(c) Rule 144 Transfers. If the transfer is being effected pursuant to
Rule 144:
(i) the transfer is occurring after a holding period
of at least one year (computed in accordance with paragraph
(d) of Rule 144) has elapsed since the date the Specified
Securities were acquired from the Company or from an
affiliate (as such term is defined in Rule 144) of the
Company, whichever is later, and is being effected in
accordance with the applicable amount, manner of sale and
notice requirements of paragraphs (e), (f) and (h) of Rule
144;
(ii) the transfer is occurring after a holding
period by the Owner of at least three years has elapsed since
the date the Specified Securities were acquired from the
Company or from an affiliate (as such term is defined in Rule
144) of the Company, whichever is later, and the Owner is
not, and during the preceding three months has not been, an
affiliate of the Company; or
(iii) the Owner is a Qualified Institutional Buyer
under Rule 144A or has acquired the Securities otherwise in
accordance with Sections (a), (b) or (c) hereof and is
transferring the Securities to an institutional accredited
investor in a transaction exempt from the requirements of the
Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Underwriters (as defined in the
Trust Agreement relating to the Issuer Trust to which the Securities were
initially issued).
(Print the name of the Undersigned, as such term is
defined in the second paragraph of this certificate)
Dated:____________________ By:_________________________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or fiduciary, the title of
the person signing on behalf of the Undersigned must be stated.)
79
<PAGE> 1
EXHIBIT 4.3
TRUST AGREEMENT
This TRUST AGREEMENT, dated as of October 4, 1999 (this "Trust
Agreement") among Northeast Bancorp, a Maine corporation, as "Depositor," and
Bankers Trust Company, a New York banking corporation, and Bankers Trust
(Delaware), a Delaware banking corporation, not in their individual capacities
but solely as trustees (the "Trustees"). The Depositor and the Trustees hereby
agree as follows:
1. The trust created hereby shall be known as "NBN Capital Trust" (the
"Trust"), in which name the Trustees, or the Depositor to the extent provided
herein, may conduct the business of the Trust, make and execute contracts, and
sue and be sued.
2. The Depositor hereby assigns, transfers conveys and sets over to
the Trustees the sum of $10. The Trustees hereby acknowledge receipt of such
amount in trust from the Depositor, which amount shall constitute the initial
trust estate. The Trustees hereby declare that they will hold the trust estate
in trust for the Depositor. It is the intention of the parties hereto that the
Trust created hereby constitute a business trust under Chapter 38 of Title 12
of the Delaware Code, 12 Del. C. ss. 3801, et seq. (the "Business Trust Act"),
and that this document constitutes the governing instrument of the Trust. The
Trustees are hereby authorized and directed to execute and file a certificate
of trust with the Delaware Secretary of State in accordance with the provisions
of the Business Trust Act.
3. The Depositor and the Trustees will enter into an amended and
restated Trust Agreement, satisfactory to each such party and substantially in
the form included as an exhibit to the 1933 Act Registration Statement (as
defined below), to provide for the contemplated operation of the Trust created
hereby and the issuance of the Preferred Securities and the Common Securities
referred to therein. Prior to the execution and delivery of such amended and
restated Trust Agreement, the Trustees shall not have any duty or obligation
hereunder or with respect to the trust estate, except as otherwise required by
applicable law or as may be necessary to obtain prior to such execution and
delivery of any licenses, consents or approvals required by applicable law or
otherwise.
4. The Depositor, as the depositor of the Trust, is hereby authorized,
in its discretion, (i) to file with the Securities and Exchange Commission (the
"Commission") and execute, in each case on behalf of the Trust, (a) the
Registration Statement on such form as the Depositor determines (the "1933 Act
Registration Statement"), including any pre-effective or post-effective
amendments to the 1933 Act Registration Statement (including the prospectus,
prospectus supplements and the exhibits contained therein), relating to the
registration under the Securities Act of 1933, as amended, of the Preferred
Securities of the Trust and possibly certain other securities and (b) a
Registration Statement on Form 8-A or other appropriate form (the "1934 Act
Registration Statement") (including all pre-effective and post-effective
amendments thereto) relating to the registration of the Preferred Securities of
the Trust under the Securities Exchange Act of 1934, as amended; (ii) to file
with the American Stock Exchange or any other national stock exchange or The
Nasdaq National Market (each, an "Exchange") and execute on behalf of the Trust
one or more listing applications and all other applications, statements,
certificates, agreements and other instruments as shall be necessary or
desirable to cause the
<PAGE> 2
Preferred Securities to be listed on any of the Exchanges; (iii) to file and
execute on behalf of the Trust such applications, reports, surety bonds,
irrevocable consents, appointments of attorney for service of process and other
papers and documents as shall be necessary or desirable to register the
Preferred Securities under the securities or blue sky laws of such
jurisdictions as the Depositor, on behalf of the Trust, may deem necessary or
desirable; (iv) to execute and deliver letters or documents to, or instruments
for filing with, a depository relating to the Preferred Securities; and (v) to
execute on behalf of the Trust that certain Underwriting Agreement relating to
the Preferred Securities, among the Trust, the Depositor and the several
Underwriters named therein, substantially in the form included as an exhibit to
the 1933 Act Registration Statement. In the event that any filing referred to
in clauses (i), (ii) and (iii) above is required by the rules and regulations
of the Commission, an Exchange or state securities or blue sky laws, to be
executed on behalf of the Trust by any of the Trustees, each of the Trustees,
in its capacity as a trustee of the Trust, is hereby authorized and directed to
join in any such filing and to execute on behalf of the Trust any and all of
the foregoing. In connection with all of the foregoing, the Depositor hereby
constitutes and appoints James D. Delamater and John W. Trinward as its true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the Depositor or in the Depositor's name, place and stead,
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to the 1933 Act Registration Statement and the 1934
Act Registration Statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as the Depositor might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or either of them, or their substitute or substitutes, shall do or
cause to be done by virtue hereof.
5. This Trust Agreement may be executed in one or more counterparts.
6. The number of Trustees initially shall be two (2) and thereafter
the number of Trustees shall be such number as shall be fixed from time to time
by a written instrument signed by the Depositor which may increase or decrease
the number of Trustees; provided, however, that to the extent required by the
Business Trust Act, one Trustee shall either be a natural person who is a
resident of the State of Delaware or, if not a natural person, an entity which
has its principal place of business in the State of Delaware and otherwise
meets the requirements of applicable Delaware law. Subject to the foregoing,
the Depositor is entitled to appoint or remove without cause any Trustee at any
time. The Trustees may resign upon thirty (30) days' prior notice to the
Depositor.
7. The Depositor hereby agrees to (i) reimburse the Trustees for all
reasonable expenses (including reasonable fees and expenses of counsel and
other experts) and (ii) indemnify, defend and hold harmless the Trustees and
any of the officers, directors, employees and agents of the Trustees (the
"Indemnified Persons") from and against all losses, damages, liabilities,
claims, actions, suits, costs, expenses, disbursements (including the
reasonable fees and expenses of counsel), taxes and penalties of any kind and
nature whatsoever (collectively, "Expenses"), to the extent that such Expenses
arise out of or are imposed upon or
2
<PAGE> 3
asserted at any time against such Indemnified Persons with respect to the
performance of this Trust Agreement, the creation, operation or termination of
the Trust or the transactions contemplated hereby; provided, however, that the
Depositor shall not be required to indemnify any Indemnified Person for any
Expenses which are a result of the willful misconduct, bad faith or gross
negligence of such Indemnified Person.
8. This Trust Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (without regard to conflict
of laws of principles).
[REMAINDER OF PAGE INTENTIONALLY BLANK]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed as of the day and year first above written.
NORTHEAST BANCORP, as Depositor
By: /s/ James D. Delamater
---------------------------------------
Name: James D. Delamater
Title: President
BANKERS TRUST COMPANY,
not in its individual capacity but
solely as Trustee
By: /s/ Susan Johnson
---------------------------------------
Name: Susan Johnson
Title: Assistant Vice President
BANKERS TRUST (DELAWARE),
not in its individual capacity but
solely as Trustee
By: /s/ M. Lisa Wilkens
---------------------------------------
Name: M. Lisa Wilkens
Title: Assistant Vice President
4
<PAGE> 5
CERTIFICATE OF TRUST
OF
NBN CAPITAL TRUST
THIS Certificate of Trust of NBN Capital Trust (the "Trust"), dated as
of October 4, 1999, is being duly executed and filed by the undersigned, as
trustees, to form a business trust under the Delaware Business Trust Act (12
Del. C. ss. 3801, et seq.).
1. Name. The name of the business trust formed hereby is NBN Capital
Trust.
2. Delaware Trustee. The name and business address of the trustee of
the Trust with a principal place of business in the State of Delaware are
Bankers Trust (Delaware), E. A. Delle Donne Corporate Center, Montgomery
Building, 1011 Centre Road, Suite 200, Wilmington, Delaware, 19805-1266,
Attention: Lisa Wilkins.
3. Effective Date. This Certificate of Trust shall be effective upon
filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust,
have executed this Certificate of Trust as of the date first-above written.
BANKERS TRUST (DELAWARE),
not in its individual capacity but solely as
trustee of the Trust
By: /s/ M. Lisa Wilkens
---------------------------------------
Name: M. Lisa Wilkens
Title: Assistant Vice President
BANKERS TRUST COMPANY,
not in its individual capacity but solely as
trustee of the Trust
By: /s/ Susan Johnson
---------------------------------------
Name: Susan Johnson
Title: Assistant Vice President
<PAGE> 1
EXHIBIT 4.4
AMENDED AND RESTATED
TRUST AGREEMENT
Among
NORTHEAST BANCORP
(as Depositor)
BANKERS TRUST COMPANY
(as Property Trustee)
and
BANKERS TRUST (DELAWARE)
as Delaware Trustee
dated as of
____________, 1999
Re: NBN CAPITAL TRUST
<PAGE> 2
NBN CAPITAL TRUST
Certain Sections of this Trust Agreement relating to Sections 310 through 318
of the Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Trust Agreement
Act Section Section
- --------------- -------------------
<S> <C> <C>
Section 310 (a) (1) . . . . . .. . . . . . . . . . . . . . . . . . . . . 8.7
(a) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.7
(a) (3) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9
(a) (4) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7(a)(ii)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.8, 10.10(b)
Section 311 (a) . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 8.13, 10.10(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.13, 10.10(b)
Section 312 (a) . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 10.10(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.10(b), (f)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7
Section 313 (a) . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 8.15(a)
(a) (4) . . . . . . . . . . . . . . . . . . . . . . . . . . 10.10(c)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.15(c), 10.10(c)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8, 10.10(c)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.10(c)
Section 314 (a) . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 8.16, 10.10(d)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(c) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.17, 10.10(d), (e)
(c) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.17, 10.10(d), (e)
(c) (3) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.17, 10.10(d), (e)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.17, 10.10(e)
Section 315 (a) . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 8.1(d)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(c)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(d)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
Section 316 (a) . . . . . . . .. . . . . . . . . . . . . . . . . . . . . Not Applicable
(a) (1) (A) . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a) (1) (B) . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.13
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
Section 317 (a) (1). . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.14
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.10
Section 318 (a) . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 10.10(a)
</TABLE>
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Trust Agreement.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE I
DEFINITIONS.............................................................................................. 1
Section 1.1 Definitions............................................................................ 1
ARTICLE II
CONTINUATION OF THE ISSUER TRUST......................................................................... 13
Section 2.1 Name................................................................................... 13
Section 2.2 Office of the Delaware Trustee; Principal Place of Business............................ 13
Section 2.3 Initial Contribution of Trust Property; Organizational Expenses........................ 13
Section 2.4 Issuance of the Preferred Securities................................................... 13
Section 2.5 Issuance of the Common Securities; Subscription and Purchase of Junior
Subordinated Debentures................................................................ 14
Section 2.6 Declaration of Trust................................................................... 14
Section 2.7 Authorization to Enter into Certain Transactions....................................... 15
Section 2.8 Assets of Trust........................................................................ 19
Section 2.9 Title to Trust Property................................................................ 19
ARTICLE III
PAYMENT ACCOUNT.......................................................................................... 19
Section 3.1 Payment Account........................................................................ 19
ARTICLE IV
DISTRIBUTIONS; REDEMPTION................................................................................ 19
Section 4.1 Distributions.......................................................................... 19
Section 4.2 Redemption............................................................................. 21
Section 4.3 Subordination of Common Securities..................................................... 23
Section 4.4 Payment Procedures..................................................................... 23
Section 4.5 Tax Returns and Reports................................................................ 24
Section 4.6 Payment of Taxes; Duties, Etc. of the Issuer Trust..................................... 24
Section 4.7 Payments under Indenture or Pursuant to Direct Actions................................. 24
Section 4.8 Liability of the Holder of Common Securities........................................... 25
ARTICLE V
TRUST SECURITIES CERTIFICATES............................................................................ 25
Section 5.1 Initial Ownership...................................................................... 25
</TABLE>
-i-
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
Section 5.2 The Trust Securities Certificates...................................................... 25
Section 5.3 Execution and Delivery of Trust Securities Certificates................................ 26
Section 5.4 Global Preferred Security.............................................................. 26
Section 5.5 Registration of Transfer and Exchange Generally; Certain Transfers and
Exchanges; Preferred Securities Certificates........................................... 27
Section 5.6 Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates..................... 29
Section 5.7 Persons Deemed Holders................................................................. 29
Section 5.8 Access to List of Holders Names and Addresses.......................................... 30
Section 5.9 Maintenance of Office or Agency........................................................ 30
Section 5.10 Appointment of Paying Agent............................................................ 30
Section 5.11 Ownership of Common Securities by Depositor............................................ 31
Section 5.12 Notice to Clearing Agency.............................................................. 31
Section 5.13 Rights of Holders...................................................................... 31
ARTICLE VI
ACTS OF HOLDERS; MEETINGS; VOTING........................................................................ 33
Section 6.1 Limitations on Holder's Voting Rights.................................................. 33
Section 6.2 Notice of Meetings..................................................................... 34
Section 6.3 Meetings of Holders.................................................................... 35
Section 6.4 Voting Rights.......................................................................... 35
Section 6.5 Proxies, etc........................................................................... 35
Section 6.6 Holder Action by Written Consent....................................................... 35
Section 6.7 Record Date for Voting and Other Purposes.............................................. 36
Section 6.8 Acts of Holders........................................................................ 36
Section 6.9 Inspection of Records.................................................................. 37
ARTICLE VII
REPRESENTATIONS AND WARRANTIES........................................................................... 37
Section 7.1 Representations and Warranties of the Property Trustee and the Delaware Trustee........ 37
Section 7.2 Representations and Warranties of the Depositor........................................ 38
ARTICLE VIII
THE ISSUER TRUSTEES; THE ADMINISTRATORS.................................................................. 39
Section 8.1 Certain Duties and Responsibilities.................................................... 39
Section 8.2 Certain Notices........................................................................ 41
Section 8.3 Certain Rights of Property Trustee..................................................... 42
Section 8.4 Not Responsible for Recitals or Issuance of Securities................................. 43
Section 8.5 May Hold Securities.................................................................... 44
Section 8.6 Compensation; Indemnity; Fees.......................................................... 44
</TABLE>
-ii-
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
Section 8.7 Corporate Property Trustee Required; Eligibility of Trustees and Administrators........ 45
Section 8.8 Conflicting Interests.................................................................. 46
Section 8.9 Co-Trustees and Separate Trustee....................................................... 46
Section 8.10 Resignation and Removal; Appointment of Successor...................................... 47
Section 8.11 Acceptance of Appointment by Successor................................................. 49
Section 8.12 Merger, Conversion, Consolidation or Succession to Business............................ 49
Section 8.13 Preferential Collection of Claims Against Depositor or Issuer Trust.................... 49
Section 8.14 Trustee May File Proofs of Claim....................................................... 50
Section 8.15 Reports by Property Trustee............................................................ 50
Section 8.16 Reports to the Property Trustee........................................................ 51
Section 8.17 Evidence of Compliance with Conditions Precedent....................................... 51
Section 8.18 Number of Issuer Trustees.............................................................. 51
Section 8.19 Delegation of Power.................................................................... 52
Section 8.20 Appointment of Administrators.......................................................... 52
ARTICLE IX
DISSOLUTION, LIQUIDATION AND MERGER...................................................................... 53
Section 9.1 Dissolution Upon Expiration Date....................................................... 53
Section 9.2 Early Dissolution...................................................................... 53
Section 9.3 Termination............................................................................ 53
Section 9.4 Liquidation............................................................................ 54
Section 9.5 Mergers, Consolidations, Amalgamations or Replacements of the Issuer Trust............. 55
ARTICLE X MISCELLANEOUS PROVISIONS................................................................................. 56
Section 10.1 Limitation of Rights of Holders........................................................ 56
Section 10.2 Amendment.............................................................................. 56
Section 10.3 Separability........................................................................... 58
Section 10.4 Governing Law.......................................................................... 58
Section 10.5 Payments Due on Non-Business Day....................................................... 58
Section 10.6 Successors............................................................................. 58
Section 10.7 Headings............................................................................... 59
Section 10.8 Reports, Notices and Demands........................................................... 59
Section 10.9 Agreement Not to Petition.............................................................. 59
Section 10.10 Trust Indenture Act; Conflict with Trust Indenture Act................................. 60
Section 10.11 Acceptance of Terms of Trust Agreement, Guarantee and Indenture........................ 61
Section 10.12 Counterparts........................................................................... 61
</TABLE>
-iii-
<PAGE> 6
<TABLE>
<S> <C>
EXHIBIT A................................................................................................ 63
EXHIBIT B................................................................................................ 64
EXHIBIT C................................................................................................ 65
EXHIBIT D................................................................................................ 67
</TABLE>
-iv-
<PAGE> 7
AMENDED AND RESTATED TRUST AGREEMENT
THIS AMENDED AND RESTATED TRUST AGREEMENT, dated as of ______, 1999
(this "Trust Agreement"), is among (a) NORTHEAST BANCORP, a Maine corporation
(including any successors or assigns, the "Depositor"), (b) BANKERS TRUST
COMPANY, a New York banking corporation, as property trustee (in such capacity,
the "Property Trustee" and, in its separate corporate capacity and not in its
capacity as Property Trustee, the "Bank"), and (c) BANKERS TRUST (DELAWARE), a
Delaware banking corporation, as Delaware trustee (the "Delaware Trustee") (the
Property Trustee and the Delaware Trustee are referred to collectively herein
as the "Issuer Trustees"), (d) the Administrators, as hereinafter defined, and
(e) the several Holders, as hereinafter defined.
RECITALS
WHEREAS, the Depositor and the Issuer Trustees have heretofore duly
declared and established a business trust pursuant to the Delaware Business
Trust Act by the entering into of a certain Trust Agreement, dated as of
October 4, 1999 (the "Original Trust Agreement"), and by the execution and
filing by the Issuer Trustees with the Secretary of State of the State of
Delaware of the Certificate of Trust, filed on October 4, 1999 (the
"Certificate of Trust"), a copy of which is attached hereto as Exhibit A; and
WHEREAS, the parties hereto desire to amend and restate the Original
Trust Agreement in its entirety as set forth herein to provide for, among other
things, (a) the issuance of the Common Securities by the Issuer Trust to the
Depositor, (b) the issuance and sale of the Preferred Securities by the Issuer
Trust pursuant to the Underwriting Agreement, (c) the acquisition by the Issuer
Trust from the Depositor of all of the right, title and interest in and to the
Junior Subordinated Debentures and (d) the appointment of the Administrators.
NOW THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each party, for the benefit of
the other parties and for the benefit of the Holders, hereby amends and
restates the Original Trust Agreement in its entirety and agrees, intending to
be legally bound, as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions
For all purposes of this Trust Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
<PAGE> 8
(a) the terms defined in this Article I have the meanings assigned to
them in this Article and include the plural as well as the singular;
(b) all other terms used herein that are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) the words "include," "includes" and "including" shall be deemed to
be followed by the phrase "without limitation";
(d) all accounting terms used but not defined herein have the meanings
assigned to them in accordance with United States generally accepted accounting
principles as in effect at the time of computation;
(e) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may be,
of this Trust Agreement;
(f) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision; and
(g) all references to the date the Preferred Securities were
originally issued shall refer to the date the ___% Preferred Securities were
originally issued.
"25% Capital Limitation" means the limitation imposed by the Federal
Reserve that the proceeds of certain qualifying securities similar to the Trust
Securities will qualify as Tier 1 capital of the issuer up to an amount not to
exceed, when taken together with all cumulative preferred stock of the
Depositor, if any, 25% of the Depositor's Tier 1 capital, or any subsequent
limitation adopted by the Office of Thrift Supervision.
"Act" has the meaning specified in Section 6.8.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or for a given period, the amount of Additional Interest
(as defined in the Indenture) paid by the Depositor on a Like Amount of Junior
Subordinated Debentures for such period.
"Additional Sums" has the meaning specified in Section 10.6 of the
Indenture.
"Administrators" means each Person appointed in accordance with
Section 8.20 solely in such Person's capacity as Administrator of the Issuer
Trust and not in such Person's individual capacity, or any successor
Administrator appointed as herein provided; with the initial Administrators
being James D. Delamater and Richard E. Wyman, Jr.
2
<PAGE> 9
"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.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Preferred Security or beneficial interest
therein, the rules and procedures of the Depositary for such Preferred
Security, in each case to the extent applicable to such transaction and as in
effect from time to time.
"Bank" has the meaning specified in the preamble to this Trust
Agreement.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction in
the premises judging such Person a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjudication or
composition of or in respect of such Person under any applicable federal or
state bankruptcy, insolvency, reorganization or other similar law, or
appointing a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of such Person or of any substantial part of its property or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order unstayed and in effect for a period of 60 consecutive
days; or
(b) the institution by such Person of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under any applicable federal or
State bankruptcy, insolvency, reorganization or other similar law, or the
consent by it to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or similar official) of
such Person or of any substantial part of its property or the making by it of
an assignment for the benefit of creditors, or the admission by it in writing
of its inability to pay its debts generally as they become due and its
willingness to be adjudicated a bankrupt, or the taking of corporate action by
such Person in furtherance of any such action.
"Bankruptcy Laws" has the meaning specified in Section 10.9.
"Board of Directors" means the board of directors of the Depositor or
the executive committee of the board of directors of the Depositor (or any
other committee of the board of directors of the Depositor performing similar
functions) or, for purposes of this Trust Agreement, a committee designated by
the board of directors of the Depositor (or any such committee), comprised of
two or more members of the board of directors of the Depositor or officers of
the Depositor, or both.
3
<PAGE> 10
"Board Resolution" means a copy of a resolution or action by written
consent certified by the Clerk or an Assistant Clerk of the Depositor to have
been duly adopted or approved by the Depositor's Board of Directors, or such
committee of the Board of Directors or officers of the Depositor to which
authority to act on behalf of the Board of Directors has been delegated, and to
be in full force and effect on the date of such certification, and delivered to
the Issuer Trustees.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a
day on which banking institutions in the State of Maine, or in the City of New
York, are authorized or required by law or executive order to remain closed or
(c) a day on which the Property Trustee's Corporate Trust Office or the
Delaware Trustee's Corporate Trust Office or the Corporate Trust Office of the
Debenture Trustee is closed for business.
"Capital Treatment Event" means, in respect of the Issuer Trust, the
reasonable determination by the Depositor that, as a result of the occurrence
of any amendment to, or change (including any announced prospective change) in,
the laws (or any rules or regulations thereunder) of the United States or any
political subdivision thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such pronouncement, action or decision is announced on or after the date of the
issuance of the Preferred Securities of the Issuer Trust, there is more than an
insubstantial risk that the Depositor will not be entitled to treat an amount
equal to the Liquidation Amount of such Preferred Securities as "Tier 1
Capital" (or the then equivalent thereof), except as otherwise restricted under
the 25% Capital Limitation, for purposes of the risk-based capital adequacy
guidelines of the Office of Thrift Supervision, as then in effect and
applicable to the Depositor.
"Cede" means Cede & Co.
"Certificate Depositary Agreement" means the agreement among the
Issuer Trust, the Depositor and the Depositary, as the initial Clearing Agency,
dated as of the Closing Date, substantially in the form attached hereto as
Exhibit B, as the same may be amended and supplemented from time to time.
"Certificate of Trust" has the meaning specified in the preamble to
this Trust Agreement.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act. The Depositary shall be
the initial Clearing Agency.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with
the Clearing Agency.
"Closing Date" means the Time of Delivery for the Firm Securities,
which date is also the date of execution and delivery of this Trust Agreement.
4
<PAGE> 11
"Code" means the Internal Revenue Code of 1986, as amended or any
successor statute, in each case as amended from time to time.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
"Common Securities Certificate" means a certificate evidencing
ownership of Common Securities, substantially in the form attached hereto as
Exhibit C.
"Common Security" means an undivided beneficial interest in the assets
of the Issuer Trust, having a Liquidation Amount of $10 and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution as provided herein.
"Corporate Trust Office" means (a) with respect to the Property
Trustee or the Debenture Trustee, the principal office of the Property Trustee
located in the City of New York, New York, which at the time of the execution
of this Trust Agreement is located at Four Albany Street, New York, New York
10006; Attention: Corporate Trust and Agency Group- Corporate Market Services,
and (b) with respect to the Delaware Trustee, the principal office of the
Delaware Trustee located at E.A. Delle Donne Corporate Center, Montgomery
Building, 1101 Centre Road, Suite 200, Wilmington, Delaware, 19805-1266.
"Debenture Event of Default" means an "Event of Default" as defined in
the Indenture.
"Debenture Redemption Date" means, with respect to any Junior
Subordinated Debentures to be redeemed under the Indenture, the date fixed for
redemption of such Junior Subordinated Debentures under the Indenture.
"Debenture Trustee" means Bankers Trust Company, a New York banking
corporation and any successor, as trustee under the Indenture.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. C. 3801, et seq., as it may be amended from time to
time.
"Delaware Trustee" means the corporation identified as the "Delaware
Trustee" in the preamble to this Trust Agreement solely in its capacity as
Delaware Trustee of the Issuer Trust and not in its individual capacity, or its
successor in interest in such capacity, or any successor trustee appointed as
herein provided.
"Depositary" means The Depository Trust Company or any successor
thereto.
"Depositor" has the meaning specified in the preamble to this Trust
Agreement.
5
<PAGE> 12
"Direct Action" has the meaning specified in Section 5.13(c).
"Distribution Date" has the meaning specified in Section 4.1(a).
"Distributions" means amounts payable in respect of the Trust
Securities as provided in Section 4.1.
"Early Termination Event" has the meaning specified in Section 9.2.
"Event of Default" means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) the occurrence of a Debenture Event of Default;
(b) default by the Issuer Trust in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a period
of 30 days;
(c) default by the Issuer Trust in the payment of any Redemption Price
of any Trust Security when it becomes due and payable;
(d) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trust in this Trust Agreement (other
than a covenant or warranty a default in the performance of which or the breach
of which is dealt with in clause (b) or (c) above) and continuation of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to the Issuer Trustees and the Depositor by the
Holders of at least 25% in aggregate Liquidation Amount of the Outstanding
Preferred Securities, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(e) the occurrence of any Bankruptcy Event with respect to the
Property Trustee or all or substantially all of its property if a successor
Property Trustee has not been appointed within a period of 90 days thereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and any successor statute thereto, in each case as amended from time
to time.
"Expiration Date" has the meaning specified in Section 9.1.
"Extension Period" has the meaning specified in Section 4.1.
6
<PAGE> 13
"Firm Securities" means an aggregate Liquidation Amount of
$10,500,000 of the Issuer Trust's ____% preferred securities.
"Global Preferred Securities Certificate" means a Preferred Securities
Certificate evidencing ownership of Global Preferred Securities.
"Global Preferred Security" means a Preferred Security, the ownership
and transfers of which shall be made through book entries by a Clearing Agency
as described in Section 5.4.
"Guarantee Agreement" means the Guarantee Agreement executed and
delivered by the Depositor and Bankers Trust Company, as guarantee trustee,
contemporaneously with the execution and delivery of this Trust Agreement, for
the benefit of the Holders of the Preferred Securities, as amended from time to
time.
"Holder" means a Person in whose name a Trust Security or Trust
Securities is registered in the Securities Register; any such Person shall be a
beneficial owner within the meaning of the Delaware Business Trust Act.
"Indemnified Person" has the meaning specified in Section 8.6(c).
"Indenture" means the Junior Subordinated Indenture, dated as of
___________, 1999, between the Depositor and the Debenture Trustee (as amended
or supplemented from time to time) relating to the issuance of the Junior
Subordinated Debentures.
"Investment Company Act" means the Investment Company Act of 1940, as
amended or any successor statute, in each case as amended from time to time.
"Investment Company Event" means the receipt by the Issuer Trust of an
Opinion of Counsel, rendered by counsel experienced in such matters, to the
effect that, as a result of the occurrence of a change in law or regulation or
a written change (including any announced prospective change) in interpretation
or application of law or regulation by any legislative body, court,
governmental agency or regulatory authority, there is more than an
insubstantial risk that the Issuer Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act, which change or prospective change becomes effective or would
become effective, as the case may be, on or after the date of the issuance of
the Preferred Securities.
"Issuer Trust" means NBN Capital Trust, the Delaware business trust
created and continued hereby.
"Issuer Trustees" means, collectively, the Property Trustee and the
Delaware Trustee.
"Junior Subordinated Debentures" means the aggregate principal amount
of the Depositor's _____% junior subordinated deferrable interest debentures,
due __________, 2029 which date may
7
<PAGE> 14
be shortened once at any time by the Depositor to any date not earlier than
__________, 2004 issued pursuant to the Indenture.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of Trust
Securities, Trust Securities having a Liquidation Amount equal to that portion
of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Preferred Securities based upon the relative
Liquidation Amounts of such classes and (b) with respect to a distribution of
Junior Subordinated Debentures to Holders of Trust Securities in connection
with a dissolution or liquidation of the Issuer Trust, Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the Holder to whom such Junior Subordinated Debentures are
distributed.
"Liquidation Amount" means the stated amount of $10 per Trust
Security.
"Liquidation Date" means the date on which Junior Subordinated
Debentures or the Liquidation Distributions are to be distributed to Holders of
Trust Securities in connection with a dissolution and liquidation of the Issuer
Trust pursuant to Section 9.4.
"Liquidation Distribution" has the meaning specified in Section
9.4(d).
"Majority in Liquidation Amount of the Preferred Securities" or
"Majority in Liquidation Amount of the Common Securities" means, except as
provided by the Trust Indenture Act, Preferred Securities or Common Securities,
as the case may be, representing more than 50% of the aggregate Liquidation
Amount of all then Outstanding Preferred Securities or Common Securities, as
the case may be.
"Office of Thrift Supervision" means the Office of Thrift Supervision,
a division of the United States Department of the Treasury.
"Officers' Certificate" means, a certificate signed by the Chairman of
the Board, Chief Executive Officer, President or a Vice President and by the
Chief Financial Officer, the Treasurer, an Associate Treasurer, an Assistant
Treasurer, the Clerk, or an Assistant Clerk, of the Depositor, and delivered to
the appropriate Issuer Trustee. Any Officers' Certificate delivered with
respect to compliance with a condition or covenant provided for in this Trust
Agreement shall include:
(a) a statement by each officer signing the Officers' Certificate that
such officer has read the covenant or condition and the definitions relating
thereto;
8
<PAGE> 15
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by such officer in rendering the Officers'
Certificate;
(c) a statement that such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for or an employee of the Depositor or any Affiliate of the Depositor.
"Option Closing Date" shall have the meaning provided in the
Underwriting Agreement.
"Option Securities" means an aggregate Liquidation Amount of
$1,575,000 of the Issuer Trust's ______% Preferred Securities, issuable to the
Underwriter, at its option, exercisable within 30 days after the date of the
Prospectus, solely to cover over-allotments, if any.
"Option Preferred Securities Certificate" means the certificate
evidencing ownership of Preferred Securities issued if the Underwriter
exercises its option described in Section 2.4, which certificate shall be
substantially in the form attached hereto as Exhibit D.
"Original Trust Agreement" has the meaning specified in the recitals
to this Trust Agreement.
"Outstanding," with respect to Trust Securities, means, as of the date
of determination, all Trust Securities theretofore executed and delivered under
this Trust Agreement, except:
(a) Trust Securities theretofore canceled by the Property Trustee or
delivered to the Property Trustee for cancellation;
(b) Trust Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Property Trustee or
any Paying Agent for the Holders of such Preferred Securities, provided that if
such Trust Securities are to be redeemed, notice of such redemption has been
duly given pursuant to this Trust Agreement; and
(c) Trust Securities which have been paid or in exchange for or in
lieu of which other Trust Securities have been executed and delivered pursuant
to Sections 5.4, 5.5, and 5.6;
provided, however, that in determining whether the Holders of the requisite
Liquidation Amount of the Outstanding Preferred Securities have given any
request, demand, authorization, direction, notice, consent, or waiver
hereunder, Preferred Securities owned by the Depositor, any Issuer Trustee, any
Administrator, or any Affiliate of the Depositor or any Issuer Trustee shall be
9
<PAGE> 16
disregarded and deemed not to be Outstanding, except that (i) in determining
whether any Issuer Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Preferred
Securities that such Issuer Trustee or such Administrator, as the case may be,
knows to be so owned shall be so disregarded and (ii) the foregoing shall not
apply at any time when all of the outstanding Preferred Securities are owned by
the Depositor, one or more of the Issuer Trustees, one or more of the
Administrators and/or any such Affiliate. Preferred Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Administrators the pledgee's right so to
act with respect to such Preferred Securities and that the pledgee is not the
Depositor or any Affiliate of the Depositor.
"Owner" means each Person who is the beneficial owner of Global
Preferred Securities as reflected in the records of the Clearing Agency or, if
a Clearing Agency Participant is not the Owner, then as reflected in the
records of a Person maintaining an account with such Clearing Agency, directly
or indirectly, in accordance with the rules of such Clearing Agency.
"Paying Agent" means any paying agent or co-paying agent appointed
pursuant to Section 5.10 and shall initially be the Property Trustee.
"Payment Account" means a segregated non-interest-bearing corporate
trust account maintained by the Property Trustee in its trust department for
the benefit of the Holders in which all amounts paid in respect of the Junior
Subordinated Debentures will be held and from which the Property Trustee,
through the Paying Agent, shall make payments to the Holders in accordance with
Sections 4.1 and 4.2.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, company,
limited liability company, trust, unincorporated organization or government or
any agency or political subdivision thereof, or any other entity of whatever
nature.
"Preferred Securities Certificate" means a certificate evidencing
ownership of Preferred Securities, substantially in the form attached hereto as
Exhibit D.
"Preferred Security" means a Firm Security or an Option Security, each
constituting a preferred undivided beneficial interest in the assets of the
Issuer Trust, having a Liquidation Amount of $10 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Property Trustee" means the Person identified as the "Property
Trustee" in the preamble to this Trust Agreement solely in its capacity as
Property Trustee of the Issuer Trust and not in its individual capacity, or its
successor in interest in such capacity, or any successor property trustee
appointed as herein provided.
10
<PAGE> 17
"Prospectus" means the final prospectus covering the Preferred
Securities, Junior Subordinated Debentures and the Guarantee Agreement.
"Redemption Date" means, with respect to any Trust Security to be
redeemed, the date fixed for such redemption by or pursuant to this Trust
Agreement; provided that each Junior Subordinated Debenture Redemption Date and
the stated maturity of the Junior Subordinated Debentures shall be a Redemption
Date for a Like Amount of Trust Securities, including but not limited to any
date of redemption pursuant to the occurrence of any Special Event.
"Redemption Price" means with respect to a redemption of any Trust
Security, the Liquidation Amount of such Trust Security, together with
accumulated but unpaid Distributions to but excluding the date fixed for
redemption, plus the related amount of the premium, if any, paid by the
Depositor upon the concurrent redemption of a Like Amount of Junior
Subordinated Debentures.
"Relevant Trustee" has the meaning specified in Section 8.10.
"Responsible Officer" when used with respect to the Property Trustee
means any officer assigned to the Corporate Trust Office, including any
managing director, principal, vice president, assistant vice president,
assistant treasurer, assistant secretary or any other officer of the Property
Trustee customarily performing functions similar to those performed by any of
the above designated officers and having direct responsibility for the
administration of the Indenture, and also, with respect to a particular matter,
any other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.
"Securities Act" means the Securities Act of 1933, as amended, and any
successor statute thereto, in each case as amended from time to time.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 5.5.
"Special Event" means any Tax Event, Capital Treatment Event, or
Investment Company Event.
"Successor Securities Certificate" of any particular Preferred
Securities Certificate means every Preferred Securities Certificate issued
after, and evidencing all or a portion of the same beneficial interest in the
Issuer Trust as that evidenced by, such particular Preferred Securities
Certificate; and, for the purposes of this definition, any Preferred Securities
Certificate executed and delivered under Section 5.6 in exchange for or in lieu
of a mutilated, destroyed, lost or stolen Preferred Securities Certificate
shall be deemed to evidence the same beneficial interest in the Issuer Trust as
the mutilated, destroyed, lost or stolen Preferred Securities Certificate.
"Successor Security" has the meaning specified in Section 9.5.
11
<PAGE> 18
"Tax Event" means the receipt by the Issuer Trust of an Opinion of
Counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement, action or decision is announced on or after
the date of issuance of the Preferred Securities, there is more than an
insubstantial risk that (a) the Issuer Trust is, or will be within 90 days of
the delivery of such Opinion of Counsel, subject to United States federal
income tax with respect to income received or accrued on the Junior
Subordinated Debentures, (b) interest payable by the Depositor on the Junior
Subordinated Debentures is not, or within 90 days of the delivery of such
Opinion of Counsel will not be, deductible by the Depositor, in whole or in
part, for United States federal income tax purposes, or (c) the Issuer Trust
is, or will be within 90 days of the delivery of such Opinion of Counsel,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
"Time of Delivery" means 9:00 a.m. Eastern Time, either (a) with
respect to the Firm Securities or the Common Securities, on the fourth Business
Day following the date of execution of the Underwriting Agreement, or such
other time not later than ten Business Days after such date as shall be agreed
upon by the Underwriter, the Issuer Trust and the Company, or (b) with respect
to the Option Securities, the Option Closing Date.
"Trust Agreement" means this Amended and Restated Trust Agreement, as
the same may be modified, amended or supplemented in accordance with the
applicable provisions hereof, including (a) all Exhibits hereto, and (b) for
all purposes of this Amended and Restated Trust Agreement and any such
modification, amendment or supplement, the provisions of the Trust Indenture
Act that are deemed to be a part of and govern this Amended and Restated Trust
Agreement and any modification, amendment or supplement, respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended by the Trust Indenture Reform Act of 1990, or any successor statute, in
each case as amended from time to time.
"Trust Property" means (a) the Junior Subordinated Debentures, (b) any
cash on deposit in, or owing to, the Payment Account, and (c) all proceeds and
rights in respect of the foregoing and any other property and assets for the
time being held or deemed to be held by the Property Trustee pursuant to the
trusts of this Trust Agreement.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Preferred Securities Certificates.
"Trust Security" means any one of the Common Securities or the
Preferred Securities.
"Underwriter" has the meaning specified in the Underwriting Agreement.
12
<PAGE> 19
"Underwriting Agreement" means the Underwriting Agreement, dated as of
_______, 1999, among the Issuer Trust, the Depositor and the Underwriter, as
the same may be amended from time to time.
ARTICLE II
CONTINUATION OF THE ISSUER TRUST
Section 2.1 Name.
The Issuer Trust continued hereby shall be known as "NBN Capital
Trust," as such name may be modified from time to time by the Administrators
following written notice to the Holders of Trust Securities and the Issuer
Trustees, in which name the Administrators and the Issuer Trustees may engage
in the transactions contemplated hereby, make and execute contracts and other
instruments on behalf of the Issuer Trust and sue and be sued.
Section 2.2 Office of the Delaware Trustee; Principal Place of Business.
The address of the Delaware Trustee in the State of Delaware is
Bankers Trust (Delaware), E.A. Delle Donne Corporate Center, Montgomery
Building, 1011 Centre Road, Suite 200, Wilmington, Delaware, 19805-1266,
Attention:. M. Lisa Wilkins, or such other address in the State of Delaware as
the Delaware Trustee may designate by written notice to the Holders and the
Depositor. The principal executive office of the Issuer Trust is in care of
Northeast Bancorp, 232 Center Street, Auburn, Maine 04210, Attention:
President.
Section 2.3 Initial Contribution of Trust Property; Organizational Expenses.
The Issuer Trustees acknowledge receipt in trust from the Depositor in
connection with the Original Trust Agreement of the sum of $10, which
constitutes the initial Trust Property. The Depositor shall pay all
organizational expenses of the Issuer Trust as they arise or shall, upon
request of any Issuer Trustee, promptly reimburse such Issuer Trustee for any
such reasonable expenses paid by such Issuer Trustee. The Depositor shall make
no claim upon the Trust Property for the payment of such expenses.
Section 2.4 Issuance of the Preferred Securities.
The Depositor, both on its own behalf and on behalf of the Issuer
Trust pursuant to the Original Trust Agreement, executed and delivered the
Underwriting Agreement. Contemporaneously with the execution and delivery of
this Trust Agreement, an Administrator, on behalf of the Issuer Trust, shall
manually execute in accordance with Section 5.3 and the Property Trustee shall
authenticate in accordance with Section 5.3 and deliver to the Underwriter,
Firm Securities Certificates, registered in the names requested by the
Underwriter, in an aggregate amount of
13
<PAGE> 20
1,050,000 Firm Securities having an aggregate Liquidation Amount of $10,500,000
against receipt of the aggregate purchase price of such Preferred Securities of
$10,500,000, by the Property Trustee.
At the option of the Underwriter, within 30 days of the date of the
Prospectus, and solely for the purpose of covering an over-allotment, if any,
an Administrator, on behalf of the Issuer Trust, shall manually execute in
accordance with Section 5.3 and the Property Trustee shall authenticate in
accordance with Section 5.3 and deliver to the Underwriter, Option Preferred
Securities Certificates, registered in the names requested by the Underwriter,
representing up to 157,500 Option Securities having an aggregate Liquidation
Amount of up to $1,575,000 against receipt of the aggregate purchase price of
such Option Securities of up to $1,575,000 by the Property Trustee.
Section 2.5 Issuance of the Common Securities; Subscription and Purchase of
Junior Subordinated Debentures.
Contemporaneously with the execution and delivery of this Trust
Agreement, an Administrator, on behalf of the Issuer Trust, shall execute in
accordance with Section 5.3 and the Property Trustee shall authenticate in
accordance with Section 5.3 and deliver to the Depositor, Common Securities
Certificates, registered in the name of the Depositor, in an aggregate amount
of ________ Common Securities having an aggregate Liquidation Amount of
$__________ against receipt by the Property Trustee of the aggregate purchase
price of such Common Securities of $__________ by the Property Trustee. In the
event of any exercise of an over-allotment option requiring issuance of
additional Option Preferred Securities Certificates, as described in Section
2.4 above, a proportionate number of additional Common Securities Certificates,
with corresponding aggregate Liquidation Amount, shall be delivered to the
Depositor. Contemporaneously with the executions, and deliveries of Common
Securities Certificates and any Preferred Securities Certificates, an
Administrator, on behalf of the Issuer Trust, shall subscribe for and purchase
from the Depositor, corresponding amounts of Junior Subordinated Debentures,
registered in the name of the Issuer Trust and having an aggregate principal
amount equal to $__________, plus, in the event of any exercise of the
over-allotment option (a) a corresponding additional number of Junior
Subordinated Debentures not exceeding an aggregate principal amount of
$__________ and (b) a corresponding number of Junior Subordinated Debentures
not exceeding an aggregate principal amount equal to the aggregate Liquidation
Amount of Common Securities issued pursuant to such exercise of an
over-allotment option; and, in satisfaction of the purchase price for such
Junior Subordinated Debentures, the Property Trustee, on behalf of the Issuer
Trust, shall deliver to the Depositor the sum of $__________, plus any
corresponding over-allotment option amount (being the sum of the amounts
delivered to the Property Trustee pursuant to (a) the second sentence of
Section 2.4 and (b) the first and second sentences of this Section 2.5) and
receive the Junior Subordinated Debentures on behalf of the Issuer Trust.
Section 2.6 Declaration of Trust.
The exclusive purposes and functions of the Issuer Trust are to (a)
issue and sell Trust Securities and use the proceeds from such sale to acquire
the Junior Subordinated Debentures, and
14
<PAGE> 21
(b) engage in only those other activities necessary, convenient, or incidental
thereto. The Depositor hereby appoints the Issuer Trustees as trustees of the
Issuer Trust, to have all the rights, powers and duties to the extent set forth
herein, and the Issuer Trustees hereby accept such appointment. The Property
Trustee hereby declares that it will hold the Trust Property in trust upon and
subject to the conditions set forth herein for the benefit of the Issuer Trust
and the Holders. The Depositor hereby appoints the Administrators (as agents of
the Issuer Trust), with such Administrators having all rights, powers, and
duties set forth herein with respect to accomplishing the purposes of the
Issuer Trust, and the Administrators hereby accept such appointment, provided,
however, that it is the intent of the parties hereto that such Administrators
shall not be trustees or fiduciaries with respect to the Issuer Trust and this
Trust Agreement shall be construed in a manner consistent with such intent. The
Property Trustee shall have the right, power and authority to perform those
duties assigned to the Administrators. The Delaware Trustee shall not be
entitled to exercise any powers, nor shall the Delaware Trustee have any of the
duties and responsibilities, of the Property Trustee or the Administrators set
forth herein. The Delaware Trustee shall be one of the trustees of the Issuer
Trust for the sole and limited purpose of fulfilling the requirements of
Section 3807 of the Delaware Business Trust Act and for taking such actions as
are required to be taken by a Delaware trustee under the Delaware Business
Trust Act.
Section 2.7 Authorization to Enter into Certain Transactions.
(a) The Issuer Trustees and the Administrators shall conduct the
affairs of the Issuer Trust in accordance with the terms of this Trust
Agreement. Subject to the limitations set forth in paragraph (b) of this
Section 2.7 and in accordance with the following provisions (i) and (ii), the
Issuer Trustees and the Administrators shall act as follows:
(i) Each Administrator, acting alone, shall have the power and
authority and is hereby authorized and directed to act on behalf of
the Issuer Trust with respect to the following:
(A) issuance and sale of the Trust Securities;
(B) the compliance with the Underwriting Agreement regarding
the issuance and sale of the Trust Securities;
(C) the compliance with the Securities Act, applicable state
securities or blue sky laws, and the Trust Indenture Act;
(D) execute the Trust Securities on behalf of the Issuer
Trust in accordance with this Trust Agreement;
(E) the listing of the Preferred Securities upon such
securities exchange or exchanges or upon the Nasdaq National Market as
shall be determined by the Depositor, with the registration of the
Preferred Securities under the Exchange Act, if required, and the
15
<PAGE> 22
preparation and filing of all periodic and other reports and other
documents pursuant to the foregoing;
(F) the application for a taxpayer identification number for
the Issuer Trust;
(G) the preparation of a registration statement and a
prospectus in relation to the Preferred Securities, including any
amendments thereto and the taking of any action necessary or desirable
to sell the Preferred Securities in a transaction or series of
transactions subject to the registration requirements of the
Securities Act;
(H) cause the Issuer Trust to enter into, and execute,
deliver and perform on behalf of the Issuer Trust all agreements,
instruments, certificates or other documents as such Administrator
deems necessary or incidental to the purposes and functions of the
Issuer Trust; and
(I) any action incidental to the foregoing as the
Administrators may from time to time determine is necessary or
advisable to give effect to the terms of this Trust Agreement.
(ii) The Property Trustee shall have the power and authority, and
is hereby authorized and directed, to act on behalf of the Issuer
Trust with respect to the following matters:
(A) establish and maintain the Payment Account;
(B) receive, take title to, and exercise all of the rights,
powers and privileges of the holder of the Junior Subordinated
Debentures;
(C) receive and collect interest, principal and any other
payments made in respect of the Junior Subordinated Debentures in the
Payment Account;
(D) distribute amounts owed to the Holders in respect of the
Trust Securities in accordance with the terms of this Trust Agreement;
(E) act as Paying Agent and/or Securities Registrar to the
extent appointed as such hereunder;
(F) send notices of default and other information regarding
the Trust Securities and the Junior Subordinated Debentures to the
Holders in accordance with this Trust Agreement;
16
<PAGE> 23
(G) distribute the Trust Property in accordance with the
terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, wind up
the affairs of and liquidate the Issuer Trust and prepare, execute and
file the certificate of cancellation with the Secretary of State of
the State of Delaware;
(I) after an Event of Default (other than under paragraph
(b), (c) or (d) of the definition of such term if such Event of
Default is by or with respect to the Property Trustee), comply with
the provisions of this Trust Agreement and take any action to give
effect to the terms of this Trust Agreement and protect and conserve
the Trust Property for the benefit of the Holders (without
consideration of the effect of any such action on any particular
Holder);
(J) take any action incidental or convenient to the
foregoing as the Property Trustee may from time to time determine is
necessary or advisable to give effect to the terms of this Trust
Agreement; provided, however, that nothing in this Section 2.7(a) (ii)
shall require the Property Trustee to take any action that is not
otherwise required in this Trust Agreement.
(b) So long as this Trust Agreement remains in effect, the Issuer
Trust (or the Issuer Trustees or Administrators acting on behalf of the Issuer
Trust) shall not undertake any business, activities or transaction except as
expressly provided herein or contemplated hereby. In particular, neither the
Issuer Trustees nor the Administrators (in each case acting on behalf of the
Issuer Trust) shall (i) acquire any investments or engage in any activities not
authorized by this Trust Agreement, (ii) sell, assign, transfer, exchange,
mortgage, pledge, set off, or otherwise dispose of any of the Trust Property or
interests therein, including to Holders, except as expressly provided herein,
(iii) take any action that would reasonably be expected to cause the Issuer
Trust to become taxable as a corporation for United States federal income tax
purposes, (iv) incur any indebtedness for borrowed money or issue any other
debt, or (v) take or consent to any action that would result in the placement
of a Lien on any of the Trust Property. The Property Trustee shall defend all
claims and demands of all Persons at any time claiming any Lien on any of the
Trust Property adverse to the interest of the Issuer Trust or the Holders in
their capacity as Holders.
(c) In connection with the issue and sale of the Preferred Securities,
the Depositor shall have the power and authority to assist the Issuer Trust
with respect to, or effect on behalf of the Issuer Trust, the following (and
any actions taken by the Depositor in furtherance of the following prior to the
date of this Trust Agreement are hereby ratified and confirmed in all
respects):
(i) the preparation and filing by the Issuer Trust with the
Commission, and the execution and delivery on behalf of the Issuer
Trust, of a registration statement and a prospectus in relation to the
Preferred Securities, including any amendments thereto, and the
17
<PAGE> 24
taking of any action necessary or desirable to sell the Preferred
Securities in a transaction or a series of transactions subject to the
registration requirements of the Securities Act;
(ii) the determination of the states in which to take appropriate
action to qualify or register for sale all or part of the Preferred
Securities and the determination of any and all such acts, other than
actions that must be taken by or on behalf of the Issuer Trust, and
the advice to the Issuer Trustees of actions they must take on behalf
of the Issuer Trust, and the preparation for execution and filing of
any documents to be executed and filed by the Issuer Trust or on
behalf of the Issuer Trust, as the Depositor deems necessary or
advisable in order to comply with the applicable laws of any such
states in connection with the offer and sale of the Preferred
Securities;
(iii) the negotiation of the terms of, and the execution and
delivery of, the Underwriting Agreement providing for the sale of the
Preferred Securities;
(iv) the preparation and filing by the Issuer Trust with the
Commission and the execution on behalf of the Issuer Trust of a
registration statement on Form 8-A relating to the registration of the
Preferred Securities under Section 12(b) or 12(g) of the Exchange Act,
as amended, including any amendments thereto;
(v) compliance with the listing requirements of the Preferred
Securities upon such securities exchange or exchanges, or upon the
Nasdaq National Market, as shall be determined by the Depositor, the
registration of the Preferred Securities under the Exchange Act, if
required, and the preparation and filing of all periodic and other
reports and other documents pursuant to the foregoing; and
(vi) the taking of any other actions necessary or desirable to
carry out any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the
Administrators and the Property Trustee are authorized and directed to conduct
the affairs of the Issuer Trust and to operate the Issuer Trust so that the
Issuer Trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act, and will not be taxable as a
corporation for United States federal income tax purposes and so that the
Junior Subordinated Debentures will be treated as indebtedness of the Depositor
for United States federal income tax purposes. In this connection, the Property
Trustee, the Administrators, and the Holders of Common Securities are
authorized to take any action, not inconsistent with applicable law, the
Certificate of Trust, or this Trust Agreement, that the Property Trustee, the
Administrators, and Holders of Common Securities determine in their discretion
to be necessary or desirable for such purposes, as long as such action does not
adversely affect in any material respect the interests of the Holders of the
Outstanding Preferred Securities. In no event shall the Administrators, the
Holders of Common Securities, or the Issuer Trustees be liable to the Issuer
Trust or the Holders for any failure to comply with this section that results
from a change in law or regulations or in the interpretation thereof.
18
<PAGE> 25
Section 2.8 Assets of Trust.
The assets of the Issuer Trust shall consist solely of the Trust
Property.
Section 2.9 Title to Trust Property.
Legal title to all Trust Property shall be vested at all times in the
Issuer Trust and shall be held and administered by the Property Trustee (in its
capacity as such) for the benefit of the Issuer Trust and the Holders in
accordance with this Trust Agreement.
ARTICLE III
PAYMENT ACCOUNT
Section 3.1 Payment Account.
(a) On or prior to the Closing Date, the Property Trustee shall
establish the Payment Account. The Property Trustee and its agents shall have
exclusive control and sole right of withdrawal with respect to the Payment
Account for the purpose of making deposits in and withdrawals from the Payment
Account in accordance with this Trust Agreement. All monies and other property
deposited or held from time to time in the Payment Account shall be held by the
Property Trustee in the Payment Account for the exclusive benefit of the
Holders and for distribution as herein provided, including (and subject to) any
priority of payments provided for herein.
(b) The Property Trustee shall deposit in the Payment Account,
promptly upon receipt, all payments of principal of or interest on, and any
other payments or proceeds with respect to, the Junior Subordinated Debentures.
Amounts held in the Payment Account shall not be invested by the Property
Trustee pending distribution thereof.
ARTICLE IV
DISTRIBUTIONS; REDEMPTION
Section 4.1 Distributions.
(a) The Trust Securities represent undivided beneficial interests in
the Trust Property, and Distributions (including Distributions of Additional
Amounts) will be made on the Trust Securities at the rate and on the dates that
payments of interest (including payments of Additional Interest, as defined in
the Indenture) are made on the Junior Subordinated Debentures. Accordingly:
19
<PAGE> 26
(i) Distributions on the Trust Securities shall be cumulative
and will accumulate whether or not there are funds of the Issuer Trust
available for the payment of Distributions. Distributions shall
accumulate from __________, 1999, and, except in the event (and to the
extent) that the Depositor exercises its right to defer the payment of
interest on the Junior Subordinated Debentures pursuant to the
Indenture, shall be payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, commencing on __________,
1999. If any date on which a Distribution is otherwise payable on the
Trust Securities is not a Business Day, then the payment of such
Distribution shall be made on the next succeeding day that is a
Business Day (without any interest or other payment in respect of any
such delay), except that, if such Business Day is in the next
succeeding calendar year, payment of such Distributions shall be made
on the immediately preceding Business Day, in either case with the
same force and effect as if made on the date on which such payment was
originally payable (each date on which distributions are payable in
accordance with this Section 4.1(a), a "Distribution Date").
(ii) The Trust Securities shall be entitled to Distributions
payable at a rate of ______% per annum of the Liquidation Amount of
the Trust Securities. The amount of Distributions payable for any
period less than a full Distribution period shall be computed on the
basis of a 360 day year of twelve 30 day months and the actual number
of days elapsed in a partial month in a period. Distributions payable
for each full Distribution period will be computed by dividing the
rate per annum by four. The amount of Distributions payable for any
period shall include any Additional Amounts in respect of such period.
(iii) So long as no Debenture Event of Default has occurred and is
continuing, the Depositor has the right under the Indenture to defer
the payment of interest on the Junior Subordinated Debentures at any
time and from time to time for a period not exceeding 20 consecutive
quarterly periods (an "Extension Period"), provided that no Extension
Period may extend beyond __________, 2029. As a consequence of any
such deferral, quarterly Distributions on the Trust Securities by the
Issuer Trust will also be deferred (and the amount of Distributions to
which Holders of the Trust Securities are entitled will accumulate
additional Distributions thereon at the rate per annum of ______% per
annum, compounded quarterly) from the relevant payment date for such
Distributions, computed on the basis of a 360 day year of twelve
30-day months and the actual days lapsed in a partial month in such
period. Additional Distributions payable for each full Distribution
period will be computed by dividing the rate per annum by four. The
term "Distributions" as used in Section 4.1 shall include any such
additional Distributions provided pursuant to this Section 4.1 (a)
(iii).
(iv) Distributions on the Trust Securities shall be made by the
Property Trustee from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Issuer Trust has funds
then on hand and available in the Payment Account for the payment of
such Distributions.
20
<PAGE> 27
(b) Distributions on the Trust Securities with respect to a
Distribution Date shall be payable to the Holders thereof as they appear on the
Securities Register for the Trust Securities at the close of business on the
relevant record date, which shall be at the close of business on the 15th day
of March, June, September or December (whether or not a Business Day).
Section 4.2 Redemption.
(a) On each Debenture Redemption Date and on the stated maturity of
the Junior Subordinated Debentures, the Issuer Trust will be required to redeem
a Like Amount of Trust Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee by
first-class mail, postage prepaid, mailed not less than 30 nor more than 60
days prior to the Redemption Date to each Holder of Trust Securities to be
redeemed, at such Holder's address appearing in the Security Register. All
notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price, or if the Redemption Price cannot be
calculated prior to the time the notice is required to be sent, the
estimate of the Redemption Price provided pursuant to the Indenture
together with a statement that it is an estimate and that the actual
Redemption Price will be calculated on the third Business Day prior to
the Redemption Date (and if an estimate is provided, a further notice
shall be sent of the actual Redemption Price on the date, or as so on
as practicable thereafter, that notice of such actual Redemption Price
is received pursuant to the Indenture);
(iii) the CUSIP number or CUSIP numbers of the Preferred
Securities affected;
(iv) if less than all the Outstanding Trust Securities are to be
redeemed, the identification and the total Liquidation Amount of the
particular Trust Securities to be redeemed;
(v) that, on the Redemption Date, the Redemption Price will become
due and payable upon each such Trust Security to be redeemed and that
Distributions thereon will cease to accumulate on and after said date,
except as provided in Section 4.2(d) below; and
(vi) the place or places where Trust Securities are to be
surrendered for the payment of the Redemption Price.
The Issuer Trust in issuing the Trust Securities shall use "CUSIP"
numbers, and the Property Trustee shall indicate the "CUSIP" numbers of the
Trust Securities in notices of redemption and related materials as a
convenience to Holders; provided that any such notice may state that no
21
<PAGE> 28
representation is made as to the correctness of such numbers either as printed
on the Trust Securities or as contained in any notice of redemption and related
material.
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the applicable proceeds from the
contemporaneous redemption of Junior Subordinated Debentures. Redemptions of
the Trust Securities shall be made and the Redemption Price shall be payable on
each Redemption Date only to the extent that the Issuer Trust has funds then on
hand and available in the Payment Account for the payment of such Redemption
Price.
(d) If the Property Trustee gives a notice of redemption in respect of
any Preferred Securities, then, by 12:00 noon, New York City time, on the
Redemption Date, subject to Section 4.2(c), the Property Trustee will, with
respect to Preferred Securities held in global form, irrevocably deposit with
the Clearing Agency for such Preferred Securities, to the extent available
therefor, funds sufficient to pay the applicable Redemption Price and will give
such Clearing Agency irrevocable instructions and authority to pay the
Redemption Price to the Owners of the Preferred Securities. With respect to
Preferred Securities that are not held in global form, the Property Trustee,
subject to Section 4.2(c), will irrevocably deposit with the Paying Agent, to
the extent available therefor, funds sufficient to pay the applicable
Redemption Price and will give the Paying Agent irrevocable instructions and
authority to pay the Redemption Price to the Holders of the Preferred
Securities upon surrender of their Preferred Securities Certificates.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Trust Securities called for redemption shall be payable
to the Holders of such Trust Securities as they appear on the Securities
Register for the Trust Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then, upon the date of such deposit, all rights of
Holders holding Trust Securities so called for redemption will cease, except
the right of such Holders to receive the Redemption Price and any Distributions
payable in respect of the Trust Securities on or prior to the Redemption Date,
but without interest, and such Trust Securities will cease to be Outstanding.
In the event that any date on which any applicable Redemption Price is payable
is not a Business Day, then payment of the applicable Redemption Price payable
on such date will be made on the next succeeding day that is a Business Day
(and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case,
with the same force and effect as if made on such date. In the event that
payment of the Redemption Price in respect of any Trust Securities called for
redemption is improperly withheld or refused and not paid either by the Issuer
Trust or by the Depositor pursuant to the Guarantee Agreement, Distributions on
such Trust Securities will continue to accumulate, as set forth in Section 4.1,
from the Redemption Date originally established by the Issuer Trust for such
Trust Securities to the date such applicable Redemption Price is actually paid,
in which case the actual payment date will be the date fixed for redemption for
purposes of calculating the applicable Redemption Price.
(e) Subject to Section 4.3(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the particular
Preferred Securities to be redeemed shall be
22
<PAGE> 29
selected not more than 60 days prior to the Redemption Date by the Property
Trustee from the Outstanding Preferred Securities not previously called for
redemption in such a manner as the Property Trustee shall deem fair and
appropriate.
Section 4.3 Subordination of Common Securities.
(a) Payment of Distributions (including Additional Amounts, if
applicable) on, the Redemption Price of, and the Liquidation Distribution in
respect of, the Trust Securities, as applicable, shall be made, subject to
Section 4.2(e), pro rata among the Common Securities and the Preferred
Securities based on the Liquidation Amount of such Trust Securities; provided,
however, that if on any Distribution Date or Redemption Date any Event of
Default resulting from a Debenture Event of Default in Section 5.1(a) or 5.1(b)
of the Indenture shall have occurred and be continuing, no payment of any
Distribution (including any Additional Amounts, if applicable) on, or
Redemption Price of, or Liquidation Distribution in respect of, any Common
Security, and no other payment on account of the redemption, liquidation, or
other acquisition of Common Securities, shall be made unless payment in full in
cash of all accumulated and unpaid Distributions (including Additional Amounts,
if applicable) on all Outstanding Preferred Securities for all Distribution
periods terminating on or prior thereto, or, in the case of payment of the
Redemption Price, the full amount of such Redemption Price on all Outstanding
Preferred Securities then called for redemption, or in the case of payment of
the Liquidation Distribution the full amount of such Liquidation Distribution
on all Outstanding Preferred Securities, shall have been made or provided for,
and all funds immediately available to the Property Trustee shall first be
applied to the payment in full in cash of all Distributions (including
Additional Amounts, if applicable) on, or the Redemption Price of, or
Liquidation Distribution in respect of Preferred Securities then due and
payable. The existence of an Event of Default does not entitle the Holders of
Preferred Securities to accelerate the maturity thereof.
(b) In the case of the occurrence of any Event of Default resulting
from any Debenture Event of Default, the Holder of the Common Securities shall
have no right to act with respect to any such Event of Default under this Trust
Agreement until the effects of all such Events of Default with respect to the
Preferred Securities have been cured, waived, or otherwise eliminated. Until
all such Events of Default under this Trust Agreement with respect to the
Preferred Securities have been so cured, waived, or otherwise eliminated, the
Property Trustee shall act solely on behalf of the Holders of the Preferred
Securities and not on behalf of the Holder of the Common Securities, and only
the Holders of the Preferred Securities will have the right to direct the
Property Trustee to act on their behalf.
Section 4.4 Payment Procedures.
Payments of Distributions (including Additional Amounts, if
applicable) in respect of the Preferred Securities shall be made by
check mailed to the address of the Person entitled thereto as such
address shall appear on the Securities Register or, if the Preferred
Securities are held by a Clearing Agency, such Distributions shall be
made to the Clearing Agency in
23
<PAGE> 30
immediately available funds, which will credit the relevant accounts
on the applicable Distribution Dates. Payments of Distributions to
Holders of $1,000,000 or more in aggregate Liquidation Amount of
Preferred Securities may be made by wire transfer of immediately
available funds upon written request of such Holder of Preferred
Securities to the Securities Registrar not later than 15 calendar days
prior to the date on which the Distribution is payable. Payments in
respect of the Common Securities shall be made in such manner as shall
be mutually agreed between the Property Trustee and the Holder of the
Common Securities.
Section 4.5 Tax Returns and Reports.
(a) The Administrators shall prepare and file (or cause to be prepared
and filed), at the Depositor's expense, all United States federal, state, and
local tax and information returns and reports required to be filed by or in
respect of the Issuer Trust. In this regard, the Administrators shall (i)
prepare and file (or cause to be prepared and filed) all Internal Revenue
Service forms required to be filed in respect of the Issuer Trust in each
taxable year of the Issuer Trust and (ii) prepare and furnish (or cause to be
prepared and furnished) to each Holder all Internal Revenue Service forms
required to be provided by the Issuer Trust. The Administrators shall provide
the Depositor and the Property Trustee with a copy of all such returns and
reports promptly after such filing or furnishing. The Issuer Trustees and the
Administrators shall comply with United States federal withholding and backup
withholding tax laws and information reporting requirements with respect to any
payments to Holders under the Trust Securities.
(b) On or before December 15 of each year during which any Preferred
Securities are outstanding, the Administrators shall furnish to the Paying
Agent such information as may be reasonably requested by the Property Trustee
in order that the Property Trustee may prepare the information which it is
required to report for such year on Internal Revenue Service Forms 1096 and
1099 pursuant to Section 6049 of the Code. Such information shall include the
amount of original issue discount includible in income for each outstanding
Preferred Security during such year.
Section 4.6 Payment of Taxes; Duties, Etc. of the Issuer Trust.
Upon receipt under the Junior Subordinated Debentures of Additional
Sums, the Property Trustee, at the written direction of an Administrator or the
Depositor, shall promptly pay any taxes, duties or governmental charges of
whatsoever nature (other than withholding taxes) imposed on the Issuer Trust by
the United States or any other taxing authority.
Section 4.7 Payments under Indenture or Pursuant to Direct Actions.
Any amount payable hereunder to any Holder of Preferred Securities
shall be reduced by the amount of any corresponding payment such Holder (or any
Owner related thereto) has directly received pursuant to Section 5.8 of the
Indenture or Section 5.13 of this Trust Agreement.
24
<PAGE> 31
Section 4.8 Liability of the Holder of Common Securities.
The Holder of Common Securities shall be liable for the debts and
obligations of the Issuer Trust as set forth in Section 6.7(c) of the Indenture
regarding allocation of expenses.
ARTICLE V
TRUST SECURITIES CERTIFICATES
Section 5.1 Initial Ownership.
Until the issuance of the Trust Securities, and at any time during
which no Trust Securities are outstanding, the Depositor shall be the sole
beneficial owner of the Issuer Trust.
Section 5.2 The Trust Securities Certificates.
(a) Subject to the provisions of Section 5.3 of this Agreement, the
Trust Securities Certificates shall be executed on behalf of the Issuer Trust
by manual or facsimile signature of at least one Administrator. Trust
Securities Certificates bearing the signatures of individuals who were, at the
time when such signatures shall have been affixed, authorized to sign on behalf
of the Issuer Trust, shall be validly issued and entitled to the benefits of
this Trust Agreement (subject to the authentication requirements of the Trust
Agreement), notwithstanding that such individuals or any of them shall have
ceased to be so authorized prior to the delivery of such Trust Securities
Certificates or did not hold such offices at the date of delivery of such Trust
Securities Certificates. A transferee of a Trust Securities Certificate shall
become a Holder, and shall be entitled to the rights and subject to the
obligations of a Holder hereunder, upon due registration of such Trust
Securities Certificate in such transferee's name pursuant to Section 5.5.
(b) Upon their original issuance, Preferred Securities Certificates
shall be issued in the form of one or more fully registered Global Preferred
Securities Certificates which will be deposited with or on behalf of Cede as
the Depositary's nominee and registered in the name of Cede as the Depositary's
nominee. Unless and until it is exchangeable in whole or in part for the
Preferred Securities in definitive form, a global security may not be
transferred except as a whole by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor of such
Depositary or a nominee of such successor.
(c) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.
25
<PAGE> 32
Section 5.3 Execution and Delivery of Trust Securities Certificates.
On the Closing Date, and on the Option Closing Date if applicable, an
Administrator shall cause Trust Securities Certificates, in an aggregate
Liquidation Amount as provided in Sections 2.4 and 2.5, as the case may be, to
be executed on behalf of the Issuer Trust and delivered to the Property Trustee
and upon such delivery the Property Trustee shall authenticate such Trust
Securities Certificates and deliver such Trust Securities Certificates upon the
written order of the Issuer Trust, executed by an Administrator thereof,
without further corporate action by the Issuer Trust, in authorized
denominations, and whereupon the Trust Securities evidenced by such Trust
Securities Certificates shall be duly and validly issued undivided beneficial
interests in the assets of the Issuer Trust and entitled to the benefits of
this Trust Agreement.
Section 5.4 Global Preferred Security.
(a) Any Global Preferred Security issued under this Trust Agreement
shall be registered in the name of the Clearing Agency or its nominee and
delivered to it or its custodian therefor, and such Global Preferred Security
shall constitute a single Preferred Security for all purposes of this Trust
Agreement.
(b) Notwithstanding any other provision in this Trust Agreement, a
Global Preferred Security may not be exchanged in whole or in part for
Preferred Securities registered, and no transfer of the Global Preferred
Security in whole or in part may be registered, in the name of any Person other
than the Clearing Agency or its nominee for such Global Preferred Security,
Cede, or other nominee thereof unless (i) such Clearing Agency advises the
Depositor and the Issuer Trustees in writing that such Clearing Agency is no
longer willing or able to properly discharge its responsibilities as Clearing
Agency with respect to such Global Preferred Security, and the Depositor is
unable to locate a qualified successor within 90 days of receipt of such notice
from the Depositary, (ii) the Depositor at its option advises the Depositary in
writing that it elects to terminate the book-entry system through the Clearing
Agency, or (iii) there shall have occurred and be continuing an Event of
Default.
(c) If a Preferred Security is to be exchanged in whole or in part for
a beneficial interest in a Global Preferred Security, then either (i) such
Global Preferred Security shall be so surrendered for exchange or cancellation
as provided in this Article V or (ii) the Liquidation Amount thereof shall be
reduced or increased by an amount equal to the portion thereof to be so
exchanged or canceled, or equal to the Liquidation Amount of such other
Preferred Security to be so exchanged for a beneficial interest therein, as the
case may be, by means of an appropriate adjustment made on the records of the
Security Registrar, whereupon the Property Trustee, in accordance with the
Applicable Procedures, shall instruct the Clearing Agency or its authorized
representative to make a corresponding adjustment to its records. Upon any such
surrender or adjustment of a Global Preferred Security by the Clearing Agency,
accompanied by registration instructions, the Property Trustee shall, subject
to Section 5.4(b) and as otherwise provided in this Article V, authenticate and
26
<PAGE> 33
deliver and an Administrator shall execute any Preferred Securities issuable in
exchange for such Global Preferred Security (or any portion thereof) in
accordance with the instructions of the Clearing Agency. The Property Trustee
shall not be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be fully protected in relying on, such
instructions.
(d) Every Preferred Security registered, executed, authenticated, and
delivered upon registration of, transfer of, or in exchange for or in lieu of,
a Global Preferred Security or any portion thereof, whether pursuant to this
Article V or Article IV or otherwise, shall be executed, authenticated and
delivered in the form of, and shall be, a Global Preferred Security, unless
such Global Preferred Security is registered in the name of a Person other than
the Clearing Agency for such Global Preferred Security or a nominee thereof.
(e) The Clearing Agency or its nominee, as the registered owner of a
Global Preferred Security, shall be considered the Holder of the Preferred
Securities represented by such Global Preferred Security for all purposes under
this Trust Agreement and the Preferred Securities, and owners of beneficial
interests in such Global Preferred Security shall hold such interests pursuant
to the Applicable Procedures and, except as otherwise provided herein, shall
not be entitled to receive physical delivery of any such Preferred Securities
in definitive form and shall not be considered the Holders thereof under this
Trust Agreement. Accordingly, any such Owner's beneficial interest in the
Global Preferred Security shall be shown only on, and the transfer of such
interest shall be effected only through, records maintained by the Clearing
Agency or its nominee. Neither the Property Trustee, the Securities Registrar
nor the Depositor shall have any liability in respect of any transfers effected
by the Clearing Agency.
(f) The rights of Owners of beneficial interests in a Global Preferred
Security shall be exercised only through the Clearing Agency and shall be
limited to those established by law and agreements between such Owners and the
Clearing Agency.
Section 5.5 Registration of Transfer and Exchange Generally; Certain
Transfers and Exchanges; Preferred Securities Certificates.
(a) The Property Trustee shall keep or cause to be kept at its
Corporate Trust Office a register or registers for the purpose of registering
Trust Securities Certificates and transfers and exchanges of Preferred
Securities Certificates in which the registrar and transfer agent with respect
to the Preferred Securities (the "Securities Registrar"), subject to such
reasonable regulations as it may prescribe, shall provide for the registration
of Preferred Securities Certificates and Common Securities Certificates
(subject to Section 5.11 in the case of Common Securities Certificates) and
registration of transfers and exchanges of Preferred Securities Certificates as
herein provided. Such register is herein sometimes referred to as the
"Securities Register." The Property Trustee is hereby appointed "Securities
Registrar" for the purpose of registering Preferred Securities and transfers of
Preferred Securities as herein provided.
27
<PAGE> 34
Upon surrender for registration of transfer of any Preferred Security
at the offices or agencies of the Property Trustee designated for that purpose,
an Administrator shall execute and the Property Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Preferred Securities of the same series of any authorized denominations of
like tenor and aggregate Liquidation Amount and bearing such legends as may be
required by this Trust Agreement.
At the option of the Holder, Preferred Securities may be exchanged for
other Preferred Securities of any authorized denominations, of like tenor and
aggregate Liquidation Amount and bearing such legends as may be required by
this Trust Agreement, upon surrender of the Preferred Securities to be
exchanged at such office or agency. Whenever any Preferred Securities are so
surrendered for exchange, an Administrator shall execute and the Property
Trustee shall authenticate and deliver the Preferred Securities that the Holder
making the exchange is entitled to receive.
All Preferred Securities issued upon any transfer or exchange of
Preferred Securities shall be the valid obligations of the Issuer Trust,
evidencing the same interest, and entitled to the same benefits under this
Trust Agreement, as the Preferred Securities surrendered upon such transfer or
exchange.
Every Preferred Security presented or surrendered for transfer or
exchange shall (if so required by the Property Trustee) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Property Trustee and the Securities Registrar, duly executed by the Holder
thereof or such Holder's attorney duly authorized in writing.
No service charge shall be made to a Holder for any transfer or
exchange of Preferred Securities, but the Property Trustee may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any transfer or exchange of Preferred Securities.
Neither the Issuer Trust nor the Property Trustee shall be required,
pursuant to the provisions of this Section, (i) to issue, register the transfer
of, or exchange any Preferred Security during a period beginning at the opening
of business 15 days before the day of selection for redemption of Preferred
Securities pursuant to Article IV and ending at the close of business on the
day of mailing of the notice of redemption, or (ii) to register the transfer of
or exchange any Preferred Security so selected for redemption in whole or in
part, except, in the case of any such Preferred Security to be redeemed in
part, any portion thereof not to be redeemed.
(b) Certain Transfers and Exchanges. Trust Securities may only be
transferred, in whole or in part, in accordance with the terms and conditions
set forth in this Trust Agreement. To the fullest extent permitted by
applicable law, any transfer or purported transfer of any Trust Security not
made in accordance with this Trust Agreement shall be null and void.
28
<PAGE> 35
(i) Non Global Security to Non-Global Security. A Trust Security
that is not a Global Preferred Security may be transferred, in whole
or in part, to a Person who takes delivery in the form of another
Trust Security that is not a Global Preferred Security as provided in
Section 5.5(a).
(ii) Free Transferability. Subject to this Section 5.5,
Preferred Securities shall be freely transferable.
(iii) Exchanges between Global Preferred Security and Non-Global
Preferred Security. A beneficial interest in a Global Preferred
Security may be exchanged for a Preferred Security that is not a
Global Preferred Security as provided in Section 5.4.
Section 5.6 Mutilated, Destroyed, Lost or Stolen Trust Securities
Certificates.
If (a) any mutilated Trust Securities Certificate shall be surrendered
to the Securities Registrar, or if the Securities Registrar shall receive
evidence to its satisfaction of the destruction, loss, or theft of any Trust
Securities Certificate and (b) there shall be delivered to the Securities
Registrar and the Administrators such security or indemnity as may be required
by them to save each of them harmless, then in the absence of notice that such
Trust Securities Certificate shall have been acquired by a bona fide purchaser
or a protected purchaser, the Administrators, or any one of them, on behalf of
the Issuer Trust shall execute and make available for delivery, and the
Property Trustee shall authenticate, in exchange for or in lieu of any such
mutilated, destroyed, lost, or stolen Trust Securities Certificate, a new Trust
Securities Certificate of like class, tenor and denomination. In connection
with the issuance of any new Trust Securities Certificate under this Section,
the Administrators or the Securities Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith. Any duplicate Trust Securities Certificate issued
pursuant to this Section shall constitute conclusive evidence of an undivided
beneficial interest in the assets of the Issuer Trust corresponding to that
evidenced by the lost, stolen or destroyed Trust Securities Certificate, as if
originally issued, whether or not the lost, stolen or destroyed Trust
Securities Certificate shall be found at any time.
Section 5.7 Persons Deemed Holders.
The Issuer Trust, the Issuer Trustees, the Administrators, the
Securities Registrar, or the Depositor shall treat the Person in whose name any
Trust Securities are registered in the Securities Register as the owner of such
Trust Securities for the purpose of receiving Distributions and for all other
purposes whatsoever, and none of the Issuer Trust, the Issuer Trustees, the
Administrators, the Securities Registrar nor the Depositor shall be bound by
any notice to the contrary.
29
<PAGE> 36
Section 5.8 Access to List of Holders Names and Addresses.
Each Holder and each Owner shall be deemed to have agreed not to hold
the Depositor, the Property Trustee, or the Administrators accountable by
reason of the disclosure of its name and address, regardless of the source from
which such information was derived.
Section 5.9 Maintenance of Office or Agency.
The Property Trustee shall designate, with the consent of the
Administrators, which consent shall not be unreasonably withheld, an office or
offices or agency or agencies where Preferred Securities Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Issuer Trustees in respect of the Trust Securities
Certificates may be served. The Property Trustee initially designates its
Corporate Trust Office for such purposes. The Property Trustee shall give
prompt written notice to the Depositor, the Administrators and the Holders of
any change in the location of the Securities Register or any such office or
agency.
Section 5.10 Appointment of Paying Agent.
The Paying Agent shall make Distributions to Holders from the Payment
Account and shall report the amounts of such Distributions to the Property
Trustee and the Administrators. Any Paying Agent shall have the revocable power
to withdraw funds from the Payment Account solely for the purpose of making the
Distributions referred to above. The Property Trustee may revoke such power and
remove any Paying Agent in its sole discretion. The Paying Agent shall
initially be the Property Trustee. Any Person acting as Paying Agent shall be
permitted to resign as Paying Agent upon 30 days written notice to the
Administrators and the Property Trustee. In the event that the Property Trustee
shall no longer be the Paying Agent or a successor Paying Agent shall resign or
its authority to act be revoked, the Property Trustee shall appoint a successor
(which shall be a bank or trust company) that is reasonably acceptable to the
Administrators to act as Paying Agent. Such successor Paying Agent appointed by
the Property Trustee, or any additional Paying Agent appointed by the
Administrators, shall execute and deliver to the Issuer Trustees an instrument
in which such successor Paying Agent or additional Paying Agent shall agree
with the Issuer Trustees that as Paying Agent, such successor Paying Agent or
additional Paying Agent will hold all sums, if any, held by it for payment to
the Holders in trust for the benefit of the Holders entitled thereto until such
sums shall be paid to such Holders. The Paying Agent shall return all unclaimed
funds to the Property Trustee and upon removal of a Paying Agent such Paying
Agent shall also return all funds in its possession to the Property Trustee.
The provisions of Sections 8.1, 8.3 and 8.6 herein shall apply to the Bank also
in its role as Paying Agent, for so long as the Bank shall act as Paying Agent
and, to the extent applicable, to any other paying agent appointed hereunder.
Any reference in this Trust Agreement to the Paying Agent shall include any
co-paying agent chosen by the Property Trustee unless the context requires
otherwise.
30
<PAGE> 37
Section 5.11 Ownership of Common Securities by Depositor.
On the Closing Date, and on the Option Closing Date if applicable, the
Depositor shall acquire and retain beneficial and record ownership of the
Common Securities. Neither the Depositor nor any successor Holder of the Common
Securities may transfer less than all of the Common Securities, and the
Depositor or any successor Holder may transfer the Common Securities only (a)
in connection with a consolidation or merger of the Depositor into another
corporation or any conveyance, transfer or lease by the Depositor of its
properties and assets substantially as an entirety to any Person, pursuant to
Section 8.1 of the Indenture, or (b) a transfer to an Affiliate of the
Depositor in compliance with applicable law (including the Securities Act and
applicable state securities and blue sky laws). To the fullest extent permitted
by law, any other attempted transfer of the Common Securities shall be void.
The Administrators shall cause each Common Securities Certificate issued to the
Depositor to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE
EXCEPT TO A SUCCESSOR IN INTEREST TO THE DEPOSITOR OR AN AFFILIATE OF THE
DEPOSITOR IN COMPLIANCE WITH APPLICABLE LAW AND SECTION 5.11 OF THE TRUST
AGREEMENT."
Section 5.12 Notice to Clearing Agency
To the extent that a notice or other communication to the Holders is
required under this Trust Agreement, for so long as Preferred Securities are
represented by a Global Preferred Securities Certificate, the Administrators
and the Property Trustee shall give all such notices and communications
specified herein to be given to the Clearing Agency, and shall have no
obligations to the Owners.
Section 5.13 Rights of Holders.
(a) The legal title to all Trust Property shall be vested at all times
in the Issuer Trust and shall be held and administered by the Property Trustee
(in its capacity as such) in accordance with Section 2.9, and the Holders shall
not have any right or title therein other than the undivided beneficial
interest in the assets of the Issuer Trust conferred by their Trust Securities
and they shall have no right to call for any partition or division of property,
profits, or rights of the Issuer Trust except as described below. The Trust
Securities shall be personal property giving only the rights specifically set
forth therein and in this Trust Agreement. The Trust Securities shall have no
preemptive or similar rights and when issued and delivered to Holders against
payment of the purchase price therefor will be validly issued, fully paid and,
subject to Section 4.8 hereof, non-assessable undivided beneficial interests in
the Trust Property. Subject to Section 4.8 hereof, the Holders of the Trust
Securities, in their capacities as such, shall be entitled to the same
limitation of personal liability extended to stockholders of private
corporations for profit organized under the General Corporation Law of the
State of Delaware.
31
<PAGE> 38
(b) For so long as any Preferred Securities remain Outstanding, if,
upon a Debenture Event of Default, the Debenture Trustee fails, or the holders
of not less than 25% in principal amount of the outstanding Junior Subordinated
Debentures fail, to declare the principal of all of the Junior Subordinated
Debentures to be immediately due and payable, the Holders of at least 25% in
Liquidation Amount of the Preferred Securities then Outstanding shall have such
right to make such declaration by a notice in writing to the Property Trustee,
the Depositor and the Debenture Trustee.
At any time after such a declaration of acceleration with respect to
the Junior Subordinated Debentures has been made and before a judgment or
decree for payment of the money due has been obtained by the Debenture Trustee
as provided in the Indenture, the Holders of a Majority in Liquidation Amount
of the Preferred Securities, by written notice to the Property Trustee, the
Depositor, and the Debenture Trustee, may rescind and annul such declaration
and its consequences if:
(i) the Depositor has paid or deposited with the Debenture
Trustee a sum sufficient to pay:
(A) all overdue installments of interest on all of the
Junior Subordinated Debentures,
(B) any accrued Additional Interest on all of the Junior
Subordinated Debentures,
(C) the principal of (and premium, if any, on) any Junior
Subordinated Debentures which have become due otherwise than by such
declaration of acceleration and interest and Additional Interest
thereon at the rate borne by the Junior Subordinated Debentures, and
(D) all sums paid or advanced by the Debenture Trustee under
the Indenture and the reasonable compensation, expenses, disbursements
and advances of the Debenture Trustee and the Property Trustee, their
agents and counsel; and
(ii) all Events of Default with respect to the Junior Subordinated
Debentures, other than the non-payment of the principal of the Junior
Subordinated Debentures which has become due solely by such
acceleration, have been cured or waived as provided in Section 5.13 of
the Indenture.
The Holders of at least a Majority in Liquidation Amount of the
Preferred Securities may, on behalf of the Holders of all the Preferred
Securities, waive any past default under the Indenture, except a default in the
payment of principal or interest (unless such default has been cured and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee)
or a default in respect of a covenant or provision which under the Indenture
cannot be modified or amended without the consent of the holder of each
32
<PAGE> 39
outstanding Junior Subordinated Debentures affected thereby. No such rescission
shall affect any subsequent default or impair any right consequent thereon.
Upon receipt by the Property Trustee of written notice declaring such
an acceleration, or rescission and annulment thereof, by Holders of the
Preferred Securities all or part of which is represented by Global Preferred
Securities, a record date shall be established for determining Holders of
Outstanding Preferred Securities entitled to join in such notice, which record
date shall be at the close of business on the day the Property Trustee receives
such notice. The Holders on such record date, or their duly designated proxies,
and only such Persons, shall be entitled to join in such notice, whether or not
such Holders remain Holders after such record date; provided, that, unless such
declaration of acceleration, or rescission and annulment, as the case may be,
shall have become effective by virtue of the requisite percentage having joined
in such notice prior to the day which is 90 days after such record date, such
notice of declaration of acceleration, or rescission and annulment, as the case
may be, shall automatically and without further action by any Holder be
canceled and of no further effect. Nothing in this paragraph shall prevent a
Holder, or a proxy of a Holder, from giving, after expiration of such 90 day
period, a new written notice of declaration of acceleration, or rescission and
annulment thereof, as the case may be, that is identical to a written notice
which has been canceled pursuant to the proviso to the preceding sentence, in
which event a new record date shall be established pursuant to the provisions
of this Section 5.13(b).
(c) For so long as any Preferred Securities remain Outstanding, to the
fullest extent permitted by law and subject to the terms of this Trust
Agreement and the Indenture, upon a Debenture Event of Default specified in
Section 5.1(a) or 5.1(b) of the Indenture, any Holder of Preferred Securities
shall have the right to institute a proceeding directly against the Depositor,
pursuant to Section 5.8 of the Indenture, for enforcement of payment to such
Holder of the principal amount of or interest on Junior Subordinated Debentures
having an aggregate principal amount equal to the aggregate Liquidation Amount
of the Preferred Securities of such Holder (a "Direct Action"). Except as set
forth in Sections 5.13(b) and 5.13(c) of this Trust Agreement, the Holders of
Preferred Securities shall have no right to exercise directly any right or
remedy available to the holders of, or in respect of, the Junior Subordinated
Debentures.
ARTICLE VI
ACTS OF HOLDERS; MEETINGS; VOTING
Section 6.1 Limitations on Holder's Voting Rights.
(a) Except as provided in this Trust Agreement and in the Indenture
and as otherwise required by law, no Holder of Preferred Securities shall have
any right to vote or in any manner otherwise control the administration,
operation, and management of the Issuer Trust or the obligations of the parties
hereto, nor shall anything herein set forth or contained in the terms of the
33
<PAGE> 40
Trust Securities Certificates be construed so as to constitute the Holders from
time to time as members of an association.
(b) So long as any Junior Subordinated Debentures are held by the
Property Trustee on behalf of the Issuer Trust, the Property Trustee shall not
(i) direct the time, method, and place of conducting any proceeding for any
remedy available to the Property Trustee, or executing any trust or power
conferred on the Debenture Trustee with respect to such Junior Subordinated
Debentures, (ii) waive any past default that may be waived under Section 5.13
of the Indenture, (iii) exercise any right to rescind or annul a declaration
that the principal of all the Junior Subordinated Debentures shall be due and
payable, or (iv) consent to any amendment, modification, or termination of the
Indenture or the Junior Subordinated Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the Holders of
at least a Majority in Liquidation Amount of the Preferred Securities;
provided, however, that where a consent under the Indenture would require the
consent of each holder of Junior Subordinated Debentures affected thereby, no
such consent shall be given by the Property Trustee without the prior written
consent of each Holder of Preferred Securities. The Property Trustee shall not
revoke any action previously authorized or approved by a vote of the Holders of
Preferred Securities, except by a subsequent vote of the Holders of Preferred
Securities. The Property Trustee shall notify all Holders of the Preferred
Securities of any notice of default received with respect to the Junior
Subordinated Debentures. In addition to obtaining the foregoing approvals of
the Holders of the Preferred Securities, prior to taking any of the foregoing
actions, the Property Trustee shall, at the expense of the Depositor, obtain an
Opinion of Counsel experienced in such matters to the effect that such action
will not cause the Issuer Trust to be taxable as a corporation for United
States federal income tax purposes.
(c) If any proposed amendment to the Trust Agreement provides for, or
the Issuer Trust otherwise proposes to effect, (i) any action that would
adversely affect in any material respect the interests, powers, preferences, or
special rights of the Preferred Securities, whether by way of amendment to the
Trust Agreement or otherwise, or (ii) the dissolution of the Issuer Trust,
other than pursuant to the terms of this Trust Agreement, then the Holders of
Outstanding Trust Securities as a class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of the Holders of at least a Majority in Liquidation
Amount of the Preferred Securities. Notwithstanding any other provision of this
Trust Agreement, no amendment to this Trust Agreement may be made if, as a
result of such amendment, it would cause the Issuer Trust to be taxable as a
corporation for United States federal income tax purposes.
Section 6.2 Notice of Meetings.
Notice of all meetings of the Holders, stating the time, place, and
purpose of the meeting, shall be given by the Property Trustee pursuant to
Section 10.8 to each Holder of record, at his registered address, at least 15
days and not more than 90 days before the meeting. At any such meeting, any
business properly before the meeting may be so considered whether or not stated
in the notice of the meeting. Any adjourned meeting may be held as adjourned
without further notice.
34
<PAGE> 41
Section 6.3 Meetings of Holders.
(a) No annual meeting of Holders is required to be held. The Property
Trustee, however, shall call a meeting of Holders to vote on any matter upon
the written request of the Holders of record of 25% of the aggregate
Liquidation Amount of the Outstanding Preferred Securities and the
Administrators or the Property Trustee may, at any time in their discretion,
call a meeting of Holders of Preferred Securities to vote on any matters as to
which Holders are entitled to vote.
(b) Holders of at least a Majority in Liquidation Amount of the
Preferred Securities, present in person or represented by proxy, shall
constitute a quorum at any meeting of Holders of Preferred Securities.
(c) If a quorum is present at a meeting, an affirmative vote by the
Holders of record present, in person or by proxy, holding Preferred Securities
representing at least a Majority in Liquidation Amount of the Preferred
Securities held by the Holders present, either in person or by proxy, at such
meeting shall constitute the action of the Holders of Preferred Securities,
unless this Trust Agreement expressly requires a greater number of affirmative
votes.
Section 6.4 Voting Rights.
Holders shall be entitled to one vote for each $10 of Liquidation
Amount represented by their Outstanding Trust Securities in respect of any
matter as to which such Holders are entitled to vote.
Section 6.5 Proxies, etc.
At any meeting of Holders, any Holder entitled to vote thereat may
vote by proxy, provided that no proxy shall be voted at any meeting unless it
shall have been placed on file with the Property Trustee, or with such other
officer or agent of the Issuer Trust as the Property Trustee may direct, for
verification prior to the time at which such vote shall be taken. Pursuant to a
resolution of the Property Trustee, proxies may be solicited in the name of the
Property Trustee or one or more officers of the Property Trustee. Only Holders
of record shall be entitled to vote. When Trust Securities are held jointly by
several Persons, any one of them may vote at any meeting in person or by proxy
in respect of such Trust Securities, but if more than one of them shall be
present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Trust Securities. A proxy purporting to be executed
by or on behalf of a Holder shall be deemed valid unless challenged at or prior
to its exercise, and the burden of proving invalidity shall rest on the
challenger. No proxy shall be valid more than three years after its date of
execution.
Section 6.6 Holder Action by Written Consent.
Any action which may be taken by Holders at a meeting may be taken
without a meeting and without notice if Holders holding at least a Majority in
Liquidation Amount of all Trust Securities
35
<PAGE> 42
entitled to vote in respect of such action (or such larger proportion thereof
as shall be expressly required by any other provision of this Trust Agreement)
shall consent to the action in writing.
Section 6.7 Record Date for Voting and Other Purposes.
For the purposes of determining the Holders who are entitled to notice
of and to vote at any meeting or act by written consent, or to participate in
any Distribution on the Trust Securities in respect of which a record date is
not otherwise provided for in this Trust Agreement, or for the purpose of any
other action, the Administrators (or the Property Trustee if the Administrators
are unable or unwilling to act) may from time to time fix a date, not more than
90 days prior to the date of any meeting of Holders or the payment of a
Distribution or other action (including action to be taken by written consent),
as the case may be, as a record date for the determination of the identity of
the Holders of record for such purposes.
Section 6.8 Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver, or other action provided or permitted by this Trust Agreement to be
given, made, or taken by Holders may be embodied in and evidenced by one or
more instruments of substantially similar tenor signed by such Holders in
person or by an agent duly appointed in writing; and, except as otherwise
expressly provided herein, such action shall become effective when such
instrument or instruments are delivered to the Property Trustee. 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
Trust Agreement and (subject to Section 8.1) conclusive in favor of the Issuer
Trustees, if made in the manner provided in this Section 6.8.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which any Issuer Trustee or Administrator receiving the
same deems sufficient.
(c) The ownership of Trust Securities shall be proved by the
Securities Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver, or other Act of the Holder of any Trust Security shall bind every
future Holder of the same Trust Security and the Holder of every Trust Security
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof in respect of anything done, omitted, or suffered to be done by
the Issuer Trustees,
36
<PAGE> 43
the Administrators, or the Issuer Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.
(e) Without limiting the foregoing, a Holder entitled hereunder to
take any action hereunder with regard to any particular Trust Security may do
so with regard to all or any part of the Liquidation Amount of such Trust
Security or by one or more duly appointed agents each of which may do so
pursuant to such appointment with regard to all or any part of such Liquidation
Amount.
(f) If any dispute shall arise among the Holders, the Administrators
or the Issuer Trustees with respect to the authenticity, validity or binding
nature of any request, demand, authorization, direction, consent, waiver or
other Act of such Holder or Issuer Trustee under this Article VI, then the
determination of such matter by the Property Trustee shall be conclusive with
respect to such matter.
Section 6.9 Inspection of Records.
Upon reasonable notice to the Administrators and the Property Trustee,
the records of the Issuer Trust shall be open to inspection by Holders during
normal business hours for any purpose reasonably related to such Holder's
interest as a Holder.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.1 Representations and Warranties of the Property Trustee and the
Delaware Trustee.
The Property Trustee and the Delaware Trustee (and any successors
thereto at the time of their appointment), each severally on behalf of and as
to itself, hereby represents and warrants for the benefit of the Depositor and
the Holders that:
(a) The Property Trustee is a banking corporation with trust powers
duly organized, validly existing and in good standing under the laws of New
York, with corporate power and authority to execute and deliver, and to carry
out and perform its obligations under the terms of this Trust Agreement.
(b) The execution, delivery, and performance by the Property Trustee
of this Trust Agreement have been duly authorized by all necessary corporate
action on the part of the Property Trustee; and this Trust Agreement has been
duly executed and delivered by the Property Trustee, and constitutes a legal,
valid, and binding obligation of the Property Trustee, enforceable against it
in accordance with its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors' rights
generally and to general principles of equity and
37
<PAGE> 44
the discretion of the court (regardless of whether the enforcement of such
remedies is considered in a proceeding in equity or at law).
(c) The execution, delivery and performance of this Trust Agreement by
the Property Trustee do not conflict with or constitute a breach of the
certificate of incorporation or by-laws of the Property Trustee.
(d) At the Time of Delivery, the Property Trustee has not knowingly
created any Liens or encumbrances on the Trust Securities.
(e) No consent, approval, or authorization of, or registration with or
notice to, any New York State or federal banking authority is required for the
execution, delivery, or performance by the Property Trustee, of this Trust
Agreement.
(f) The Delaware Trustee is duly organized, validly existing, and in
good standing under the laws of the State of Delaware, with trust powers and
the corporate power and authority to execute and deliver, and to carry out and
perform its obligations under the terms of, the Trust Agreement.
(g) The execution, delivery and performance by the Delaware Trustee of
this Trust Agreement have been duly authorized by all necessary corporate
action on the part of the Delaware Trustee; and this Trust Agreement has been
duly executed and delivered by the Delaware Trustee, and constitutes a legal,
valid and binding obligation of the Delaware Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors' rights
generally and to general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law).
(h) The execution, delivery and performance of this Trust Agreement by
the Delaware Trustee do not conflict with or constitute a breach of the
certificate of incorporation or by-laws of the Delaware Trustee.
(i) No consent, approval or authorization of, or registration with or
notice to any state or Federal banking authority is required for the execution,
delivery, or performance by the Delaware Trustee, of this Trust Agreement.
(j) The Delaware Trustee is an entity which has its principal place of
business in the State of Delaware.
Section 7.2 Representations and Warranties of the Depositor.
The Depositor hereby represents and warrants for the benefit of the
Holders that:
(a) the Trust Securities Certificates issued at the Time of Delivery
on behalf of the Issuer
38
<PAGE> 45
Trust have been duly authorized and will have been duly and validly executed,
and, subject to payment therefor, issued and delivered by the Issuer Trustees
pursuant to the terms and provisions of, and in accordance with the
requirements of, this Trust Agreement, and the Holders will be, as of each such
date, entitled to the benefits of this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by
the Issuer Trust (or the Issuer Trustees on behalf of the Issuer Trust) under
the laws of the State of Delaware or any political subdivision thereof in
connection with the execution, delivery and performance by either the Property
Trustee or the Delaware Trustee, as the case may be, of this Trust Agreement.
ARTICLE VIII
THE ISSUER TRUSTEES; THE ADMINISTRATORS
Section 8.1 Certain Duties and Responsibilities.
(a) The duties and responsibilities of the Issuer Trustees and the
Administrators shall be as provided by this Trust Agreement and, in the case of
the Property Trustee, by the Trust Indenture Act. Notwithstanding the
foregoing, no provision of this Trust Agreement shall require the Issuer
Trustees or the Administrators to expend or risk their own funds or otherwise
incur any financial liability in the performance of any of their duties
hereunder, or in the exercise of any of their rights or powers, if they shall
have reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it or
them. Whether or not therein expressly so provided, every provision of this
Trust Agreement relating to the conduct or affecting the liability of or
affording protection to the Issuer Trustees or the Administrators shall be
subject to the provisions of this Section. Nothing in this Trust Agreement
shall be construed to release an Administrator from liability for his own
grossly negligent action, his own grossly negligent failure to act, or his own
willful misconduct, or to release the Issuer Trustees from liability for their
own negligent actions, negligent failure to act, or willful misconduct. To the
extent that, at law or in equity, an Issuer Trustee or Administrator has duties
and liabilities relating to the Issuer Trust or to the Holders, such Issuer
Trustee or Administrator shall not be liable to the Issuer Trust or to any
Holder for such Issuer Trustee's or Administrator's good faith reliance on the
provisions of this Trust Agreement. The provisions of this Trust Agreement, to
the extent that they restrict the duties and liabilities of the Issuer Trustees
and Administrators otherwise existing at law or in equity, are agreed by the
Depositor and the Holders to replace such other duties and liabilities of the
Issuer Trustees and Administrators.
(b) All payments made by the Property Trustee or a Paying Agent in
respect of the Trust Securities shall be made only from the revenue and
proceeds from the Trust Property and only to the extent that there shall be
sufficient revenue or proceeds from the Trust Property to enable the Property
Trustee or a Paying Agent to make payments in accordance with the terms hereof.
Each Holder, by his or its acceptance of a Trust Security, agrees that he or it
will look solely to the revenue and proceeds from the Trust Property to the
extent legally available for distribution to it or him as
39
<PAGE> 46
herein provided and that neither the Issuer Trustees nor the Administrators are
personally liable to it or him for any amount distributable in respect of any
Trust Security or for any other liability in respect of any Trust Security.
This Section 8.1(b) does not limit the liability of the Issuer Trustees
expressly set forth elsewhere in this Trust Agreement or, in the case of the
Property Trustee, in the Trust Indenture Act.
(c) The Property Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Trust Agreement (including pursuant to Section 10.10), and no implied
covenants shall be read into this Trust Agreement against the Property Trustee.
If an Event of Default has occurred (that has not been cured or waived pursuant
to Section 5.13 of the Indenture), the Property Trustee shall enforce this
Trust Agreement for the benefit of the Holders and shall exercise such of the
rights and powers vested in it by this Trust Agreement, and use the same degree
of care and skill in its exercise thereof, as a prudent person would exercise
or use under the circumstances in the conduct of his or her own affairs.
(d) No provision of this Trust Agreement shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and after
the curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Property Trustee shall
be determined solely by the express provisions of this Trust Agreement
(including pursuant to Section 10.10), and the Property Trustee shall
not be liable except for the performance of such duties and
obligations as are specifically set forth in this Trust Agreement
(including pursuant to Section 10.10); and
(B) in the absence of bad faith on the part of the Property
Trustee, the Property Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Property
Trustee and conforming to the requirements of this Trust Agreement;
but in the case of any such certificates or opinions that by any
provision hereof or of the Trust Indenture Act are specifically
required to be furnished to the Property Trustee, the Property Trustee
shall be under a duty to examine the same to determine whether or not
they conform to the requirements of this Trust Agreement;
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by an authorized officer of the Property
Trustee, unless it shall be proved that the Property Trustee was
negligent in ascertaining the pertinent facts;
40
<PAGE> 47
(iii) the Property Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance
with the direction of the Holders of at least a Majority in
Liquidation Amount of the Preferred Securities relating to the time,
method and place of conducting any proceeding for any remedy available
to the Property Trustee, or exercising any trust or power conferred
upon the Property Trustee under this Trust Agreement;
(iv) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Junior
Subordinated Debentures and the Payment Account shall be to deal with
such Property in a similar manner as the Property Trustee deals with
similar property for its own account, subject to the protections and
limitations on liability afforded to the Property Trustee under this
Trust Agreement and the Trust Indenture Act;
(v) the Property Trustee shall not be liable for any interest on
any money received by it except as it may otherwise agree with the
Depositor; and money held by the Property Trustee need not be
segregated from other funds held by it except in relation to the
Payment Account maintained by the Property Trustee pursuant to Section
3.1 and except to the extent otherwise required by law;
(vi) the Property Trustee shall not be responsible for monitoring
the compliance by the Administrators or the Depositor with their
respective duties under this Trust Agreement, nor shall the Property
Trustee be liable for the default or misconduct of any other Issuer
Trustee, the Administrators or the Depositor; and
(vii) no provision of this Trust Agreement shall require the
Property Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties
or in the exercise of any of its rights or powers, if the Property
Trustee shall have reasonable grounds for believing that the repayment
of such funds or liability is not reasonably assured to it under the
terms of this Trust Agreement or adequate indemnity against such risk
or liability is not reasonably assured to it.
(e) The Administrators shall not be responsible for monitoring the
compliance by the Issuer Trustees or the Depositor with their respective duties
under this Trust Agreement, nor shall either Administrator be liable for the
default or misconduct of any other Administrator, the Issuer Trustees or the
Depositor.
Section 8.2 Certain Notices.
(a) Within five Business Days after the occurrence of any Event of
Default actually known to a Responsible Officer of the Property Trustee, the
Property Trustee shall transmit, in the manner and to the extent provided in
Section 10.8, notice of such Event of Default to the Holders and the
Administrators, unless such Event of Default shall have been cured or waived.
41
<PAGE> 48
(b) Within five Business Days after the receipt of notice of the
Depositor's exercise of its right to defer the payment of interest on the
Junior Subordinated Debentures pursuant to the Indenture, the Property Trustee
shall transmit, in the manner and to the extent provided in Section 10.8,
notice of such exercise to the Holders and the Administrators, unless such
exercise shall have been revoked.
(c) In the event the Property Trustee receives notice of the
Depositor's exercise of its right to shorten the stated maturity of the Junior
Subordinated Debentures as provided in Section 3.16 of the Indenture, the
Property Trustee shall give notice of such shortening of the stated maturity to
the Holders at least 30 but not more than 60 days before the effective date
thereof.
Section 8.3 Certain Rights of Property Trustee.
Subject to the provisions of Section 8.1:
(a) the Property Trustee may rely and shall be fully protected in
acting or refraining from acting in good faith upon any resolution, Opinion of
Counsel, certificate, written representation of a Holder or transferee,
certificate of auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;
(b) any direction or act of the Depositor contemplated by this Trust
Agreement shall be sufficiently evidenced by an Officers' Certificate;
(c) the Property Trustee shall have no duty to see to any recording,
filing or registration of any instrument (including any financing or
continuation statement or any filing under tax or securities laws) or any
re-recording, re-filing or re-registration thereof;
(d) the Property Trustee may consult with counsel of its own choosing
(which counsel may be counsel to the Depositor or any of its Affiliates, and
may include any of its employees) and the advice of such counsel shall be full
and complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon and
in accordance with such advice; the Property Trustee shall have the right at
any time to seek instructions concerning the administration of this Trust
Agreement from any court of competent jurisdiction;
(e) the Property Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Holders pursuant to this Trust Agreement, unless such
Holders shall have offered to the Property Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction; provided that
nothing contained in this Section 8.3(e)
42
<PAGE> 49
shall be taken to relieve the Property Trustee, upon the occurrence of an Event
of Default, of its obligation to exercise the rights and powers vested in it by
this Trust Agreement;
(f) the Property Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Holders, but the Property
Trustee may make such further inquiry or investigation into such facts or
matters as it may see fit;
(g) the Property Trustee may execute any of the trusts or powers
hereunder or perform any of its duties hereunder either directly or by or
through its agents or attorneys, provided that the Property 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) whenever in the administration of this Trust Agreement the
Property Trustee shall deem it desirable to receive instructions with respect
to enforcing any remedy or right or taking any other action hereunder, the
Property Trustee (i) may request instructions from the Holders (which
instructions may only be given by the Holders of the same proportion in
Liquidation Amount of the Trust Securities as would be entitled to direct the
Property Trustee under the terms of the Trust Securities in respect of such
remedy, right or action), (ii) may refrain from enforcing such remedy or right
or taking such other action until such instructions are received, and (iii)
shall be fully protected in acting in accordance with such instructions; and
(i) except as otherwise expressly provided by this Trust Agreement,
the Property Trustee shall not be under any obligation to take any action that
is discretionary under the provisions of this Trust Agreement.
No provision of this Trust Agreement shall be deemed to impose any
duty or obligation on any Issuer Trustee or Administrator to perform any act or
acts or exercise any right, power, duty or obligation conferred or imposed on
it, in any jurisdiction in which it shall be illegal, or in which the Property
Trustee shall be unqualified or incompetent in accordance with applicable law,
to perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to any Issuer Trustee or
Administrator shall be construed to be a duty.
Section 8.4 Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Trust Securities Certificates
shall be taken as the statements of the Issuer Trust, and the Issuer Trustees
and the Administrators do not assume any responsibility for their correctness.
The Issuer Trustees and the Administrators shall not be accountable for the use
or application by the Depositor of the proceeds of the Junior Subordinated
Debentures.
43
<PAGE> 50
Section 8.5 May Hold Securities.
The Administrators, any Issuer Trustee or any other agent of any
Issuer Trustee or the Issuer Trust, in its individual or any other capacity,
may become the owner or pledgee of Trust Securities and, subject to Sections
8.8 and 8.13, and except as provided in the definition of the term
"Outstanding" in Article I, may otherwise deal with the Issuer Trust with the
same rights it would have if it were not an Administrator, Issuer Trustee or
such other agent.
Section 8.6 Compensation; Indemnity; Fees.
The Depositor agrees:
(a) to pay to the Issuer Trustees from time to time reasonable
compensation for all services rendered by them hereunder (which compensation
shall not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(b) to reimburse the Issuer Trustees and the Administrators upon
request for all reasonable expenses, disbursements, and advances incurred or
made by the Issuer Trustees in accordance with any provision of this Trust
Agreement (including the reasonable compensation, expenses and disbursements of
its agents and counsel), except any such expense, disbursement, or advance as
may be attributable to the Issuer Trustees' bad faith, negligence or willful
misconduct; and
(c) to the fullest extent permitted by applicable law, to indemnify
and hold harmless (i) each Issuer Trustee, (ii) each Administrator, (iii) any
Affiliate of any Issuer Trustee, (iv) any officer, director, shareholder,
employee, representative or agent of any Issuer Trustee, and (v) any employee
or agent of the Issuer Trust, (referred to herein as an "Indemnified Person")
from and against any loss, damage, liability, tax (excluding income taxes,
other than taxes referred to in Sections 4.5 and 4.6 hereunder), penalty,
expense or claim of any kind or nature whatsoever incurred by such Indemnified
Person arising out of or in connection with the creation, operation, or
dissolution of the Issuer Trust or any act or omission performed or omitted by
such Indemnified Person in good faith on behalf of the Issuer Trust and in a
manner such Indemnified Person reasonably believed to be within the scope of
authority conferred on such Indemnified Person by this Trust Agreement, except
that no Indemnified Person shall be entitled to be indemnified in respect of
any loss, damage or claim incurred by such Indemnified Person by reason of
negligence or willful misconduct, with respect to such acts or omissions by the
Issuer Trustee, or by reason of gross negligence, or willful misconduct with
respect to such acts or omissions by any other Indemnified Person. The
indemnification provided to an Indemnified Party in this Trust Agreement shall
not be exclusive and nothing in this Trust Agreement shall limit any
indemnification for actions taken in connection with this Trust Agreement or
otherwise which may be available or provided to such Indemnified Party under
other sources.
44
<PAGE> 51
The provisions of this Section 8.6 shall survive the termination of
this Trust Agreement.
No Issuer Trustee may claim any lien or charge on any Trust Property
as a result of any amount due pursuant to this Section 8.6.
The Depositor, any Administrator and any Issuer Trustee may, subject
to Section 8.8, engage in or possess an interest in other business ventures of
any nature or description, independently or with others, similar or dissimilar
to the business of the Issuer Trust, and the Issuer Trust and the Holders of
Trust Securities shall have no rights by virtue of this Trust Agreement in and
to such independent ventures or the income or profits derived therefrom, and
the pursuit of any such venture, even if competitive with the business of the
Issuer Trust, shall not be deemed wrongful or improper. Neither the Depositor,
any Administrator, nor any Issuer Trustee shall be obligated to present any
particular investment or other opportunity to the Issuer Trust even if such
opportunity is of a character that, if presented to the Issuer Trust, could be
taken by the Issuer Trust, and the Depositor, any Administrator or any Issuer
Trustee shall have the right to take for its own account (individually or as a
partner or fiduciary) or to recommend to others any such particular investment
or other opportunity. Any Issuer Trustee may engage or be interested in any
financial or other transaction with the Depositor or any Affiliate of the
Depositor, or may act as depository for, trustee or agent for, or act on any
committee or body of holders of, securities or other obligations of the
Depositor or its Affiliates.
Section 8.7 Corporate Property Trustee Required; Eligibility of Trustees and
Administrators.
(a) There shall at all times be a Property Trustee hereunder with
respect to the Trust Securities. The Property Trustee shall be a Person that is
a national or state chartered bank and eligible pursuant to the Trust Indenture
Act to act as such and has a combined capital and surplus of at least
$50,000,000. If any such Person publishes reports of condition at least
annually, pursuant to law or to the requirements of its supervising or
examining authority, then for the purposes of this Section, the combined
capital and surplus of such Person shall be deemed to be its combined capital
and surplus as set forth in its most recent report of condition so published.
If at any time the Property Trustee with respect to the Trust Securities shall
cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter
specified in this Article VIII. At the time of appointment, the Property
Trustee must have securities rated in one of the three highest rating
categories by a nationally recognized statistical rating organization.
(b) There shall at all times be one or more Administrators hereunder.
Each Administrator shall be either a natural person who is at least 21 years of
age or a legal entity that shall act through one or more persons authorized to
bind that entity. An employee, officer, or Affiliate of the Depositor may serve
as an Administrator.
45
<PAGE> 52
(c) There shall at all times be a Delaware Trustee. The Delaware
Trustee shall either be (i) a natural person who is at least 21 years of age
and a resident of the State of Delaware or (ii) a legal entity with its
principal place of business in the State of Delaware and that otherwise meets
the requirements of applicable Delaware law that shall act through one or more
persons authorized to bind such entity.
Section 8.8 Conflicting Interests.
(a) If the Property Trustee has or shall acquire a conflicting
interest within the meaning of the Trust Indenture Act, the Property Trustee
shall either eliminate such interest or resign, to the extent and in the manner
provided by, and subject to the provisions of, the Trust Indenture Act and this
Trust Agreement.
(b) The Guarantee Agreement and the Indenture shall be deemed to be
specifically described in this Trust Agreement for the purposes of clause (i)
of the first proviso contained in Section 310(b) of the Trust Indenture Act.
Section 8.9 Co-Trustees and Separate Trustee.
(a) Unless an Event of Default shall have occurred and be continuing,
at any time or times, for the purpose of meeting the legal requirements of the
Trust Indenture Act or of any jurisdiction in which any part of the Trust
Property may at the time be located, the Property Trustee shall have power to
appoint, and upon the written request of the Property Trustee, the Depositor
and the Administrators shall for such purpose join with the Property Trustee in
the execution, delivery, and performance of all instruments and agreements
necessary or proper to appoint, one or more Persons approved by the Property
Trustee either to act as co-trustee, jointly with the Property Trustee, of all
or any part of such Trust Property, or to the extent required by law to act as
separate trustee of any such property, in either case with such powers as may
be provided in the instrument of appointment, and to vest in such Person or
Persons in the capacity aforesaid, any property, title, right or power deemed
necessary or desirable, subject to the other provisions of this Section 8.9.
Any co-trustee or separate trustee appointed pursuant to this Section 8.9 shall
either be (i) a natural person who is at least 21 years of age and a resident
of the United States or (ii) a legal entity with its principal place of
business in the United States that shall act through one or more persons
authorized to bind such entity.
(b) Should any written instrument from the Depositor be required by
any co-trustee or separate trustee so appointed for more fully confirming to
such co-trustee or separate trustee such property, title, right, or power, any
and all such instruments shall, on request, be executed, acknowledged and
delivered by the Depositor.
(c) Every co-trustee or separate trustee shall, to the extent
permitted by law, but to such extent only, be appointed subject to the
following terms, namely:
46
<PAGE> 53
(i) The Trust Securities shall be executed by one or more
Administrators, and the Trust Securities shall be executed and
delivered and all rights, powers, duties, and obligations hereunder in
respect of the custody of securities, cash and other personal property
held by, or required to be deposited or pledged with, the Property
Trustees specified hereunder, shall be exercised solely by the
Property Trustee and not by such co-trustee or separate trustee.
(ii) The rights, powers, duties, and obligations hereby conferred
or imposed upon the Property Trustee in respect of any property
covered by such appointment shall be conferred or imposed upon and
exercised or performed by the Property Trustee and such co-trustee or
separate trustee jointly, as shall be provided in the instrument
appointing such co-trustee or separate trustee, except to the extent
that under any law of any jurisdiction in which any particular act is
to be performed, the Property Trustee shall be incompetent or
unqualified to perform such act, in which event such rights, powers,
duties, and obligations shall be exercised and performed by such
co-trustee or separate trustee.
(iii) The Property Trustee at any time, by an instrument in
writing executed by it, with the written concurrence of the Depositor,
may accept the resignation of or remove any co-trustee or separate
trustee appointed under this Section, and, in case a Debenture Event
of Default has occurred and is continuing, the Property Trustee shall
have power to accept the resignation of, or remove, any such
co-trustee or separate trustee without the concurrence of the
Depositor. Upon the written request of the Property Trustee, the
Depositor shall join with the Property Trustee in the execution,
delivery and performance of all instruments and agreements necessary
or proper to effectuate such resignation or removal. A successor to
any co-trustee or separate trustee so resigned or removed may be
appointed in the manner provided in this Section 8.9.
(iv) No co-trustee or separate trustee hereunder shall be
personally liable by reason of any act or omission of the Property
Trustee or any other trustee hereunder.
(v) The Property Trustee shall not be liable by reason of any
act of a co-trustee or separate trustee.
(vi) Any Act of Holders delivered to the Property Trustee shall
be deemed to have been delivered to each such co-trustee and separate
trustee.
Section 8.10 Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of any Issuer Trustee (the "Relevant
Trustee") and no appointment of a successor Issuer Trustee pursuant to this
Article VIII shall become effective until the acceptance of appointment by the
successor Issuer Trustee in accordance with the applicable requirements of
Section 8.11.
47
<PAGE> 54
(b) Subject to Section 8.10(a), a Relevant Trustee may resign at any
time by giving written notice thereof to the Holders. The Relevant Trustee
shall appoint a successor by requesting from at least three Persons meeting the
eligibility requirements its expenses and charges to serve as the successor
Issuer Trustee on a form provided by the Administrators, and selecting the
Person who agrees to the lowest expenses and charges, subject to the prior
consent of the Depositor which consent shall not be unreasonably withheld. If
the instrument of acceptance by the successor Issuer Trustee required by
Section 8.11 shall not have been delivered to the Relevant Trustee within 60
days after the giving of such notice of resignation, the Relevant Trustee may
petition, at the expense of the Issuer Trust, any court of competent
jurisdiction for the appointment of a successor Issuer Trustee.
(c) The Property Trustee or the Delaware Trustee may be removed at any
time by Act of the Holders of at least a Majority in Liquidation Amount of the
Preferred Securities, delivered to the Relevant Trustee (in its individual
capacity and on behalf of the Issuer Trust) (i) for cause, or (ii) if a
Debenture Event of Default shall have occurred and be continuing at any time.
(d) If a resigning Relevant Trustee shall fail to appoint a successor,
or if a Relevant Trustee shall be removed or become incapable of acting as
Issuer Trustee, or if any vacancy shall occur in the office of any Issuer
Trustee for any cause, the Holders of the Preferred Securities, by Act of the
Holders of record of not less than 25% aggregate Liquidation Amount of the
Preferred Securities then Outstanding delivered to such Relevant Trustee, shall
promptly appoint a successor Issuer Trustee or Trustees, and such successor
Issuer Trustee shall comply with the applicable requirements of Section 8.11.
If no successor Issuer Trustee shall have been so appointed by the Holders of
the Preferred Securities and accepted appointment in the manner required by
Section 8.11, any Holder, on behalf of himself and all others similarly
situated, or any other Issuer Trustee, may petition any court in the State of
Delaware for the appointment of a successor Issuer Trustee.
(e) The Property Trustee shall give notice of each resignation and
each removal of a Relevant Trustee and each appointment of a successor Issuer
Trustee to all Holders in the manner provided in Section 10.8 and shall give
notice to the Depositor and to the Administrators. Each notice shall include
the name of the Relevant Trustee and the address of its Corporate Trust Office
if it is the Property Trustee.
(f) Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Delaware Trustee who is a natural person dies or
becomes, in the opinion of the Holders of the Common Securities, incompetent or
incapacitated, the vacancy created by such death, incompetence or incapacity
may be filled by the Property Trustee following the procedures regarding
expenses and charges set forth above (with the successor in each case being a
Person who satisfies the eligibility requirement for Delaware Trustee set forth
in Section 8.7).
48
<PAGE> 55
Section 8.11 Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Issuer
Trustee, the retiring Relevant Trustee and each such successor Issuer Trustee
with respect to the Trust Securities shall execute, acknowledge and deliver an
instrument wherein each successor Issuer Trustee shall accept such appointment
and which shall contain such provisions as shall be necessary or desirable to
transfer and confirm to, and to vest in, each successor Issuer Trustee all the
rights, powers, trusts and duties of the retiring Relevant Trustee with respect
to the Trust Securities and the Issuer Trust, and upon the execution and
delivery of such instrument the resignation or removal of the retiring Relevant
Trustee shall become effective to the extent provided therein and each such
successor Issuer Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of the Relevant
Trustee; but, on request of the Issuer Trust or any successor Issuer Trustee
such Relevant Trustee shall duly assign, transfer and deliver to such successor
Issuer Trustee all Trust Property, all proceeds thereof and money held by such
Relevant Trustee hereunder with respect to the Trust Securities and the Issuer
Trust.
(b) Upon request of any such successor Issuer Trustee, the Issuer
Trust shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Issuer Trustee all such rights,
powers and trusts referred to in the first or second preceding paragraph, as
the case may be.
(c) No successor Issuer Trustee shall accept its appointment unless at
the time of such acceptance such successor Issuer Trustee shall be qualified
and eligible under this Article VIII.
Section 8.12 Merger, Conversion, Consolidation or Succession to Business.
Any Person into which the Property Trustee or the Delaware Trustee may
be merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Relevant
Trustee shall be a party, or any Person succeeding to all or substantially all
the corporate trust business of such Relevant Trustee, shall be the successor
of such Relevant Trustee hereunder, provided that such Person shall be
otherwise qualified and eligible under this Article VIII, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto.
Section 8.13 Preferential Collection of Claims Against Depositor or Issuer
Trust.
If and when the Property Trustee shall be or become a creditor of the
Depositor (or any other obligor upon Junior Subordinated Debentures or the
Trust Securities), the Property Trustee shall be subject to the provisions of
the Trust Indenture Act regarding the collection of claims against the
Depositor or the Issuer Trust (or any such other obligor) as is required by the
Trust Indenture Act.
49
<PAGE> 56
Section 8.14 Trustee May File Proofs of Claim.
In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition, or other similar judicial
proceeding relative to the Issuer Trust or any other obligor upon the Trust
Securities or the property of the Issuer Trust or of such other obligor, the
Property Trustee (irrespective of whether any Distributions on the Trust
Securities shall then be due and payable and irrespective of whether the
Property Trustee shall have made any demand on the Issuer Trust for the payment
of any past due Distributions) shall be entitled and empowered, to the fullest
extent permitted by law, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of any
Distributions owing and unpaid in respect of the Trust Securities and to file
such other papers or documents as may be necessary or advisable in order to
have the claims of the Property Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Property Trustee, its
agents and counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any monies 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 Property Trustee and, in the event the Property Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Property Trustee any amount due it for the reasonable compensation,
expenses, disbursements and advances of the Property Trustee, its agents and
counsel, and any other amounts due the Property Trustee.
Nothing herein contained shall be deemed to authorize the Property
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or compensation affecting
the Trust Securities or the rights of any Holder thereof or to authorize the
Property Trustee to vote in respect of the claim of any Holder in any such
proceeding.
Section 8.15 Reports by Property Trustee.
(a) Within 60 days of January 31 of each year commencing with January
31, 2000, the Property Trustee shall transmit to all Holders in accordance with
Section 10.8, and to the Depositor, a brief report dated as of the immediately
preceding January 31 with respect to:
(i) its eligibility under Section 8.7 or, in lieu thereof, if to
the best of its knowledge it has continued to be eligible under said
Section, a written statement to such effect; and
(ii) any change in the property and funds in its possession as
Property Trustee since the date of its last report and any action
taken by the Property Trustee in the performance of its duties
hereunder which it has not previously reported and which in its
opinion materially affects the Trust Securities.
50
<PAGE> 57
(b) In addition, the Property Trustee shall transmit to Holders such
reports concerning the Property Trustee and its actions under this Trust
Agreement as may be required pursuant to the Trust Indenture Act at the times
and in the manner provided pursuant thereto as set forth in Section 10.10 of
this Trust Agreement.
(c) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Property Trustee with the Depositor.
Section 8.16 Reports to the Property Trustee.
The Depositor and the Administrators on behalf of the Issuer Trust
shall provide to the Property Trustee such documents, reports and information
as required by Section 314 of the Trust Indenture Act and the compliance
certificate required by Section 314(a) of the Trust Indenture Act in the form,
in the manner and at the times required by Section 314 of the Trust Indenture
Act, as set forth in Section 10.10 of this Trust Agreement. The Depositor and
the Administrators shall annually file with the Property Trustee a certificate
specifying whether such Person is in compliance with all the terms and
covenants applicable to such Person hereunder.
Section 8.17 Evidence of Compliance with Conditions Precedent.
Each of the Depositor and the Administrators on behalf of the Issuer
Trust shall provide to the Property Trustee such evidence of compliance with
any conditions precedent, if any, provided for in this Trust Agreement that
relate to any of the matters set forth in Section 314(c) of the Trust Indenture
Act as set forth in Section 10.10 of this Trust Agreement. Any certificate or
opinion required to be given by an officer pursuant to Section 314(c)(1) of
the Trust Indenture Act shall be given in the form of an Officers' Certificate.
Section 8.18 Number of Issuer Trustees.
(a) The number of Issuer Trustees shall be two. The Property Trustee
and the Delaware Trustee may be the same Person, in which event the number of
Issuer Trustees shall be one.
(b) If an Issuer Trustee ceases to hold office for any reason, a
vacancy shall occur. The vacancy shall be filled with an Issuer Trustee
appointed in accordance with Section 8.10.
(c) The death, resignation, retirement, removal, bankruptcy,
incompetence or incapacity to perform the duties of an Issuer Trustee shall not
operate to dissolve, terminate or annul the Issuer Trust or terminate this
Trust Agreement.
51
<PAGE> 58
Section 8.19 Delegation of Power.
(a) Any Administrator may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purpose of executing any documents contemplated in Section
2.7(a) or making any governmental filing.
(b) The Administrators shall have power to delegate from time to time
to such of their number the doing of such things and the execution of such
instruments either in the name of the Issuer Trust or the names of the
Administrators or otherwise as the Administrators may deem expedient, to the
extent such delegation is not prohibited by applicable law or contrary to the
provisions of this Trust Agreement.
Section 8.20 Appointment of Administrators.
(a) The Administrators (other than the initial Administrators) shall
be appointed by the Holders of a Majority in Liquidation Amount of the Common
Securities and all Administrators (including the initial Administrators) may be
removed by the Holders of a Majority in Liquidation Amount of the Common
Securities or may resign at any time. If at any time there is no Administrator,
the Property Trustee or any Holder who has been a Holder of Trust Securities
for at least six months may petition any court of competent jurisdiction for
the appointment of one or more Administrators.
(b) Whenever a vacancy in the number of Administrators shall occur,
until such vacancy is filled by the appointment of an Administrator in
accordance with this Section 8.20, the Administrators in office, regardless of
their number (and notwithstanding any other provision of this Trust Agreement),
shall have all the powers granted to the Administrators and shall discharge all
the duties imposed upon the Administrators by this Trust Agreement.
(c) Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrator or a Delaware Trustee who is a
natural person dies or becomes, in the opinion of the Holders of a Majority in
Liquidation Amount of the Common Securities, incompetent, or incapacitated, the
vacancy created by such death, incompetence or incapacity may be filled by the
remaining Administrators, if there were at least two of them prior to such
vacancy and by the Depositor, if there were not two such Administrators
immediately prior to such vacancy (with the successor in each case being a
Person who satisfies the eligibility requirement for Administrators or Delaware
Trustee, as the case may be, set forth in Section 8.7).
(d) Except as otherwise provided in this Trust Agreement or by
applicable law, any one Administrator may execute any document or otherwise
take any action which the Administrators are authorized to take under this
Trust Agreement.
52
<PAGE> 59
ARTICLE IX
DISSOLUTION, LIQUIDATION AND MERGER
Section 9.1 Dissolution Upon Expiration Date.
Unless earlier dissolved, the Issuer Trust shall automatically
dissolve on __________, 2030 (the "Expiration Date").
Section 9.2 Early Dissolution.
The first to occur of any of the following events is an "Early
Termination Event," upon the occurrence of which the Issuer Trust shall
dissolve:
(a) the occurrence of any Bankruptcy Event with respect to the
Depositor, unless the Depositor shall transfer the Common Securities as
provided by Section 5.11, in which case this provision shall refer instead to
any Bankruptcy Event with respect to the successor Holder of the Common
Securities;
(b) delivery of the written direction to the Property Trustee from the
Holder of the Common Securities at any time to dissolve the Issuer Trust and,
after satisfaction of liabilities to creditors of the Issuer Trust as provided
by applicable law, to distribute the Junior Subordinated Debentures to Holders
in exchange for the Preferred Securities (which direction, subject to Section
9.4(a), is optional and wholly within the discretion of the Holder of the
Common Securities);
(c) the redemption of all of the Preferred Securities in connection
with the redemption of all the Junior Subordinated Debentures; and
(d) the entry of an order for dissolution of the Issuer Trust by a
court of competent jurisdiction.
Section 9.3 Termination.
The respective obligations and responsibilities of the Issuer
Trustees, the Administrators and the Issuer Trust created and continued hereby
shall terminate upon the latest to occur of the following: (a) the distribution
by the Property Trustee to Holders of all amounts required to be distributed
hereunder upon the liquidation of the Issuer Trust pursuant to Section 9.4, or
upon the redemption of all of the Trust Securities pursuant to Section 4.2, (b)
the payment of any expenses owed by the Issuer Trust, (c) the discharge of all
administrative duties of the Administrators, including the performance of any
tax reporting obligations with respect to the Issuer Trust or the Holders, and
(d) the filing of a certificate of cancellation with the Delaware Secretary of
State pursuant to Section 3810 of the Delaware Business Trust Act.
53
<PAGE> 60
Section 9.4 Liquidation.
(a) If an Early Termination Event specified in clause (a), (b) or (d)
of Section 9.2 occurs or upon the Expiration Date, the Issuer Trust shall be
liquidated by the Property Trustee as expeditiously as the Property Trustee
determines to be possible by distributing, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, to each Holder a
Like Amount of Junior Subordinated Debentures, subject to Section 9.4(d).
Notice of liquidation shall be given by the Property Trustee by first-class
mail, postage prepaid, mailed not later than 15 nor more than 45 days prior to
the Liquidation Date to each Holder of Trust Securities at such Holder's
address appearing in the Securities Register. All notices of liquidation shall:
(i) state the Liquidation Date;
(ii) state that, from and after the Liquidation Date, the Trust
Securities will no longer be deemed to be Outstanding and any Trust
Securities Certificates not surrendered for exchange will be deemed to
represent a Like Amount of Junior Subordinated Debentures; and
(iii) provide such information with respect to the mechanics by
which Holders may exchange Trust Securities Certificates for Junior
Subordinated Debentures, or if Section 9.4(d) applies receive a
Liquidation Distribution, as the Administrators or the Property
Trustee shall deem appropriate.
(b) Except where Section 9.2(c) or 9.4(d) applies, in order to effect
the liquidation of the Issuer Trust and distribution of the Junior Subordinated
Debentures to Holders, the Property Trustee shall establish a record date for
such distribution (which shall be not more than 30 days prior to the
Liquidation Date) and, either itself acting as exchange agent or through the
appointment of a separate exchange agent, shall establish such procedures as it
shall deem appropriate to effect the distribution of Junior Subordinated
Debentures in exchange for the Outstanding Trust Securities Certificates.
(c) Except where Section 9.2(c) or 9.4(d) applies, after the
Liquidation Date, (i) the Trust Securities will no longer be deemed to be
Outstanding, (ii) the Clearing Agency for the Preferred Securities or its
nominee, as the registered Holder of the Global Preferred Securities
Certificate, shall receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Preferred Securities held by the Clearing Agency
or its nominee, and (iii) any Trust Securities Certificates not held by the
Clearing Agency for the Preferred Securities or its nominee as specified in
clause (ii) above will be deemed to represent Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the Trust
Securities represented thereby and bearing accrued and unpaid interest in an
amount equal to the accumulated and unpaid Distributions on such Trust
Securities until such certificates are presented to the Securities Registrar
for transfer or re-issuance.
54
<PAGE> 61
(d) If, notwithstanding the other provisions of this Section 9.4,
whether because of an order for dissolution entered by a court of competent
jurisdiction or otherwise, distribution of the Junior Subordinated Debentures
is not practical, or if any Early Termination Event specified in clause (c) of
Section 9.2 occurs, the Trust Property shall be liquidated, and the Issuer
Trust shall be wound up by the Property Trustee in such manner as the Property
Trustee determines. In such event, Holders will be entitled to receive out of
the assets of the Issuer Trust available for distribution to Holders, after
satisfaction of liabilities to creditors of the Issuer Trust as provided by
applicable law, an amount equal to the aggregate of the Liquidation Amount per
Trust Security plus accumulated and unpaid Distributions thereon to the date of
payment (such amount being the "Liquidation Distribution"). If, upon any such
winding up, the Liquidation Distribution can be paid only in part because the
Issuer Trust has insufficient assets available to pay in full the aggregate
Liquidation Distribution, then, subject to the next succeeding sentence, the
amounts payable by the Issuer Trust on the Trust Securities shall be paid on a
pro rata basis (based upon Liquidation Amounts). The Holders of the Common
Securities will be entitled to receive Liquidation Distributions upon any such
winding up pro rata (determined as aforesaid) with Holders of Preferred
Securities, except that, if a Debenture Event of Default has occurred and is
continuing, the Preferred Securities shall have a priority over the Common
Securities as provided in Section 4.3.
(e) Following the dissolution of the Issuer Trust and after the
completion of the winding up of the affairs of the Issuer Trust, one of the
Issuer Trustees shall file a certificate of cancellation with the Delaware
Secretary of State.
Section 9.5 Mergers, Consolidations, Amalgamations or Replacements of the
Issuer Trust.
The Issuer Trust may not merge with or into, consolidate, convert
into, amalgamate, or be replaced by, or convey, transfer or lease its
properties and assets substantially as an entirety to, any Person, except
pursuant to this Section 9.5 or Section 9.4. At the request of the Holders of
the Common Securities, and with the consent of the Holders of at least a
Majority in Liquidation Amount of the Preferred Securities but without the
consent of the Delaware Trustee or the Property Trustee, the Issuer Trust may
merge with or into, consolidate, convert into, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an
entirety to a trust organized as such under the laws of any state; provided,
however, that (a) such successor entity either (i) expressly assumes all of the
obligations of the Issuer Trust with respect to the Preferred Securities or
(ii) substitutes for the Preferred Securities other securities having
substantially the same terms as the Preferred Securities (the "Successor
Securities") so long as the Successor Securities have the same priority as the
Preferred Securities with respect to distributions and payments upon
liquidation, redemption and otherwise, (b) a trustee of such successor entity
possessing the same powers and duties as the Property Trustee is appointed to
hold the Junior Subordinated Debentures, (c) such merger, consolidation,
conversion, amalgamation, replacement, conveyance, transfer or lease does not
cause the Preferred Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization if the
Preferred Securities were rated by any nationally recognized statistical rating
organization immediately prior to such merger, consolidation, conversion,
amalgamation, replacement, conveyance, transfer or lease, (d) such merger,
55
<PAGE> 62
consolidation, conversion, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
Holders of the Preferred Securities (including any Successor Securities) in any
material respect, (e) such successor entity has a purpose substantially
identical to that of the Issuer Trust, (f) prior to such merger, consolidation,
conversion, amalgamation, replacement, conveyance, transfer or lease, the
Issuer Trustee has received an Opinion of Counsel from independent counsel
experienced in such matters to the effect that (i) such merger, consolidation,
conversion, amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the Holders of the
Preferred Securities (including any Successor Securities) in any material
respect, and (ii) following such merger, consolidation, conversion,
amalgamation, replacement, conveyance, transfer or lease, neither the Issuer
Trust nor such successor entity will be required to register as an "investment
company" under the Investment Company Act, and (g) the Depositor or any
permitted transferee to whom it has transferred the Common Securities hereunder
owns all of the common securities of such successor entity and guarantees the
obligations of such successor entity under the Successor Securities at least to
the extent provided by the Guarantee Agreement. Notwithstanding the foregoing,
the Issuer Trust shall not, except with the consent of Holders of 100% in
Liquidation Amount of the Preferred Securities, consolidate, convert into,
amalgamate, merge with or into, or be replaced by or convey, transfer or lease
its properties and assets substantially as an entirety to any other entity or
permit any other Person to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, conversion, amalgamation, merger,
replacement, conveyance, transfer or lease would cause the Issuer Trust or the
successor entity to be taxable as a corporation for United States federal
income tax purposes. Any merger or similar agreement shall be executed by the
Administrators on behalf of the Issuer Trust.
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1 Limitation of Rights of Holders.
Except as set forth in Section 9.2, the bankruptcy, dissolution,
termination, death or incapacity of any Person having an interest, beneficial
or otherwise, in Trust Securities shall not operate to terminate this Trust
Agreement or dissolve, terminate or annul the Issuer Trust, nor entitle the
legal representatives or heirs of such Person or any Holder for such Person, to
claim an accounting, take any action or bring any proceeding in any court for a
partition or winding up of the arrangements contemplated hereby, nor otherwise
affect the rights, obligations and liabilities of the parties hereto or any of
them.
Section 10.2 Amendment.
(a) This Trust Agreement may be amended from time to time by the
Property Trustee, the Administrators or the Holders of a Majority in
Liquidation Amount of the Common Securities,
56
<PAGE> 63
without the consent of any Holder of the Preferred Securities, (i) to cure any
ambiguity, correct or supplement any provision herein which may be inconsistent
with any other provision herein, or to make any other provisions with respect
to matters or questions arising under this Trust Agreement; provided, however,
that such amendment shall not adversely affect in any material respect the
interests of any Holder or (ii) to modify, eliminate, or add to any provisions
of this Trust Agreement to such extent as shall be necessary to ensure that the
Issuer Trust will not be taxable as a corporation for United States federal
income tax purposes at any time that any Trust Securities are Outstanding or to
ensure that the Issuer Trust will not be required to register as an "investment
company" under the Investment Company Act.
(b) Except as provided in Section 6.1(c) or Section 10.2(c), any
provision of this Trust Agreement may be amended by the Property Trustee, the
Administrators, and the Holders of a Majority in Liquidation Amount of the
Common Securities with (i) the consent of Holders of at least a Majority in
Liquidation Amount of the Preferred Securities and (ii) receipt by the Issuer
Trustees of an Opinion of Counsel to the effect that such amendment or the
exercise of any power granted to the Issuer Trustees in accordance with such
amendment will not cause the Issuer Trust to be taxable as a corporation for
United States federal income tax purposes or affect the Issuer Trust's
exemption from status of an "investment company" under the Investment Company
Act.
(c) In addition to and notwithstanding any other provision in this
Trust Agreement, without the consent of each affected Holder (such consent
being obtained in accordance with Section 6.3 or 6.6 hereof), this Trust
Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount
of any Distribution required to be made in respect of the Trust Securities as
of a specified date or (ii) restrict the right of a Holder to institute suit
for the enforcement of any such payment on or after such date. Notwithstanding
any other provision herein, without the unanimous consent of the Holders (such
consent being obtained in accordance with Section 6.3 or 6.6), this Section
10.2(c) may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no
Issuer Trustee shall enter into or consent to any amendment to this Trust
Agreement which would cause the Issuer Trust to fail or cease to qualify for
the exemption from status as an "investment company" under the Investment
Company Act or be taxable as a corporation for United States federal income tax
purposes.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor and the Administrators, this Trust
Agreement may not be amended in a manner which imposes any additional
obligation on the Depositor or the Administrators.
(f) In the event that any amendment to this Trust Agreement is made,
the Administrators or the Property Trustee shall promptly provide to the
Depositor a copy of such amendment.
57
<PAGE> 64
(g) Neither the Property Trustee nor the Delaware Trustee shall be
required to enter into any amendment to this Trust Agreement which affects its
own rights, duties or immunities under this Trust Agreement. The Property
Trustee shall be entitled to receive an Opinion of Counsel and an Officers'
Certificate stating that any amendment to this Trust Agreement is in compliance
with this Trust Agreement.
(h) Any amendments to this Trust Agreement pursuant to Section 10.2(a)
shall become effective when notice of such amendment is given to the Holders of
the Trust Securities.
Section 10.3 Separability.
In case any provision in this Trust Agreement or in the Trust
Securities Certificates shall be invalid, illegal or unenforceable, the
validity, legality, and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
Section 10.4 Governing Law.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
HOLDERS, THE ISSUER TRUST, THE DEPOSITOR, THE ISSUER TRUSTEES, AND THE
ADMINISTRATORS WITH RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
Section 10.5 Payments Due on Non-Business Day.
If the date fixed for any payment on any Trust Security shall be a day
that is not a Business Day, then such payment need not be made on such date but
may be made on the next succeeding day that is a Business Day (except as
otherwise provided in Sections 4.2(d)), except that, if such Business Day is in
the next succeeding calendar year, payment on any Trust Security shall be made
on the immediately preceding Business Day, in each case, with the same force
and effect as though made on the date fixed for such payment, and no
Distributions shall accumulate on such unpaid amount for the period after such
date.
Section 10.6 Successors.
This Trust Agreement shall be binding upon and shall inure to the
benefit of any successor to the Depositor, the Issuer Trust, the
Administrators, and any Issuer Trustee, including any successor by operation of
law. Except in connection with a consolidation, merger, sale, transfer,
conveyance or lease involving the Depositor that is permitted under Article
VIII of the Indenture and pursuant to which the assignee agrees in writing to
perform the Depositor's obligations hereunder, the Depositor shall not assign
its obligations hereunder.
58
<PAGE> 65
Section 10.7 Headings.
The Article and Section headings are for convenience only and shall
not affect the construction of this Trust Agreement.
Section 10.8 Reports, Notices and Demands.
(a) Any report, notice, demand or other communication that by any
provision of this Trust Agreement is required or permitted to be given or
served to or upon any Holder or the Depositor may be given or served in writing
by deposit thereof, first class postage prepaid, in the United States mail,
hand delivery or facsimile transmission, in each case, addressed, (i) in the
case of a Holder of Preferred Securities, to such Holder as such Holder's name
and address may appear on the Securities Register; and (ii) in the case of the
Holder of Common Securities or the Depositor, to Northeast Bancorp, 232 Center
Street, Auburn, Maine 04210, Attention: President, facsimile no.: (207)777-6410
or to such other address as may be specified in a written notice by the
Depositor to the Property Trustee. Such notice, demand or other communication
to or upon a Holder shall be deemed to have been sufficiently given or made,
for all purposes, upon hand delivery, mailing or transmission. Such notice,
demand or other communication to or upon the Depositor shall be deemed to have
been sufficiently given or made only upon actual receipt of the writing by the
Depositor.
(b) Any notice, demand or other communication which by any provision
of this Trust Agreement is required or permitted to be given or served to or
upon the Property Trustee, the Delaware Trustee, the Administrators, or the
Issuer Trust shall be given in writing addressed (until another address is
published by the Issuer Trust) as follows: (i) with respect to the Property
Trustee to Bankers Trust Company, Four Albany Street, 4th Floor, New York, NY
10006, Attention: Corporate Trust and Agency Group Corporate Market Services;
(ii) with respect to the Delaware Trustee to Bankers Trust (Delaware), E.A.
Delle Donne Corporate Center, Montgomery Building, 1101 Centre Road, Suite 200,
Wilmington, Delaware, 19805-1266, Attention: M. Lisa Wilkins, and (iii) with
respect to the Administrators, to them at the address above for notices to the
Depositor, marked "Attention: Office of the Secretary." Such notice, demand or
other communication to or upon the Issuer Trust or the Property Trustee shall
be deemed to have been sufficiently given or made only upon actual receipt of
the writing by the Issuer Trust, the Property Trustee, or such Administrator.
Section 10.9 Agreement Not to Petition.
Each of the Issuer Trustees, the Administrators and the Depositor
agree for the benefit of the Holders that, until at least one year and one day
after the Issuer Trust has been terminated in accordance with Article IX, they
shall not file, or join in the filing of, a petition against the Issuer Trust
under any bankruptcy, insolvency, reorganization or other similar law
(including, without limitation, the United States Bankruptcy Code)
(collectively, "Bankruptcy Laws") or otherwise join in the commencement of any
proceeding against the Issuer Trust under any Bankruptcy Law. In the event the
Depositor takes action in violation of this Section 10.9, the Property Trustee
agrees, for
59
<PAGE> 66
the benefit of Holders, that at the expense of the Depositor, it shall file an
answer with the bankruptcy court or otherwise properly contest the filing of
such petition by the Depositor against the Issuer Trust or the commencement of
such action and raise the defense that the Depositor has agreed in writing not
to take such action and should be estopped and precluded therefrom and such
other defenses, if any, as counsel for the Issuer Trustee or the Issuer Trust
may assert. If any Issuer Trustee or Administrator takes action in violation of
this Section 10.9, the Depositor agrees, for the benefit of the Holders, that
at the expense of the Depositor, it shall file an answer with the bankruptcy
court or otherwise properly contest the filing of such petition by such Person
against the Depositor or the commencement of such action and raise the defense
that such Person has agreed in writing not to take such action and should be
estopped and precluded therefrom and such other defenses, if any, as counsel
for the Depositor or the Issuer Trust may assert. The provisions of this
Section 10.9 shall survive the termination of this Trust Agreement.
Section 10.10 Trust Indenture Act; Conflict with Trust Indenture Act.
(a) Trust Indenture Act; Application. (i) This Trust Agreement is
subject to the provisions of the Trust Indenture Act that are required to be a
part of this Trust Agreement and shall, to the extent applicable, be governed
by such provisions; (ii) if and to the extent that any provision of this Trust
Agreement limits, qualifies or conflicts with the duties imposed by Sections
310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control; (iii) for purposes of this Trust Agreement, the Property Trustee, to
the extent permitted by applicable law and/or the rules and regulations of the
Commission, shall be the only Issuer Trustee which is a trustee for the
purposes of the Trust Indenture Act; and (iv) the application of the Trust
Indenture Act to this Trust Agreement shall not affect the nature of the
Preferred Securities and the Common Securities as equity securities
representing undivided beneficial interests in the assets of the Issuer Trust.
(b) Lists of Holders of Preferred Securities. (i) Each of the
Depositor and the Administrators on behalf of the Issuer Trust shall provide
the Property Trustee with such information as is required under Section 312(a)
of the Trust Indenture Act at the times and in the manner provided in Section
312(a) and (ii) the Property Trustee shall comply with its obligations under
Sections 310(b), 311 and 312(b) of the Trust Indenture Act.
(c) Reports by the Property Trustee. Within 60 days after January 31
of each year, commencing January 31, 2000, the Property Trustee shall provide
to the Holders of the Trust Securities such reports as are required by Section
313 of the Trust Indenture Act, if any, in the form, in the manner and at the
times provided by Section 313 of the Trust Indenture Act. The Property Trustee
shall also comply with the requirements of Section 313(d) of the Trust
Indenture Act.
(d) Periodic Reports to Property Trustee. Each of the Depositor and
the Administrator on behalf of the Issuer Trust shall provide to the Property
Trustee, the Commission and the Holders of the Trust Securities, as applicable,
such documents, reports and information as required by Section 314(a)(1)(3) (if
any) of the Trust Indenture Act and the compliance certificates required by
Section 314(a)(4) and (c) of the Trust Indenture Act (provided that any
certificate to be provided pursuant
60
<PAGE> 67
to Section 314(a)(4) of the Trust Indenture Act shall be provided within 120
days of the end of each fiscal year of the Issuer Trust).
(e) Evidence of Compliance with Conditions Precedent. Each of the
Depositor and the Administrators on behalf of the Issuer Trust shall provide to
the Property Trustee such evidence of compliance with any conditions precedent,
if any, provided for in this Trust Agreement which relate to any of the matters
set forth in Section 314(c) of the Trust Indenture Act. Any certificate or
opinion required to be given pursuant to Section 314(c) shall comply with
Section 314(e) of the Trust Indenture Act.
(f) Disclosure of Information. The disclosure of information as to the
names and addresses of the Holders of Trust Securities in accordance with
Section 312 of the Trust Indenture Act, regardless of the source from which
such information was derived, shall not be deemed to be a violation of any
existing law or any law hereafter enacted which does not specifically refer to
Section 312 of the Trust Indenture Act, nor shall the Property Trustee be held
accountable by reason of mailing any material pursuant to a request made under
Section 312(b) of the Trust Indenture Act.
Section 10.11 Acceptance of Terms of Trust Agreement, Guarantee and Indenture.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN
BY OR ON BEHALF OF A HOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR
FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE
BY THE HOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST
SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT, THE GUARANTEE
AGREEMENT AND THE INDENTURE, AND THE AGREEMENT TO THE SUBORDINATION PROVISIONS
AND OTHER TERMS OF THE GUARANTEE AGREEMENT AND THE INDENTURE, AND SHALL
CONSTITUTE THE AGREEMENT OF THE ISSUER TRUST, SUCH HOLDER AND SUCH OTHERS THAT
THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE
AND EFFECTIVE AS BETWEEN THE ISSUER TRUST AND SUCH HOLDER AND SUCH OTHERS.
Section 10.12 Counterparts.
This Trust Agreement may contain more than one counterpart of the
signature page and this Trust Agreement may be executed by the affixing of the
signature of each of the Issuer Trustees to one of such counterpart signature
pages. All of such counterpart signature pages shall be read as though one, and
they shall have the same force and effect as though all of the signers had
signed a single signature paper.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
61
<PAGE> 68
IN WITNESS WHEREOF, the parties have caused this Amended and Restated
Trust Agreement to be duly executed as of the day and year first above written.
NORTHEAST BANCORP
as Depositor
By:
----------------------------------
Its:
---------------------------------
BANKERS TRUST COMPANY,
as Property Trustee
By:
----------------------------------
Its:
---------------------------------
BANKERS TRUST (DELAWARE),
as Delaware Trustee
By:
----------------------------------
Its:
---------------------------------
INITIAL ADMINISTRATORS
By:
----------------------------------
By:
----------------------------------
62
<PAGE> 69
EXHIBIT A
[INSERT CERTIFICATE OF TRUST FILED WITH DELAWARE SECRETARY OF STATE]
63
<PAGE> 70
EXHIBIT B
[INSERT FORM OF CERTIFICATE DEPOSITARY AGREEMENT]
64
<PAGE> 71
EXHIBIT C
THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT TO A
SUCCESSOR IN INTEREST TO THE DEPOSITOR OR AN AFFILIATE OF THE
DEPOSITOR IN COMPLIANCE WITH APPLICABLE LAW
AND SECTION 5.11 OF THE TRUST AGREEMENT
Certificate Number Number of Common Securities
Certificate Evidencing Common Securities
of
NBN Capital Trust
_____% Common Securities
(liquidation amount $10 per Common Security)
NBN Capital Trust, a statutory business trust created under the laws
of the State of Delaware (the "Issuer Trust"), hereby certifies that Northeast
Bancorp (the "Holder") is the registered owner of __________ common securities
of the Issuer Trust representing undivided beneficial interest in the assets of
the Issuer Trust and designated the NBN Capital Trust ______% Common Securities
(liquidation amount $10 per Common Security) (the "Common Securities"). Except
in accordance with Section 5.11 of the Trust Agreement (as defined below), the
Common Securities are not transferable and any attempted transfer hereof other
than in accordance therewith shall be void. The designations, rights,
privileges, restrictions, preferences and other terms and provisions of the
Common Securities are set forth in, and this certificate and the Common
Securities represented hereby are issued and shall in all respects be subject
to the terms and provisions of, the Amended and Restated Trust Agreement of the
Issuer Trust, dated as of __________, 1999, as the same may be amended from
time to time (the "Trust Agreement") among Northeast Bancorp, as Depositor,
Bankers Trust Company, as Property Trustee, Bankers Trust (Delaware), as
Delaware Trustee, the Administrators, and the Holders of Trust Securities,
including the designation of the terms of the Common Securities as set forth
therein. The Issuer Trust will furnish a copy of the Trust Agreement to the
Holder without charge upon written request to the Issuer Trust at its principal
place of business.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
Terms used but not defined herein have the meaning set forth in the
Trust Agreement
65
<PAGE> 72
IN WITNESS WHEREOF, one of the Administrators of the Issuer Trust has
executed this certificate this ___ day of _________________, 1999.
NBN CAPITAL TRUST
By:
----------------------------------
Name:
Administrator
AUTHENTICATED AND REGISTERED:
BANKERS TRUST COMPANY,
as Property Trustee
By:
----------------------------------
Name:
Signatory Officer
66
<PAGE> 73
EXHIBIT D
[IF THE PREFERRED SECURITY CERTIFICATE IS TO BE A GLOBAL PREFERRED
SECURITY CERTIFICATE, INSERT - This Preferred Security Certificate is a Global
Preferred Security Certificate within the meaning of the Trust Agreement
hereinafter referred to and is registered in the name of a Depositary or a
nominee of a Depositary. This Preferred Security Certificate is exchangeable
for Preferred Security Certificates registered in the name of a person other
than the Depositary or its nominee only in the limited circumstances described
in the Trust Agreement and may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary, except in the limited
circumstances described in the Trust Agreement.
Unless this Preferred Security Certificate is presented by an
authorized representative of The Depository Trust Company, a New York
Corporation ("DTC"), to NBN Capital Trust or its agent for registration of
transfer, exchange or payment, and any Preferred Security Certificate issued is
registered in the name of such nominee as is requested by an authorized
representative of DTC (and any payment is made to such entity as is requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO A PERSON IS WRONGFUL inasmuch as the
registered owner hereof, has an interest herein.]
67
<PAGE> 74
CERTIFICATE NUMBER NUMBER OF PREFERRED SECURITIES
CUSIP NO. _________________
CERTIFICATE EVIDENCING PREFERRED SECURITIES
OF
NBN CAPITAL TRUST
______% PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
NBN Capital Trust, a statutory business trust created under the laws
of the State of Delaware (the "Issuer Trust"), hereby certifies that _______
(the "Holder") is the registered owner of $_____________ aggregate liquidation
amount of preferred securities of the Issuer Trust representing a preferred
undivided beneficial interest in the assets of the Issuer Trust and designated
the NBN Capital Trust ___% Preferred Securities (liquidation amount $10 per
Preferred Security) (the "Preferred Securities"). The Preferred Securities are
transferable on the books and the records of the Issuer Trust, in person or by
a duly authorized attorney, upon surrender of this certificate duly endorsed
and in proper form for transfer as provided in Section 5.5 of the Trust
Agreement (as defined below). The designations, rights, privileges,
restrictions, preferences and other terms and provisions of the Preferred
Securities are set forth in, and this certificate and the Preferred Securities
represented hereby are issued and shall in all respects be subject to the terms
and provisions of, the Amended and Restated Trust Agreement of the Issuer
Trust, dated as of __________, 1999, as the same may be amended from time to
time (the "Trust Agreement"), among Northeast Bancorp as Depositor, Bankers
Trust Company, as Property Trustee, Bankers Trust (Delaware), as Delaware
Trustee, the Administrators, and the Holders of Trust Securities, including the
designation of the terms of the Preferred Securities as set forth therein. The
Holder is entitled to the benefits of the Guarantee Agreement entered into by
Northeast Bancorp, a Maine corporation, and Bankers Trust Company, as Guarantee
Trustee, dated as of __________, 1999 as the same may be amended from time to
time (the "Guarantee Agreement"), to the extent provided therein. The Issuer
Trust will furnish a copy of the Trust Agreement and the Guarantee Agreement to
the Holder without charge upon written request to the Issuer Trust at its
principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
68
<PAGE> 75
IN WITNESS WHEREOF, one of the Administrators of the Issuer Trust has
executed this certificate this ____ day of ____________, 1999.
NBN CAPITAL TRUST
By:
----------------------------------
Name:
Administrator
AUTHENTICATED AND REGISTERED:
BANKERS TRUST COMPANY,
as Property Trustee
By:
------------------------------------
Name:
Authorized Signatory
69
<PAGE> 76
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
Preferred Security Certificate to:
- -------------------------------------------------------------------------------
(Insert assignee's name and social security or tax identification number)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
agent to transfer this Preferred Security Certificate on the books of the
Issuer Trust. The agent may substitute another to act for him or her.
Date:
----------------------------------
Signature:
------------------------------------------
(Sign exactly as your name appears on
the other side of this Preferred Security
Certificate)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule l7Ad-15.
70
<PAGE> 1
EXHIBIT 4.6
GUARANTEE AGREEMENT
Between
NORTHEAST BANCORP
(as Guarantor)
and
BANKERS TRUST COMPANY
(as Guarantee Trustee)
dated as of
______________, 1999
<PAGE> 2
NBN CAPITAL TRUST
Certain Sections of this Guarantee Agreement relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Guarantee Agreement
Act Section Section
- -------------- -------------------
<S> <C> <C>
Section 310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1(a)
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1(a)
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8, 4.1(c)
Section 311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
Section 312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
Section 313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
Section 314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
Section 315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1(d)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1(c)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1(d)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
Section 316 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1, 2.6, 5.4
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . 5.4
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . 5.4
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
Section 317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
Section 318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
</TABLE>
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Guarantee Agreement.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE I......................................................................... 2
Section 1.1. Definitions........................................ 2
ARTICLE II........................................................................ 5
Section 2.1. Trust Indenture Act; Application................... 5
Section 2.2. List of Holders.................................... 5
Section 2.3. Reports by the Guarantee Trustee................... 6
Section 2.4. Periodic Reports to the Guarantee Trustee.......... 6
Section 2.5. Evidence of Compliance with Conditions Precedent... 6
Section 2.6. Events of Default; Waiver.......................... 6
Section 2.7. Event of Default; Notice........................... 6
Section 2.8. Conflicting Interests.............................. 7
ARTICLE III....................................................................... 7
Section 3.1. Powers and Duties of the Guarantee Trustee......... 7
Section 3.2. Certain Rights of Guarantee Trustee................ 9
Section 3.3. Indemnity.......................................... 10
Section 3.4. Expenses........................................... 10
ARTICLE IV........................................................................ 11
Section 4.1. Guarantee Trustee; Eligibility..................... 11
Section 4.2. Appointment, Removal and Resignation of the
Guarantee Trustee.................................. 11
ARTICLE V......................................................................... 12
Section 5.1. Guarantee.......................................... 12
Section 5.2. Waiver of Notice and Demand........................ 12
Section 5.3. Obligations Not Affected........................... 13
Section 5.4. Rights of Holders.................................. 14
Section 5.5. Guarantee of Payment............................... 14
Section 5.6. Subrogation........................................ 14
Section 5.7. Independent Obligations............................ 14
ARTICLE VI........................................................................ 15
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
Section 6.1. Subordination................................... 15
Section 6.2. Pari Passu Guarantees........................... 15
ARTICLE VII.................................................................... 15
Section 7.1. Termination..................................... 15
ARTICLE VIII................................................................... 16
Section 8.1. Successors and Assigns.......................... 16
Section 8.2. Amendments...................................... 16
Section 8.3. Notices......................................... 16
Section 8.4. Benefit......................................... 17
Section 8.5. Interpretation.................................. 17
Section 8.6. Governing Law................................... 18
Section 8.7. Counterparts.................................... 18
</TABLE>
ii
<PAGE> 5
GUARANTEE AGREEMENT
THIS GUARANTEE AGREEMENT, dated as of ___________, 1999 (the
"Guarantee Agreement"), is executed and delivered by NORTHEAST BANCORP, a Maine
corporation (the "Guarantor"), having its principal office at 232 Center
Street, Auburn, Maine, 04210 and BANKERS TRUST COMPANY, a New York banking
corporation, having its principal office at Four Albany Street, Fourth Floor,
New York, New York 10006, as trustee, for the benefit of the Holders (as
defined herein) from time to time of the Preferred Securities (as defined
herein) of NBN Capital Trust, a Delaware statutory business trust (the "Issuer
Trust").
RECITALS
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the
"Trust Agreement"), dated as of ________, 1999, among Northeast Bancorp, as
Depositor, Bankers Trust Company, as Property Trustee (the "Property Trustee"),
Bankers Trust (Delaware), as Delaware Trustee (the "Delaware Trustee")
(collectively, the "Issuer Trustees"), the administrators named therein, and
the Holders from time to time of preferred undivided beneficial ownership
interests in the assets of the Issuer Trust, the Issuer Trust is issuing up to
$10,500,000 aggregate Liquidation Amount (as defined herein) of its ____%
Preferred Securities, Liquidation Amount $10 per preferred security (the
"Preferred Securities"), representing preferred undivided beneficial ownership
interests in the assets of the Issuer Trust and having the terms set forth in
the Trust Agreement;
WHEREAS, the Preferred Securities will be issued by the Issuer Trust
and the proceeds thereof, together with the proceeds from the issuance of the
Issuer Trust's Common Securities (as defined herein), will be used to purchase
the Junior Subordinated Debentures due ________, 2029 (as defined in the Trust
Agreement) (the "Junior Subordinated Debentures") of the Guarantor which will
be deposited with Bankers Trust Company, as Property Trustee under the Trust
Agreement, as trust assets; and
WHEREAS, as incentive for the Holders to purchase the Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth herein, to pay to the Holders of the Preferred Securities
the Guarantee Payments (as defined herein) and to make certain other payments
on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase of the Preferred
Securities by each Holder, which purchase the Guarantor hereby acknowledges
shall benefit the Guarantor, and intending to be legally bound hereby, the
Guarantor executes and delivers this Guarantee Agreement for the benefit of the
Holders from time to time of the Preferred Securities.
<PAGE> 6
ARTICLE I
DEFINITIONS
Section 1.1. Definitions.
As used in this Guarantee Agreement, the terms set forth below shall,
unless the context otherwise requires, have the following meanings. Capitalized
terms used but not otherwise defined herein shall have the meanings assigned to
such terms in the Trust Agreement as in effect on the date hereof.
"Additional Amount" has the meaning specified in the Trust Agreement.
"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.
"Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Issuer Trust.
"Delaware Trustee" shall have the meaning specified in the first
recital of this Guarantee Agreement.
"Distributions" means preferential cumulative cash distributions
accumulating from ______, 1999 and payable quarterly in arrears on March 31,
June 30, September 30, and December 31 of each year, commencing _______, 1999
at the annual rate of ____% of the Liquidation Amount.
"Event of Default" means (a) a default by the Guarantor in any of its
payment obligations under this Guarantee Agreement, or (b) a default by the
Guarantor in any other obligation hereunder that remains unremedied for 30
days.
"Guarantee Agreement" means this Guarantee Agreement, as modified,
amended or supplemented from time to time.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent
not paid or made by or on behalf of the Issuer Trust: (a) any accrued and
unpaid Distributions (as defined in the Trust Agreement) required to be paid on
the Preferred Securities, to the extent the Issuer Trust shall have funds on
hand available therefor at such time, (b) the Redemption Price, with respect to
the Preferred Securities called for redemption by the Issuer Trust to the
extent that the Issuer Trust shall have funds on hand available
2
<PAGE> 7
therefor at such time, and (c) upon a voluntary or involuntary dissolution,
winding-up or liquidation of the Issuer Trust, unless the Junior Subordinated
Debentures are distributed to the Holders, the lesser of (i) the aggregate of
the Liquidation Amount and all accumulated and unpaid Distributions to the date
of payment to the extent the Issuer Trust shall have funds on hand available to
make such payment at such time and (ii) the amount of assets of the Issuer
Trust remaining available for distribution to Holders in liquidation of the
Issuer Trust (in either case, the "Liquidation Distribution").
"Guarantee Trustee" means Bankers Trust Company, until a Successor
Guarantee Trustee has been appointed and has accepted such appointment pursuant
to the terms of this Guarantee Agreement and thereafter means each such
Successor Guarantee Trustee.
"Guarantor" shall have the meaning specified in the preamble of this
Guarantee Agreement.
"Holder" means any holder, as registered on the books and records of
the Issuer Trust, of any Preferred Securities; provided, however, that, in
determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder,
"Holder" shall not include the Guarantor, the Guarantee Trustee, or any
Affiliate of the Guarantor or the Guarantee Trustee.
"Indenture" means the Junior Subordinated Indenture dated as of
______, 1999, between Northeast Bancorp and Bankers Trust Company, as trustee,
as may be modified, amended or supplemented from time to time.
"Issuer Trust" shall have the meaning specified in the preamble of
this Guarantee Agreement.
"Issuer Trustees" shall have the meaning specified in the first
recital of this Guarantee Agreement.
"Junior Subordinated Debentures" shall have the meaning specified in
the first recital of this Guarantee Agreement.
"Like Amount" means (a) with respect to a redemption of Preferred
Securities, Preferred Securities having a Liquidation Amount equal to the
principal amount of Junior Subordinated Debentures to be contemporaneously
redeemed in accordance with the Indenture, the proceeds of which will be used
to pay the Redemption Price of such Preferred Securities, (b) with respect to a
distribution of Junior Subordinated Debentures to Holders of Preferred
Securities in connection with a dissolution or liquidation of the Issuer Trust,
Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Preferred Securities of the Holder to whom such
Junior Subordinated Debentures are distributed, and (c) with respect to any
distribution of an Additional Amount to Holders of Preferred Securities, Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Preferred Securities in respect of which such distribution is
made.
3
<PAGE> 8
"Liquidation Amount" means the stated amount of $10 per Preferred
Security.
"Majority in Liquidation Amount of the Preferred Securities" means,
except as provided by the Trust Indenture Act, Preferred Securities
representing more than 50% of the aggregate Liquidation Amount of all then
outstanding Preferred Securities issued by the Issuer Trust.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chairman of the Board, Chief Executive Officer,
President or a Vice President, and by the Chief Financial Officer, Treasurer,
an Associate Treasurer, an Assistant Treasurer, the Secretary (or Clerk) or an
Assistant Secretary (or Clerk) of such Person, and delivered to the Guarantee
Trustee. Any Officers' Certificate delivered with respect to compliance with a
condition or covenant provided for in this Guarantee Agreement shall include:
(a) a statement by each officer signing the Officers'
Certificate that such officer has read the covenant or condition and the
definitions relating thereto;
(b) a brief statement of the nature and scope of the
examination or investigation undertaken by such officer in rendering the
Officers' Certificate;
(c) a statement that such officer has made such examination
or investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of such
officer, such condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever
nature.
"Preferred Securities" shall have the meaning specified in the first
recital of this Guarantee Agreement.
"Property Trustee" shall have the meaning specified in the first
recital of this Guarantee Agreement.
"Redemption Date" means, with respect to any Preferred Security to be
redeemed, the date fixed for such redemption by or pursuant to the Trust
Agreement; provided that each Junior Subordinated Debenture Redemption Date (as
such term is defined in the Indenture) and the stated maturity of the Junior
Subordinated Debentures shall be a Redemption Date for a Like Amount of
Preferred Securities.
4
<PAGE> 9
"Redemption Price" shall have the meaning specified in the Trust
Agreement.
"Responsible Officer" means, when used with respect to the Guarantee
Trustee, any officer assigned to the Corporate Trust Office, including any
managing director, principal, vice president, assistant vice president,
assistant treasurer, assistant secretary or any other officer of the Guarantee
Trustee customarily performing functions similar to those performed by any of
the above designated officers and having direct responsibility for the
administration of this Guarantee Agreement, and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.
"Senior Indebtedness" shall have the meaning specified in the
Indenture.
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.
"Trust Agreement" shall have the meaning specified in the Recitals to
this Guarantee Agreement.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended by the Trust Indenture Reform Act of 1990, or any successor statute, in
each case as amended from time to time.
ARTICLE II
TRUST INDENTURE ACT
Section 2.1. Trust Indenture Act; Application.
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required to be a part of and
govern this Guarantee Agreement, the provision of the Trust Indenture Act shall
control. If any provision of this Guarantee Agreement modifies or excludes any
provision of the Trust Indenture Act that may be so modified or excluded, the
latter provision shall be deemed to apply to this Guarantee Agreement as so
modified or excluded, as the case may be.
Section 2.2. List of Holders.
(a) The Guarantor will furnish or cause to be furnished to the
Guarantee Trustee:
(i) quarterly, not more than 15 days after March 15, June 15,
September 15 and December 15 in each year, a list, in such form as the
Guarantee Trustee may reasonably require, of the names and addresses
of the Holders as of such date; and
(ii) at such other times as the Guarantee Trustee may request in
writing, within
5
<PAGE> 10
30 days after the receipt by the Guarantor of any such request, a
list of similar form and content as of a date not more than 15 days
prior to the time such list is furnished.
(b) The Guarantee Trustee shall comply with the requirements of
Section 312(b) of the Trust Indenture Act.
Section 2.3. Reports by the Guarantee Trustee.
Within 60 days of January 31 of each year commencing January 31, 2000,
the Guarantee Trustee shall provide to the Holders such reports, if any, as are
required by Section 313 of the Trust Indenture Act in the form and in the
manner provided by Section 313 of the Trust Indenture Act. The Guarantee
Trustee shall also comply with the requirements of Section 313(d) of the Trust
Indenture Act.
Section 2.4. Periodic Reports to the Guarantee Trustee.
The Guarantor shall provide to the Guarantee Trustee and the Holders
such documents, reports and information, if any, as required by Section 314 of
the Trust Indenture Act and the compliance certificate required by Section 314
of the Trust Indenture Act, in the form, in the manner and at the times
required by Section 314 of the Trust Indenture Act.
Section 2.5. Evidence of Compliance with Conditions Precedent.
The Guarantor shall provide to the Guarantee Trustee such evidence of
compliance with such conditions precedent, if any, provided for in this
Guarantee Agreement that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer pursuant to Section 314(c)(1) may be given in the form of
an Officers' Certificate.
Section 2.6. Events of Default; Waiver.
The Holders of a Majority in Liquidation Amount of the Preferred
Securities may, by vote, on behalf of the Holders, waive any past Event of
Default and its consequences. Upon such waiver, any such Event of Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Guarantee Agreement, but no such
waiver shall extend to any subsequent or other default or Event of Default or
impair any right consequent therefrom.
Section 2.7. Event of Default; Notice.
(a) The Guarantee Trustee shall, within 90 days after the occurrence
of an Event of Default, transmit by mail, first class postage prepaid, to the
Holders, notices of all Events of Default known to the Guarantee Trustee,
unless such Events of Default have been cured before the giving
6
<PAGE> 11
of such notice; provided that, except in the case of a default in the payment
of a Guarantee Payment, the Guarantee Trustee shall be protected in withholding
such notice if and so long as the Board of Directors, the executive committee
or a trust committee of directors and/or Responsible Officers of the Guarantee
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders.
(b) The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default unless (i) a Responsible Officer charged with the
administration of this Guarantee Agreement shall have received written notice
of such Event of Default, or (ii) a Responsible Officer of the Guarantee
Trustee charged with administration of the Trust Agreement shall have obtained
actual knowledge thereof.
Section 2.8. Conflicting Interests.
The Trust Agreement shall be deemed to be specifically described in
this Guarantee Agreement for the purposes of clause (i) of the first proviso
contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF THE
GUARANTEE TRUSTEE
Section 3.1. Powers and Duties of the Guarantee Trustee.
(a) This Guarantee Agreement shall be held by the Guarantee Trustee
for the benefit of the Holders, and the Guarantee Trustee shall not transfer
this Guarantee Agreement to any Person except to a Holder exercising his or her
rights pursuant to Section 5.4(d) or to a Successor Guarantee Trustee on
acceptance by such Successor Guarantee Trustee of its appointment to act as
Successor Guarantee Trustee hereunder. The right, title and interest of the
Guarantee Trustee, as such, hereunder shall automatically vest in any Successor
Guarantee Trustee, upon acceptance by such Successor Guarantee Trustee of its
appointment hereunder, and such vesting and cessation of title shall be
effective whether or not conveyancing documents have been executed and
delivered pursuant to the appointment of such Successor Guarantee Trustee.
(b) If an Event of Default has occurred and is continuing, the
Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the
Holders.
(c) The Guarantee Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have occurred,
shall be obligated to perform only such duties as are specifically set forth in
this Guarantee Agreement (including pursuant to Section 2.1), and no implied
covenants shall be read into this Guarantee Agreement against the Guarantee
Trustee. If an
7
<PAGE> 12
Event of Default has occurred (that has not been cured or waived pursuant to
Section 2.6), the Guarantee Trustee shall exercise such of the rights and
powers vested in it by this Guarantee Agreement, and use the same degree of
care and skill in its exercise thereof, as a prudent person would exercise or
use under the circumstances in the conduct of his or her own affairs.
(d) No provision of this Guarantee Agreement shall be construed to
relieve the Guarantee Trustee from liability for its own negligent action, its
own negligent failure to act or its own bad faith or willful misconduct, except
that:
(i) prior to the occurrence of any Event of Default and after
the curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Guarantee Trustee shall
be determined solely by the express provisions of this Guarantee
Agreement (including pursuant to Section 2.1), and the Guarantee
Trustee shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this
Guarantee Agreement (including pursuant to Section 2.1); and
(B) in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions furnished to
the Guarantee Trustee and conforming to the requirements of this
Guarantee Agreement; but in the case of any such certificates or
opinions that by any provision hereof or of the Trust Indenture
Act are specifically required to be furnished to the Guarantee
Trustee, the Guarantee Trustee shall be under a duty to examine
the same to determine whether or not they conform to the
requirements of this Guarantee Agreement;
(ii) the Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee
Trustee, unless it shall be proved that the Guarantee Trustee was
negligent in ascertaining the pertinent facts upon which such judgment
was made;
(iii) the Guarantee Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than a
Majority in Liquidation Amount of the Preferred Securities relating to
the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee, or exercising any trust or power
conferred upon the Guarantee Trustee under this Guarantee Agreement;
and
(iv) no provision of this Guarantee Agreement shall require the
Guarantee Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties
or in the exercise of any of its rights or powers if the
8
<PAGE> 13
Guarantee Trustee shall have reasonable grounds for believing
that the repayment of such funds or liability is not assured to
it under the terms of this Guarantee Agreement or adequate
indemnity against such risk or liability is not reasonably
assured to it.
Section 3.2. Certain Rights of Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) the Guarantee Trustee may conclusively rely and shall be
fully protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document reasonably
believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties;
(ii) any direction or act of the Guarantor contemplated by this
Guarantee Agreement shall be sufficiently evidenced by an Officers'
Certificate unless otherwise prescribed herein;
(iii) whenever, in the administration of this Guarantee
Agreement, the Guarantee Trustee shall deem it desirable that a matter
be proved or established before taking, suffering or omitting to take
any action hereunder, the Guarantee Trustee (unless other evidence is
herein specifically prescribed) may, in the absence of bad faith on
its part, request and conclusively rely upon an Officers' Certificate
which, upon receipt of such request from the Guarantee Trustee, shall
be promptly delivered by the Guarantor;
(iv) the Guarantee Trustee may consult with legal counsel, and
the advice or opinion of such legal counsel with respect to legal
matters shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted to be taken by it
hereunder in good faith and in accordance with such advice or opinion.
Such legal counsel may be legal counsel to the Guarantor or any of its
Affiliates and may be one of its employees. The Guarantee Trustee
shall have the right at any time to seek instructions concerning the
administration of this Guarantee Agreement from any court of competent
jurisdiction;
(v) the Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Guarantee
Agreement at the request or direction of any Holder, unless such
Holder shall have provided to the Guarantee Trustee such security and
indemnity as would satisfy a reasonable person in the position of the
Guarantee Trustee, against the costs, expenses (including attorneys
fees and expenses) and liabilities that might be incurred by it in
complying with such request or direction, including such reasonable
advances as may be requested by the Guarantee Trustee; provided,
however, that nothing herein shall relieve the Guarantee Trustee of
its obligations upon the occurrence of an Event of Default that has
not been cured or waived to exercise the rights and powers vested in
the Guarantee Trustee
9
<PAGE> 14
by this Guarantee, and to use the same degree of care and skill in
exercising such rights and powers as a reasonably prudent person would
use under the circumstances in the conduct of his own affairs;
(vi) the Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Guarantee Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit;
(vii) the Guarantee Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through its agents or attorneys, and the Guarantee Trustee shall
not be responsible for any negligence or willful misconduct on the
part of any such agent or attorney appointed with due care by it
hereunder. Nothing herein shall be construed as limiting or
restricting the right of the Guarantor to bring any action directly
against any agent or attorney appointed by the Guarantee Trustee for
any negligence or willful misconduct on the part of such agent or
attorney; and
(viii) whenever in the administration of this Guarantee Agreement
the Guarantee Trustee shall deem it desirable to receive instructions
with respect to enforcing any remedy or right or taking any other
action hereunder, the Guarantee Trustee (A) may request instructions
from the Holders, (B) may refrain from enforcing such remedy or right
or taking such other action until such instructions are received and
(C) shall be fully protected in acting in accordance with such
instructions.
(b) No provision of this Guarantee Agreement shall be deemed to impose
any duty or obligation on the Guarantee Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it in any
jurisdiction in which it shall be illegal, or in which the Guarantee Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Guarantee Trustee
shall be construed to be a duty to act in accordance with such power and
authority.
Section 3.3. Indemnity.
The Guarantor agrees to indemnify the Guarantee Trustee (which for
purposes of this Section 3.3 shall include its directors, officers, employees
and agents) for, and to hold the Guarantee Trustee harmless against, any loss,
liability or expense incurred without negligence, willful misconduct or bad
faith on the part of the Guarantee Trustee, arising out of or in connection
with the acceptance or administration of this Guarantee Agreement, including
the reasonable costs and expenses of defending against any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The Guarantee Trustee will not claim or exact any lien or charge on
any Guarantee Payments as a result of any amount due to it under this Guarantee
Agreement.
10
<PAGE> 15
Section 3.4. Expenses.
The Guarantor shall from time to time reimburse the Guarantee Trustee
for its reasonable expenses and costs (including reasonable attorneys' or
agents' fees) incurred in connection with the performance of its duties
hereunder.
ARTICLE IV
GUARANTEE TRUSTEE
Section 4.1. Guarantee Trustee; Eligibility.
(a) There shall at all times be a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) 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, and shall be a corporation meeting the
requirements of Section 310(a) of the Trust Indenture Act. If such
corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the supervising or examining
authority, then, for the purposes of this Section and to the extent
permitted by the Trust Indenture Act, the combined capital and surplus
of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so
published.
(b) If at any time the Guarantee Trustee shall cease to be eligible
to so act under Section 4.1(a), the Guarantee Trustee shall immediately resign
in the manner and with the effect set out in Section 4.2(b).
(c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee and Guarantor shall in all respects comply with the
provisions of Section 310(b) of the Trust Indenture Act.
Section 4.2. Appointment, Removal and Resignation of the Guarantee Trustee.
(a) No resignation or removal of the Guarantee Trustee and no
appointment of a Successor Guarantee Trustee pursuant to this Article IV shall
become effective until the acceptance of appointment by the Successor Guarantee
Trustee by written instrument executed by the Successor Guarantee Trustee and
delivered to the Holders and the Guarantee Trustee.
(b) Subject to Section 4.2(a), a Guarantee Trustee may resign at any
time by giving written notice thereof to the Holders. The Guarantee Trustee
shall appoint a successor by requesting
11
<PAGE> 16
from at least three Persons meeting the eligibility requirements such Person's
expenses and charges to serve as the Guarantee Trustee, and selecting the
Person who agrees to the lowest expenses and charges. If the instrument of
acceptance by the Successor Guarantee Trustee shall not have been delivered to
the Guarantee Trustee within 60 days after the giving of such notice of
resignation, the Guarantee Trustee may petition, at the expense of the
Guarantor, any court of competent jurisdiction for the appointment of a
Successor Guarantee Trustee.
(c) The Guarantee Trustee may be removed for cause at any time by Act
(within the meaning of Section 6.8 of the Trust Agreement) of the Holders of at
least a Majority in Liquidation Amount of the Preferred Securities, delivered
to the Guarantee Trustee.
(d) If a resigning Guarantee Trustee shall fail to appoint a
successor, or if a Guarantee Trustee shall be removed or become incapable of
acting as Guarantee Trustee, or if any vacancy shall occur in the office of any
Guarantee Trustee for any cause, the Holders of the Preferred Securities, by
Act of the Holders of record of not less than 25% in aggregate Liquidation
Amount of the Preferred Securities then outstanding delivered to such Guarantee
Trustee, shall promptly appoint a Successor Guarantee Trustee. If no Successor
Guarantee Trustee shall have been so appointed by the Holders of the Preferred
Securities and such appointment accepted by the Successor Guarantee Trustee,
any Holder, on behalf of himself and all others similarly situated, may
petition any court of competent jurisdiction for the appointment of a Successor
Guarantee Trustee.
ARTICLE V
GUARANTEE
Section 5.1. Guarantee.
The Guarantor irrevocably and unconditionally agrees to pay in full on
a subordinated basis as set forth in Section 6.1 hereof to the Holders the
Guarantee Payments (without duplication of amounts theretofore paid by or on
behalf of the Issuer Trust), as and when due, regardless of any defense, right
of set off or counterclaim which the Issuer Trust may have or assert, except
the defense of payment. The Guarantor's obligation to make a Guarantee Payment
may be satisfied by direct payment of the required amounts by the Guarantor to
the Holders or by causing the Issuer Trust to pay such amounts to the Holders.
The Guarantor shall give prompt written notice to the Guarantee Trustee in the
event it makes any direct payment hereunder.
Section 5.2. Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of the Guarantee
Agreement and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the
Guarantee Trustee, the Issuer Trust or any other Person before
12
<PAGE> 17
proceeding against the Guarantor, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
Section 5.3. Obligations Not Affected.
The obligations, covenants, agreements and duties of the Guarantor
under this Guarantee Agreement shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer Trust of any express or implied
agreement, covenant, term or condition relating to the Preferred Securities to
be performed or observed by the Issuer Trust;
(b) the extension of time for the payment by the Issuer Trust of all
or any portion of the Distributions (other than an extension of time for
payment of Distributions that results from the extension of any interest
payment period on the Junior Subordinated Debentures as so provided in the
Indenture), Redemption Price, Liquidation Distribution or any other sums
payable under the terms of the Preferred Securities or the extension of time
for the performance of any other obligation under, arising out of, or in
connection with, the Preferred Securities;
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Holders pursuant to the terms of the Preferred
Securities, or any action on the part of the Issuer Trust granting indulgence
or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or readjustment
of debt of, or other similar proceedings affecting, the Issuer Trust or any of
the assets of the Issuer Trust;
(e) any invalidity of, or defect or deficiency in, the Preferred
Securities;
(f) the settlement or compromise of any obligation guaranteed hereby
or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute
a legal or equitable discharge or defense of a guarantor (other than payment of
the underlying obligation), it being the intent of this Section 5.3 that the
obligations of the Guarantor hereunder shall be absolute and unconditional
under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or
obtain the consent of, the Guarantor with respect to the happening of any of
the foregoing.
13
<PAGE> 18
Section 5.4. Rights of Holders.
The Guarantor expressly acknowledges that: (a) this Guarantee
Agreement will be deposited with the Guarantee Trustee to be held for the
benefit of the Holders; (b) the Guarantee Trustee has the right to enforce this
Guarantee Agreement on behalf of the Holders; (c) the Holders of a Majority in
Liquidation Amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Guarantee Trustee in respect of this Guarantee Agreement or exercising any
trust or power conferred upon the Guarantee Trustee under this Guarantee
Agreement; and (d) any Holder may institute a legal proceeding directly against
the Guarantor to enforce its rights under this Guarantee Agreement, without
first instituting a legal proceeding against the Guarantee Trustee, the Issuer
Trust or any other Person.
Section 5.5. Guarantee of Payment.
This Guarantee Agreement creates a guarantee of payment and not of
collection. This Guarantee Agreement will not be discharged except by payment
of the Guarantee Payments in full (without duplication of amounts theretofore
paid by the Issuer Trust) or upon the distribution of Junior Subordinated
Debentures to Holders as provided in the Trust Agreement.
Section 5.6. Subrogation.
The Guarantor shall be subrogated to all rights (if any) of the
Holders against the Issuer Trust in respect of any amounts paid to the Holders
by the Guarantor under this Guarantee Agreement; provided, however, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any rights which it may acquire by way
of subrogation or any indemnity, reimbursement or other agreement, in all cases
as a result of payment under this Guarantee Agreement, if at the time of any
such payment, any amounts are due and unpaid under this Guarantee Agreement. If
any amount shall be paid to the Guarantor in violation of the preceding
sentence, the Guarantor agrees to hold such amount in trust for the Holders and
to pay over such amount to the Holders.
Section 5.7. Independent Obligations.
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer Trust with respect to the
Preferred Securities and that the Guarantor shall be liable as principal and as
debtor hereunder to make Guarantee Payments pursuant to the terms of this
Guarantee Agreement notwithstanding the occurrence of any event referred to in
subsections (a) through (g), inclusive, of Section 5.3 hereof.
14
<PAGE> 19
ARTICLE VI
COVENANTS AND SUBORDINATION
Section 6.1. Subordination.
This Guarantee Agreement will constitute an unsecured obligation of
the Guarantor and will rank subordinate and junior in right of payment to all
Senior Indebtedness of the Guarantor to the extent and in the manner set forth
in the Indenture with respect to the Junior Subordinated Debentures, and the
provisions of Article XIII of the Indenture will apply, mutatis mutandis, to
the obligations of the Guarantor hereunder. The obligations of the Guarantor
hereunder do not constitute Senior Indebtedness of the Guarantor.
Section 6.2. Pari Passu Guarantees.
The obligations of the Guarantor under this Guarantee Agreement shall
rank pari passu with any similar guarantee agreements issued by the Guarantor
on behalf of the holders of preferred or capital securities issued by the
Issuer Trust and with any other security, guarantee or other obligation that is
expressly stated to rank pari passu with the obligations of the Guarantor under
this Guarantee Agreement.
ARTICLE VII
TERMINATION
Section 7.1. Termination.
This Guarantee Agreement shall terminate and be of no further force
and effect upon (a) full payment of the Redemption Price of all Preferred
Securities, (b) the distribution of Junior Subordinated Debentures to the
Holders in exchange for all of the Preferred Securities or (c) full payment of
the amounts payable in accordance with Article IX of the Trust Agreement upon
liquidation of the Issuer Trust. Notwithstanding the foregoing, this Guarantee
Agreement will continue to be effective or will be reinstated, as the case may
be, if at any time any Holder is required to repay any sums paid with respect
to the Preferred Securities or this Guarantee Agreement.
15
<PAGE> 20
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Successors and Assigns.
All guarantees and agreements contained in this Guarantee Agreement
shall bind the successors, assigns, receivers, trustees and representatives of
the Guarantor and shall inure to the benefit of the Holders of the Preferred
Securities then outstanding. Except in connection with a consolidation, merger
or sale involving the Guarantor that is permitted under Article VIII of the
Indenture and pursuant to which the assignee agrees in writing to perform the
Guarantor's obligations hereunder, the Guarantor shall not assign its
obligations hereunder, and any purported assignment that is not in accordance
with these provisions shall be void.
Section 8.2. Amendments.
Except with respect to any changes that do not materially adversely
affect the rights of the Holders (in which case no consent of the Holders will
be required), this Guarantee Agreement may only be amended with the prior
approval of the Holders of not less than a Majority in Liquidation Amount of
the Preferred Securities. The provisions of Article VI of the Trust Agreement
concerning meetings of the Holders shall apply to the giving of such approval.
Section 8.3. Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, telecopied (confirmed by delivery of the original) or
mailed by first class mail as follows:
(a) if given to the Guarantor, to the address or telecopy number set
forth below or such other address or telecopy number or to the attention of
such other Person as the Guarantor may give notice to the Holders:
Northeast Bancorp
232 Center Street
Auburn, Maine 04210
Facsimile No.: (207) 777-6410
Attention: Office of the President
(b) if given to the Issuer Trust, in care of the Guarantee Trustee,
at the Issuer Trust's (and the Guarantee Trustee's) address set forth below or
such other address or telecopy number or to the attention of such other Person
as the Guarantee Trustee on behalf of the Issuer Trust may give notice to the
Holders:
16
<PAGE> 21
NBN Capital Trust
Northeast Bancorp
232 Center Street
Auburn, Maine 04210
Facsimile No.: (207) 777-6410
Attention: Office of the President
with a copy to:
Bankers Trust Company
Four Albany Street 4th Floor
New York, New York 10006
Facsimile No.: (212) 250-6961
Attention: Corporate Trust and Agency
Group; Corporate Market Services
(c) if given to the Guarantee Trustee:
Bankers Trust Company
Four Albany Street 4th Floor
New York, New York 10006
Facsimile No.: (212) 250-6961
Attention: Corporate Trust and Agency
Group Corporate Market Services
(d) if given to any Holder, at the address set forth on the books and
records of the Issuer Trust.
All notices hereunder shall be deemed to have been given when received
in person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
Section 8.4. Benefit.
This Guarantee Agreement is solely for the benefit of the Holders and
is not separately transferable from the Preferred Securities.
Section 8.5. Interpretation.
In this Guarantee Agreement, unless the context otherwise requires:
17
<PAGE> 22
(a) capitalized terms used in this Guarantee Agreement but not
defined in the preamble hereto have the respective meanings assigned to them in
Section 1.1;
(b) a term defined anywhere in this Guarantee Agreement has the same
meaning throughout;
(c) all references to "the Guarantee Agreement" or "this Guarantee
Agreement" are to this Guarantee Agreement as modified, supplemented or amended
from time to time;
(d) all references in this Guarantee Agreement to Articles and
Sections are to Articles and Sections of this Guarantee Agreement unless
otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning
when used in this Guarantee Agreement unless otherwise defined in this
Guarantee Agreement or unless the context otherwise requires;
(f) a reference to the singular includes the plural and vice versa;
and
(g) the masculine, feminine or neuter genders used herein shall
include the masculine, feminine and neuter genders.
Section 8.6. Governing Law.
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICT OF LAW PRINCIPLES THEREOF.
Section 8.7. Counterparts.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
18
<PAGE> 23
THIS GUARANTEE AGREEMENT is executed as of the day and year first
above written.
NORTHEAST BANCORP
as Guarantor
By:
----------------------------------
James D. Delamater
Its: President and CEO
BANKERS TRUST COMPANY
as Guarantee Trustee and not in its
individual capacity
By:
----------------------------------
Susan Johnson
Its: Assistant Vice President
19
<PAGE> 1
EXHIBIT 5.1
CARLTON FIELDS
ATTORNEYS AT LAW
ONE HARBOUR PLACE MAILING ADDRESS:
777 S. HARBOUR ISLAND BOULEVARD P.O. BOX 3239, TAMPA, FL 33601-3239
TAMPA, FLORIDA 33602-5799 TEL (813) 223-7000 FAX (813) 229-4133
October 12, 1999
Northeast Bancorp
232 Center Street
Auburn, Maine 04210
Attention: Board of Directors
NBN Capital Trust
c/o Northeast Bancorp
232 Center Street
Auburn, Maine 04210
Attention: Administrators
RE: NBN CAPITAL TRUST
$12,075,000 LIQUIDATION AMOUNT
OF PREFERRED SECURITIES
Ladies and Gentlemen:
We have acted as counsel to Northeast Bancorp, a Maine corporation
(the "Company"), in connection with the preparation and filing by the Company
and NBN Capital Trust, a Delaware statutory business trust (the "Trust"), of a
registration statement on Form S-2 (the "Registration Statement"), with the
United States Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Act"), with respect to the offer and sale of certain of
the Trust's Preferred Securities (liquidation amount $10 per Preferred
Security) (the "Preferred Securities") and certain of the Company's Junior
Subordinated Debentures (the "Debentures") and the related Guarantee Agreement
(the "Guarantee") by and between the Company and the Bankers Trust Company, as
trustee (the "Trustee"). In connection therewith, you have requested our
opinion as to certain matters referred to below.
In our capacity as such counsel, we have familiarized ourselves with
the actions taken by the Company in connection with the registration of the
Debentures and the Guarantee. We have examined originals or copies, certified
or otherwise identified to our satisfaction, of such records,
<PAGE> 2
Northeast Bancorp
NBN Capital Trust
October 12, 1999
Page 2
agreements, certificates or comparable documents of public officials and
others, and such other documents as we have deemed relevant and necessary as a
basis for the opinions hereinafter expressed, including, without limitation,
(i) the Articles of Incorporation and Bylaws of the Company, (ii) the form of
Preferred Securities, (iii) the form of Debenture and Guarantee, (iv) the form
of the Junior Subordinated Debenture Indenture (the "Indenture") between the
Company and the Trustee, as trustee, (v) the opinion of Lipman & Katz, P.A.,
Augusta, Maine, relating to certain Maine corporate law matters, and (v) the
Registration Statement.
In our examination, we have assumed legal capacity of all natural
persons, the genuineness of all signatures on original documents, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all copies submitted to us as conformed or photostatic
copies, the authenticity of the originals of such latter documents, and the
accuracy and completeness of all corporate records made available to us by the
Company and the Trust. We also have assumed the authority of such persons
signing on behalf of parties thereto other than the Company or the Trust, and
the due authorization, execution, and delivery of all documents by the parties
thereto other than the Company or the Trust.
Based upon and subject to the foregoing, we are of the opinion that
the Guarantee, when executed and delivered as contemplated by the Registration
Statement, and the Debentures, when issued and paid for as contemplated by the
Registration Statement, subject to (i) the effectiveness of the Registration
Statement by order of the Securities and Exchange Commission, (ii) compliance
with the terms of the Indenture, and (iii) compliance with applicable state
securities laws, the Debentures and the Guarantee will be validly issued and
binding obligations of the Company, enforceable in accordance with their terms,
except as may be limited by bankruptcy, insolvency, moratorium, reorganization,
or similar laws relating to or affecting the enforcement of creditors' rights
generally or the rights of creditors of bank holding companies, the accounts of
whose subsidiaries are insured by the Federal Deposit Insurance Corporation, or
by general equity principles, regardless of whether such obligation is
considered in a proceeding in equity or at law.
The opinion set forth above is subject to the exception that we
express no opinion as to the present or future value of any Debentures or the
Guarantee issued or delivered as described above or in the Registration
Statement.
We are attorneys admitted to practice in the State of Florida and,
accordingly, our opinion is limited to the laws of the State of Florida, the
General Corporation Law of the State of Delaware, and with the federal laws of
the United States of America. With respect to the Debentures and the Guarantee,
which are stated to be governed by the laws of the State of New York, we have
assumed with your consent that such laws are the same as the laws of the State
of Florida with respect to the legal, valid, and binding nature of the
Debentures and the Guarantee.
This opinion is rendered to you and for your benefit solely in
connection with the registration of the Debentures and the execution and
delivery of the Guarantee. This opinion may not be relied
<PAGE> 3
Northeast Bancorp
NBN Capital Trust
October 12, 1999
Page 3
upon by you for any other purpose and may not be relied upon by, nor may copies
thereof be provided to, any other person, firm, corporation or entity for any
purposes whatsoever without our prior written consent. We hereby consent to be
named in the Registration Statement and in the Prospectus as the attorneys who
passed upon the legality of the Debentures and the Guarantee, and to the filing
of a copy of this opinion as an exhibit to the Registration Statement. Unless
the prior written consent of our firm is obtained, this opinion is not to be
quoted or otherwise referred to in any written report, proxy statement or other
registration statement, nor is it to be filed with or furnished to any other
governmental agency or other person, except as otherwise required by law.
Very truly yours,
CARLTON, FIELDS, WARD, EMMANUEL,
SMITH & CUTLER, P.A.
By: /s/ Richard A. Denmon
-------------------------------
Richard A. Denmon
<PAGE> 4
(LIPMAN & KATZ, P. A. LETTERHEAD)
October 12, 1999
Northeast Bancorp
232 Center Street
Auburn, Maine 04210
Attention: Board of Directors
NBN Capital Trust
c/o Northeast Bancorp
232 Center Street
Auburn, Maine 04210
Attention: Administrators
Carlton Fields Ward Emmanuel Smith & Cutler., P.A.
One Harbour Place
777 South Harbour Island Boulevard
Tampa, Florida 33602
RE: NORTHEAST BANCORP
NBN CAPITAL TRUST
$12,075,000 LIQUIDATION AMOUNT OF TRUST PREFERRED SECURITIES
REGISTRATION STATEMENT ON FORM S-2
Gentlemen:
We have acted as limited special corporate counsel to Northeast
Bancorp, a Maine corporation (the "Company"), in connection with the
Registration Statement on Form S-2 (the "Registration Statement") of the
Company and NBN Capital Trust, a Delaware business trust (the "Trust") to be
filed with the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended, with respect to the
offer and sale of certain of the Trust's Preferred Securities (liquidation
amount $10 per Preferred Security) and certain of the Company's Junior
Subordinated Debentures (the "Debentures") and the related Guarantee Agreement
(the "Guarantee") by and between the Company and the Bankers Trust Company, as
trustee (the "Trustee"). In connection therewith, you have requested our
opinion as to certain matters referred to below. The Debentures and the
Guarantee are referred to together herein as the "Indenture Obligations".
<PAGE> 5
In connection with this opinion, we have examined the copies of (a)
the Junior Subordinated Indenture pursuant to which the Debenture will be
issued, (b) the Guarantee, and (c) the Registration Statement, in the
substantially the form in which it will be filed with the Commission on October
12, 1999 and the Prospectus which is a part thereof. In addition, we have
examined and are familiar with originals or copies, certified or otherwise
identified to our satisfaction, of all such corporate records, instruments, and
documents of the Company, certificates of public, and other certificates and
documents as we have deemed appropriate for rendering our opinions set forth
below.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents to us as certified or photostatic copies and the authenticity of the
original of such documents. As to any facts material to the opinions expressed
below, with your permission we have relied solely upon, without independent
verification or investigation of the accuracy or completeness hereof,
statements and representations of the officers and other representatives of the
Company.
Based solely on the foregoing, and in reliance thereon, and subject to
the limitations, qualifications and exceptions set forth herein, we are of the
opinion that:
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Maine and has the requisite
corporate power and authority to own its properties and to conduct its business
as described in the Registration Statement.
2. The Company has the full power and authority (corporate and other)
to execute, deliver, and perform its obligations under each of the Indenture
Obligations. The execution and delivery by the Company of each of the Indenture
Obligations and the performance by the Company of its obligations thereunder
have been duly authorized by all requisite corporate action on the part of the
Company.
3. Neither the execution and delivery of the Indenture Obligations,
nor the performance by the Company of its obligations thereunder or
contemplated therein, will conflict with, or result in a violation of the
Articles of Incorporation or Bylaws of the Company or the Maine General
Corporation Law.
The opinions set forth above are subject to the following limitations,
qualifications, and exceptions:
A. We express no opinion as to the law of any jurisdiction, except the
laws of the State of Maine and, where applicable, the laws of the United States
of America to the extent specifically provided above.
B. Without limiting the generality of the foregoing, we express no
opinion as to the applicability of any securities laws or regulations except to
the extent specifically provided above in this opinion, or bankruptcy or
solvency laws or regulations, or environmental law or regulations of the United
States of America or any state or other jurisdiction.
2
<PAGE> 6
This opinion is limited to the laws in effect as of the date hereof
and is intended solely for your benefit, and can be relied upon solely by you.
This opinion is not to be furnished, quoted, or referenced to anyone else,
including any governmental agency, without the prior written consent of this
firm. We hereby consent to be named in the Registration Statement and in the
Prospectus as the attorneys who passed upon the legality of the Debentures and
the Guarantee, and to the filing of a copy of this opinion as an exhibit to the
Registration Statement. Unless the prior written consent of our firm is
obtained, this opinion is not to be quoted or otherwise referred to in any
written report, proxy statement or other registration statement, nor is it to
be filed with or furnished to any other governmental agency or other person,
except as otherwise required by law.
Very truly yours,
LIPMAN & KATZ, P.A.
By: /s/ Sumner H. Lipman
----------------------------------
Sumner H. Lipman
<PAGE> 1
EXHIBIT 5.2
(Letterhead of Richards, Layton & Finger)
October 12, 1999
NBN Capital Trust
c/o Northeast Bancorp
232 Center Street
Auburn, Maine 04210
Re: NBN Capital Trust
Ladies and Gentlemen:
We have acted as special Delaware counsel for Northeast Bancorp, a
Maine corporation (the "Company"), and NBN Capital Trust, a Delaware business
trust (the "Trust"), in connection with the matters set forth herein. At your
request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust, dated as of October 4, 1999
(the "Certificate"), as filed in the office of the Secretary of State of the
State of Delaware (the "Secretary of State") on October 4, 1999;
(b) The Trust Agreement of the Trust, dated as of October 4, 1999,
among the Company, as depositor, and the trustees of the Trust named therein;
(c) The Registration Statement (the "Registration Statement") on Form
S-2, including a preliminary prospectus (the "Prospectus"), relating to the __%
Preferred Securities of the Trust representing preferred undivided beneficial
interests in the assets of the Trust (each, a "Preferred Security" and
collectively, the "Preferred Securities"), as proposed to be filed by the
Company and the Trust with the Securities and Exchange Commission on or about
October 12, 1999;
(d) A form of Amended and Restated Trust Agreement of the Trust, to be
entered into among the Company, as depositor, the trustees of the Trust named
therein, the
<PAGE> 2
NBN Capital Trust
October 12, 1999
Page 2
Administrators named therein and the holders, from time to time, of undivided
beneficial interests in the assets of the Trust (including Exhibits A, C and D
thereto) (the "Trust Agreement"), attached as an exhibit to the Registration
Statement; and
(e) A Certificate of Good Standing for the Trust, dated
October 12, 1999, obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise
defined are used as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any
documents other than the documents listed in paragraphs (a) through (e) above.
In particular, we have not reviewed any document (other than the documents
listed in paragraphs (a) through (e) above) that is referred to in or
incorporated by reference into the documents reviewed by us. We have assumed
that there exists no provision in any document that we have not reviewed that
is inconsistent with the opinions stated herein. We have conducted no
independent factual investigation of our own but rather have relied solely upon
the foregoing documents, the statements and information set forth therein and
the additional matters recited or assumed herein, all of which we have assumed
to be true, complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed
(i) the authenticity of all documents submitted to us as authentic originals,
(ii) the conformity with the originals of all documents submitted to us as
copies or forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the
Trust Agreement and the Certificate are in full force and effect and have not
been amended, (ii) except to the extent provided in paragraph 1 below, the due
creation or due organization or due formation, as the case may be, and valid
existence in good standing of each party to the documents examined by us under
the laws of the jurisdiction governing its creation, organization or formation,
(iii) the legal capacity of natural persons who are parties to the documents
examined by us, (iv) that each of the parties to the documents examined by us
has the power and authority to execute and deliver, and to perform its
obligations under, such documents, (v) the due authorization, execution and
delivery by all parties thereto of all documents examined by us, (vi) the
receipt by each Person to whom a Preferred Security is to be issued by the
Trust (collectively, the "Preferred Security Holders") of a Preferred
Securities Certificate for such Preferred Security and the payment for the
Preferred Security acquired by it, in accordance with the Trust Agreement and
the Registration Statement, and (vii) that the Preferred Securities are issued
and sold to the Preferred Security Holders in accordance with the Trust
Agreement and the Registration Statement. We have not participated in the
preparation of the Registration Statement and assume no responsibility for its
contents.
<PAGE> 3
NBN Capital Trust
October 12, 1999
Page 3
This opinion is limited to the laws of the State of Delaware
(excluding the securities laws of the State of Delaware), and we have not
considered and express no opinion on the laws of any other jurisdiction,
including federal laws and rules and regulations relating thereto. Our opinions
are rendered only with respect to Delaware laws and rules, regulations and
orders thereunder that are currently in effect.
Based upon the foregoing, and upon our examination of such
questions of law and statutes of the State of Delaware as we have considered
necessary or appropriate, and subject to the assumptions, qualifications,
limitations and exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in
good standing as a business trust under the Delaware Business Trust Act.
2. The Preferred Securities will represent valid and, subject
to the qualifications set forth in paragraph 3 below, fully paid and
nonassessable undivided beneficial interests in the assets of the Trust.
3. The Preferred Security Holders, as beneficial owners of
the Trust, will be entitled to the same limitation of personal liability
extended to stockholders of private corporations for profit organized under the
General Corporation Law of the State of Delaware. We note that the Preferred
Security Holders may be obligated to make payments as set forth in the Trust
Agreement.
We consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement. In
addition, we hereby consent to the use of our name under the heading "Validity
of Securities" in the Prospectus. In giving the foregoing consents, we do not
thereby admit that we come within the category of Persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Except as stated above, without our prior written consent, this opinion may not
be furnished or quoted to, or relied upon by, any other Person for any purpose.
Very truly yours,
/s/ Richards, Layton & Finger, P.A.
-----------------------------------
Richards, Layton & Finger, P.A.
BJK/MVP
<PAGE> 1
EXHIBIT 8.1
CARLTON FIELDS
ATTORNEYS AT LAW
ONE HARBOUR PLACE MAILING ADDRESS:
777 S. HARBOUR ISLAND BOULEVARD P.O. BOX 3239, TAMPA, FL 33601-3239
TAMPA, FLORIDA 33602-5799 TEL (813) 223-7000 FAX (813) 229-4133
October 12, 1999
Northeast Bancorp
232 Center Street
Auburn, Maine 04210
NBN Capital Trust
c/o Northeast Bancorp
232 Center Street
Auburn, Maine 04210
Ladies and Gentlemen:
We have acted as counsel to Northeast Bancorp, a Maine corporation
(the "Company"), and to NBN Capital Trust, a Delaware statutory business trust
(the "Trust"), in connection with the registration statement of the Company and
the Trust on Form S-2 (the "Registration Statement"), of which a prospectus
("Prospectus") is a part, filed by the Company and the Trust with the United
States Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"). This opinion is furnished pursuant to the
requirements of Item 601(b)(8) of Regulation S-K promulgated under the
Securities Act.
For the purposes of rendering this opinion, we have reviewed and
relied upon the Registration Statement and such other documents and instruments
as we deemed necessary for the rendering of this opinion. In our examination of
relevant documents, we have assumed the legal capacity of all natural persons,
genuineness of all signatures on original documents, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as copies, the authenticity of such copies, and
the accuracy and completeness of all corporate records made available to us by
the Company and the Trust. We
<PAGE> 2
Northeast Bancorp
NBN Capital Trust
October 12, 1999
Page 2
also have assumed the authority of such persons signing on behalf of the
parties thereto other than the Company or the Trust, the due authorization,
execution, and delivery of all documents by parties thereto other than the
Company or the Trust.
Based solely on (a) the foregoing and (b) our review of such documents
and upon such information as the Company has provided to us (which we have not
attempted to verify in any respect), and in reliance upon such documents and
information, subject to the qualifications hereinafter expressed, we are of the
opinion that the statements contained in the Prospectus under the caption
"Certain Federal Income Tax Consequences" describing certain federal income tax
consequences to holders of the Preferred Securities, as qualified therein,
constitute an accurate description in general terms of the indicated United
States federal income tax consequences to such holders.
Our opinion is limited to the federal income tax matters described
above and does not address any other federal income tax considerations or any
state, local, foreign, or other tax considerations. If any of the information
on which we have relied is incorrect, or if changes in the relevant facts occur
after the date hereof, our opinion could be affected thereby. Moreover, our
opinion is based on the Internal Revenue Code of 1986, as amended, applicable
Treasury regulations promulgated thereunder, and Internal Revenue Service
rulings, procedures, and other pronouncements published by the United States
Internal Revenue Service. These authorities are all subject to change, and such
change may be made with retroactive effect. We can give no assurance that,
after such change, our opinion would not be different. We undertake no
responsibility to update or supplement our opinion. This opinion is not binding
on the Internal Revenue Service, and there can be no assurance, and none is
hereby given, that the Internal Revenue Service will not take a position
contrary to one or more of the positions reflected in the foregoing opinion, or
that our opinion will be upheld by the courts if challenged by the Internal
Revenue Service.
We are attorneys admitted to practice in the State of Florida and,
accordingly, we express no opinion with respect to matters governed by the laws
of any jurisdiction other than the federal laws of the United States or the
internal laws of the State of Florida, and we assume no responsibility as to
the applicability of the laws of any other jurisdiction to the subject matter
hereof or to the effects of such laws thereon.
This opinion is rendered to you and for your benefit solely in
connection with the filing of the Registration Statement. This opinion may not
be relied upon by you for any other purpose and may not be relied upon by, nor
may copies thereof be provided to, any other person, firm, corporation or
entity for any purpose whatsoever without our prior written consent. We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement. We also consent to the use of our name in the Prospectus under the
caption "Certain Federal Income Tax
<PAGE> 3
Northeast Bancorp
NBN Capital Trust
October 12, 1999
Page 3
Consequences." Unless prior written consent of our firm is obtained, this
opinion is not to be quoted or otherwise referred to in any report, proxy
statement or other registration statement, nor is it to be filed with or
furnished to any other governmental agency or any person, except as otherwise
required by law.
Sincerely,
CARLTON, FIELDS, WARD, EMMANUEL,
SMITH & CUTLER, P.A.
By: /s/ Richard A. Denmon
-------------------------------
Richard A. Denmon
<PAGE> 1
EXHIBIT 12
<TABLE>
<CAPTION>
For Year Ended June 30,
----------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
RATIOS OF EARNINGS TO FIXED CHARGES
Including interest on deposits
1. Income before income taxes $ 3,843 $ 3,707 $ 2,399 $ 2,031 $ 2,507
2. Interest expense 14,550 12,810 11,291 10,087 8,841
------ ------ ------ ------ ------
3. Adjusted Earnings 18,393 16,517 13,690 12,118 11,348
------ ------ ------ ------ ------
4. Ratio of earnings to fixed charges including interest on
deposits (line 3/line 2) 128.41% 128.94% 121.25% 120.13% 128.36%
RATIOS OF EARNINGS TO FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS
1. Interest expense $14,550 $12,810 $11,291 $10,087 $ 8,841
2. Interest expense - deposits 8,680 7,587 7,103 7,348 6,185
------ ------ ------ ------ ------
3. Interest expense excluding interest expense - deposits
(line 1 - line 2) 5,870 5,223 4,186 2,739 2,656
------ ------ ------ ------ ------
4. Income before income taxes 3,843 3,707 2,399 2,031 2,507
5. Interest expense excluding interest expense - deposits
(line 3) 5,870 5,223 4,188 2,739 2,653
------ ------ ------ ------ ------
6. Adjusted Earnings 9,713 8,930 6,587 4,770 5,160
------ ------ ------ ------ ------
7. Ratio of earnings to fixed charges excluding interest on
deposits (line 6/line 3) 165.47% 170.97% 157.28% 174.15% 194.50%
</TABLE>
Notes
1. Interest expense is the only element of fixed charges as defined in
Regulation S-K.
2. Fixed charges represent the only element to be added to pre-tax income to
arrive at adjusted earnings as defined in Regulation S-K.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated July 30, 1999, in the Registration Statement (Form S-2)
and related Prospectus of Northeast Bancorp for the registration of $12,075,000
of preferred securities.
/s/ Baker Newman & Noyes
Portland, Maine -----------------------------
October 7, 1999 Baker Newman & Noyes
Limited Liability Company
<PAGE> 1
EXHIBIT 25.1
------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT
TO SECTION 305(b)(2)__________
------------------------------
BANKERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
NEW YORK 13-4941247
(Jurisdiction of Incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification no.)
FOUR ALBANY STREET
NEW YORK, NEW YORK 10006
(Address of principal (Zip Code)
executive offices)
BANKERS TRUST COMPANY
LEGAL DEPARTMENT
130 LIBERTY STREET, 31ST FLOOR
NEW YORK, NEW YORK 10006
(212) 250-2201
(Name, address and telephone number of agent for service)
---------------------------------
NBN CAPITAL TRUST (TO BE APPLIED FOR)
NORTHEAST BANCORP 65-0624640
(Exact name of Registrants as (I.R.S. Employer Identification
specified in its Charter) Number)
232 CENTER STREET
AUBURN, MAINE 04210
(207) 777- 6411
(Address, including zip code, and telephone number of Registrants
principal executive offices)
___% PREFERRED SECURITIES OF NBN CAPITAL TRUST
(Title of the indenture securities)
<PAGE> 2
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee.
(a) Name and address of each examining or supervising authority to
which it is subject.
<TABLE>
<CAPTION>
<C> <C>
NAME ADDRESS
---- -------
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New York State Banking Department Albany, NY
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the Trustee, describe each such
affiliation.
None.
ITEM 3.-15. NOT APPLICABLE
ITEM 16. LIST OF EXHIBITS.
EXHIBIT 1 - Restated Organization Certificate of Bankers Trust
Company dated August 6, 1998, Certificate of
Amendment of the Organization Certificate of Bankers
Trust Company dated September 25, 1998, and
Certificate of Amendment of the Organization
Certificate of Bankers Trust Company dated December
18, 1998, copies attached.
EXHIBIT 2 - Certificate of Authority to commence business -
Incorporated herein by reference to Exhibit 2 filed
with Form T-1 Statement, Registration No. 33-21047.
EXHIBIT 3 - Authorization of the Trustee to exercise corporate
trust powers - Incorporated herein by reference to
Exhibit 2 filed with Form T-1 Statement, Registration
No. 33-21047.
EXHIBIT 4 - Existing By-Laws of Bankers Trust Company, as amended
on June 22, 1999. Copy attached.
-2-
<PAGE> 3
EXHIBIT 5 - Not applicable.
EXHIBIT 6 - Consent of Bankers Trust Company required by Section
321(b) of the Act. - Incorporated herein by reference
to Exhibit 4 filed with Form T-1 Statement,
Registration No. 22-18864.
EXHIBIT 7 - The latest report of condition of Bankers Trust
Company dated as of June 30, 1999. Copy attached.
EXHIBIT 8 - Not Applicable.
EXHIBIT 9 - Not Applicable.
-3-
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in The City of New York, and State of New York, on this 6th day
of October , 1999
BANKERS TRUST COMPANY
By: /s/ Susan Johnson
---------------------------------
Susan Johnson
Assistant Vice President
-4-
<PAGE> 5
State of New York,
Banking Department
I, MANUEL KURSKY, Deputy Superintendent of Banks of the State of New
York, DO HEREBY APPROVE the annexed Certificate entitled "CERTIFICATE OF
AMENDMENT OF THE ORGANIZATION CERTIFICATE OF BANKERS TRUST COMPANY UNDER SECTION
8005 OF THE BANKING Law," dated September 16, 1998, providing for an increase in
authorized capital stock from $3,001,666,670 consisting of 200,166,667 shares
with a par value of $10 each designated as Common Stock and 1,000 shares with a
par value of $1,000,000 each designated as Series Preferred Stock to
$3,501,666,670 consisting of 200,166,667 shares with a par value of $10 each
designated as Common Stock and 1,500 shares with a par value of $1,000,000 each
designated as Series Preferred Stock.
WITNESS, my hand and official seal of the Banking Department at the City of New
York,
this 25TH day of SEPTEMBER in the Year of our Lord
one thousand nine hundred and NINETY-EIGHT.
Manuel Kursky
------------------------------
Deputy Superintendent of Banks
<PAGE> 6
RESTATED
ORGANIZATION
CERTIFICATE
OF
BANKERS TRUST COMPANY
----------------------------
Under Section 8007
Of the Banking Law
----------------------------
Bankers Trust Company
130 Liberty Street
New York, N.Y. 10006
Counterpart Filed in the Office of the Superintendent of Banks, State of New
York, August 31, 1998
<PAGE> 7
RESTATED ORGANIZATION CERTIFICATE
OF
BANKERS TRUST
Under Section 8007 of the Banking Law
-----------------------------
We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a Managing
Director and an Assistant Secretary and a Vice President and an Assistant
Secretary of BANKERS TRUST COMPANY, do hereby certify:
1. The name of the corporation is Bankers Trust Company.
2. The organization certificate of the corporation was filed by
the Superintendent of Banks of the State of New York on the March 5, 1903.
3. The text of the organization certificate, as amended
heretofore, is hereby restated without further amendment or change to read as
herein set forth in full, to wit:
"Certificate of Organization
of
Bankers Trust Company
Know All Men By These Presents That we, the undersigned, James A.
Blair, James G. Cannon, E. C. Converse, Henry P. Davison, Granville W. Garth, A.
Barton Hepburn, Will Logan, Gates W. McGarrah, George W. Perkins, William H.
Porter, John F. Thompson, Albert H. Wiggin, Samuel Woolverton and Edward F. C.
Young, all being persons of full age and citizens of the United States, and a
majority of us being residents of the State of New York, desiring to form a
corporation to be known as a Trust Company, do hereby associate ourselves
together for that purpose under and pursuant to the laws of the State of New
York, and for such purpose we do hereby, under our respective hands and seals,
execute and duly acknowledge this Organization Certificate in duplicate, and
hereby specifically state as follows, to wit:
I. The name by which the said corporation shall be known is
Bankers Trust Company.
II. The place where its business is to be transacted is the City
of New York, in the State of New York.
III. Capital Stock: The amount of capital stock which the
corporation is hereafter to have is Three Billion One Million, Six Hundred
Sixty-Six Thousand, Six Hundred Seventy Dollars ($3,001,666,670), divided into
Two Hundred Million, One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven
(200,166,667) shares with a par value of $10 each designated as Common Stock and
1,000 shares with a par value of One Million Dollars ($1,000,000) each
designated as Series Preferred Stock.
(a) Common Stock
<PAGE> 8
1. Dividends: Subject to all of the rights of the Series
Preferred Stock, dividends may be declared and paid or set apart for payment
upon the Common Stock out of any assets or funds of the corporation legally
available for the payment of dividends.
2. Voting Rights: Except as otherwise expressly provided with
respect to the Series Preferred Stock or with respect to any series of the
Series Preferred Stock, the Common Stock shall have the exclusive right to vote
for the election of directors and for all other purposes, each holder of the
Common Stock being entitled to one vote for each share thereof held.
3. Liquidation: Upon any liquidation, dissolution or winding up
of the corporation, whether voluntary or involuntary, and after the holders of
the Series Preferred Stock of each series shall have been paid in full the
amounts to which they respectively shall be entitled, or a sum sufficient for
the payment in full set aside, the remaining net assets of the corporation shall
be distributed pro rata to the holders of the Common Stock in accordance with
their respective rights and interests, to the exclusion of the holders of the
Series Preferred Stock.
4. Preemptive Rights: No holder of Common Stock of the corporation shall
be entitled, as such, as a matter of right, to subscribe for or purchase any
part of any new or additional issue of stock of any class or series whatsoever,
any rights or options to purchase stock of any class or series whatsoever, or
any securities convertible into, exchangeable for or carrying rights or options
to purchase stock of any class or series whatsoever, whether now or hereafter
authorized, and whether issued for cash or other consideration, or by way of
dividend or other distribution.
(b) Series Preferred Stock
1. Board Authority: The Series Preferred Stock may be issued from
time to time by the Board of Directors as herein provided in one or more series.
The designations, relative rights, preferences and limitations of the Series
Preferred Stock, and particularly of the shares of each series thereof, may, to
the extent permitted by law, be similar to or may differ from those of any other
series. The Board of Directors of the corporation is hereby expressly granted
authority, subject to the provisions of this Article III, to issue from time to
time Series Preferred Stock in one or more series and to fix from time to time
before issuance thereof, by filing a certificate pursuant to the Banking Law,
the number of shares in each such series of such class and all designations,
relative rights (including the right, to the extent permitted by law, to convert
into shares of any class or into shares of any series of any class), preferences
and limitations of the shares in each such series, including, buy without
limiting the generality of the foregoing, the following:
(i) The number of shares to constitute such series (which
number may at any time, or from time to time, be increased or decreased
by the Board of Directors, notwithstanding that shares of the series
may be outstanding at the time of such increase or decrease, unless the
Board of Directors shall have otherwise provided in creating such
series) and the distinctive designation thereof;
(ii) The dividend rate on the shares of such series, whether
or not dividends on the shares of such series shall be cumulative, and
the date or dates, if any, from which dividends thereon shall be
cumulative;
(iii) Whether or not the share of such series shall be
redeemable, and, if redeemable, the date or dates upon or after which
they shall be redeemable, the amount
<PAGE> 9
or amounts per share (which shall be, in the case of each share, not
less than its preference upon involuntary liquidation, plus an amount
equal to all dividends thereon accrued and unpaid, whether or not
earned or declared) payable thereon in the case of the redemption
thereof, which amount may vary at different redemption dates or
otherwise as permitted by law;
(iv) The right, if any, of holders of shares of such series to
convert the same into, or exchange the same for, Common Stock or other
stock as permitted by law, and the terms and conditions of such
conversion or exchange, as well as provisions for adjustment of the
conversion rate in such events as the Board of Directors shall
determine;
(v) The amount per share payable on the shares of such
series upon the voluntary and involuntary liquidation, dissolution or
winding up of the corporation;
(vi) Whether the holders of shares of such series shall have
voting power, full or limited, in addition to the voting powers
provided by law and, in case additional voting powers are accorded, to
fix the extent thereof; and
(vii) Generally to fix the other rights and privileges and any
qualifications, limitations or restrictions of such rights and
privileges of such series, provided, however, that no such rights,
privileges, qualifications, limitations or restrictions shall be in
conflict with the organization certificate of the corporation or with
the resolution or resolutions adopted by the Board of Directors
providing for the issue of any series of which there are shares
outstanding.
All shares of Series Preferred Stock of the same series shall be
identical in all respects, except that shares of any one series issued at
different times may differ as to dates, if any, from which dividends thereon may
accumulate. All shares of Series Preferred Stock of all series shall be of equal
rank and shall be identical in all respects except that to the extent not
otherwise limited in this Article III any series may differ from any other
series with respect to any one or more of the designations, relative rights,
preferences and limitations described or referred to in subparagraphs (I) to
(vii) inclusive above.
2. Dividends: Dividends on the outstanding Series Preferred Stock
of each series shall be declared and paid or set apart for payment before any
dividends shall be declared and paid or set apart for payment on the Common
Stock with respect to the same quarterly dividend period. Dividends on any
shares of Series Preferred Stock shall be cumulative only if and to the extent
set forth in a certificate filed pursuant to law. After dividends on all shares
of Series Preferred Stock (including cumulative dividends if and to the extend
any such shares shall be entitled thereto) shall have been declared and paid or
set apart for payment with respect to any quarterly dividend period, then and
not otherwise so long as any shares of Series Preferred Stock shall remain
outstanding, dividends may be declared and paid or set apart for payment with
respect to the same quarterly dividend period on the Common Stock out the assets
or funds of the corporation legally available therefor.
All Shares of Series Preferred Stock of all series shall be of equal
rank, preference and priority as to dividends irrespective of whether or not the
rates of dividends to which the same shall be entitled shall be the same and
when the stated dividends are not paid in full, the shares of all series of the
Series Preferred Stock shall share ratably in the payment thereof in accordance
with the sums which would by payable on such shares if all dividends were paid
in full, provided, however, that nay two or more series of the Series Preferred
Stock may differ from each other as to the existence and extent of the right to
cumulative dividends, as aforesaid.
<PAGE> 10
3. Voting Rights: Except as otherwise specifically provided in
the certificate filed pursuant to law with respect to any series of the Series
Preferred Stock, or as otherwise provided by law, the Series Preferred Stock
shall not have any right to vote for the election of directors or for any other
purpose and the Common Stock shall have the exclusive right to vote for the
election of directors and for all other purposes.
4. Liquidation: In the event of any liquidation, dissolution or
winding up of the corporation, whether voluntary or involuntary, each series of
Series Preferred Stock shall have preference and priority over the Common Stock
for payment of the amount to which each outstanding series of Series Preferred
Stock shall be entitled in accordance with the provisions thereof and each
holder of Series Preferred Stock shall be entitled to be paid in full such
amount, or have a sum sufficient for the payment in full set aside, before any
payments shall be made to the holders of the Common Stock. If, upon liquidation,
dissolution or winding up of the corporation, the assets of the corporation or
proceeds thereof, distributable among the holders of the shares of all series of
the Series Preferred Stock shall be insufficient to pay in full the preferential
amount aforesaid, then such assets, or the proceeds thereof, shall be
distributed among such holders ratably in accordance with the respective amounts
which would be payable if all amounts payable thereon were paid in full. After
the payment to the holders of Series Preferred Stock of all such amounts to
which they are entitled, as above provided, the remaining assets and funds of
the corporation shall be divided and paid to the holders of the Common Stock.
5. Redemption: In the event that the Series Preferred Stock of
any series shall be made redeemable as provided in clause (iii) of paragraph 1
of section (b) of this Article III, the corporation, at the option of the Board
of Directors, may redeem at any time or times, and from time to time, all or any
part of any one or more series of Series Preferred Stock outstanding by paying
for each share the then applicable redemption price fixed by the Board of
Directors as provided herein, plus an amount equal to accrued and unpaid
dividends to the date fixed for redemption, upon such notice and terms as may be
specifically provided in the certificate filed pursuant to law with respect to
the series.
6. Preemptive Rights: No holder of Series Preferred Stock of the
corporation shall be entitled, as such, as a matter or right, to subscribe for
or purchase any part of any new or additional issue of stock of any class or
series whatsoever, any rights or options to purchase stock of any class or
series whatsoever, or any securities convertible into, exchangeable for or
carrying rights or options to purchase stock of any class or series whatsoever,
whether now or hereafter authorized, and whether issued for cash or other
consideration, or by way of dividend.
(c) Provisions relating to Floating Rate Non-Cumulative Preferred
Stock, Series A. (Liquidation value $1,000,000 per share.)
1. Designation: The distinctive designation of the series
established hereby shall be "Floating Rate Non-Cumulative Preferred Stock,
Series A" (hereinafter called "Series A Preferred Stock").
2. Number: The number of shares of Series A Preferred Stock shall
initially be 250 shares. Shares of Series A Preferred Stock redeemed, purchased
or otherwise acquired by the corporation shall be cancelled and shall revert to
authorized but unissued Series Preferred Stock undesignated as to series.
3. Dividends:
(a) Dividend Payments Dates. Holders of the Series A Preferred
Stock shall be entitled to receive non-cumulative cash dividends when, as and if
declared by the Board of Directors of the corporation, out of funds legally
available therefor, from the date of original
<PAGE> 11
issuance of such shares (the "Issue Date") and such dividends will be payable on
March 28, June 28, September 28 and December 28 of each year (:Dividend Payment
Date") commencing September 28, 1990, at a rate per annum as determined in
paragraph 3(b) below. The period beginning on the Issue Date and ending on the
day preceding the firs Dividend Payment Date and each successive period
beginning on a Dividend Payment Date and ending on the date preceding the next
succeeding Dividend Payment Date is herein called a "Dividend Period". If any
Dividend payment Date shall be, in The City of New York, a Sunday or a legal
holiday or a day on which banking institutions are authorized by law to close,
then payment will be postponed to the next succeeding business day with the same
force and effect as if made on the Dividend Payment Date, and no interest shall
accrue for such Dividend Period after such Dividend Payment Date.
(b) Dividend Rate. The dividend rare from time to time payable in
respect of Series A Preferred Stock (the "Dividend Rate") shall be determined on
the basis of the following provisions:
(i) On the Dividend Determination Date, LIBOR will be determined
on the basis of the offered rates for deposits in U.S. dollars having a maturity
of three months commencing on the second London Business Day immediately
following such Dividend Determination Date, as such rates appear on the Reuters
Screen LIBO Page as of 11:00 A.M. London time, on such Dividend Determination
Date. If at least two such offered rates appear on the Reuters Screen LIBO Page,
LIBOR in respect of such Dividend Determination Dates will be the arithmetic
mean (rounded to the nearest one-hundredth of a percent, with five
one-thousandths of a percent rounded upwards) of such offered rates. If fewer
than those offered rates appear, LIBOR in respect of such Dividend Determination
Date will be determined as described in paragraph (ii) below.
(ii) On any Dividend Determination Date on which fewer than those offered
rates for the applicable maturity appear on the Reuters Screen LIBO Page as
specified in paragraph (I) above, LIBOR will be determined on the basis of the
rates at which deposits in U.S. dollars having a maturity of three months
commending on the second London Business Day immediately following such Dividend
Determination Date and in a principal amount of not less than $1,000,000 that is
representative of a single transaction in such market at such time are offered
by three major banks in the London interbank market selected by the corporation
at approximately 11:00 A.M., London time, on such Dividend Determination Date to
prime banks in the London market. The corporation will request the principal
London office of each of such banks to provide a quotation of its rate. If at
least two such quotations are provided, LIBOR in respect of such Dividend
Determination Date will be the arithmetic mean (rounded to the nearest
one-hundredth of a percent, with five one-thousandths of a percent rounded
upwards) of such quotations. If fewer than two quotations are provided, LIBOR in
respect of such Dividend Determination Date will be the arithmetic mean (rounded
to the nearest one-hundredth of a percent, with five one-thousandths of a
percent rounded upwards) of the rates quoted by three major banks in New York
City selected by the corporation at approximately 11:00 A.M., New York City
time, on such Dividend Determination Date for loans in U.S. dollars to leading
European banks having a maturity of three months commencing on the second London
Business Day immediately following such Dividend Determination Date and in a
principal amount of not less than $1,000,000 that is representative of a single
transaction in such market at such time; provided, however, that if the banks
selected as aforesaid by the corporation are not quoting as aforementioned in
this sentence, then, with respect to such Dividend Period, LIBOR for the
preceding Dividend Period will be continued as LIBOR for such Dividend Period.
(ii) The Dividend Rate for any Dividend Period shall be equal to
the lower of 18% of 50 basis points above LIBOR for such Dividend Period as
LIBOR is determined by sections (I) or (ii) above.
<PAGE> 12
As used above, the term "Dividend Determination Date" shall mean, with resect to
any Dividend Period, the second London Business Day prior to the commencement of
such Dividend Period; and the term "London Business Day" shall mean any day that
is not a Saturday or Sunday and that, in New York City, is not a day on which
banking institutions generally are authorized or required by law or executive
order to close and that is a day on which dealings in deposits in U.S. dollars
are transacted in the London interbank market.
4. Voting Rights: The holders of the Series A Preferred Stock
shall have the voting power and rights set forth in this paragraph 4 and shall
have no other voting power or rights except as otherwise may from time to time
be required by law.
So long as any shares of Series A Preferred Stock remain outstanding,
the corporation shall not, without the affirmative vote or consent of the
holders of at least a majority of the votes of the Series Preferred Stock
entitled to vote outstanding at the time, given in person or by proxy, either in
writing or by resolution adopted at a meeting at which the holders of Series A
Preferred Stock (alone or together with the holders of one or more other series
of Series Preferred Stock at the time outstanding and entitled to vote) vote
separately as a class, alter the provisions of the Series Preferred Stock so as
to materially adversely affect its rights; provided, however, that in the event
any such materially adverse alteration affects the rights of only the Series A
Preferred Stock, then the alteration may be effected with the vote or consent of
at least a majority of the votes of the Series A Preferred Stock; provided,
further, that an increase in the amount of the authorized Series Preferred Stock
and/or the creation and/or issuance of other series of Series Preferred Stock in
accordance with the organization certificate shall not be, nor be deemed to be,
materially adverse alterations. In connection with the exercise of the voting
rights contained in the preceding sentence, holders of all series of Series
Preferred Stock which are granted such voting rights (of which the Series A
Preferred Stock is the initial series) shall vote as a class (except as
specifically provided otherwise) and each holder of Series A Preferred Stock
shall have one vote for each share of stock held and each other series shall
have such number of votes, if any, for each share of stock held as may be
granted to them.
The foregoing voting provisions will not apply if, in connection with
the matters specified, provision is made for the redemption or retirement of all
outstanding Series A Preferred Stock.
5. Liquidation: Subject to the provisions of section (b) of this
Article III, upon any liquidation, dissolution or winding up of the corporation,
whether voluntary or involuntary, the holders of the Series A Preferred Stock
shall have preference and priority over the Common Stock for payment out of the
assets of the corporation or proceeds thereof, whether from capital or surplus,
of $1,000,000 per share (the "liquidation value") together with the amount of
all dividends accrued and unpaid thereon, and after such payment the holders of
Series A Preferred Stock shall be entitled to no other payments.
6. Redemption: Subject to the provisions of section (b) of this
Article III, Series A Preferred Stock may be redeemed, at the option of the
corporation in whole or part, at any time or from time to time at a redemption
price of $1,000,000 per share, in each case plus accrued and unpaid dividends to
the date of redemption.
At the option of the corporation, shares of Series A Preferred Stock
redeemed or otherwise acquired may be restored to the status of authorized but
unissued shares of Series Preferred Stock.
In the case of any redemption, the corporation shall give notice of
such redemption to the holders of the Series A Preferred Stock to be redeemed in
the following manner: a notice specifying the shares to be redeemed and the time
and place or redemption (and, if less than the
<PAGE> 13
total outstanding shares are to be redeemed, specifying the certificate numbers
and number of shares to be redeemed) shall be mailed by first class mail,
addressed to the holders of record of the Series A Preferred Stock to be
redeemed at their respective addressees as the same shall appear upon the books
of the corporation, not more than sixty (60) days and not less than thirty (30)
days previous to the date fixed for redemption. In the event such notice is not
given to any shareholder such failure to give notice shall not affect the notice
given to other shareholders. If less than the whole amount of outstanding Series
A Preferred Stock is to be redeemed, the shares to be redeemed shall be selected
by lot or pro rata in any manner determined by resolution of the Board of
Directors to b fair and proper. From and after the date fixed in any such notice
as the date of redemption (unless default shall be made by the corporation in
providing moneys at the time and place of redemption for the payment of the
redemption price) all dividends upon the Series A Preferred Stock so called for
redemption shall cease to accrue, and all rights of the holders of said Series A
Preferred Stock as stockholders in the corporation, except the right to receive
the redemption price (without interest) upon surrender of the certificate
representing the Series A Preferred Stock so called for redemption, duly
endorsed for transfer, if required, shall cease and terminate. The corporation's
obligation to provide moneys in accordance with the preceding sentence shall be
deemed fulfilled if, on or before the redemption date, the corporation shall
deposit with a bank or trust company (which may e an affiliate of the
corporation) having an office in the Borough of Manhattan, City of New York,
having a capital and surplus of at least $5,000,000 funds necessary for such
redemption, in trust with irrevocable instructions that such funds be applied to
the redemption of the shares of Series A Preferred Stock so called for
redemption. Any interest accrued on such funds shall be paid to the corporation
from time to time. Any funds so deposited and unclaimed at the end of two (2)
years from such redemption date shall be released or repaid to the corporation,
after which the holders of such shares of Series A Preferred Stock so called for
redemption shall look only to the corporation for payment of the redemption
price.
IV. The name, residence and post office address of each
member of the corporation are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Name RESIDENCE POST OFFICE ADDRESS
----
James A. Blair 9 West 50th Street, 33 Wall Street,
Manhattan, New York City Manhattan, New York City
James G. Cannon 72 East 54th Street, 14 Nassau Street,
Manhattan New York City Manhattan, New York City
E. C. Converse 3 East 78th Street, 139 Broadway,
Manhattan, New York City Manhattan, New York City
Henry P. Davison Englewood, 2 Wall Street,
New Jersey Manhattan, New York City
Granville W. Garth 160 West 57th Street, 33 Wall Street
Manhattan, New York City Manhattan, New York City
A. Barton Hepburn 205 West 57th Street 83 Cedar Street
Manhattan, New York City Manhattan, New York City
William Logan Montclair, 13 Nassau Street
New Jersey Manhattan, New York City
George W. Perkins Riverdale, 23 Wall Street,
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
<S> <C> <C>
New York Manhattan, New York City
William H. Porter 56 East 67th Street 270 Broadway,
Manhattan, New York City Manhattan, New York City
John F. Thompson Newark, 143 Liberty Street,
New Jersey Manhattan, New York City
Albert H. Wiggin 42 West 49th Street, 214 Broadway,
Manhattan, New York City Manhattan, New York City
Samuel Woolverton Mount Vernon, 34 Wall Street,
New York Manhattan, New York City
Edward F.C. Young 85 Glenwood Avenue, 1 Exchange Place,
Jersey City, New Jersey Jersey City, New Jersey
</TABLE>
V. The existence of the corporation shall be perpetual.
VI. The subscribers, the members of the said corporation, do, and
each for himself does, hereby declare that he will accept the responsibilities
and faithfully discharge the duties of a director therein, if elected to act as
such, when authorized accordance with the provisions of the Banking Law of the
State of New York.
VII. The number of directors of the corporation shall not be less
that 10 nor more than 25."
4. The foregoing restatement of the organization certificate was
authorized by the Board of Directors of the corporation at a meeting held on
July 21, 1998.
IN WITNESS WHEREOF, we have made and subscribed this certificate this
6th day of August, 1998.
IN WITNESS WHEREOF, we have made and subscribed this certificate this
6th day of August, 1998.
James T. Byrne, Jr.
-------------------------------------
James T. Byrne, Jr.
Managing Director and Secretary
Lea Lahtinen
--------------------------------------
Lea Lahtinen
Vice President and Assistant Secretary
Lea Lahtinen
-------------------------------------
Lea Lahtinen
<PAGE> 15
State of New York )
) ss:
County of New York )
Lea Lahtinen, being duly sworn, deposes and says that she is a Vice
President and an Assistant Secretary of Bankers Trust Company, the corporation
described in the foregoing certificate; that she has read the foregoing
certificate and knows the contents thereof, and that the statements herein
contained are true.
Lea Lahtinen
-------------------------
Lea Lahtinen
Sworn to before me this
6th day of August, 1998.
Sandra L. West
- -----------------------------------
Notary Public
SANDRA L. WEST
Notary Public State of New York
No. 31-4942101
Qualified in New York County
Commission Expires September 19, 1998
<PAGE> 16
State of New York,
Banking Department
I, MANUEL KURSKY, Deputy Superintendent of Banks of the State of New
York, DO HEREBY APPROVE the annexed Certificate entitled "RESTATED ORGANIZATION
CERTIFICATE OF BANKERS TRUST COMPANY UNDER SECTION 8007 OF THE BANKING LAW,"
dated August 6, 1998, providing for the restatement of the Organization
Certificate and all amendments into a single certificate.
WITNESS, my hand and official seal of the Banking Department at the City of New
York,
this 31ST day of AUGUST in the Year of our Lord one
thousand nine hundred and NINETY-EIGHT.
Manuel Kursky
------------------------------
DEPUTY Superintendent of Banks
<PAGE> 17
CERTIFICATE OF AMENDMENT
OF THE
ORGANIZATION CERTIFICATE
OF BANKERS TRUST
Under Section 8005 of the Banking Law
-----------------------------
We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a Managing
Director and Secretary and a Vice President and an Assistant Secretary of
Bankers Trust Company, do hereby certify:
1. The name of the corporation is Bankers Trust Company.
2. The organization certificate of said corporation was filed by the
Superintendent of Banks on the 5th of March, 1903.
3. The organization certificate as heretofore amended is hereby amended
to increase the aggregate number of shares which the corporation shall have
authority to issue and to increase the amount of its authorized capital stock in
conformity therewith.
4. Article III of the organization certificate with reference to the
authorized capital stock, the number of shares into which the capital stock
shall be divided, the par value of the shares and the capital stock outstanding,
which reads as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is Three Billion, One Million, Six Hundred Sixty-Six Thousand, Six
Hundred Seventy Dollars ($3,001,666,670), divided into Two Hundred
Million, One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven
(200,166,667) shares with a par value of $10 each designated as Common
Stock and 1000 shares with a par value of One Million Dollars
($1,000,000) each designated as Series Preferred Stock."
is hereby amended to read as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is Three Billion, Five Hundred One Million, Six Hundred Sixty-Six
Thousand, Six Hundred Seventy Dollars ($3,501,666,670), divided into
Two Hundred Million, One Hundred Sixty-Six Thousand, Six Hundred
Sixty-Seven (200,166,667) shares with a par value of $10 each
designated as Common Stock and 1500 shares with a par value of One
Million Dollars ($1,000,000) each designated as Series Preferred
Stock."
<PAGE> 18
5. The foregoing amendment of the organization certificate was
authorized by unanimous written consent signed by the holder of all outstanding
shares entitled to vote thereon.
IN WITNESS WHEREOF, we have made and subscribed this certificate this
25th day of September, 1998
James T. Byrne, Jr.
----------------------------------
James T. Byrne, Jr.
Managing Director and Secretary
Lea Lahtinen
--------------------------------------
Lea Lahtinen
Vice President and Assistant Secretary
State of New York )
) ss:
County of New York )
Lea Lahtinen, being fully sworn, deposes and says that she is a Vice
President and an Assistant Secretary of Bankers Trust Company, the corporation
described in the foregoing certificate; that she has read the foregoing
certificate and knows the contents thereof, and that the statements herein
contained are true.
Lea Lahtinen
----------------------------
Lea Lahtinen
Sworn to before me this 25th day
of September, 1998
Sandra L. West
- ---------------------------------
Notary Public
SANDRA L. WEST
Notary Public State of New York
No. 31-4942101
Qualified in New York County
Commission Expires September 19, 2000
<PAGE> 19
State of New York,
Banking Department
I, P. VINCENT CONLON, Deputy Superintendent of Banks of the State of
New York, DO HEREBY APPROVE the annexed Certificate entitled "CERTIFICATE OF
AMENDMENT OF THE ORGANIZATION CERTIFICATE OF BANKERS TRUST COMPANY UNDER SECTION
8005 OF THE BANKING Law," dated December 16, 1998, providing for an increase in
authorized capital stock from $3,501,666,670 consisting of 200,166,667 shares
with a par value of $10 each designated as Common Stock and 1,500 shares with a
par value of $1,000,000 each designated as Series Preferred Stock to
$3,627,308,670 consisting of 212,730,867 shares with a par value of $10 each
designated as Common Stock and 1,500 shares with a par value of $1,000,000 each
designated as Series Preferred Stock.
WITNESS, my hand and official seal of the Banking Department at the City of New
York,
this 18TH day of DECEMBER in the Year of our Lord one thousand
nine hundred and NINETY-EIGHT.
P. Vincent Conlon
------------------------------
Deputy Superintendent of Banks
<PAGE> 20
CERTIFICATE OF AMENDMENT
OF THE
ORGANIZATION CERTIFICATE
OF BANKERS TRUST
Under Section 8005 of the Banking Law
-----------------------------
We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a Managing
Director and Secretary and a Vice President and an Assistant Secretary of
Bankers Trust Company, do hereby certify:
1. The name of the corporation is Bankers Trust Company.
2. The organization certificate of said corporation was filed by the
Superintendent of Banks on the 5th of March, 1903.
3. The organization certificate as heretofore amended is hereby amended
to increase the aggregate number of shares which the corporation shall have
authority to issue and to increase the amount of its authorized capital stock in
conformity therewith.
4. Article III of the organization certificate with reference to the
authorized capital stock, the number of shares into which the capital stock
shall be divided, the par value of the shares and the capital stock outstanding,
which reads as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is Three Billion, Five Hundred One Million, Six Hundred Sixty-Six
Thousand, Six Hundred Seventy Dollars ($3,501,666,670), divided into
Two Hundred Million, One Hundred Sixty-Six Thousand, Six Hundred
Sixty-Seven (200,166,667) shares with a par value of $10 each
designated as Common Stock and 1500 shares with a par value of One
Million Dollars ($1,000,000) each designated as Series Preferred
Stock."
is hereby amended to read as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is Three Billion, Six Hundred Twenty-Seven Million, Three Hundred
Eight Thousand, Six Hundred Seventy Dollars ($3,627,308,670), divided
into Two Hundred Twelve Million, Seven Hundred Thirty Thousand, Eight
Hundred Sixty- Seven (212,730,867) shares with a par value of $10 each
designated as Common Stock and 1500 shares with a par value of One
Million Dollars ($1,000,000) each designated as Series Preferred
Stock."
<PAGE> 21
5. The foregoing amendment of the organization certificate was
authorized by unanimous written consent signed by the holder of all outstanding
shares entitled to vote thereon.
IN WITNESS WHEREOF, we have made and subscribed this certificate this
16th day of December, 1998
James T. Byrne, Jr.
-------------------------------------
James T. Byrne, Jr.
Managing Director and Secretary
Lea Lahtinen
-------------------------------------
Lea Lahtinen
Vice President and Assistant Secretary
State of New York )
) ss:
County of New York )
Lea Lahtinen, being fully sworn, deposes and says that she is a Vice
President and an Assistant Secretary of Bankers Trust Company, the corporation
described in the foregoing certificate; that she has read the foregoing
certificate and knows the contents thereof, and that the statements herein
contained are true.
Lea Lahtinen
----------------------------
Lea Lahtinen
Sworn to before me this 16th day
of December, 1998
Sandra L. West
- ------------------------------
Notary Public
SANDRA L. WEST
Notary Public State of New York
No. 31-4942101
Qualified in New York County
Commission Expires September 19, 2000
<PAGE> 22
BY-LAWS
JUNE 22, 1999
BANKERS TRUST CORPORATION
(INCORPORATED UNDER THE NEW YORK BUSINESS CORPORATION LAW)
<PAGE> 23
BANKERS TRUST CORPORATION
BY-LAWS
ARTICLE I
SHAREHOLDERS
SECTION 1.01 Annual Meetings. The annual meetings of shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on the third Tuesday in April of
each year, if not a legal holiday, and if a legal holiday then on the next
succeeding business day, at such hour as shall be designated by the Board of
Directors. If no other hour shall be so designated such meeting shall be held at
3 P.M.
SECTION 1.02 Special Meetings. Special meetings of the shareholders, except
those regulated otherwise by statute, may be called at any time by the Board of
Directors, or by any person or committee expressly so authorized by the Board of
Directors and by no other person or persons.
SECTION 1.03 Place of Meetings. Meetings of shareholders shall be held at such
place within or without the State of New York as shall be determined from time
to time by the Board of Directors or, in the case of special meetings, by such
person or persons as may be authorized to call a meeting. The place in which
each meeting is to be held shall be specified in the notice of such meeting.
SECTION 1.04 Notice of Meetings. A copy of the written notice of the place, date
and hour of each meeting of shareholders shall be given personally or by mail,
not less than ten nor more than fifty days before the date of the meeting, to
each shareholder entitled to vote at such meeting. Notice of a special meeting
shall indicate that it is being issued by or at the direction of the person or
persons calling the meeting and shall also state the purpose or purposes for
which the meeting is called. Notice of any meeting at which is proposed to take
action which would entitle shareholders to receive payment for their shares
pursuant to statutory provisions must include a statement of that purpose and to
that effect. If mailed, such notices of the annual and each special meeting are
given when deposited in the United States mail, postage prepaid, directed to the
shareholder at his address as it appears in the record of shareholders unless he
shall have filed with the Secretary of the corporation a written request that
notices intended for him shall be mailed to some other address, in which case it
shall be directed to him at such other address.
SECTION 1.05 Record Date. For the purpose of determining the shareholders
entitled to notice of or to vote any meeting of shareholders or any adjournment
thereof, or to express consent to or dissent from any proposal without a
meeting, or for the purpose of determining shareholders entitled to receive
payment of any dividend or the allotment of any rights, or for the purpose of
any other action, the Board of Directors may fix, in advance, a date as the
record date for any such
<PAGE> 24
determination of shareholders. Such date shall not be more than fifty nor less
than ten days before the date of such meeting, nor more than fifty days prior to
any other action.
SECTION 1.06 Quorum. The presence, in person or by proxy, of the holders of a
majority of the shares entitled to vote thereat shall constitute a quorum at a
meeting of shareholders for the transaction of business, except as otherwise
provided by statute, by the Certificate of Incorporation or by the By-Laws. The
shareholders present in person or by proxy and entitled to vote at any meeting,
despite the absence of a quorum, shall have power to adjourn the meeting from
time to time, to a designated time and place, without notice other than by
announcement at the meeting, and at any adjourned meeting any business may be
transacted that might have been transacted on the original date of the meeting.
However, if after the adjournment the Board of Directors fixes a new record date
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record on the new record date entitled to notice.
SECTION 1.07 Notice of Shareholder Business at Annual Meeting. At an annual
meeting of shareholders, only such business shall be conducted as shall have
been brought before the meeting (a) by or at the direction of the Board of
Directors or (b) by any shareholder of the corporation who complies with the
notice procedures set forth in this Section 1.07. For business to be properly
brought before an annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than thirty days nor
more than fifty days prior to the meeting; provided, however, that in the event
that less than forty days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be timely
must be received not later than the close of business on the tenth day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made. A shareholder's notice to the Secretary shall
set forth as to each matter the shareholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the corporation's books, of
the shareholder proposing such business, (c) the class and number of shares of
the corporation which are beneficially owned by the shareholder and (d) any
material interest of the shareholder in such business. Notwithstanding anything
in these By-Laws to the contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth in this Section 1.07
and Section 2.03. The Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 1.07
and Section 2.03, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01 Number and Qualifications. The business of the corporation shall be
managed by its Board of Directors. The number of directors constituting the
entire Board of Directors shall be not less than seven nor more than fifteen, as
shall be fixed from time to time by vote of a majority of the entire Board of
Directors. Each director shall be at least 21 years of age. Directors need not
be shareholders. No Officer-Director who shall have attained age 65, or earlier
relinquishes his responsibilities and title, shall be eligible to serve as a
director.
<PAGE> 25
SECTION 2.02 Election. At each annual meeting of shareholders, directors shall
be elected by a plurality of the votes to hold office until the next annual
meeting. Subject to the provisions of the statute, of the Certificate of
Incorporation and of the By-Laws, each director shall hold office until the
expiration of the term for which elected, and until his successor has been
elected and qualified.
SECTION 2.03 Nomination and Notification of Nomination. Subject to the rights of
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, nominations for the election of
directors may be made by the Board of Directors or to any committee appointed by
the Board of Directors or by any shareholder entitled to vote in the election of
directors generally. However, any shareholder entitled to vote in the election
of directors generally may nominate one or more persons for election as
directors at a meeting only if written notice of such shareholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the Secretary of the corporation
not later than (i) with respect to an election to be held at an annual meeting
of shareholders ninety days in advance of such meeting, and (ii) with respect to
an election to be held at a special meeting of shareholders for the election of
directors, the close of business on the seventh day following the date on which
notice of such meeting is first given to shareholders. Each such notice shall
set forth: (a) the name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the shareholder is a holder of record of stock of the corporation entitled
to vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder; (d) such other information regarding each nominee proposed by such
shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (e) the consent of each nominee to serve as a director of the corporation if
so elected. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish to the Secretary
of the corporation that information required to be set forth in a shareholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with the procedures set forth in the By-Laws. The Chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by these By-Laws, and if
he should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
SECTION 2.04 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such places and times as may be fixed from time to time
by resolution of the Board and a regular meeting for the purpose of organization
and transaction of other business shall be held each year after the adjournment
of the annual meeting of shareholders.
SECTION 2.05 Special Meetings. The Chairman of the Board, the Chief Executive
Officer, the President, the Senior Vice Chairman or any Vice Chairman may, and
at the request of three directors shall, call a special meeting of the Board of
Directors, two days' notice of which shall be given in person or by mail,
telegraph, radio, telephone or cable. Notice of a special meeting need not be
given to any director who submits a signed waiver of notice whether before or
after the meeting, or who attends the meeting without protesting, prior thereto
or at its commencement, the lack of notice to him.
<PAGE> 26
SECTION 2.06 Place of Meeting. The directors may hold their meetings, have one
or more offices, and keep the books of the corporation (except as may be
provided by law) at any place, either within or without the State of New York,
as they may from time to time determine.
SECTION 2.07 Quorum and Vote. At all meetings of the Board of Directors the
presence of one-third of the entire Board, but not less than two directors,
shall constitute a quorum for the transaction of business. Any one or more
members of the Board of Directors or of any committee thereof may participate in
a meeting of the Board of Directors or a committee thereof by means of a
conference telephone or similar communications equipment which allows all
persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at such a
meeting. The vote of a majority of the directors present at the time of the
vote, if a quorum is present at such time, shall be the act of the Board of
Directors, except as may be otherwise provided by statute or the By-Laws.
SECTION 2.08 Vacancies. Newly created directorships resulting from increase in
the number of directors and vacancies in the Board of Directors, whether caused
by resignation, death, removal or otherwise, may be filled by vote of a majority
of the directors then in office, although less than a quorum exists.
ARTICLE III
EXECUTIVE AND OTHER COMMITTEES
SECTION 3.01 Designation and Authority. The Board of Directors, by resolution
adopted by a majority of the entire Board, may designate from among its members
an Executive Committee and other committees, each consisting of three or more
directors. Each such committee, to the extent provided in the resolution or the
By-Laws, shall have all the authority of the Board, except that no such
committee shall have authority as to:
(i) the submission to shareholders of any action as to which
shareholders' authorization is required by law.
(ii) the filling of vacancies in the Board of Directors or any
committee.
(iii) the fixing of compensation of directors for serving on the Board
or on any committee.
(iv) the amendment or appeal of the By-Laws, or the adoption of new
By-Laws.
(v) the amendment or repeal of any resolution of the Board which
by its terms shall not be so amendable or repealable.
The Board may designate one or more directors as alternate members of any such
committee, who may replace any absent member or members at any meeting of such
committee. Each such committee shall serve at the pleasure of the Board of
Directors.
SECTION 3.02 Procedure. Except as may be otherwise provided by statute, by the
By-Laws or by resolution of the Board of Directors, each committee may make
rules for the call and conduct of its meetings. Each committee shall keep a
record of its acts and proceedings and shall report the same from time to time
to the Board of Directors.
<PAGE> 27
ARTICLE IV
OFFICERS
SECTION 4.01 Titles and General. The Board of Directors shall elect from among
their number a Chairman of the Board and a Chief Executive Officer, and may also
elect a President, a Senior Vice Chairman, one or more Vice Chairmen, one or
more Executive Vice Presidents, one or more Senior Vice Presidents, one or more
Principals, one or more Vice Presidents, a Secretary, a Controller, a Treasurer,
a General Counsel, a General Auditor, and a General Credit Auditor, who need not
be directors. The officers of the corporation may also include such other
officers or assistant officers as shall from time to time be elected or
appointed by the Board. The Chairman of the Board or the Chief Executive Officer
or, in their absence, the President, the Senior Vice Chairman or any Vice
Chairman, may from time to time appoint assistant officers. All officers elected
or appointed by the Board of Directors shall hold their respective offices
during the pleasure of the Board of Directors, and all assistant officers shall
hold office at the pleasure of the Board or the Chairman of the Board or the
Chief Executive Officer or, in their absence, the President, the Senior Vice
Chairman or any Vice Chairman. The Board of Directors may require any and all
officers and employees to give security for the faithful performance of their
duties.
SECTION 4.02 Chairman of the Board. The Chairman of the Board shall preside at
all meetings of the shareholders and of the Board of Directors. Subject to the
Board of Directors, he shall exercise all the powers and perform all the duties
usual to such office and shall have such other powers as may be prescribed by
the Board of Directors or the Executive Committee or vested in him by the
By-Laws.
SECTION 4.03 Chief Executive Officer. The Board of Directors shall designate the
Chief Executive Officer of the corporation, which person may also hold the
additional title of Chairman of the Board, President, Senior Vice Chairman or
Vice Chairman. Subject to the Board of Directors, he shall exercise all the
powers and perform all the duties usual to such office and shall have such other
powers as may be prescribed by the Board of Directors or the Executive Committee
or vested in him by the By-Laws.
SECTION 4.04 Chairman of the Board, President, Senior Vice Chairman, Vice
Chairmen, Executive Vice Presidents, Senior Vice Presidents, Principals and Vice
Presidents. The Chairman of the Board or, in his absence or incapacity the
President or, in his absence or incapacity, the Senior Vice Chairman, the Vice
Chairmen, the Executive Vice Presidents, or in their absence, the Senior Vice
Presidents, in the order established by the Board of Directors shall, in the
absence or incapacity of the Chief Executive Officer perform the duties of the
Chief Executive Officer. The President, the Senior Vice Chairman, the Vice
Chairmen, the Executive Vice Presidents, the Senior Vice Presidents, the
Principals, and the Vice Presidents shall also perform such other duties and
have such other powers as may be prescribed or assigned to them, respectively,
from time to time by the Board of Directors, the Executive Committee, the Chief
Executive Officer, or the By-Laws.
SECTION 4.05 Controller. The Controller shall perform all the duties customary
to that office and except as may be otherwise provided by the Board of Directors
shall have the general supervision of the books of account of the corporation
and shall also perform such other duties and have such powers as may be
prescribed or assigned to him from time to time by the Board of Directors, the
Executive Committee, the Chief Executive Officer, or the By-Laws.
SECTION 4.06 Secretary. The Secretary shall keep the minutes of the meetings of
the Board of Directors and of the shareholders and shall have the custody of the
seal of the corporation. He
<PAGE> 28
shall perform all other duties usual to that office, and shall also perform such
other duties and have such powers as may be prescribed or assigned to him from
time to time by the Board of Directors, the Executive Committee, the Chairman of
the Board, the Chief Executive Officer, or the By-Laws.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 5.01 The corporation shall, to the fullest extent permitted by Section
721 of the New York Business Corporation Law, indemnify any person who is or was
made, or threatened to be made, a party to an action or proceeding, whether
civil or criminal, whether involving any actual or alleged breach of duty,
neglect or error, any accountability, or any actual or alleged misstatement,
misleading statement or other act or omission and whether brought or threatened
in any court or administrative or legislative body or agency, including an
action by or in the right of the corporation to procure a judgment in its favor
and an action by or in the right of any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee benefit
plan or other enterprise, which any director or officer of the corporation is
serving or served in any capacity at the request of the corporation by reason of
the fact that he, his testator or intestate, is or was a director or officer of
the corporation, or is serving or served such other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, amounts paid in settlement, and costs, charges and
expenses, including attorneys' fees, or any appeal therein; provided, however,
that no indemnification shall be provided to any such person if a judgment or
other final adjudication adverse to the director or officer establishes that (i)
his acts were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
SECTION 5.02 The corporation may indemnify any other person to whom the
corporation is permitted to provide indemnification or the advancement of
expenses by applicable law, whether pursuant to rights granted pursuant to, or
provided by, the New York Business Corporation Law or other rights created by
(i) a resolution of shareholders, (ii) a resolution of directors, or (iii) an
agreement providing for such indemnification, it being expressly intended that
these By-Laws authorize the creation of other rights in any such manner.
SECTION 5.03 The corporation shall, from time to time, reimburse or advance to
any person referred to in Section 5.01 the funds necessary for payment of
expenses, including attorneys' fees, incurred in connection with any action or
proceeding referred to in Section 5.01, upon receipt of a written undertaking by
or on behalf of such person to repay such amount(s) if a judgment or other final
adjudication adverse to the director or officer establishes that (i) his acts
were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
SECTION 5.04 Any director or officer of the corporation serving (i) another
corporation, of which a majority of the shares entitled to vote in the election
of its directors is held by the corporation, or (ii) any employee benefit plan
of the corporation or any corporation referred to in clause (i), in any capacity
shall be deemed to be doing so at the request of the corporation. In all other
cases, the provisions of this Article V will apply (i) only if the person
serving another corporation or any partnership, joint venture, trust, employee
benefit plan or other enterprise so served at the specific request of the
corporation, evidenced by a written communication signed by
<PAGE> 29
the Chairman of the Board, the Chief Executive Officer, the President, the
Senior Vice Chairman or any Vice Chairman, and (ii) only if and to the extent
that, after making such efforts as the Chairman of the Board, the Chief
Executive Officer, or the President shall deem adequate in the circumstances,
such person shall be unable to obtain indemnification from such other enterprise
or its insurer.
SECTION 5.05 Any person entitled to be indemnified or to the reimbursement or
advancement of expenses as a matter of right pursuant to this Article V may
elect to have the right to indemnification (or advancement of expenses)
interpreted on the basis of the applicable law in effect at the time of the
occurrence of the event or events giving rise to the action or proceeding, to
the extent permitted by law, or on the basis of the applicable law in effect at
the time indemnification is sought.
SECTION 5.06 The right to be indemnified or to the reimbursement or advancement
of expenses pursuant to this Article V (i) is a contract right pursuant to which
the person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the corporation and the director or
officer, (ii) is intended to be retroactive and shall be available with respect
to events occurring prior to the adoption hereof, and (iii) shall continue to
exist after the rescission or restrictive modification hereof with respect to
events occurring prior thereto.
SECTION 5.07 If a request to be indemnified or for the reimbursement or
advancement of expenses pursuant hereto is not paid in full by the corporation
within thirty days after a written claim has been received by the corporation,
the claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled also to be paid the expenses of prosecuting such
claim. Neither the failure of the corporation (including its Board of Directors,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such action that indemnification of or
reimbursement or advancement of expenses to the claimant is proper in the
circumstances, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel, or its shareholders) that the
claimant is not entitled to indemnification or to the reimbursement or
advancement of expenses, shall be a defense to the action or create a
presumption that the claimant is not so entitled.
SECTION 5.08 A person who has been successful, on the merits or otherwise, in
the defense of a civil or criminal action or proceeding of the character
described in Section 5.01 shall be entitled to indemnification only as provided
in Sections 5.01 and 5.03, notwithstanding any provision of the New York
Business Corporation Law to the contrary.
ARTICLE VI
SEAL
SECTION 6.01 Corporate Seal. The corporate seal shall contain the name of the
corporation and the year and state of its incorporation. The seal may be altered
from time to time at the discretion of the Board of Directors.
<PAGE> 30
ARTICLE VII
SHARE CERTIFICATES
SECTION 7.01 Form. The certificates for shares of the corporation shall be in
such form as shall be approved by the Board of Directors and shall be signed by
the Chairman of the Board, the Chief Executive Officer, the President, the
Senior Vice Chairman or any Vice Chairman and the Secretary or an Assistant
Secretary, and shall be sealed with the seal of the corporation or a facsimile
thereof. The signatures of the officers upon the certificate may be facsimiles
if the certificate is countersigned by a transfer agent or registered by a
registrar other than the corporation itself or its employees.
ARTICLE VIII
CHECKS
SECTION 8.01 Signatures. All checks, drafts and other orders for the payment of
money shall be signed by such officer or officers or agent or agents as the
Board of Directors may designate from time to time.
ARTICLE IX
AMENDMENT
SECTION 9.01 Amendment of By-Laws. The By-Laws may be amended, repealed or added
to by vote of the holders of the shares at the time entitled to vote in the
election of any directors. The Board of Directors may also amend, repeal or add
to the By-Laws, but any By-Laws adopted by the Board of Directors may be amended
or repealed by the shareholders entitled to vote thereon as provided herein. If
any By-Law regulating an impending election of directors is adopted, amended or
repealed by the Board, there shall be set forth in the notice of the next
meeting of shareholders for the election of directors the By-Laws so adopted,
amended or repealed, together with concise statement of the changes made.
ARTICLE X
SECTION 10.01 Construction. The masculine gender, when appearing in these
By-Laws, shall be deemed to include the feminine gender.
<PAGE> 31
I, Susan Johnson, Assistant Vice President of Bankers Trust Company, New York,
New York, hereby certify that the foregoing is a complete, true and correct copy
of the By-Laws of Bankers Trust Company, and that the same are in full force and
effect at this date.
----------------------
Susan Johnson
Assistant Vice President
DATED: September 28, 1999
<PAGE> 32
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 06/30/99 State#: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D Cert#: 00623 Page RC-1
City, State ZIP: New York, NY 10006 Transit#: 21001003
11
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR JUNE 30, 1999
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, reported the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
<S> <C> <C>
--------------
| C400 |
------------------------
Dollar Amounts in Thousands | RCFD |
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS | / / / / / / / / / |
1. Cash and balances due from depository institutions (from Schedule RC-A): | / / / / / / / / / |
a. Noninterest-bearing balances and currency and coin (1) ........... | 0081 2,138,000 |1.a.
b. Interest-bearing balances (2) .................................... | 0071 5,465,000 |1.b.
2. Securities: | / / / / / / / / / |
a. Held-to-maturity securities (from Schedule RC-B, column A) ........ | 1754 0 |2.a.
b. Available-for-sale securities (from Schedule RC-B, column D)....... | 1773 1,811,000 |2.b.
3. Federal funds sold and securities purchased under agreements to resell.... | 135 19,558,000 3.
4. Loans and lease financing receivables: | / / / / / / / / / |
a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 22,038,000 | / / / / / / / / |4.a.
b. LESS: Allowance for loan and lease losses.....................RCFD 3123 458,000 | / / / / / / / / / |4.b.
c. LESS: Allocated transfer risk reserve ........................RCFD 3128 0 | / / / / / / // / / |4.c.
d. Loans and leases, net of unearned income, | / / / / / / / / / |
allowance, and reserve (item 4.a minus 4.b and 4.c) ............ | 2125 21,580,000 |4.d.
5. Trading Assets (from schedule RC-D) ................................. | 3545 18,767,000 |5.
6. Premises and fixed assets (including capitalized leases) ............. | 2145 877,000 |6.
7. Other real estate owned (from Schedule RC-M) ......................... | 2150 88,,000 |7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) | 2130 948,000 |8.
9. Customers' liability to this bank on acceptances outstanding .................... | 2155 230,,000 |9.
10. Intangible assets (from Schedule RC-M) .......................................... | 2143 100,000 |10.
11. Other assets (from Schedule RC-F) ............................................... | 2160 3,956,000 |11.
12. Total assets (sum of items 1 through 11) ........................................ | 2170 75,518,000 |12.
--------------------------
</TABLE>
- --------------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 33
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 06/30/99 State#: 364840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D Cert#: 00623 Page RC-2
City, State Zip: New York, NY 10006 Transit#: 21001003
12
SCHEDULE RC--CONTINUED
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
13. Deposits: |/ / / / / / / / / / / |
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) | RCON 2200 16,538,000 |13.a.
(1) Noninterest-bearing(1) ............................RCON 6631 2,636,000...... |/ / / / / / / / / / / |13.a.(1)
(2) Interest-bearing ...................................RCON 6636 13,902,000...... | / / // / / / / / / / |13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E | / / / / / / / / / / |
part II) | RCFN 2200 18,293,000 |13.b.
(1) Noninterest-bearing ...............................RCFN 6631 3,202,000 |/ / / / / / / / / / / |13.b.(1)
(2) Interest-bearing ........................RCFN 6636 15,091,000 |/ / / / / / / / / / / |13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase | RCFD 2800 5,772,000 |14.
15. a. Demand notes issued to the U.S. Treasury ......................................... | RCON 2840 500,000 |15.a.
b. Trading liabilities (from Schedule RC-D).......................................... | RCFD 3548 15,013,000 |15.b.
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases): |/ / / / / / / / / / / / |
a. With a remaining maturity of one year or less .................................... | RCFD 2332 3,157,000 |16.a.
b. With a remaining maturity of more than one year through three years.............. | A547 2,990,000 |16.b.
c. With a remaining maturity of more than three years................................. | A548 364,000 16.c
17. Not Applicable. | / / / / / / / / / / / / |17.
18. Bank's liability on acceptances executed and outstanding .............................. | RCFD 2920 230,000 |18.
19. Subordinated notes and debentures (2).................................................. | RCFD 3200 331,000 |19.
20. Other liabilities (from Schedule RC-G) ................................................ | RCFD 2930 6,588,000 |20.
21. Total liabilities (sum of items 13 through 20) ........................................ | RCFD 2948 69,776,000 |21.
22. Not Applicable |/ / / / / / / / / / / |
|/ / / / / / / / / // |22.
EQUITY CAPITAL |/ / / / / / / / / / / |
23. Perpetual preferred stock and related surplus ......................................... | RCFD 3838 1,500,000 |23.
24. Common stock .......................................................................... | RCFD 3230 2,127,000 |24.
25. Surplus (exclude all surplus related to preferred stock) .............................. | RCFD 3839 541,000 |25.
26. a. Undivided profits and capital reserves ........................................... | RCFD 3632 1,798,000 |26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities ........... | RCFD 8434 (5,000) |26.b.
c. Accumulated net gains (losses) on cash flow hedges_________________________ RCFD 4336 0 |26c.
27. Cumulative foreign currency translation adjustments ................................... | RCFD 3284 (219,000) |27.
28. Total equity capital (sum of items 23 through 27) ..................................... | RCFD 3210 5,742,000 |28.
29. Total liabilities and equity capital (sum of items 21 and 28).......................... | RCFD 3300 75,518,000 |29
| |
-----------------
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the
most comprehensive level of auditing work performed for the bank by independent external Number
------------------------------
auditors as of any date during 1997.....................................................| RCFD 6724 N/A | M.1
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external
submits a report on the consolidated holding company auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in 8 = No external audit work
accordance with generally accepted auditing standards
by a certified public accounting firm (may be required
by state chartering authority)
</TABLE>
- ----------------------
(1) Including total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
