As filed with the Securities and Exchange Commission on August 26, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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<TABLE>
<S> <C>
FIDELITY BANCSHARES (N.C.), INC. FIDBANK CAPITAL TRUST I
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
DELAWARE DELAWARE
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
56-1586543 Applied For
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
100 SOUTH MAIN STREET 100 SOUTH MAIN STREET
FUQUAY-VARINA, NORTH CAROLINA 27526 FUQUAY-VARINA, NORTH CAROLINA 27526
(919) 552-2242 (919) 552-2242
(Address, including zip code, and telephone number, (Address, including zip code, and area telephone number,
including area code, of registrant's principal executive offices) including area code, of registrant's principal executive offices)
</TABLE>
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BILLY T. WOODARD
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
FIDELITY BANCSHARES (N.C.), INC.
100 SOUTH MAIN STREET
FUQUAY-VARINA, NORTH CAROLINA 27526
(919) 552-2242
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
<TABLE>
<S> <C>
WILLIAM R. LATHAN, JR., ESQ. FRANK M. CONNER, III, ESQ
F. DONALD NELMS, JR., ESQ. JONATHAN H. TALCOTT, ESQ.
WARD AND SMITH, P.A. ALSTON & BIRD LLP
1001 COLLEGE COURT 601 PENNSYLVANIA AVENUE
NEW BERN, NORTH CAROLINA 28560 NORTH BUILDING, 11TH FLOOR
(252) 633-1000 WASHINGTON, D.C. 20004
(202) 756-3300
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Approximate date of commencement of the proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, check the following box: [ ]
If any of the securities being registered on this Form are being offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED (1) PER SHARE/UNIT OFFERING PRICE (2) FEE (3)
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<S> <C> <C> <C> <C>
Capital Securities of
FIDBANK Capital Trust I .............. 2,300,000 $ 10.00 $23,000,000 $ 6,785.00
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Junior Subordinated Debentures due
* , 2028 of Fidelity
BancShares (N.C.), Inc. (4) ........... (6) -- -- --
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Guarantee of Capital Securities by
Fidelity BancShares (N.C.), Inc. (5) .. (6) -- -- --
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(1) Includes 300,000 * % Capital Securities ("Capital Securities") offered
hereby which may be sold to cover over-allotments, if any.
(2) Represents the aggregate liquidation amount of the Capital Securities to be
issued hereunder and the principal amount of the Junior Subordinated
Deferrable Interest Debentures (the "Junior Subordinated Debentures") that
may be distributed to holders of Capital Securities upon any liquidation
of FIDBANK Capital Trust I (the "Issuer Trust").
(3) The registration fee is calculated in accordance with Section 6 of the
Securities Act of 1933, as amended.
(4) The Junior Subordinated Debentures will be purchased by the Issuer Trust
with the proceeds of the sale of the Capital Securities. The Junior
Subordinated Debentures may later be distributed for no additional
consideration to the holders of the Capital Securities of the Issuer Trust
upon its dissolution and the distribution of its assets.
(5) No separate consideration will be received for the Guarantee of the Capital
Securities by Fidelity BancShares (N.C.), Inc. (the "Guarantee").
(6) This Registration Statement is deemed to cover the Junior Subordinated
Debentures of Fidelity BancShares (N.C.), Inc., the rights of holders of the
Junior Subordinated Debentures under the Junior Subordinated Indenture (as
defined herein), and the rights of holders of Capital Securities of the
Issuer Trust under the Trust Agreement (as defined herein) and the Guarantee
which, taken together, fully, irrevocably and unconditionally guarantee the
obligations of the Issuer Trust under the Capital Securities.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO SECURITIES HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY
BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
DATED * , 1998
PROSPECTUS
FIDBANK CAPITAL TRUST I
$20,000,000
* % CAPITAL SECURITIES
(LIQUIDATION AMOUNT $10.00 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
FIDELITY BANCSHARES
(N.C.), INC.
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The Capital Securities offered hereby represent preferred undivided
beneficial interests in the assets of FIDBANK Capital Trust I, a statutory
business trust created under the laws of the State of Delaware (the "Issuer
Trust"). Fidelity BancShares (N.C.), Inc. ("BancShares"), initially will be the
holder of all the beneficial interests represented by common securities of the
Issuer Trust (the "Common Securities" and, collectively with the Capital
Securities, the "Trust Securities"). The Issuer Trust exists for the sole
purpose of issuing the Trust Securities and investing the proceeds thereof in
* % Junior Subordinated Deferrable Interest Debentures (the "Junior
Subordinated Debentures") to be issued by BancShares. The Junior Subordinated
Debentures will mature on * , 2028 (the "Stated Maturity"). See
"Description of the Junior Subordinated Debentures -- General." The Capital
Securities will have a preference under certain circumstances over the Common
Securities with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise. See "Description of the Capital
Securities -- Subordination of Common Securities." BancShares intends to apply
to have the Capital Securities approved for quotation on the American Stock
Exchange, Inc. ("AMEX"). (Continued on next page.)
SEE "RISK FACTORS" BEGINNING ON PAGE 12 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS IN EVALUATING AN INVESTMENT IN THE CAPITAL SECURITIES.
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THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS OR DEPOSIT ACCOUNTS,
ARE NOT OBLIGATIONS OF OR GUARANTEED BY A BANKING OR NONBANKING AFFILIATE OF
BANCSHARES (EXCEPT TO THE EXTENT THAT THE CAPITAL SECURITIES ARE GUARANTEED BY
BANCSHARES AS DESCRIBED HEREIN), AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY, AND INVOLVE INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) COMMISSION (2) ISSUER TRUST (3)(4)
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Per Capital Security ......... $ 10.00 (4) $ 10.00
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Total (5) .................... $ 20,000,000 (4) $ 20,000,000
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(1) Plus accumulated Distributions (as defined herein), if any, from * , 1998.
(2) BancShares and the Issuer Trust each have agreed to indemnify the
Underwriter (as defined herein) against certain liabilities, including
certain liabilities under the Securities Act. See "Underwriting."
(3) Before deducting estimated expenses of $ * which are payable by
BancShares.
(4) In view of the fact that the proceeds of the sale of the Capital Securities
will be invested in the Junior Subordinated Debentures issued by
BancShares, BancShares has agreed to pay the Underwriter, as compensation
for its arranging the investment therein of such proceeds, $ * per
Capital Security (or $ * in the aggregate). See "Underwriting."
(5) The Issuer Trust has granted to the Underwriter an option, exercisable
within 30 days of the date hereof, to purchase up to 300,000 additional
Capital Securities on the same terms and conditions set forth above solely
to cover over-allotments, if any. If the Underwriter exercises such option
in full, the total Price to Public, Underwriting Commission and Proceeds
to Issuer Trust, will be $23,000,000, $ * and $23,000,000,
respectively. See "Underwriting."
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The Capital Securities are offered by the Underwriter, as specified
herein, subject to receipt and acceptance by it, to prior sale and to the
Underwriter's right to reject any order in whole or in part and to withdraw,
cancel or modify the offer without notice. It is expected that delivery of the
Capital Securities will be made on or about * , 1998, against payment
therefor in immediately available funds.
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WHEAT FIRST UNION
THE DATE OF THIS PROSPECTUS IS * 1998.
<PAGE>
Holders of the Capital Securities will be entitled to receive preferential
cumulative cash distributions ("Distributions") accumulating from the date of
original issuance and payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year (each a "Distribution Date"),
commencing * , 1998, at an annual rate equal to * % on the stated
amount of $10.00 per Capital Security (the "Liquidation Amount"). The
distribution rate and the distribution payment dates and other payment dates
for the Capital Securities will correspond to the interest rate and interest
payment dates and other payment dates on the Junior Subordinated Debentures,
which will be the sole assets of the Issuer Trust. So long as no Event of
Default (as defined in the Junior Subordinated Indenture (as defined herein))
has occurred and is continuing with respect to the Junior Subordinated
Debentures (a "Debenture Event of Default"), BancShares has the right to defer
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarterly periods with
respect to each deferral period (each, an "Extension Period"), provided that no
Extension Period may extend beyond the Stated Maturity of the Junior
Subordinated Debentures or end on a date other than a Distribution Date. No
interest shall be due and payable during any Extension Period, except at the
end thereof. Upon the termination of any such Extension Period and the payment
of all amounts then due, BancShares may elect to begin a new Extension Period
subject to the requirements set forth herein. If interest payments on the
Junior Subordinated Debentures are so deferred, Distributions on the Capital
Securities will also be deferred and BancShares will not be permitted, subject
to certain exceptions described herein, to declare or pay any cash
distributions with respect to BancShares' capital stock or with respect to debt
securities of BancShares that rank pari passu in all respects with or junior to
the Junior Subordinated Debentures. During an Extension Period, interest on the
Junior Subordinated Debentures will continue to accrue (and the amount of
Distributions to which holders of the Capital Securities are entitled will
accumulate) at a rate equal to * %, compounded quarterly, and holders of
Capital Securities will be required to accrue income for United States federal
income tax purposes. See "Description of the Junior Subordinated Debentures --
Option to Extend Interest Payment Period" and "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount."
BancShares will, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture (each as defined
herein), taken together, fully, irrevocably and unconditionally guarantee all
the Issuer Trust's obligations under the Capital Securities as described below.
See "Relationship Among the Capital Securities, the Junior Subordinated
Debentures and the Guarantee -- Full and Unconditional Guarantee." The
Guarantee of BancShares guarantees the payment of Distributions and payments on
liquidation or redemption of the Capital Securities, but only in each case to
the extent of funds held by the Issuer Trust, as described herein. See
"Description of the Guarantee." If BancShares does not make payments on the
Junior Subordinated Debentures held by the Issuer Trust, the Issuer Trust may
have insufficient funds to pay Distributions on the Capital Securities. The
Guarantee does not cover payment of Distributions when the Issuer Trust does
not have sufficient funds to pay such Distributions. In such event, a holder of
Capital Securities may institute a legal proceeding directly against BancShares
to enforce payment of such Distributions to such holder. See "Description of
the Junior Subordinated Debentures -- Enforcement of Certain Rights by Holders
of Capital Securities." The obligations of BancShares under the Guarantee and
the Capital Securities are subordinate and junior in right of payment to all
Senior Indebtedness (as defined in "Description of the Junior Subordinated
Debentures -- Subordination") of BancShares.
The Capital Securities are subject to mandatory redemption (i) in whole,
but not in part, at the Stated Maturity upon repayment of the Junior
Subordinated Debentures, (ii) in whole, but not in part, contemporaneously with
the optional redemption by BancShares of the Junior Subordinated Debentures 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 herein), in each case subject to possible regulatory approval and (iii)
in whole or in part at any time on or after * , 2003, contemporaneously
with the optional redemption by BancShares of the Junior Subordinated
Debentures in whole or in part, in each case at the applicable Redemption Price
(as defined herein). The Junior Subordinated Debentures are redeemable prior to
maturity at the option of BancShares (i) on or after * , 2003, in whole at
any time or in part from time to time, or (ii) in whole, but not in part, at
any time within 90 days following the occurrence and continuation of a Tax
Event, Investment Company Event or Capital Treatment Event, in each case at a
redemption price set forth herein, which includes the accrued and unpaid
interest on the Junior Subordinated Debentures so redeemed to the date fixed
for redemption. The ability of BancShares to exercise its rights to redeem the
Junior Subordinated Debentures or to cause the redemption of the Capital
Securities prior to the Stated Maturity may be subject to prior regulatory
approval by the Board of Governors of the Federal Reserve System (the "Federal
Reserve"), if then required under applicable Federal Reserve capital guidelines
or policies. See "Description of the Capital Securities -- Liquidation
Distribution Upon Dissolution" and "Description of the Junior Subordinated
Debentures -- Redemption."
In the event of the dissolution of the Issuer Trust, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law, the
holders of the Capital Securities will be entitled to receive a Liquidation
Amount of $10.00 per
2
<PAGE>
Capital Security plus accumulated and unpaid Distributions thereon to the date
of payment, subject to certain exceptions, which may be in the form of a
distribution of such amount in Junior Subordinated Debentures. See "Description
of the Capital Securities -- Liquidation Distribution Upon Dissolution."
The holders of the outstanding Common Securities have the right 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 cause the
Junior Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust. The
ability of the holders of the outstanding Common Securities to dissolve the
Issuer Trust may be subject to prior regulatory approval of the Federal
Reserve, if then required under applicable Federal Reserve capital guidelines
or policies. See "Description of the Capital Securities -- Liquidation
Distribution Upon Dissolution."
The Junior Subordinated Debentures are unsecured and subordinated to all
Senior Indebtedness of BancShares. See "Description of the Junior Subordinated
Debentures -- Subordination."
The Capital Securities will be represented by global certificates
registered in the name of The Depository Trust Company ("DTC") or its nominee.
Beneficial interests in the Capital Securities will be shown on, and transfers
thereof will be effected only through, records maintained by participants in
DTC. Except as described in this Prospectus, Capital Securities in certificated
form will not be issued in exchange for the global certificates. See
"Description of the Capital Securities -- Form, Denomination, Book-Entry
Procedures and Transfer."
THE JUNIOR SUBORDINATED DEBENTURES ARE DIRECT AND UNSECURED OBLIGATIONS OF
BANCSHARES AND, LIKE THE CAPITAL SECURITIES, DO NOT EVIDENCE DEPOSITS AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER INSURER
OR GOVERNMENTAL AGENCY.
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CERTAIN PERSONS PARTICIPATING IN THE OFFERING MADE HEREBY MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
CAPITAL SECURITIES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF
CAPITAL SECURITIES TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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3
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AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form S-1
(together with all amendments and exhibits thereto, the "Registration
Statement") filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), by the Issuer Trust with respect to the Capital Securities offered
hereby, and by BancShares with respect to its Junior Subordinated Debentures to
be issued to the Issuer Trust pursuant to the Junior Subordinated Indenture and
its guarantee (to the extent provided herein) of payment of the Distributions
due on the Capital Securities pursuant to the Guarantee. This Prospectus does
not contain all of the information set forth in such Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. Reference is made to the Registration Statement
and the exhibits filed as a part thereof or incorporated by reference therein
for further information with respect to BancShares, the Issuer Trust and the
securities to which this Prospectus relates. Statements contained herein
concerning the provisions of any document filed or incorporated by reference as
an exhibit to the Registration Statement, or otherwise filed with the
Commission or incorporated by reference herein, are not necessarily complete
and, in each instance, reference is made to the copy of such document so filed
or incorporated by reference for a more complete description of the matter
involved. Each such statement is qualified in its entirety by such reference.
Neither BancShares nor the Issuer Trust is currently subject to the
information requirements of the Securities Exchange Act of 1934 (the "Exchange
Act"), but each of BancShares and the Issuer Trust will become subject to such
requirements upon the effectiveness of the Registration Statement. BancShares
intends to seek an order from the Commission conditionally exempting the Issuer
Trust from the reporting requirements of the Exchange Act pursuant to Section
12(h) thereof, and, therefore, it is not expected that the Issuer Trust will be
filing separate reports under the Exchange Act. When filed, BancShares' reports
and other information can be inspected and copied at the following public
reference facilities maintained by the Commission: 450 Fifth Street, N.W.
Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York, New York
10048; and the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may also be obtained by mail from
the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, upon payment of prescribed rates. The Commission
maintains an Internet web site that contains reports, proxy and information
statements and other information regarding issuers who file electronically with
the Commission. The address of that site is http://www.sec.gov.
No separate financial statements of the Issuer Trust have been included
herein. BancShares and the Issuer Trust do not consider that such financial
statements would be material to holders of the Capital Securities because (i)
the Issuer 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 as trust assets the Junior
Subordinated Debentures, issuing the Trust Securities and engaging in incidental
activities, (ii) all of the voting securities of the Issuer Trust will be owned,
directly or indirectly, by BancShares, and (iii) the obligations of the Issuer
Trust under the Capital Securities are guaranteed by BancShares as described
herein. See "FIDBANK Capital Trust I," "Description of the Capital Securities,"
"Description of the Junior Subordinated Debentures," and "Description of the
Guarantee."
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN
THIS PROSPECTUS DOES NOT GIVE EFFECT TO THE EXERCISE OF THE UNDERWRITER'S
OVER-ALLOTMENT OPTION. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS." THROUGHOUT THIS
PROSPECTUS, UNLESS THE CONTEXT CLEARLY REQUIRES OTHERWISE, REFERENCES TO
"BANCSHARES" SHOULD BE DEEMED REFERENCES TO THE COMBINED ACTIVITIES OF FIDELITY
BANCSHARES (N.C.), INC., A NON-OPERATING HOLDING COMPANY, AND ITS PRINCIPAL
OPERATING SUBSIDIARY, THE FIDELITY BANK (THE "BANK"). AS USED HEREIN, (I) THE
"JUNIOR SUBORDINATED INDENTURE" MEANS THE JUNIOR SUBORDINATED INDENTURE, TO BE
DATED AS OF * , 1998, AS AMENDED AND SUPPLEMENTED FROM TIME TO TIME,
BETWEEN BANCSHARES AND BANKERS TRUST COMPANY ("BANKERS TRUST"), AS TRUSTEE (THE
"DEBENTURE TRUSTEE"), RELATING TO THE JUNIOR SUBORDINATED DEBENTURES, (II) THE
"TRUST AGREEMENT" MEANS THE AMENDED AND RESTATED TRUST AGREEMENT, TO BE DATED
AS OF * , 1998, AS AMENDED AND SUPPLEMENTED FROM TIME TO TIME, RELATING TO
THE ISSUER TRUST AMONG BANCSHARES, AS DEPOSITOR, BANKERS TRUST, AS PROPERTY
TRUSTEE (THE "PROPERTY TRUSTEE"), BANKERS TRUST (DELAWARE), AS DELAWARE TRUSTEE
(THE "DELAWARE TRUSTEE") (COLLECTIVELY, THE "ISSUER TRUSTEES"), THE
ADMINISTRATORS NAMED BY THE DEPOSITOR THEREIN (THE "ADMINISTRATORS"), AND THE
HOLDERS, FROM TIME TO TIME, OF UNDIVIDED BENEFICIAL INTERESTS IN THE ASSETS OF
THE ISSUER TRUST, AND (III) THE "GUARANTEE" MEANS THE GUARANTEE AGREEMENT, TO
BE DATED AS OF * , 1998, AS AMENDED AND SUPPLEMENTED FROM TIME TO TIME,
RELATING TO THE CAPITAL SECURITIES BETWEEN BANCSHARES AND BANKERS TRUST, AS
GUARANTEE TRUSTEE (THE "GUARANTEE TRUSTEE").
FIDELITY BANCSHARES (N.C.), INC.
GENERAL
BancShares is a registered bank holding company, incorporated under the
laws of Delaware, and headquartered in Fuquay-Varina, North Carolina. It was
organized during 1987 as the holding company for the Bank. BancShares operates
through the Bank which provides a variety of retail and commercial banking
products and services to individuals and small- to medium-sized businesses in
the communities it serves. At June 30, 1998, BancShares had total consolidated
assets of approximately $597.7 million, total consolidated deposits of
approximately $515.9 million, and total consolidated shareholders' equity of
approximately $62.5 million.
BancShares currently is engaged in an expansion program which involves
acquisitions of other financial institutions, or offices and/or deposits of
other institutions, and the opening of de novo branches. The Bank is a North
Carolina-chartered bank that currently maintains 37 banking offices in 27
central North Carolina communities, nine of which were opened or acquired
within the last three fiscal years.
BancShares is focused on community-oriented banking via (i) localized
lending, (ii) core deposit funding, (iii) conservative balance sheet
management, and (iv) stable growth. BancShares' franchise includes many smaller
communities where competition is limited due to the exit of larger institutions
or to the limited product offerings of smaller institutions. By outsourcing its
core data processing requirements to an affiliated financial institution (see
"Certain Relationships and Related Transactions"), BancShares can offer a
complete array of financial services while maintaining its community banking
orientation. BancShares' focus on non-metropolitan markets and its emphasis on
customer service provide it with a stable source of core funding. At June 30,
1998, transaction accounts and non-interest bearing accounts equaled 40.13% and
15.02%, respectively, of total deposits, with the remaining 44.85% of total
deposits attributable to interest bearing savings and time deposit accounts.
BancShares' return on average assets and return on average equity were
1.32% and 13.47%, respectively, for the year ended December 31, 1997, and an
annualized 1.44% and 13.80%, respectively, for the six months ended June 30,
1998.
Members of the Holding family, including Lewis R. Holding, have been
actively involved in the management of BancShares, and, currently, various
members of the family control an aggregate of 77.31% of BancShares' common
stock. See "Beneficial Ownership of Securities" and "Certain Relationships and
Related Transactions." As a result, BancShares has been managed from a
long-term perspective with primary emphasis being placed on balance sheet
liquidity, loan quality, and earnings stability. At June 30, 1998, BancShares'
loan-to-deposit ratio was 74.67%, and over 64% of its $158.1 million investment
portfolio was invested in U.S. government obligations with an average maturity
of 11 months. Consistent with its management philosophy, BancShares has
emphasized a low-risk loan portfolio derived from its local markets. At June
30, 1998, BancShares' non-performing assets were $57,000, or 0.01% of gross
loans and other real estate. Net charge-offs for the year ended December 31,
1997 were 0.10% of average loans and, for the six-month period ended June 30,
1998, were an annualized 0.33% of average loans. The allowance for loan losses
at June 30, 1998, was 0.96% of gross loans.
5
<PAGE>
BancShares' principal executive offices are located at 100 South Main
Street, Fuquay-Varina, North Carolina 27526, and its telephone number is
(919) 552-2242.
For additional information regarding BancShares and its financial
condition and results of operations, see "Available Information," "Risk Factors
- -- Risk Factors Relating to BancShares," "Fidelity BancShares (N.C.), Inc.,"
"Consolidated Ratios of Earnings to Fixed Charges," "Capitalization," "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business," "Supervision and
Regulation," "Beneficial Ownership of Securities," "Directors and Executive
Officers," "Executive Compensation," "Certain Relationships and Related
Transactions," and "Fidelity BancShares (N.C.), Inc. and Subsidiary Index to
Consolidated Financial Statements."
FIDBANK CAPITAL TRUST I
The Issuer Trust is a statutory business trust created under Delaware law
on July 14, 1998, and which will be governed by the Trust Agreement. The Issuer
Trust exists for the exclusive purposes of (i) issuing and selling the Trust
Securities, (ii) using the proceeds from the sale of the Trust Securities to
acquire the Junior Subordinated Debentures, and (iii) engaging in only those
other activities necessary, convenient or incidental thereto (such as
registering the transfer of the Trust Securities). Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Issuer Trust, and
payments under the Junior Subordinated Debentures will be the sole source of
revenue of the Issuer Trust. Upon issuance of the Capital Securities, the
purchasers thereof will own all of the Capital Securities of the Issuer Trust.
Upon issuance of the Common Securities, BancShares will own all of the Common
Securities of the Issuer Trust which will represent an aggregate Liquidation
Amount equal to at least 3% of the Issuer Trust's total capital. See "FIDBANK
Capital Trust I."
THE OFFERING
Securities Offered.............. $20,000,000 aggregate Liquidation Amount of
* % Capital Securities (Liquidation Amount
$10.00 per Capital Security). BancShares and
the Issuer Trust have granted to the
Underwriter an option, exercisable not later
than 30 days after the date of this
Prospectus, to purchase up to an additional
$3,000,000 aggregate Liquidation Amount of
Capital Securities (300,000 Capital
Securities) at the public offering price,
less the underwriting discounts and
commissions set forth on the cover page of
this Prospectus, plus accumulated
Distributions, if any, from the date of
issuance. The Underwriter may exercise such
option only to cover over-allotments made in
connection with the sale of Capital
Securities offered hereby. If purchased, the
Underwriter will offer such additional
Capital Securities on the same terms as those
on which the $20,000,000 aggregate
Liquidation Amount of the Capital Securities
are being offered.
Offering Price.................. $10.00 per Capital Security plus
accumulated Distributions, if any, from the
date of original issuance.
Distribution Dates.............. March 31, June 30, September 30 and
December 31 of each year, commencing * ,
1998.
Extension Periods............... So long as no Debenture Event of Default
has occurred and is continuing, Distributions
on Capital Securities may be deferred for the
duration of any Extension Period selected by
BancShares with respect to the payment of
interest on the Junior Subordinated
Debentures. No Extension Period may exceed 20
consecutive quarterly periods, extend beyond
the Stated Maturity of the Junior
Subordinated Debentures, or end on a date
other than a Distribution Date. See
"Description of the Capital Securities --
Distributions," "Description of the Junior
Subordinated Debentures -- Option to Extend
Interest Payment Period" and "Certain Federal
Income Tax Consequences -- Interest Income
and Original Issue Discount."
During an Extension Period, interest on the
Junior Subordinated Debentures will
continue to accrue (and the amount of
Distributions to
6
<PAGE>
which holders of the Capital Securities are
entitled will accumulate) at the rate of
* % per annum, compounded quarterly, to the
extent permitted by applicable law, from
the relevant payment date for such
interest, and holders of Capital Securities
will be required to accrue income (in the
form of original issue discount ("OID"))
for United States federal income tax
purposes even though the Issuer Trust is
not making cash Distributions on such
Capital Securities. There could be multiple
Extension Periods of varying lengths
throughout the term of the Junior
Subordinated Debentures.
As a consequence of the extension by
BancShares of the interest payment period,
quarterly Distributions on the Capital
Securities will be deferred (though such
distributions will continue to accumulate
and compound quarterly, since interest will
continue to accrue and compound on the
Junior Subordinated Debentures) during any
such Extension Period. During an Extension
Period, BancShares will be prohibited,
subject to certain exceptions described
herein, from declaring or paying any cash
distributions with respect to its capital
stock or debt securities that rank pari
passu with or junior to the Junior
Subordinated Debentures. Upon the
termination of any Extension Period and the
payment of all amounts then due, BancShares
may commence a new Extension Period,
subject to the foregoing requirements. See
"Description of the Capital Securities --
Distributions" and "Description of the
Junior Subordinated Debentures -- Option to
Extend Interest Payment Period." During an
Extension Period, holders of Capital
Securities will be required to include
income in the form of OID in their gross
income for federal income tax purposes in
advance of the receipt of the cash payments
attributable to such deferred interest. See
"Description of the Junior Subordinated
Debentures -- Option to Extend Interest
Payment Period" and "Certain Federal Income
Tax Consequences -- Interest Income and
Original Issue Discount."
Ranking........................... The Capital Securities will rank pari
passu, and payments thereon will be made pro
rata, with the Common Securities except as
described under "Description of the Capital
Securities -- Subordination of Common
Securities." The Junior Subordinated
Debentures will be unsecured and subordinate
and junior in right of payment to the extent
and in the manner set forth in the Junior
Subordinated Indenture to all Senior
Indebtedness. See "Description of the Junior
Subordinated Debentures." The Guarantee will
constitute an unsecured obligation of
BancShares and will rank subordinate and
junior in right of payment to the extent and
in the manner set forth in the Guarantee to
all Senior Indebtedness. See "Description of
the Guarantee." In addition, because
BancShares is a holding company, the Junior
Subordinated Debentures and the Guarantee
will be effectively subordinated to all
existing and future liabilities of
BancShares' subsidiaries, including the
Bank's deposit liabilities. See "Description
of the Junior Subordinated Debentures --
Subordination."
Redemption...................... The Trust Securities are subject to
mandatory redemption (i) in whole, but not in
part, at the Stated Maturity upon repayment
of the Junior Subordinated Debentures, (ii)
in whole, but not in part, contemporaneously
with the optional redemption at any time by
BancShares of the Junior Subordinated
Debentures 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
7
<PAGE>
case subject to possible regulatory
approval, and (iii) in whole or in part at
any time on or after * , 2003,
contemporaneously with the optional
redemption by BancShares of the Junior
Subordinated Debentures in whole or in
part, in each case at the applicable
redemption price. See "Description of the
Capital Securities -- Redemption" and
"Description of the Junior Subordinated
Debentures -- Redemption."
No Ratings...................... The Capital Securities will not be rated by
any rating service, nor is any other security
issued by BancShares so rated.
Termination and Distribution.... BancShares, as holder of the Common
Securities, will have the right at any time
to terminate the Issuer Trust and cause the
Junior Subordinated Debentures to be
distributed to the holders of the Capital
Securities in liquidation of the Issuer
Trust. This right is optional and wholly
within the discretion of BancShares.
Circumstances under which BancShares may
determine to exercise such right could
include the occurrence of adverse tax
consequences to BancShares or the Issuer
Trust that are not within the definition of a
Tax Event because they do not result from an
amendment or change described in such
definition, and changes in the accounting
requirements applicable to the Capital
Securities as described under "Accounting
Treatment." See "Description of the Capital
Securities -- Liquidation Distribution Upon
Dissolution."
Guarantee....................... BancShares has, through the Guarantee, the
Junior Subordinated Indenture, the Junior
Subordinated Debentures and the Trust
Agreement, fully and unconditionally
guaranteed all the Issuer Trust's obligations
with respect to the Capital Securities,
subject to certain subordination provisions
discussed below. The payment of Distributions
on the Capital Securities is guaranteed by
BancShares under the Guarantee, but only to
the extent the Issuer Trust has funds legally
and immediately available to make such
Distributions. If BancShares does not make
principal or interest payments on the Junior
Subordinated Debentures, the Issuer Trust
will not have sufficient funds to make
Distributions on the Capital Securities. In
such event, a holder of Capital Securities
may institute a legal proceeding directly
against BancShares pursuant to the terms of
the Guarantee to enforce payment of amounts
equal to such Distributions to such holder.
See "Description of the Junior Subordinated
Debentures -- Enforcement of Certain Rights
by Holders of Capital Securities."
ERISA Considerations............ Prospective investors must carefully
consider the restrictions on purchase set
forth under "ERISA Considerations."
Absence of Market for the
Capital Securities...............The Capital Securities will be a new issue
of securities for which there currently is
no market. BancShares intends to apply to
have the Capital Securities approved for
quotation on AMEX. However, there can be no
assurance that such application will be
approved, that an active public market in
the Capital Securities will develop or, if
one does develop, that it will be
maintained. Accordingly, there can be no
assurance as to the development or liquidity
of any market for the Capital Securities.
See "Underwriting."
American Stock Exchange, Inc.... BancShares intends to apply to have the
Capital Securities approved for quotation on
AMEX. See "Underwriting."
8
<PAGE>
For additional information regarding the Capital Securities, see "FIDBANK
Capital Trust I," "Accounting Treatment," "Use of Proceeds," "Description of
the Capital Securities," "Description of the Junior Subordinated Debentures,"
"Description of the Guarantee," "Relationship Among the Capital Securities, the
Junior Subordinated Debentures and the Guarantee," "Certain Federal Income Tax
Consequences," and "ERISA Considerations."
USE OF PROCEEDS
All net proceeds to the Issuer Trust from the sale of the Capital
Securities will be invested by the Issuer Trust in the Junior Subordinated
Debentures. All the net proceeds to be received by BancShares from the sale of
the Junior Subordinated Debentures will be used for general corporate purposes,
although it is likely that substantially all such proceeds will be used
initially to make additional capital contributions to the Bank to fund its
operations and continued expansion and to maintain its status as a "well
capitalized" bank under bank regulatory capital guidelines. See "Supervision
and Regulation." Portions of the net proceeds from the sale of the Junior
Subordinated Debentures also may be used in the future for acquisitions by
BancShares or the Bank, extensions of credit to the Bank, or for repurchases of
outstanding common stock of BancShares.
The proceeds from the Capital Securities are expected to qualify as Tier 1
or core capital of BancShares under the risk-based capital guidelines of the
Federal Reserve. However, capital received from the proceeds of the sale of the
Capital Securities cannot constitute more than 25% of the total Tier 1 capital
of BancShares (the "25% Capital Limitation"). Amounts in excess of the 25%
Capital Limitation will constitute Tier 2 or supplementary capital BancShares.
See "Use of Proceeds" and "Accounting Treatment."
RISK FACTORS
Prospective investors should carefully consider the matters set forth under
"Risk Factors" beginning on page 12.
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial
information for BancShares as of and for the years ended December 31, 1997,
1996, 1995, 1994 and 1993, and the six-month periods ended June 30, 1998 and
1997. The selected consolidated financial data as of and for each of the years
in the five-year period ended December 31, 1997 have been derived from
BancShares' audited consolidated financial statements. The consolidated
financial statements as of December 31, 1997 and 1996 and for each of the years
in the three-year period ended December 31, 1997, and the independent auditors'
reports thereon, are included elsewhere in this Prospectus. The information
presented as of and for the six-month periods ended June 30, 1998 and 1997 is
derived from BancShares' unaudited consolidated financial statements for these
periods. Those unaudited consolidated financial statements, which are included
elsewhere in this Prospectus, include all adjustments, consisting only of
normal recurring accruals, which management considers necessary for a fair
presentation of the financial condition and results of operations for such
interim periods. Results for the six-month period ended June 30, 1998 are not
necessarily indicative of results to be expected for the full year or any other
interim period. The following information should also be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included elsewhere herein. See also "Available Information,"
"Experts," and "Fidelity BancShares (N.C.), Inc. and Subsidiary Index to
Consolidated Financial Statements."
<TABLE>
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30,
---------------------------
1998 1997
------------- -------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE
DATA)
(UNAUDITED)
<S> <C> <C>
SUMMARY OF OPERATIONS
Interest income .................................. $ 22,434 $ 21,007
Interest expense ................................. 9,686 9,323
--------- ---------
Net interest income .............................. 12,748 11,684
Provision for loan losses ........................ 180 180
--------- ---------
Net interest income after provision for loan
losses .......................................... 12,568 11,504
Noninterest income ............................... 2,639 1,908
Noninterest expense .............................. 8,411 7,595
--------- ---------
Income before income taxes ....................... 6,796 5,817
Income taxes ..................................... 2,587 2,193
--------- ---------
Net income ....................................... $ 4,209 $ 3,624
========= =========
SELECTED PERIOD-END BALANCES
Total assets ..................................... $ 597,723 $ 559,652
Investment securities and federal funds sold ..... 158,266 156,340
Loans, gross ..................................... 385,271 354,013
Interest earning assets .......................... 543,537 510,353
Deposits ......................................... 515,937 484,718
Interest bearing liabilities ..................... 449,455 434,212
Shareholders' equity ............................. 62,542 55,039
Common shares outstanding ........................ 28,410 28,410
--------- ---------
SELECTED AVERAGE BALANCES
Total assets ..................................... $ 585,136 $ 545,705
Investment securities and federal funds sold ..... 168,045 153,087
Loans, gross ..................................... 370,463 342,042
Interest earning assets .......................... 538,508 495,129
Deposits ......................................... 505,827 479,189
Interest bearing liabilities ..................... 448,130 428,514
Shareholders' equity ............................. 61,016 52,458
Common shares outstanding ........................ 28,410 28,410
--------- ---------
PROFITABILITY RATIOS
Return on average total assets (1) ............... 1.44% 1.33%
Return on average shareholders' equity (1) ....... 13.80 13.82
Dividend payout ratio (2) ........................ 10.80 12.54
--------- ---------
LIQUIDITY AND CAPITAL RATIOS
Average loans to average deposits ................ 73.24% 71.38%
Average shareholders' equity to average total
assets .......................................... 10.43 9.61
Tier 1 capital ratio (3) ......................... 13.04 12.59
Total capital ratio (3) .......................... 13.99 13.82
Leverage capital ratio (3) ....................... 8.82 8.10
--------- ---------
AS OF AND FOR THE
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income .................................. $ 43,249 $ 37,238 $ 30,607 $ 23,859 $ 20,991
Interest expense ................................. 19,016 16,245 12,616 8,437 7,599
--------- --------- --------- --------- ---------
Net interest income .............................. 24,233 20,993 17,991 15,422 13,392
Provision for loan losses ........................ 360 360 360 360 360
--------- --------- --------- --------- ---------
Net interest income after provision for loan
losses .......................................... 23,873 20,633 17,631 15,062 13,032
Noninterest income ............................... 3,974 3,348 2,628 2,867 2,495
Noninterest expense .............................. 15,878 14,191 10,998 9,968 9,485
--------- --------- --------- --------- ---------
Income before income taxes ....................... 11,969 9,790 9,261 7,961 6,042
Income taxes ..................................... 4,581 3,487 3,254 2,955 2,232
--------- --------- --------- --------- ---------
Net income ....................................... $ 7,388 $ 6,303 $ 6,007 $ 5,006 $ 3,810
========= ========= ========= ========= =========
SELECTED PERIOD-END BALANCES
Total assets ..................................... $ 582,995 $ 542,138 $ 406,304 $ 334,390 $ 325,383
Investment securities and federal funds sold ..... 179,043 163,083 108,518 71,816 93,178
Loans, gross ..................................... 358,250 334,880 268,931 242,301 209,661
Interest earning assets .......................... 537,293 497,963 377,449 314,117 302,839
Deposits ......................................... 505,237 479,140 352,566 296,297 285,146
Interest bearing liabilities ..................... 448,832 429,649 313,409 264,370 256,272
Shareholders' equity ............................. 59,117 51,242 44,351 38,433 32,738
Common shares outstanding ........................ 28,410 28,410 28,582 28,582 28,682
--------- --------- --------- --------- ---------
SELECTED AVERAGE BALANCES
Total assets ..................................... $ 558,119 $ 476,559 $ 371,036 $ 331,956 $ 301,734
Investment securities and federal funds sold ..... 164,884 140,644 85,501 84,184 92,259
Loans, gross ..................................... 349,526 297,229 260,103 226,400 190,731
Interest earning assets .......................... 514,410 437,873 345,604 310,584 282,990
Deposits ......................................... 487,985 414,829 323,352 287,876 263,119
Interest bearing liabilities ..................... 433,979 370,876 286,412 258,390 236,698
Shareholders' equity ............................. 54,840 46,824 39,255 34,158 31,191
Common shares outstanding ........................ 28,410 28,570 28,582 28,640 28,686
--------- --------- --------- --------- ---------
PROFITABILITY RATIOS
Return on average total assets (1) ............... 1.32% 1.32% 1.62% 1.51% 1.26%
Return on average shareholders' equity (1) ....... 13.47 13.46 15.30 14.66 12.21
Dividend payout ratio (2) ........................ 12.31 14.51 11.42 13.72 12.05
--------- --------- --------- --------- ---------
LIQUIDITY AND CAPITAL RATIOS
Average loans to average deposits ................ 71.63% 71.65% 80.44% 78.64% 72.49%
Average shareholders' equity to average total
assets .......................................... 9.83 9.83 10.58 10.29 10.34
Tier 1 capital ratio (3) ......................... 12.80 12.54 15.57 16.58 17.33
Total capital ratio (3) .......................... 13.93 13.79 16.82 17.83 18.58
Leverage capital ratio (3) ....................... 8.52 8.55 10.74 10.78 10.44
--------- --------- --------- --------- ---------
</TABLE>
10
<PAGE>
<TABLE>
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30,
---------------------------
1998 1997
------------- -------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE
DATA)
(UNAUDITED)
<S> <C> <C>
PER SHARE OF COMMON STOCK
Net income applicable to common shares (4) ......... $ 148.17 $ 127.55
Cash dividends ..................................... 16.00 16.00
Book value (5) ..................................... 2,201.41 1,937.31
---------- ----------
ASSET QUALITY RATIOS
Nonperforming assets to total gross loans and
other real estate owned ........................... 0.01% 0.02%
Net charge-offs to average loans ................... 0.33 0.05
Total allowance for loan losses to total loans ..... 0.96 1.20
Total allowance for loan losses to total
nonperforming assets .............................. 6,495.89 7,411.36
AS OF AND FOR THE
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
PER SHARE OF COMMON STOCK
Net income applicable to common shares (4) ......... $ 260.04 $ 220.63 $ 210.18 $ 174.80 $ 132.81
Cash dividends ..................................... 32.00 32.00 24.00 24.00 16.00
Book value (5) ..................................... 2,080.86 1,803.66 1,551.70 1,344.65 1,141.43
---------- ---------- ---------- ---------- ----------
ASSET QUALITY RATIOS (6)
Nonperforming assets to total gross loans and
other real estate owned ........................... 0.02% 0.02% 0.00% 0.00% 0.63%
Net charge-offs to average loans ................... 0.10 0.14 0.03 0.01 0.00
Total allowance for loan losses to total loans ..... 1.16 1.24 1.52 1.56 1.65
Total allowance for loan losses to total
nonperforming assets .............................. 7,271.93 7,261.40 N/A N/A 261.91
</TABLE>
- ---------
(1) Annualized for the six months ended June 30, 1998 and 1997.
(2) For each indicated period, total common dividends declared divided by net
income.
(3) See "Supervision and Regulation -- Capital Adequacy" for a more detailed
description of these ratios.
(4) For each indicated period, net income divided by the average number of
common shares outstanding. BancShares' adoption of Statement 128,
"Earnings per Share," had no effect on its earnings per share disclosure
since BancShares has no potentially dilutive securities.
(5) At the end of each indicated period, shareholders' equity divided by the
number of common shares outstanding.
(6) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- For the Six Months Ended June 30, 1998 and 1997 --
Financial Condition and Results of Operations -- Asset Quality and Provision
for Possible Loan Losses."
11
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE CAPITAL SECURITIES SHOULD CAREFULLY REVIEW
THE INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND SHOULD PARTICULARLY
CONSIDER THE FOLLOWING MATTERS. CERTAIN STATEMENTS IN THIS PROSPECTUS ARE
FORWARD-LOOKING AND ARE IDENTIFIED BY THE USE OF FORWARD-LOOKING WORDS OR
PHRASES SUCH AS "INTENDED,""WILL BE POSITIONED,""EXPECTS," IS OR ARE
"EXPECTED,""ANTICIPATES,"AND "ANTICIPATED." THESE FORWARD-LOOKING STATEMENTS
ARE BASED ON BANCSHARES' CURRENT EXPECTATIONS. TO THE EXTENT ANY OF THE
INFORMATION CONTAINED IN THIS PROSPECTUS CONSTITUTES A "FORWARD-LOOKING
STATEMENT" AS DEFINED IN SECTION 21E(I)(1) OF THE EXCHANGE ACT, THE RISK
FACTORS SET FORTH BELOW ARE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENT.
RISK FACTORS RELATING TO THE CAPITAL SECURITIES
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES. The obligations of BancShares under the Guarantee
issued by BancShares for the benefit of the holders of Capital Securities and
under the Junior Subordinated Debentures are subordinate and junior in right of
payment to all Senior Indebtedness. At June 30, 1998, BancShares had no Senior
Indebtedness. However, none of the Junior Subordinated Indenture, the Guarantee
or the Trust Agreement places any limitation on the amount of secured or
unsecured debt, including Senior Indebtedness, that may be incurred by
BancShares. Therefore, if BancShares were to incur such Senior Indebtedness,
required payments on such Senior Indebtedness would, under certain conditions,
need to be made before BancShares could make any payments on the Junior
Subordinated Debentures. See "Description of the Guarantee -- Status of the
Guarantee" and "Description of the Junior Subordinated Debentures --
Subordination."
The ability of the Issuer Trust to pay amounts due on the Capital
Securities is solely dependent upon BancShares' making payments on the Junior
Subordinated Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES. So long as no
Debenture Event of Default has occurred and is continuing, BancShares has the
right under the Junior Subordinated Indenture to defer the payment of interest
on the Junior Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures or end on a date other
than a Distribution Date. See "Description of the Junior Subordinated
Debentures -- Debenture Events of Default." As a consequence of any such
deferral, quarterly Distributions on the Capital Securities by the Issuer Trust
will be deferred during any such Extension Period. Distributions to which
holders of the Capital Securities are entitled will accumulate additional
Distributions thereon during any Extension Period at a rate equal to * % 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 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" as used herein
shall include any such additional Distributions. During any such Extension
Period, BancShares may not (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire or make a liquidation payment with respect to,
any of BancShares' 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 BancShares that rank PARI PASSU in all respects with or junior in
interest to the Junior Subordinated Debentures (other than (a) repurchases,
redemptions or other acquisitions of shares of capital stock of BancShares 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
shareholder stock purchase plan or in connection with the issuance of capital
stock of BancShares (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 an exchange or
conversion of any class or series of BancShares' capital stock (or any capital
stock of a subsidiary of BancShares) for any class or series of BancShares'
capital stock or of any class or series of BancShares' indebtedness for any
class or series of BancShares' capital stock, (c) the purchase of fractional
interests in shares of BancShares' 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
shareholder's rights plan, or the issuance of rights, stock or other property
under any shareholder's 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, BancShares may further defer
the payment of interest, provided that no Extension Period may exceed 20
consecutive quarterly periods, extend beyond the Stated Maturity of the Junior
Subordinated Debentures, or end on a date other than a Distribution Date. Upon
the termination of any Extension Period and the payment of all interest then
accrued and unpaid
12
<PAGE>
(together with interest thereon at a rate equal to * % per annum, compounded
quarterly), BancShares 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. BancShares must give the Issuer Trustees
notice of its election of such Extension Period at least one Business Day prior
to the earlier of (i) the date the Distributions on the Capital Securities
would have been payable but for the election to begin such Extension Period and
(ii) the date the Property Trustee is required to give notice to holders of the
Capital 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. The Property Trustee will give notice of BancShares' election to begin a
new Extension Period to the holders of the Capital Securities. Subject to the
foregoing, there is no limitation on the number of times that BancShares may
elect to begin an Extension Period. See "Description of the Capital Securities
- -- Distributions" and "Description of the Junior Subordinated Debentures --
Option to Extend Interest Payment Period."
Should an Extension Period occur, a holder of Capital Securities will
accrue interest income (in the form of OID) for United States federal income
tax purposes in respect of its PRO RATA share of the Junior Subordinated
Debentures held by the Issuer Trust. As a result, a holder of Capital
Securities will include such OID income in gross income for United States
federal income tax purposes in advance of the receipt of cash attributable to
such income, and will not receive the cash related to such income from the
Issuer Trust if the holder disposes of the Capital Securities prior to the
record date for the payment of Distributions with respect to such Extension
Period. See "Certain Federal Income Tax Consequences -- Interest Income and
Original Issue Discount" and " -- Sale or Redemption of Capital Securities."
BancShares has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should BancShares elect to exercise such
right in the future, the market price of the Capital Securities is likely to be
affected. A holder that disposes of its Capital Securities during an Extension
Period, therefore, might not receive the same return on its investment as a
holder that continues to hold its Capital Securities. In addition, as a result
of the existence of BancShares' right to defer interest payments, the market
price of the Capital Securities (which represent preferred undivided beneficial
interests in the assets of the Issuer Trust) may be more volatile than the
market prices of other securities on which OID accrues that are not subject to
such deferrals.
TAX EVENT, INVESTMENT COMPANY EVENT OR CAPITAL TREATMENT EVENT REDEMPTION
AND OPTIONAL EARLY REDEMPTION. Upon the occurrence and during the continuation
of a Tax Event, Investment Company Event or Capital Treatment Event, BancShares
has the right to redeem the Junior Subordinated Debentures in whole, but not in
part, at any time within 90 days following the occurrence of such Tax Event,
Investment Company Event or Capital Treatment Event and thereby cause a
mandatory redemption of the Capital Securities and Common Securities. In
addition, on or after * , 2003, BancShares may prepay the Junior
Subordinated Debentures, in whole or in part, for any reason and thereby cause
an optional redemption of the Capital Securities, in whole or in part. Any such
redemption shall be at a price equal to the aggregate Liquidation Amount of the
Capital Securities and Common Securities, respectively, together with
accumulated Distributions to but excluding the date fixed for redemption. The
ability of BancShares to exercise its rights to redeem the Junior Subordinated
Debentures prior to the Stated Maturity may be subject to prior regulatory
approval by the Federal Reserve, if then required under applicable Federal
Reserve capital guidelines or policies. See "Description of the Capital
Securities -- Redemption" and " -- Liquidation Distribution Upon Dissolution,"
and "Description of the Junior Subordinated Debentures -- Redemption."
A "Tax Event" means the receipt by the Issuer Trust of an opinion of
counsel to BancShares 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 Capital Securities (including, without
limitation, any of the foregoing arising with respect to, or resulting from,
any proposal, proceeding or other action commencing on or before such date),
there is more than an insubstantial risk that (i) the Issuer 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, (ii) interest payable by BancShares on the Junior
Subordinated Debentures is not, or within 90 days of the delivery of such
opinion will not be, deductible by BancShares, in whole or in part, for United
States federal income tax purposes or (iii) the Issuer Trust is, or will be
within 90 days of the delivery of the opinion, subject to more than a DE-
MINIMIS amount of other taxes, duties or other governmental charges. According
to a petition recently filed in the United States Tax Court by a corporation
unrelated to BancShares and the Issuer Trust, the Internal Revenue Service has
challenged the deductibility for United States federal income tax purposes of
interest payments on certain purported debt instruments held by entities
intended to be taxable as partnerships for United States federal income tax
purposes, where those entities, in turn, issued preferred securities to
investors. Although the overall structure of the financing arrangement involved
in that case is somewhat similar to the financing
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structure for the Junior Subordinated Debentures and the Issuer Trust, the
relevant facts in that case appear to differ significantly from those relating
to the Junior Subordinated Debentures and the Issuer Trust. Whether the
Internal Revenue Service would attempt to challenge the deductibility of
interest on the Junior Subordinated Debentures cannot be predicted. BancShares,
based on the advice of counsel, intends to take the position that interest
payments on the Junior Subordinated Debentures will be deductible by BancShares
for United States federal income tax purposes. See "Certain Federal Income Tax
Consequences -- Classification of the Junior Subordinated Debentures." Adverse
developments relating to the deductibility of interest, whether arising in
connection with the case currently pending in the United States Tax Court or
not, could give rise to a Tax Event.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to BancShares 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 of 1940, as amended (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 Capital Securities.
A "Capital Treatment Event" means the reasonable determination by
BancShares 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 Capital
Securities, there is more than an insubstantial risk that BancShares will not
be entitled to treat an amount equal to the Liquidation Amount of the Capital
Securities as "Tier 1 capital" (or the then equivalent thereof) for purposes of
the risk-based capital adequacy guidelines of the Federal Reserve, as then in
effect and applicable to BancShares.
POSSIBLE TAX LAW CHANGES. In both 1996 and 1997, the Clinton
Administration proposed to amend the Internal Revenue Code of 1986, as amended
(the "Code"), to deny deductions of interest and OID on instruments with
features similar to those of the Junior Subordinated Debentures when issued
under arrangements similar to the Issuer Trust. That proposal was not passed
by, and is not currently pending before, Congress. There can be no assurance,
however, that future legislative proposals, future regulations or official
administrative pronouncements, or future judicial decisions will not affect the
ability of BancShares to deduct interest on the Junior Subordinated Debentures.
Such a change could give rise to a Tax Event, which may permit BancShares, upon
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve, to cause a redemption of the
Capital Securities, as described more fully under "Description of the Capital
Securities -- Redemption."
EXCHANGE OF CAPITAL SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES. The
holders of all the outstanding Common Securities have the right at any time to
dissolve the Issuer Trust and, after satisfaction of liabilities to creditors
of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust. The
ability of BancShares to dissolve the Issuer Trust may be subject to prior
regulatory approval of the Federal Reserve, if then required under applicable
Federal Reserve capital guidelines or policies. See "Description of the Capital
Securities -- Liquidation Distribution Upon Dissolution."
Under current United States federal income tax law and interpretations and
assuming, as expected, that the Issuer Trust will be classified as a grantor
trust for United States federal income tax purposes, a distribution of the
Junior Subordinated Debentures upon a liquidation of the Issuer Trust will not
be a taxable event to holders of the Capital Securities. However, if a Tax
Event were to occur that would cause the Issuer Trust to be subject to United
States federal income tax with respect to income received or accrued on the
Junior Subordinated Debentures, a distribution of the Junior Subordinated
Debentures by the Issuer Trust would be a taxable event to the Issuer Trust and
the holders of the Capital Securities. See "Certain Federal Income Tax
Consequences -- Distribution of Junior Subordinated Debentures to Holders of
Capital Securities."
RIGHTS UNDER THE GUARANTEE. Bankers Trust will act as the Guarantee
Trustee under the Guarantee and will hold the Guarantee for the benefit of the
holders of the Capital Securities. Bankers Trust will also act as Debenture
Trustee for the Junior Subordinated Debentures and as Property Trustee under
the Trust Agreement. Bankers Trust (Delaware) will act as Delaware Trustee
under the Trust Agreement. The Guarantee guarantees to the holders of the
Capital Securities the following payments, to the extent not paid by or on
behalf of the Issuer Trust: (i) any accumulated and unpaid Distributions
required to be paid on the Capital Securities, to the extent that the Issuer
Trust has funds on hand available therefor at such time; (ii) the Redemption
Price (as defined in "Description of the Capital Securities -- Redemption")
with respect to any Capital
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Securities called for redemption, to the extent that the Issuer Trust has funds
on hand available therefor at such time; and (iii) upon a voluntary or
involuntary dissolution of the Issuer Trust (unless the Junior Subordinated
Debentures are distributed to holders of the Capital 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 Issuer Trust has
funds on hand available therefor at such time, and (b) the amount of assets of
the Issuer Trust remaining available for distribution to holders of the Capital
Securities on liquidation of the Issuer Trust. The Guarantee is subordinated as
described under " -- Ranking of Subordinated Obligations Under the Guarantee
and the Junior Subordinated Debentures" and "Description of the Guarantee --
Status of the Guarantee." The holders of not less than a majority in aggregate
Liquidation Amount of the outstanding Capital Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust power conferred upon the Guarantee Trustee under the
Guarantee. Any holder of the Capital Securities may institute a legal
proceeding directly against BancShares to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Issuer
Trust, the Guarantee Trustee or any other person or entity.
If BancShares were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, the Issuer Trust would lack funds for
the payment of Distributions or amounts payable on redemption of the Capital
Securities or otherwise, and, in such event, holders of the Capital Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, if a Debenture Event of Default has occurred and is continuing and
such event is attributable to the failure of BancShares to pay any amounts
payable in respect of the Junior Subordinated Debentures on the payment date on
which such payment is due and payable, then a holder of Capital Securities may
institute a legal proceeding directly against BancShares for enforcement of
payment to such holder of any amounts payable in respect of such Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Capital Securities of such holder (a "Direct
Action"). In connection with such Direct Action, BancShares will have a right
of set-off under the Junior Subordinated Indenture to the extent of any payment
made by BancShares to such holder of Capital Securities in the Direct Action.
Except as described herein, holders of Capital Securities will not be able to
exercise directly any other remedy available to the holders of the Junior
Subordinated Debentures or assert directly any other rights in respect of the
Junior Subordinated Debentures. See "Description of the Junior Subordinated
Debentures -- Enforcement of Certain Rights by Holders of Capital Securities"
and " -- Debenture Events of Default," and "Description of the Guarantee." The
Trust Agreement provides that each holder of Capital Securities by acceptance
thereof agrees to the provisions of the Guarantee and the Junior Subordinated
Indenture.
LIMITED VOTING RIGHTS. Holders of Capital Securities will have limited
voting rights relating generally to the modification of the Capital Securities
and the Guarantee and the exercise of the Issuer Trust's rights as holder of
Junior Subordinated Debentures. Holders of Capital Securities will not be
entitled to appoint, remove or replace the Property Trustee or the Delaware
Trustee except upon the occurrence of certain events specified in the Trust
Agreement and described herein. The Property Trustee and the holders of all the
Common Securities may, subject to certain conditions, amend the Trust Agreement
without the consent of holders of Capital Securities to cure any ambiguity or
make other provisions not inconsistent with the Trust Agreement or to ensure
that the Issuer Trust (i) will not be taxable other than as a grantor trust for
United States federal income tax purposes, or (ii) will not be required to
register as an "investment company" under the Investment Company Act. See
"Description of the Capital Securities -- Voting Rights; Amendment of Trust
Agreement" and " -- Removal of Issuer Trustees; Appointment of Successors."
ABSENCE OF PRIOR MARKET FOR THE CAPITAL SECURITIES AND CERTAIN TRADING
RESTRICTIONS. There is no current public market for the Capital Securities.
Although BancShares intends to apply to have the Capital Securities approved
for quotation on AMEX, there can be no assurance that BancShares' application
will be approved or, if such application is approved, that an active public
market will develop for the Capital Securities, or if such market develops,
that it will be maintained or that the market price will equal or exceed the
public offering price set forth on the cover page of this Prospectus. The
public offering price for the Capital Securities has been determined through
negotiations between BancShares and the Underwriter. Prices for the Capital
Securities will be determined in the marketplace and may be influenced by many
factors, including prevailing interest rates, the liquidity of the market for
the Capital Securities, investor perceptions of BancShares and general industry
and economic conditions. In addition, notwithstanding the registration of the
Capital Securities, holders who are "affiliates" of BancShares or the Issuer
Trust as defined under Rule 405 of the Securities Act may publicly offer for
sale or resell the Capital Securities only in compliance with the provisions of
Rule 144 under the Securities Act. See "Underwriting."
Because holders of Capital Securities may receive Junior Subordinated
Debentures on termination of the Issuer Trust, prospective purchasers of
Capital Securities are also making an investment decision with regard to the
Junior Subordinated
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Debentures and should carefully review all the information regarding the Junior
Subordinated Debentures contained herein. See "Description of the Junior
Subordinated Debentures."
CAPITAL SECURITIES ARE NOT INSURED. The Capital Securities are not insured
by the Bank Insurance Fund ("BIF") or the Savings Association Insurance Fund
("SAIF") of the Federal Deposit Insurance Corporation ("FDIC") or by any other
governmental agency.
RISK FACTORS RELATING TO BANCSHARES
STATUS OF BANCSHARES AS A BANK HOLDING COMPANY. Because BancShares is a
bank holding company, its right to participate in any distribution of assets,
if any, of the Bank upon its liquidation or reorganization or otherwise (and
thus the ability of holders of the Capital Securities to benefit indirectly
from such a distribution) is subject to the prior claims of creditors of the
Bank (including its depositors), except to the extent that BancShares may
itself be recognized as a creditor of the Bank. At June 30, 1998, the Bank had
total liabilities (excluding liabilities owed to BancShares) of approximately
$533.4 million, including deposits. Accordingly, the Capital Securities
effectively will be subordinated to all existing and future liabilities of the
Bank, and holders of Capital Securities should look only to the assets of
BancShares for payments on the Capital Securities. Neither the Guarantee nor
the Junior Subordinated Indenture places any limitation on the amount of
secured or unsecured debt that may be incurred by the Bank in the future. See
"Description of the Junior Subordinated Debentures" and "Description of the
Guarantee."
RELIANCE ON DIVIDEND PAYMENTS BY THE BANK. Almost all of the operating
assets of BancShares are owned by the Bank, and BancShares relies primarily on
dividends from the Bank to meet its obligations for the payment of principal
and interest on its separate debt obligations and corporate expenses and for
payment of dividends on its outstanding common stock. The payment of dividends
by the Bank to BancShares is subject to certain legal and regulatory
limitations, is subject to ongoing review by banking regulators and, under
certain circumstances, may require prior approval by banking regulatory
authorities. At June 30, 1998, approximately $6.6 million was available for
payment of dividends to BancShares from the Bank without regulatory approval
and without affecting the Bank's current classification as a "well capitalized"
bank under federal bank regulatory capital guidelines. However, no assurance
can be given that the Bank will have funds available to pay dividends to
BancShares at any particular time in the future. At June 30, 1998, BancShares
had separate assets (consisting primarily of marketable equity securities) with
a fair value of approximately $10.8 million that could be liquidated, if
necessary, in order to pay obligations of BancShares. See "Supervision and
Regulation." The Bank also is subject to certain restrictions under federal law
on extensions of credit to, and certain other transactions with, BancShares and
certain of its other affiliates, and on investments in the stock or other
securities thereof. Such restrictions prevent BancShares and such other
affiliates from borrowing from the Bank unless the loans are secured by various
types of collateral. Further, such secured loans or other transactions and
investments by the Bank are generally limited in amount as to BancShares and as
to each such other affiliate to 10% of the Bank's capital and surplus and as to
BancShares and all such other affiliates to an aggregate of 20% of the Bank's
capital and surplus.
FLUCTUATIONS IN PERFORMANCE. BancShares' operating results can fluctuate
substantially from period to period as a result of a number of factors,
including the volume of loan production, interest rates, risk of credit losses
and changes in the economy, including the local economy in the markets in which
the Bank does business. In particular, BancShares' results are strongly
influenced by the level of loan production, which is influenced by the interest
rate environment and other economic factors. Accordingly, BancShares' net
income may fluctuate substantially from period to period.
INTEREST RATE FLUCTUATIONS. Changes in interest rates can have differing
effects on various aspects of BancShares' business, particularly on the net
interest income of BancShares, the rate of loan prepayments, and the volume of
loans originated.
NET INTEREST INCOME. The Bank's profitability is dependent to a large
extent on its net interest income, which is the difference between its income
on interest-earning assets and its expense on interest-bearing liabilities. The
Bank, like most financial institutions, is affected by changes in general
interest rate levels and by other economic factors beyond its control. Interest
rate risk arises in part from the mismatch (i.e., the interest sensitivity gap)
between the dollar amount of repricing or maturing interest earning assets and
liabilities, and is measured in terms of the ratio of the interest rate
sensitivity gap to total assets. More interest earning assets than interest
bearing liabilities repricing or maturing over a given time period is
considered asset-sensitive and is reflected as a positive gap, and more
liabilities than assets repricing or maturing over a given time period is
considered liability-sensitive and is reflected as a negative gap. A
liabilities-sensitive position (i.e., a negative gap) may generally enhance net
interest income in a falling interest rate environment and reduce net interest
income in a rising interest rate environment, while an asset-sensitive position
(i.e., a positive gap) may generally enhance
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<PAGE>
net interest income in a rising interest rate environment and will reduce net
interest income in a falling interest rate environment. Fluctuations in
interest rates are not predictable or controllable. Periodically, the Bank
estimates the prepayment rates of all loans in its loan portfolios in order to
determine its gap position over the approaching twelve-month period. At
December 31, 1997, based on management's assumptions derived from its
experience, the Bank calculated that it had a positive one-year cumulative gap
position representing 16.92% of total assets.
RATE OF LOAN PREPAYMENT. Changes in interest rates also affect the
average life of loans. The relatively lower interest rates in recent periods
have resulted in increased prepayments of loans and mortgage-backed securities
as borrowers have refinanced their mortgages to reduce their borrowing costs.
Under these circumstances, the Bank is subject to reinvestment risk to the
extent that it is not able to reinvest such prepayments at rates which are
comparable to the rates on the prepaid loans or securities.
ALLOWANCE FOR LOAN LOSSES. Industry experience indicates that a portion of
BancShares' loans held in its portfolio will become delinquent and a portion of
the loans will become charge-offs. Regardless of the underwriting criteria used
by the Bank, losses may be experienced as a result of various factors beyond
the Bank's control, including, among other things, changes in market conditions
affecting the value of properties and problems affecting the credit of the
borrower. The Bank's determination of the adequacy of its allowance for loan
losses is based on various considerations, including an analysis of the risk
characteristics of various classifications of loans, previous loan loss
experience, specific loans which would have loan loss potential, delinquency
trends, estimated fair value of the underlying collateral, current economic
conditions, the views of the Bank's regulators (who have the authority to
require additional reserves), and geographic and industry loan concentration.
If delinquency levels were to increase as a result of adverse general economic
conditions, the loan loss reserve so determined by the Bank, however, may not
be adequate. The Bank believes the allowance to be adequate, but there can be
no assurance that the allowance will be adequate to cover possible loan losses
or that the Bank will not experience significant losses in its loan portfolio
which may require significant increases to the allowance for loan losses in the
future. At June 30, 1998, BancShares' allowance for loan losses totaled $3.7
million which was 0.96% of gross loans.
GROWTH. BancShares has grown, and may seek to grow in the future, through
acquisitions by the Bank of other financial institutions and branches of
financial institutions and the establishment of DE NOVO branches. However,
opportunities for acquisitions and the establishment of DE NOVO branches in
BancShares' market area are highly competitive. Moreover, any acquisitions will
be subject to regulatory approval and there can be no assurance that BancShares
will obtain such approvals. BancShares may not be successful in the future in
identifying acquisition candidates, integrating acquired institutions or
preventing deposit erosion at acquired institutions or branches. Furthermore,
BancShares' ability to grow through acquisitions will depend on its maintaining
sufficient regulatory capital levels and on economic conditions.
BancShares has experienced growth over the past five years, as total
assets have increased from $325.4 million at December 31, 1993 to approximately
$583.0 million at December 31, 1997. There can be no assurance that BancShares
will be able to manage adequately and profitably its future growth. Failure by
BancShares to manage its growth effectively or sustain historical increases in
loan origination volume could have a material adverse effect on BancShares'
business, financial condition, and results of operations.
CONCENTRATION OF CONTROL. A significant percentage of BancShares' voting
securities are beneficially owned by members of the Holding family.
Accordingly, the Holding family is able to control the election of the Board of
Directors of BancShares and thus the direction and future operations of
BancShares without any approving vote of the holders of the Capital Securities
offered hereby. See "Beneficial Ownership of Securities."
POTENTIAL CONFLICTS OF INTEREST. Certain decisions concerning the
operations of, or financial dealings between, BancShares and other financial
services companies controlled by the Holding family, may present conflicts of
interest between the Holding family and the holders of the Capital Securities
offered hereby. Although it is expected that the terms of any such transactions
between BancShares or the Bank and such other companies will be on terms no
less favorable than those that could be obtained from an independent third
party, BancShares cannot predict with certainty either the nature of, or the
financial terms of, any transactions which may arise in the future. See
"Fidelity BancShares (N.C.), Inc.," "Business," and "Certain Relationships and
Related Transactions."
COMPETITION. The banking business is highly competitive. In its primary
market area, the Bank competes with other commercial banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies, brokerage and investment banking firms and other financial and
non-financial companies operating locally and elsewhere, which may offer
products similar to those offered by the Bank. Certain of the Bank's primary
competitors have substantially greater resources and lending limits than the
Bank and offer services the Bank does not provide at this time. BancShares'
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profitability depends upon the Bank's ability to continue to compete in its
primary market areas. See "Business -- Description of Business."
DEVELOPMENTS IN TECHNOLOGY. BancShares is heavily dependent upon complex
computer systems for all phases of its operations. The year 2000 issue common
to most corporations concerns the inability of certain software and databases
to recognize properly date sensitive information beginning January 1, 2000.
This problem could result in a disruption to BancShares' operations, if not
corrected. Financial institutions are particularly sensitive to such
disruptions. BancShares uses third-party vendors for substantially all of its
data processing. As a result, much of BancShares' remediation effort relates to
monitoring and communicating with those vendors. BancShares has assessed and
developed a detailed strategy to prevent or at least minimize problems related
to the year 2000 issue. In 1997, resources were committed and implementation
began to modify the affected information systems. Implementation is currently
on schedule, but the degree of success of the project cannot be determined at
this time. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Accounting and Other Matters" and "Certain
Relationships and Related Transactions."
The market for financial services, including banking services, is
increasingly affected by advances in technology, including developments in
telecommunications, data processing, computers, automation, Internet-based
banking, debit cards and so-called "smart" cards. BancShares' ability to
compete successfully in its markets may depend on the extent to which it is
able to exploit such technological changes. However, there can be no assurance
that the development of these or any other new technologies, or BancShares'
success or failure in anticipating or responding to such developments, will
materially affect BancShares' business, financial condition and operating
results.
DEPENDENCE ON REGIONAL AND LOCAL ECONOMICS. BancShares and the Bank are
headquartered and operate primarily in rural areas of central North Carolina.
Consistent with its banking philosophy, a majority of the Bank's depositors are
located in and doing business within its banking markets and the Bank lends a
substantial portion of its capital and deposits to individual and commercial
borrowers in its banking markets. Accordingly, the local economies of those
areas have a direct impact on the ability of the Bank to generate deposits to
support loan growth, on the demand for loans, on the ability of residents who
are borrowers from the Bank to repay loans, on the value of collateral securing
such loans (particularly loans secured by real estate), and on the Bank's
ability to collect, liquidate and restructure problem loans. Should the economy
of any of the Bank's banking markets be adversely affected by a general
economic downturn or by other specific events or trends, the resulting economic
impact could have a direct adverse effect on the Bank and its operating
results.
RISK OF CLAIMS. In the ordinary course of its business, the Bank is or may
become subject to claims made against it by borrowers arising from, among other
things, losses that are claimed to have been incurred as a result of alleged
breaches of fiduciary obligations, errors and omissions of employees, officers
and agents of the Bank, incomplete documentation, and failures by the Bank to
comply with various laws and regulations applicable to its business. Relying as
it does on employees interacting with its customers, the Bank may encounter
circumstances where employees knowingly or unknowingly violate laws or
regulations without the knowledge of management, in which case the Bank may be
liable for these acts. BancShares believes that liability with respect to any
currently asserted claims or legal actions is not likely to be material to
BancShares' results of operations or financial condition; however, any claims
asserted may result in legal expenses or liabilities which could have a
material adverse effect on BancShares' results of operations and financial
condition.
ENVIRONMENTAL MATTERS. In the course of its business, through the
foreclosure process the Bank has acquired, and may acquire in the future,
properties securing loans that are in default. Therefore, there is a risk that
the Bank could be required to investigate and clean up hazardous or toxic
substances or chemical releases at such properties after their acquisition and
may be held liable to a governmental entity or to third-parties for property
damage, personal injury and investigation and cleanup costs incurred by such
parties in connection with the contamination. To date, the Bank has not been
required to perform any investigation or cleanup activities of any material
nature. No assurance can be given, however, that this will remain the case in
the future.
FIDELITY BANCSHARES (N.C.), INC.
GENERAL
BancShares is a registered bank holding company, incorporated under the
laws of Delaware, and headquartered in Fuquay-Varina, North Carolina. It was
organized during 1987 as the holding company for the Bank. BancShares operates
through the Bank which provides a variety of retail and commercial banking
products and services to individuals and small- to medium-sized businesses in
the communities it serves. At June 30, 1998, BancShares had total consolidated
assets of approximately $597.7 million, total consolidated deposits of
approximately $515.9 million, and total consolidated shareholders' equity of
approximately $62.5 million.
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BancShares currently is engaged in an expansion program which involves
acquisitions of other financial institutions, or offices and/or deposits of
other institutions, and the opening of DE NOVO branches. The Bank is a North
Carolina-chartered bank that currently maintains 37 banking offices in 27
central North Carolina communities, nine of which were opened or acquired
within the last three fiscal years.
BancShares is focused on community-oriented banking via (i) localized
lending, (ii) core deposit funding, (iii) conservative balance sheet
management, and (iv) stable growth. BancShares' franchise includes many smaller
communities where competition is limited due to the exit of larger institutions
or to the limited product offerings of smaller institutions. By outsourcing its
core data processing requirements to an affiliated financial institution (see
"Certain Relationships and Related Transactions"), BancShares can offer a
complete array of financial services while maintaining its community banking
orientation. BancShares' focus on non-metropolitan markets and its emphasis on
customer service provide it with a stable source of core funding. At June 30,
1998, transaction accounts and non-interest bearing accounts equaled 40.13% and
15.02%, respectively, of total deposits, with the remaining 44.85% of total
deposits attributable to interest bearing savings and time deposit accounts.
BancShares' return on average assets and return on average equity were
1.32% and 13.47%, respectively, for the year ended December 31, 1997, and an
annualized 1.44% and 13.80%, respectively, for the six months ended June 30,
1998.
Members of the Holding family, including Lewis R. Holding, have been
actively involved in the management of BancShares, and, currently, various
members of the family control an aggregate of 77.31% of BancShares' common
stock. See "Beneficial Ownership of Securities" and "Certain Relationships and
Related Transactions." As a result, BancShares has been managed from a
long-term perspective with primary emphasis being placed on balance sheet
liquidity, loan quality, and earnings stability. At June 30, 1998, BancShares'
loan-to-deposit ratio was 74.67%, and over 64% of its $158.1 million investment
portfolio was invested in U.S. government obligations with an average maturity
of 11 months. Consistent with its management philosophy, BancShares has
emphasized a low-risk loan portfolio derived from its local markets. At June
30, 1998, BancShares' non-performing assets were $57,000, or 0.01% of gross
loans and other real estate. Net charge-offs for the year ended December 31,
1997 were 0.10% of average loans and, for the six-month period ended June 30,
1998, were an annualized 0.33% of average loans. The allowance for loan losses
at June 30, 1998, was 0.96% of gross loans.
BancShares' principal executive offices are located at 100 South Main
Street, Fuquay-Varina, North Carolina 27526, and its telephone number is
(919) 552-2242.
For additional information regarding BancShares and its financial
condition and results of operations, see "Available Information," "Risk Factors
- -- Risk Factors Relating to BancShares," "Consolidated Ratios of Earnings to
Fixed Charges," "Capitalization," "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," "Supervision and Regulation," "Beneficial Ownership of
Securities," "Directors and Executive Officers," "Executive Compensation,"
"Certain Relationships and Related Transactions," and "Fidelity BancShares
(N.C.), Inc. and Subsidiary Index to Consolidated Financial Statements."
RELATIONSHIP WITH AFFILIATED FINANCIAL INSTITUTIONS
The Bank is party to a contract with an affiliated financial institution,
First-Citizens Bank & Trust Company, Raleigh, North Carolina ("FCB"), pursuant
to which FCB provides the Bank with certain management consulting services and
with various support and data processing services relating to (i) its deposit
and loan, item processing, general ledger, statement rendering and securities
portfolio management functions which the Bank has chosen not to provide for
itself, and (ii) service as trustee for the Bank's pension plan and Section
401(k) salary deferral plan. The Bank also purchases business forms, equipment
and supplies through FCB. Amounts paid by the Bank to FCB pursuant to those
arrangements during 1997, 1996 and 1995 totaled approximately $1.9 million,
$1.6 million and $1.3 million, respectively. Management of the Bank estimates
that amounts payable during 1998 will total approximately $2.0 million. The
Bank also has agreed to purchase an aggregate of approximately $34.8 million in
assets, and to assume an aggregate of approximately $75.1 million in deposit
liabilities, associated with five branch offices of FCB; and, during January
1998, the Bank sold rights to service $51 million in mortgage loans to another
affiliated bank, Southern Bank and Trust Company. See "Certain Relationships
and Related Transactions."
FIDBANK CAPITAL TRUST I
The Issuer Trust is a statutory business trust created under the Delaware
Business Trust Act (the "Trust Act") on July 14, 1998, pursuant to the filing
of a certificate of trust with the Delaware Secretary of State. The Issuer
Trust will be
19
<PAGE>
governed by the Trust Agreement among BancShares, as Depositor, Bankers Trust
(Delaware), as Delaware Trustee, Bankers Trust, as Property Trustee, the
Administrators named therein, and the holders, from time to time, of undivided
beneficial interests in the assets of the Issuer Trust. Two individuals will be
selected by the holders of the Common Securities to act as Administrators with
respect to the Issuer Trust. BancShares, while holder of the Common Securities,
intends to select two individuals who are employees or officers of or
affiliated with BancShares to serve as the Administrators. See "Description of
the Capital Securities -- Miscellaneous." The Trust Agreement will be qualified
as an indenture under the Trust Indenture Act of 1939, as amended. The Issuer
Trust exists for the exclusive purposes of (i) issuing and selling the Trust
Securities, (ii) using the proceeds from the sale of the Trust Securities to
acquire the Junior Subordinated Debentures and (iii) engaging in only those
other activities necessary, convenient or incidental thereto (such as
registering the transfer of the Trust Securities). Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Issuer Trust, and
payments under the Junior Subordinated Debentures will be the sole source of
revenue of the Issuer Trust.
All the Common Securities will initially be owned by BancShares. The
Common Securities will rank PARI PASSU, and payments will be made thereon PRO
RATA, with the Capital Securities, except that upon the occurrence and during
the continuation of a Debenture Event of Default arising as a result of any
failure by BancShares to pay any amounts in respect of the Junior Subordinated
Debentures when due, the rights of the holders of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption
or otherwise will be subordinated to the rights of the holders of the Capital
Securities. See "Description of the Capital Securities -- Subordination of
Common Securities." BancShares will acquire Common Securities in an aggregate
Liquidation Amount equal to at least 3% of the total capital of the Issuer
Trust. The Issuer Trust has a term of 31 years, but may be dissolved or
terminated earlier as provided in the Trust Agreement. The address of the
Delaware Trustee is Bankers Trust (Delaware), E.A. Delle Donne Corporate
Center, Montgomery Building, 1011 Centre Road, Suite 200, Wilmington, Delaware
19805-1266, telephone number (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, telephone
number (212) 250-2500. It is anticipated that the Issuer Trust will be
conditionally exempted from the reporting requirements of the Exchange Act.
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer Trust will be treated as a
subsidiary of BancShares and, accordingly, the accounts of the Issuer Trust
will be included in the consolidated financial statements of BancShares. The
Capital Securities will be included in the consolidated balance sheets of
BancShares as long-term obligations, and appropriate disclosures about the
Capital Securities, the Guarantee and the Junior Subordinated Debentures will
be included in the notes to the consolidated financial statements of
BancShares. For financial reporting purposes, Distributions on the Capital
Securities will be recorded in the consolidated statements of income as
interest expense of BancShares. See also "Capitalization."
USE OF PROCEEDS
All the net proceeds to the Issuer Trust from the sale of the Capital
Securities will be invested by the Issuer Trust in the Junior Subordinated
Debentures. The net proceeds to BancShares from the sale of the Junior
Subordinated Debentures offered hereby are estimated to be approximately $ *
million ($ * if the Underwriter's over-allotment option is exercised in full),
after deducting the Underwriter's commission and estimated offering expenses.
All the net proceeds to be received by BancShares from the sale of the Junior
Subordinated Debentures will be used for general corporate purposes, although
it is likely that substantially all such proceeds will be used initially to
make additional capital contributions to the Bank to fund its operations and
continued expansion and to maintain its status as a "well capitalized" bank
under bank regulatory capital guidelines. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Supervision and
Regulation." Portions of the net proceeds from the sale of the Junior
Subordinated Debentures also may be used in the future for acquisitions by
BancShares or the Bank, extensions of credit to the Bank, or for repurchases of
outstanding common stock of BancShares. Pending such use, the net proceeds may
be temporarily invested. The precise amounts and timing of the application of
proceeds will depend upon the funding requirements of BancShares and its
subsidiaries and the availability of other funds. In view of anticipated
funding requirements, BancShares may from time to time engage in additional
financings of a character and in amounts to be determined.
The proceeds from the sale of the Capital Securities are expected to
qualify as Tier 1 or core capital with respect to BancShares under the
risk-based capital guidelines established by the Federal Reserve. However,
capital received from the
20
<PAGE>
proceeds of the sale of the Capital Securities cannot constitute more than 25%
of the total Tier 1 capital of BancShares (the "25% Capital Limitation").
Amounts in excess of the 25% Capital Limitation will constitute Tier 2 or
supplementary capital of BancShares.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following table presents the unaudited consolidated ratios of earnings
to fixed charges of BancShares for the periods indicated. The consolidated
ratio of earnings to fixed charges has been computed by dividing the sum of
income before income taxes plus fixed charges by fixed charges. Fixed charges
represent all interest expense (ratios are presented both excluding and
including interest on deposits). Interest expense (other than on deposits)
includes interest on short-term borrowings. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
FOR THE
SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
----------------------- -----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings to fixed charges:
Excluding interest on deposits ....... 36.44x 40.79x 37.99x 35.07x 34.02x 28.84x 38.05x
Including interest on deposits ....... 1.70 1.62 1.63 1.60 1.73 1.94 1.80
</TABLE>
21
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization
of BancShares and its subsidiary as of June 30, 1998, and as adjusted to give
effect to the consummation of the offering of the Capital Securities and the
application of the net proceeds thereof as provided under "Use of Proceeds."
The following data is qualified in its entirety by, and should be read in
conjunction with, the detailed information contained in BancShares'
consolidated financial statements contained elsewhere herein. See "Selected
Consolidated Financial Data," and "Fidelity BancShares (N.C.), Inc. and
Subsidiary Index to Consolidated Financial Statements."
<TABLE>
AS OF JUNE 30, 1998
(UNAUDITED)
-------------------------------------
AS ADJUSTED FOR CAPITAL
ACTUAL SECURITIES ISSUANCE (1)
------------ ------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
SHORT-TERM BORROWINGS
TT&L and repurchase agreements ................................................ $ 11,037 $ 11,037
-------- --------
Total short-term borrowings ................................................. 11,037 11,037
-------- --------
LONG-TERM OBLIGATIONS
Company-obligated mandatorily redeemable capital securities of subsidiary trust
holding solely junior subordinated debentures of BancShares (2) ............. -- 20,000
-------- --------
Total long-term obligations ................................................. -- 20,000
-------- --------
Total borrowings ........................................................... 11,037 31,037
-------- --------
SHAREHOLDERS' EQUITY
Common stock: 29,200 shares authorized; 28,410 shares issued and outstanding at
June 30, 1998 ............................................................... 710 710
Surplus ....................................................................... 6,251 6,251
Retained earnings ............................................................. 50,675 50,675
Net unrealized gain on securities available-for-sale .......................... 4,906 4,906
-------- --------
Total shareholders' equity ................................................. 62,542 62,542
-------- --------
Total capitalization ...................................................... $ 73,579 $ 93,579
======== ========
CAPITAL RATIOS (3)
Tier 1 capital ratio .......................................................... 13.04% 18.15%
Total capital ratio ........................................................... 13.99 19.10
Leverage capital ratio ........................................................ 8.82 12.27
</TABLE>
- ---------
(1) Does not reflect the effect of exercise of the Underwriter's over-allotment
option. See "Underwriting."
(2) See "Accounting Treatment."
(3) See "Supervision and Regulation -- Capital Adequacy."
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial
information for BancShares as of and for the years ended December 31, 1997,
1996, 1995, 1994 and 1993, and the six-month periods ended June 30, 1998 and
1997. The selected consolidated financial data as of and for each of the years
in the five-year period ended December 31, 1997 have been derived from
BancShares' audited consolidated financial statements. The consolidated
financial statements as of December 31, 1997 and 1996 and for each of the years
in the three-year period ended December 31, 1997, and the independent auditors'
reports thereon, are included elsewhere in this Prospectus. The information
presented as of and for the six-month periods ended June 30, 1998 and 1997 is
derived from BancShares' unaudited consolidated financial statements for these
periods. Those unaudited consolidated financial statements, which are included
elsewhere in this Prospectus, include all adjustments, consisting only of
normal recurring accruals, which management considers necessary for a fair
presentation of the financial condition and results of operations for such
interim periods. Results for the six-month period ended June 30, 1998 are not
necessarily indicative of results to be expected for the full year or any other
interim period. The following information should also be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included elsewhere herein. See also "Available Information,"
"Experts," and "Fidelity BancShares (N.C.), Inc. and Subsidiary Index to
Consolidated Financial Statements."
<TABLE>
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30,
---------------------------
1998 1997
------------- -------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE
DATA)
(UNAUDITED)
<S> <C> <C>
SUMMARY OF OPERATIONS
Interest income .................................. $ 22,434 $ 21,007
Interest expense ................................. 9,686 9,323
--------- ---------
Net interest income .............................. 12,748 11,684
Provision for loan losses ........................ 180 180
--------- ---------
Net interest income after provision for loan
losses .......................................... 12,568 11,504
Noninterest income ............................... 2,639 1,908
Noninterest expense .............................. 8,411 7,595
--------- ---------
Income before income taxes ....................... 6,796 5,817
Income taxes ..................................... 2,587 2,193
--------- ---------
Net income ....................................... $ 4,209 $ 3,624
========= =========
SELECTED PERIOD-END BALANCES
Total assets ..................................... $ 597,723 $ 559,652
Investment securities and federal funds sold ..... 158,266 156,340
Loans, gross ..................................... 385,271 354,013
Interest earning assets .......................... 543,537 510,353
Deposits ......................................... 515,937 484,718
Interest bearing liabilities ..................... 449,455 434,212
Shareholders' equity ............................. 62,542 55,039
Common shares outstanding ........................ 28,410 28,410
--------- ---------
SELECTED AVERAGE BALANCES
Total assets ..................................... $ 585,136 $ 545,705
Investment securities and federal funds sold ..... 168,045 153,087
Loans, gross ..................................... 370,463 342,042
Interest earning assets .......................... 538,508 495,129
Deposits ......................................... 505,827 479,189
Interest bearing liabilities ..................... 448,130 428,514
Shareholders' equity ............................. 61,016 52,458
Common shares outstanding ........................ 28,410 28,410
--------- ---------
PROFITABILITY RATIOS
Return on average total assets (1) ............... 1.44% 1.33%
Return on average shareholders' equity (1) ....... 13.80 13.82
Dividend payout ratio (2) ........................ 10.80 12.54
--------- ---------
LIQUIDITY AND CAPITAL RATIOS
Average loans to average deposits ................ 73.24% 71.38%
Average shareholders' equity to average total
assets .......................................... 10.43 9.61
Tier 1 capital ratio (3) ......................... 13.04 12.59
Total capital ratio (3) .......................... 13.99 13.82
Leverage capital ratio (3) ....................... 8.82 8.10
--------- ---------
AS OF AND FOR THE
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income .................................. $ 43,249 $ 37,238 $ 30,607 $ 23,859 $ 20,991
Interest expense ................................. 19,016 16,245 12,616 8,437 7,599
--------- --------- --------- --------- ---------
Net interest income .............................. 24,233 20,993 17,991 15,422 13,392
Provision for loan losses ........................ 360 360 360 360 360
--------- --------- --------- --------- ---------
Net interest income after provision for loan
losses .......................................... 23,873 20,633 17,631 15,062 13,032
Noninterest income ............................... 3,974 3,348 2,628 2,867 2,495
Noninterest expense .............................. 15,878 14,191 10,998 9,968 9,485
--------- --------- --------- --------- ---------
Income before income taxes ....................... 11,969 9,790 9,261 7,961 6,042
Income taxes ..................................... 4,581 3,487 3,254 2,955 2,232
--------- --------- --------- --------- ---------
Net income ....................................... $ 7,388 $ 6,303 $ 6,007 $ 5,006 $ 3,810
========= ========= ========= ========= =========
SELECTED PERIOD-END BALANCES
Total assets ..................................... $ 582,995 $ 542,138 $ 406,304 $ 334,390 $ 325,383
Investment securities and federal funds sold ..... 179,043 163,083 108,518 71,816 93,178
Loans, gross ..................................... 358,250 334,880 268,931 242,301 209,661
Interest earning assets .......................... 537,293 497,963 377,449 314,117 302,839
Deposits ......................................... 505,237 479,140 352,566 296,297 285,146
Interest bearing liabilities ..................... 448,832 429,649 313,409 264,370 256,272
Shareholders' equity ............................. 59,117 51,242 44,351 38,433 32,738
Common shares outstanding ........................ 28,410 28,410 28,582 28,582 28,682
--------- --------- --------- --------- ---------
SELECTED AVERAGE BALANCES
Total assets ..................................... $ 558,119 $ 476,559 $ 371,036 $ 331,956 $ 301,734
Investment securities and federal funds sold ..... 164,884 140,644 85,501 84,184 92,259
Loans, gross ..................................... 349,526 297,229 260,103 226,400 190,731
Interest earning assets .......................... 514,410 437,873 345,604 310,584 282,990
Deposits ......................................... 487,985 414,829 323,352 287,876 263,119
Interest bearing liabilities ..................... 433,979 370,876 286,412 258,390 236,698
Shareholders' equity ............................. 54,840 46,824 39,255 34,158 31,191
Common shares outstanding ........................ 28,410 28,570 28,582 28,640 28,686
--------- --------- --------- --------- ---------
PROFITABILITY RATIOS
Return on average total assets (1) ............... 1.32% 1.32% 1.62% 1.51% 1.26%
Return on average shareholders' equity (1) ....... 13.47 13.46 15.30 14.66 12.21
Dividend payout ratio (2) ........................ 12.31 14.51 11.42 13.72 12.05
--------- --------- --------- --------- ---------
LIQUIDITY AND CAPITAL RATIOS
Average loans to average deposits ................ 71.63% 71.65% 80.44% 78.64% 72.49%
Average shareholders' equity to average total
assets .......................................... 9.83 9.83 10.58 10.29 10.34
Tier 1 capital ratio (3) ......................... 12.80 12.54 15.57 16.58 17.33
Total capital ratio (3) .......................... 13.93 13.79 16.82 17.83 18.58
Leverage capital ratio (3) ....................... 8.52 8.55 10.74 10.78 10.44
--------- --------- --------- --------- ---------
</TABLE>
23
<PAGE>
<TABLE>
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30,
---------------------------
1998 1997
------------- -------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE
DATA)
(UNAUDITED)
<S> <C> <C>
PER SHARE OF COMMON STOCK
Net income applicable to common shares (4) ......... $ 148.17 $ 127.55
Cash dividends ..................................... 16.00 16.00
Book value (5) ..................................... 2,201.41 1,937.31
---------- ----------
ASSET QUALITY RATIOS
Nonperforming assets to total gross loans and
other real estate owned ........................... 0.01% 0.02%
Net charge-offs to average loans ................... 0.33 0.05
Total allowance for loan losses to total loans ..... 0.96 1.20
Total allowance for loan losses to total
nonperforming assets .............................. 6,495.89 7,411.36
AS OF AND FOR THE
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
PER SHARE OF COMMON STOCK
Net income applicable to common shares (4) ......... $ 260.04 $ 220.63 $ 210.18 $ 174.80 $ 132.81
Cash dividends ..................................... 32.00 32.00 24.00 24.00 16.00
Book value (5) ..................................... 2,080.86 1,803.66 1,551.70 1,344.65 1,141.43
---------- ---------- ---------- ---------- ----------
ASSET QUALITY RATIOS (6)
Nonperforming assets to total gross loans and
other real estate owned ........................... 0.02% 0.02% 0.00% 0.00% 0.63%
Net charge-offs to average loans ................... 0.10 0.14 0.03 0.01 0.00
Total allowance for loan losses to total loans ..... 1.16 1.24 1.52 1.56 1.65
Total allowance for loan losses to total
nonperforming assets .............................. 7,271.93 7,261.40 N/A N/A 261.91
</TABLE>
- ---------
(1) Annualized for the six months ended June 30, 1998 and 1997.
(2) For each indicated period, total common dividends declared divided by net
income.
(3) See "Supervision and Regulation -- Capital Adequacy" for a more detailed
description of these ratios.
(4) For each indicated period, net income, divided by the average number of
common shares outstanding. BancShares' adoption of Statement 128,
"Earnings per Share," had no effect on its earnings per share disclosure
since BancShares has no potentially dilutive securities.
(5) At the end of each indicated period, shareholders' equity divided by the
number of common shares outstanding.
(6) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- For the Six Months Ended June 30, 1998 and 1997 --
Financial Condition and Results of Operations -- Asset Quality and Provision
for Possible Loan Losses."
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
INTRODUCTION.
This discussion provides information concerning changes in the
consolidated financial condition and results of operations of BancShares for
the three years ended December 31, 1997, 1996, and 1995. The comments are
intended to supplement and should be reviewed in conjunction with the
consolidated financial statements, related notes and selected financial data
presented elsewhere herein.
ACQUISITIONS.
1996 ACQUISITIONS. In May 1996, BancShares acquired the deposits of the
Biscoe, Troy, Rockingham, and Hamlet, North Carolina offices of a North
Carolina commercial bank. These acquisitions were accounted for as purchases,
and therefore, the results of operations prior to the purchase are not included
in the consolidated financial statements. In September 1996, BancShares
acquired Perpetual State Bank, Lexington, North Carolina. This acquisition was
accounted for as a purchase, and therefore, the results of operations of
Perpetual State Bank prior to the purchase are not included in the consolidated
financial statements. These acquisitions were as follows:
<TABLE>
TRANSACTION LOANS DEPOSITS
DATE ACQUIRED ACQUIRED
----------------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Biscoe, NC Branch .................. May 1996 -- $ 7,574
Troy, NC Branch .................... May 1996 -- 21,647
Rockingham, NC Branch .............. May 1996 -- 12,134
Hamlet, NC Branch .................. May 1996 -- 13,949
Perpetual State Bank ............... September 1996 $40,000 35,000
------- -------
1996 Acquisition Totals ......... $40,000 $90,304
======= =======
</TABLE>
24
<PAGE>
1995 ACQUISITIONS. In May 1995, BancShares acquired the Buies Creek,
Moncure, and Roxboro, North Carolina offices of a North Carolina commercial
bank. These acquisitions were accounted for as purchases, and therefore, the
results of operations prior to the purchase are not included in the
consolidated financial statements. Additionaly, in June 1995, BancShares
acquired the deposits of the Candor, North Carolina office of a North Carolina
savings bank. This acquisition was accounted for as a purchase, and therefore,
the results of operations prior to the purchase are not included in the
consolidated financial statements. These acquisitions were as follows:
<TABLE>
TRANSACTION LOANS DEPOSITS
DATE ACQUIRED ACQUIRED
------------- ---------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Buies Creek, NC Branch ........... May 1995 $ 3,167 $ 6,108
Moncure, NC Branch ............... May 1995 2,407 4,961
Roxboro, NC Branch ............... May 1995 10,001 10,142
Candor, NC Branch ................ June 1995 -- 2,954
------- -------
1995 Acquisition Totals ......... $15,575 $24,165
======= =======
</TABLE>
BancShares made no acquisitions in 1997.
1998 EXPANSION ACTIVITIES. Currently, BancShares has definitive plans to
purchase five branch offices of an affiliated bank. In connection with that
transaction, BancShares expects to acquire approximately $34.8 million in
assets (including premises and loans), and to assume an aggregate of
approximately $75.1 million in deposit liabilities (for which it expects to pay
an aggregate deposit premium of approximately $5.0 million). See "Certain
Relationships and Related Transactions." Additionally, BancShares plans to
establish one additional DE NOVO branch office during the remainder of 1998
(having previously established five DE NOVO branches during 1998). While these
expansion activities will reduce BancShares' capital ratios and short-term
earnings, management believes this course of action to be in BancShares' best
interest over the long term. Management has extensive experience in managing
acquisitions and DE NOVO offices. The planned expansions will allow BancShares
to spread fixed costs over a larger customer base and to increase the
geographic diversification of its loan portfolio throughout the Piedmont Region
of North Carolina.
RESULTS OF OPERATIONS.
NET INCOME. For 1997, net income of $7.4 million represented a 17.21%
increase from 1996 net income of $6.3 million. Net income for 1995 was $6.0
million. The increase in 1997 net income was principally the result of an
increase in net interest income resulting from the full year impact of new
locations acquired or established in 1996. This increase was partially offset
by increased operating expenses associated with both DE NOVO branches and
acquired branches established in 1996.
The increase in 1996 net income was principally the result of increased
net interest income resulting from the 1996 full year impact in 1996 of the
1995 acquisitions and the partial year impact of the 1996 acquisitions. This
increase was partially offset by the additional expenses of the DE NOVO offices
established in 1996. Net income per share increased to $260.04 in 1997, from
$220.63 in 1996 due to increased earnings and a decrease in the average shares
outstanding for 1997. Net income per share increased to $220.63 in 1996, from
$210.18 in 1995 due to increased earnings.
NET INTEREST INCOME. The greatest portion of BancShares' earnings is from
net interest income, which is the difference between interest income on earning
assets and interest paid on deposits and other interest bearing liabilities.
The primary factors affecting net interest income are changes in the volume and
yields/rates on earning assets and interest bearing liabilities, and the
ability to respond to changes in interest rates through asset/liability
management. In 1997 net interest income was $24.2 million as compared to $21.0
million in 1996, an increase of $3.2 million or 15.43%. In 1996 net interest
income was $21.0 million as compared to $18.0 million in 1995, an increase of
$3.0 million or 16.69%. The 1997 increase was primarily attributable to
increased interest income from a 17.60% increase in average loan balances
outstanding from $297.2 million in 1996 to $349.5 million in 1997.
Approximately $13.3 million of this increase was attributable to loans acquired
in 1996 branch acquisitions. The yields received on average loans for 1997
decreased to 9.76% from 9.78% in 1996. The rates paid on interest bearing
liabilities were unchanged during 1997, and the average interest bearing
deposits increased 17.14% between 1996 and 1997 resulting in a 17.06% increase
in total interest expense. Approximately $48.5 million of this increase was
attributable to deposits acquired in 1996 branch acquisitions.
The 1996 increase was primarily attributable to increased interest income
from a 14.26% increase in average loan balances outstanding from $260.1 million
in 1995 to $297.2 million in 1996. The yields received on average loans for
1996
25
<PAGE>
decreased to 9.78% from 9.79% in 1995. The rates paid on interest bearing
liabilities decreased 2 basis points during 1996 while the average interest
bearing deposits increased 29.63% between 1995 and 1996 resulting in a 28.77%
increase in total interest expense.
Loans produced the largest component of interest income, amounting to
$34.1 million in 1997, $29.1 million in 1996, and $25.5 million in 1995. This
represented an increase in 1997 of 17.40%. For the year ended December 31,
1996, interest income on loans increased 14.10%. During 1997 average loans
outstanding increased $52.3 million or 17.59%. This average increase was
primarily due to loan growth in the existing branch network. The increase in
interest income for 1996 was primarily due to loan growth in the existing
branch network and the impact of the 1996 acquisitions discussed above. In
1997, the average yield on loans decreased to 9.76% from 9.78% in 1996. This
decrease resulted from the overall lower market interest rates during most of
1997. The 1995 average yield was 9.79%.
Earnings from investments and federal funds sold provided the balance of
interest income, contributing $9.1 million in 1997, $8.2 million in 1996, and,
$5.1 million in 1995. In 1997, BancShares realized lower yields on investment
securities and federal funds sold and maintained higher average balances for
each period. In 1996, BancShares realized lower yields on investment securities
and federal funds sold and larger average balances. Average investment
securities and federal funds sold was $164.9 million in 1997, an increase from
$140.7 million in 1996. The 1997 average increase was principally the result of
deposit growth in the existing branch network and deposits acquired.
Total 1997 interest expense for BancShares was $19.0 million, an increase
of 17.06% over total 1996 interest expense of $16.2 million, a 28.77% increase
over total 1995 interest expense of $12.6 million. The principal component of
BancShares' interest expense, interest paid on deposits, totaled $18.7 million
in 1997, $16.0 million in 1996, and $12.3 million in 1995. BancShares' deposit
base increased 5.45% in 1997, primarily as a result of growth in the existing
branch network. The cost of interest bearing deposits also increased in 1997 as
a result of deposit growth. The cost of interest bearing deposits increased in
1996 as a result of deposit growth within the branch network and the 1996
acquisitions. The average effective rates paid on interest bearing liabilities
were 4.38%, 4.38%, and 4.40% in 1997, 1996, and 1995 respectively.
BancShares' interest rate spread was 4.03%, 4.12%, and 4.46% on a tax
equivalent basis in 1997, 1996, and 1995 respectively. BancShares' ability to
maintain a favorable spread between interest income and interest expense is a
major factor in generating earnings. Therefore, it is necessary for BancShares
to effectively manage earning assets and interest bearing liabilities.
NONINTEREST INCOME. Noninterest income which consists primarily of service
charges, commissions and fees increased $626,000 in 1997. Total noninterest
income was $4.0 million in 1997, as compared to $3.3 million in 1996 and $2.6
million in 1995. Noninterest income did not include any securities gains in
1997, 1996 or 1995. Service charges on deposit accounts increased $311,000, or
15.55% in 1997 to $2.3 million from $2.0 million in 1996. This increase was
primarily attributable to the full year impact of the accounts subject to
service charges acquired in 1996 and deposit growth in the existing branch
network. Service charges on deposit accounts increased $429,000 or 27.32% in
1996, from $1.6 million in 1995 to $2.0 million in 1996. This increase was
primarily attributable to the full year impact of accounts subject to service
charges acquired in 1995, the acquisitions in 1996, de novo branch openings in
1996, and deposit growth in the existing branch network.
BancShares had increases in other service charges and fees of $319,000 and
$287,000, respectively in 1997 and 1996.
NONINTEREST EXPENSE. Noninterest expense includes personnel, occupancy,
furniture and equipment, data processing, FDIC assessments, printing, supplies,
legal and professional fees, postage, intangible amortization, and other
miscellaneous operating expenses. Noninterest expense was $15.9 million in 1997
compared to $14.2 million in 1996 and $11.0 million in 1995. Control of
noninterest expense is an important aspect in managing net income. The 1995 and
1996 acquisitions should enhance the future operating results of BancShares.
However, for the following fifteen years, earnings will be reduced as
BancShares amortizes intangibles resulting from the assets acquired.
The most significant element of BancShares' noninterest expense is
personnel costs. In 1997 salaries and benefits represented $8.2 million, or
51.85%, of total noninterest expense. The 1997 personnel costs include the
impact of a full year of the costs related to the acquisitions made in 1996 and
DE NOVO offices established in 1996. In 1996, salaries and benefits represented
$7.0 million, or 49.65%, of total noninterest expense. The personnel costs of
1996 include the impact of a full year of the costs related to acquisitions
made in 1995 and a partial year of costs for the acquisitions made and DE NOVO
offices established in 1996. In 1995, salaries and benefits represented $5.6
million, or 50.86%, of total noninterest expense. The personnel costs of 1995
included the impact of the partial year costs of the acquisitions made in 1995.
In addition, certain deferred compensation contracts were amended during 1996,
which resulted in an additional $101,000 and $98,000 of salaries and employee
benefits expense in 1997 and 1996, respectively.
26
<PAGE>
Occupancy and equipment expenses increased from $1.9 million in 1995 to
$2.5 million in 1996 and to $3.2 million in 1997. The 1996 increase of 31.64%
principally relates to new locations added as a result of acquisition activity
and establishment of DE NOVO branches. The four offices acquired in 1995 all
represented new branch office locations. 1996 costs included the full year
impact of these additional offices. Of the five locations acquired in 1996, two
of those represented the Bank's expansion into new markets, while the three
other offices were consolidated into Bank offices within existing markets. The
partial year costs of these two new locations, as well as the four DE NOVO
offices established in 1996 were principally responsible for the increased
costs. The 1997 increase of 28.92% was principally the result of the full year
impact of the six new offices established in 1996 as well as the partial year
impact of the depreciation cost associated with the replacement of all computer
hardware in the branches and the conversion to new branch platform software in
the branch network (collectively, the "Branch 2000 Project"). The total cost of
this equipment was $850,000.
Data processing costs represent charges by vendors that perform data
processing services for the Bank. The Bank has contracts with three such
companies. Data processing fees are primarily based upon per item or per
account charges. Data processing costs in 1997 were $1.2 million, unchanged
from the 1996 data processing expenses of $1.2 million. The data processing
costs of $1.2 million in 1996 were an increase of 21.15% over 1995 data
processing expenses of $1.0 million. The 1995 and 1996 amounts included one
time costs associated with the acquisitions in those years.
Intangibles amortization in 1997 was $589,000, a 63.16% increase over the
1996 intangibles amortization. Intangibles amortization in 1996 was $361,000, a
107.47% increase over the 1995 amortization of $174,000. The 1997 amortization
included a full year's amortization for the 1996 acquisitions. The 1996
amortization included a full year's amortization for the 1995 acquisitions and
a partial year amortization for acquisitions made in 1996. The 1995
amortization included a partial year amortization for the acquisitions made in
1995.
The Bank has deposits insured under both of the FDIC's insurance funds,
the BIF and the SAIF. In July 1995, the FDIC and other regulatory agencies
proposed a plan to recapitalize the SAIF, and Congress mandated a one-time
assessment for all SAIF insured deposits on September 30, 1996. Congress
required that 80% of the Bank's SAIF insured deposits as reported on the Bank's
March 31, 1995 call report and 100% of SAIF insured deposits purchased by the
Bank after March 31, 1995 be assessed at 0.66%. In 1996 the Bank recorded a
charge to earnings as a one-time FDIC SAIF insurance expense. The decrease in
1997 and increase in 1996 FDIC assessment expenses of $408,000 and $75,000,
respectively, for FDIC premiums, resulted primarily from the 1996 one-time
assessment discussed above.
BancShares expects that, under current FDIC assessment guidelines, it will
not incur any FDIC deposit insurance assessments for 1998. However, beginning
in 1997 the FDIC began collecting from all banks an assessment for Financing
Corporation ("FICO") funding requirements. Accordingly, BancShares expects a
1998 FDIC FICO assessment expense of approximately $100,000, based on the FDIC
FICO assessment rates in effect for the first quarter of 1998.
Other miscellaneous operating expenses were $2.6 million, $2.6 million,
and $2.0 million for 1997, 1996, and 1995, respectively.
INCOME TAXES. In 1997, 1996 and 1995, BancShares had taxable income for
book purposes that resulted in income tax expense of $4.6 million, $3.5 million
and $3.3 million, respectively. The resulting effective income tax rates for
the years ended December 31, 1997, 1996 and 1995 were 38.28%, 35.62% and
35.13%, respectively. The increase in the effective income tax rate for the year
ended December 31, 1997, as compared to the years ended December 31, 1996 and
1995, is primarily attributable to an increase in state taxes paid.
FINANCIAL CONDITION.
EARNING AND NONEARNING ASSETS. Earning assets consist of loans, investment
securities, and short-term investments that earn interest. Average earning
assets during 1997 were $514.4 million, an increase of 17.47% from the 1996
average of $437.9 million. This increase was primarily due to the full year
impact of the 1996 acquisitions and DE NOVO branch openings, and to a lesser
extent, growth within the existing branch network. The cash received from the
acquisitions was ultimately invested primarily in loans and short-term
investments.
Average earning assets during 1996 were $437.9 million, an increase of
26.70% from the 1995 average of $345.6 million. This increase was due primarily
to the 1996 full year average impact of the 1995 acquisitions and the partial
year impact of the 1996 acquisitions and DE NOVO branch openings, and to a
lesser extent, growth within the existing branch network. The cash received in
the acquisitions was ultimately invested primarily in loans and short-term
investments including federal funds.
Average non-interest earning assets during 1997 were $43.7 million, an
increase of 13.00% from the 1996 average of $38.7 million. Average non-interest
earning assets during 1996 were $38.7 million, an increase of 52.09% from the
1995 average of $25.4 million. The increase was primarily due to increases in
fixed assets and intangible assets resulting from the
27
<PAGE>
1995 and 1996 acquisitions and the 1996 de novo branch openings. The principal
non-interest earning asset for BancShares is cash and due from banks. Cash and
due from banks averaged $15.8 million in 1997, $14.0 million in 1996 and $11.5
million in 1995.
Return on total average assets was 1.32% in 1997 as compared to 1.32% in
1996 and 1.62% in 1995. The decline is principally the result of the
establishment of four de novo offices in 1996 as well as costs to establish a
new telephone banking center for customers of the Bank to be able to
bank-by-phone.
INTEREST BEARING AND NONINTEREST BEARING LIABILITIES. Interest bearing
liabilities consist of deposits and short term borrowed funds. Average interest
bearing liabilities during 1997 were $434.0 million, an increase of 17.01% from
the 1996 average of $370.9 million. This increase was due primarily to the 1997
full year impact of the 1996 acquisitions of $90.3 million in deposits, growth
in the four de novo offices established in 1996, and to a lesser extent,
deposit growth within the existing branch network. The principal interest
bearing liabilities of BancShares are interest bearing deposits. Average
noninterest bearing liabilities during 1997 were $69.3 million, an increase of
17.74% from the 1996 average of $58.9 million. Noninterest bearing demand
deposits are the principal noninterest bearing liability. The cost of total
interest bearing liabilities was 4.38% in both 1997 and 1996.
Average interest bearing liabilities during 1996 were $370.9 million, an
increase of 29.49% from the 1995 average of $286.4 million. This increase was
due primarily to the 1996 full year impact of the 1995 acquisitions of $24.2
million in deposits, the 1996 partial year impact of the 1996 acquisitions of
$90.3 million in deposits and deposit growth in the existing branch network.
Average noninterest bearing liabilities during 1996 were $58.9 million, an
increase of 29.73% from the 1995 average of $45.4 million. Noninterest bearing
demand deposits are the principal noninterest bearing liability. This increase
was also due primarily to the 1996 full year impact of the 1995 acquisitions
and the 1996 partial year impact of the 1996 acquisitions and de novo branch
openings. The cost of total interest bearing liabilities was 4.38% in 1996 as
compared to 4.40% in 1995.
LOANS. As of December 31, 1997, loans, net of the allowance for loan
losses, totaled $354.1 million compared to $330.7 million at year-end 1996. The
increase was attributable to normal loan growth, particularly in the real
estate mortgage and commercial loan portfolios, which grew $10.2 million and
$5.5 million, respectively. The Bank ran an equity line of credit promotion
during 1997, which contributed to a $8.9 million increase in this category of
the real estate mortgage loans. There were no significant changes made to
underwriting standards to stimulate this growth.
Rate sensitivity and liquidity in the loan portfolio are achieved by
making loans with adjustable interest rates and shorter maturities. This allows
the Bank to adjust its pricing structure with changes in interest rates. At the
end of 1997, 62.74% of the loan portfolio was due to mature or be available for
repricing of interest rates in 1998.
INVESTMENTS. Management's asset/liability strategies include maintaining
an investment securities portfolio with appropriate maturities to preclude the
necessity of selling investment securities for purposes of liquidity.
Traditionally, BancShares has maintained a larger investment portfolio than its
peers.
BancShares accounts for investment securities under the provisions of
Statement of Financial Accounting Standards No. 115 ("Statement 115"),
"Accounting for Certain Investments in Debt and Equity Securities," which
requires that investments in debt and equity securities be classified in three
categories and accounted for as follows: debt securities that BancShares has
the positive intent and ability to hold to maturity are classified as
held-to-maturity and reported at amortized cost; debt and equity securities
that are bought and held principally for the purpose of selling them in the
near term are classified as trading securities and reported at fair value, with
unrealized gains and losses included in earnings; and debt and equity
securities not classified as either held-to-maturity securities or trading
securities are classified as available-for-sale securities and reported at fair
value, with unrealized gains and losses excluded from earnings and reported as
a separate component of shareholders' equity. Securities available-for-sale
consist of certain debt and marketable equity securities not classified as
trading securities or as held-to-maturity, and consist of securities which may
be sold in response to changes in interest rates, prepayment risk, regulatory
capital requirements and liquidity needs.
At December 31, 1997 the fair value of available-for-sale securities
exceeded the carrying value by $8.7 million, deferred taxes related to these
available-for-sale securities were $3.5 million and shareholders' equity
included $5.2 million for the net unrealized gain related to these
available-for-sale securities. At December 31, 1996 the fair value of
available-for-sale securities exceeded the carrying value by $5.8 million,
deferred taxes related to these available-for-sale securities were $2.0 million
and shareholders' equity included $3.8 million for the net unrealized gain
related to these available-for-sale securities. BancShares does not maintain a
trading account.
28
<PAGE>
ASSET QUALITY.
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES. Because the loan
portfolio represents BancShares' largest earning asset, BancShares continually
monitors the quality of its loan portfolio. The Bank operates in a diversified
economic environment, and, in the opinion of management, is not unduly exposed
to any one particular industry. In 1997, BancShares charged-off loans net of
recoveries of $354,000. This represents a decrease of $62,000 from 1996
charge-offs of $416,000. This decrease is primarily the result of increased
recoveries in 1997. The percentage of charge-offs (net of recoveries) to
average outstanding loans was 0.10% in 1997, 0.14% in 1996, and 0.03% in 1995.
The ratio of total non-performing assets to total loans plus other real
estate remained unchanged at a level of 0.02% at both December 31, 1997 and
December 31, 1996. At both December 31, 1997 and December 31, 1996 BancShares
had $57,000 of assets classified as other real estate.
Accrual of interest is discontinued on a loan when management believes the
borrower's financial condition is such that collection of principal or interest
is doubtful. Loans are returned to the accrual status when the factors
indicating doubtful collectibility cease to exist.
Management considers a loan to be impaired when based on current
information or events, it is probable that a borrower will be unable to pay all
amounts due according to contractual terms of the loan agreement. Impaired
loans are valued using either the discounted expected cash flow method or the
value of the collateral. When the ultimate collectibility of the impaired
loan's principal is doubtful, all cash receipts are applied to principal. Once
the recorded principal balance has been reduced to zero, future cash receipts
are applied to interest income, to the extent that any interest income has been
foregone. Future cash receipts are recorded as recoveries of any amounts
previously charged-off.
At December 31, 1997 and 1996, the Bank did not have any nonaccrual loans,
nor did the Bank have any restructured or impaired loans. At December 31, 1997
the Bank did not have any accruing loans past due 90 days or more. At December
31, 1996, the total accruing loans past due 90 days or more were $85,000.
The allowance for loan losses represented 1.16% and 1.24% of loans
outstanding at year end 1997 and 1996, respectively. The Bank's provision for
loan losses charged against earnings was $360,000 in each of the years 1997,
1996 and 1995.
Management considers the December 31, 1997 allowance for loan losses
adequate to cover the losses inherent in the loan portfolio. Management's
periodic evaluation of the adequacy of the allowance is based on the Bank's
past loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's experience, the estimated value of
any underlying collateral, current economic conditions, analysis of peer bank
trends, and other risk factors. Management believes it has established the
allowance in accordance with generally accepted accounting principles and in
consideration of the current economic environment. While management uses the
best information available to make evaluations, future adjustments may be
necessary if economic or other conditions differ substantially from the
assumptions used.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses
and losses on other real estate owned. Such agencies may require the Bank to
recognize additions to the allowances based on the examiner's judgments about
information available to them at the time of their examinations.
LIQUIDITY, MARKET RISK AND INTEREST SENSITIVITY
LIQUIDITY. Liquidity refers to the ability of BancShares to generate
sufficient funds to meet its financial obligations and commitments at a
reasonable cost. One of BancShares' objectives is to maintain a high level of
liquidity, and this goal continues to be met. Maintaining liquidity ensures
that funds will be available for reserve requirements, customer demand for
loans, withdrawal of deposit balances and maturities of other deposits and
liabilities. These events may take place daily or at other intervals in the
normal operation of the business. Past experience helps management anticipate
cyclical demands and amounts of cash required. These obligations can be met by
existing cash reserves or funds from maturing loans and investments, but in the
normal course of business are met by deposit growth.
In assessing liquidity, many relevant factors are considered, including:
stability of deposits, quality of assets, economy of the markets served,
business concentrations, competition and BancShares' overall financial
condition. BancShares' liquid assets include all investment securities, federal
funds sold, and cash and due from banks. These assets represented 38.47% of
deposits at December 31, 1997, an increase from 37.14% at December 31, 1996.
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<PAGE>
The Bank's liquidity ratio, which is defined as cash plus short term and
marketable securities divided by deposits and short term liabilities, was
34.74% at December 31, 1997, compared to 17.04% and 30.25% at year-end 1996 and
1995, respectively. In addition, the Bank has a $40 million line of credit with
the Federal Home Loan Bank to meet liquidity needs.
BancShares has traditionally maintained a high level of liquidity,
characteristic of the high ratio of investment securities to total assets that
BancShares maintains. Although loans have increased in each of the recent
fiscal periods, BancShares' ability to manage its liquidity is enhanced by the
mortgage loan department. With this department, BancShares has the ability to
sell mortgage loans originated for liquidity or other asset/liability
management requirements.
Any maturing investments whose funds are not immediately necessary to
sustain BancShares' liquidity, are invested in similar instruments or used to
fund any increased loan demand. Investments scheduled to mature within the one
year time frame, without consideration of marketable equity securities,
represented 88.64%, 26.04% and 82.01% of the total investment securities
portfolio at December 31, 1997, 1996 and 1995, respectively.
In addition, BancShares holds marketable equity securities with fair
values of $11.8 million, $8.9 million and $5.5 million in 1997, 1996 and 1995,
respectively. Although these investments do not "mature" in the next twelve
months, they are classified as available-for-sale and could be sold at
management's discretion.
The consolidated statements of cash flows disclose the principal sources
and uses of cash from operating, investing, and financing activities for 1997,
1996, and 1995. In 1997, operating activities of BancShares provided cash flows
of $10.0 million. Net income of $7.4 million, adjusted for non-cash operating
activities, provided the majority of cash generated from operations. Investing
activities, including lending, utilized $30.0 million of BancShares' cash flow.
Loans originated, net of principal collected, used $23.7 million. BancShares
utilized $3.8 million in cash in connection with expenditures for premises and
equipment.
Net additional cash inflows of $30.3 million resulted from financing
activities in 1997. Net deposit inflows of $26.1 million were improved by an
increase in short term borrowed funds of $5.1 million and reduced by payments
of cash dividends on stock totaling $909,000.
In 1997, operating activities of BancShares provided cash flows of $10.0
million. Net income of $7.4 million, adjusted for non-cash operating
activities, provided the majority of cash generated from operations. Investing
activities, including lending, utilized $30.0 million of BancShares' cash flow.
Loans originated, net of principal collected, used $23.7 million. Securities
purchases, net of maturities, utilized $3.3 million, and expenditures for
premises and equipment utilized $3.8 million, largely for de novo branching
during 1997. Net additional cash inflows of $30.3 million resulted from
financing activities, principally from deposit inflows of $26.1 million and
short-term borrowings of $5.1 million. BancShares had cash outflows for 1997 of
$909,000.
In 1996, operating activities of BancShares provided cash flows of $7.8
million. Net income of $6.3 million, adjusted for non-cash operating
activities, provided the majority of cash generated from operations. Investing
activities, including lending, utilized $47.2 million of BancShares' cash flow.
Loans originated, net of principal collected, used $26.7 million. BancShares
received $42.0 million in cash in connection with the branches purchased from
other financial institutions in 1996. Securities purchases, net of maturities,
utilized $56.6 million and expenditures for premises and equipment utilized
$6.6 million, largely for de novo branching activities. Net additional cash
inflows of $35.9 million resulted from financing activities. Net deposit
inflows of $36.6 million were improved by an increase in short term borrowed
funds of $483,000 and reduced by payments for cash dividends and retirements of
stock totaling $1.2 million.
In 1995, operating activities of BancShares provided cash flows of $7.6
million. Net income of $6.0 million, adjusted for non-cash operating
activities, provided the majority of cash generated from operations. Investing
activities, including lending, utilized $12.4 million of BancShares' cash flow.
Loans originated, net of principal collected, used $10.1 million. BancShares
received $5.3 million in cash in connection with the branches purchased from
other financial institutions in 1995. In 1995, net additional cash inflows of
$30.5 million resulted from financing activities. Net deposit inflows of $33.1
million were reduced by the $2.0 million repayment of short term obligations
and payments for cash dividends on stock totaling $686,000.
The Bank has no brokered funds. Jumbo certificates of deposit ("CD's") are
considered to include all CD's of $100,000 or more. The Bank does not and has
never aggressively bid on these deposits, and it does not seek nor does it
accept deposits from outside of its general trade area. Almost all of the
Bank's jumbo CD customers have other relationships with the Bank, including
savings, demand and other time deposits, and in some cases, loans. At December
31, 1997 and 1996, jumbo CD's represented 9.9% of total deposits.
30
<PAGE>
In the opinion of management, BancShares has the ability to generate
sufficient amounts of cash to cover normal funding requirements and any
additional needs which may arise, within realistic limitations, and management
is not aware of any known demands, commitments or uncertainties that will
affect liquidity in a material way.
MARKET RISK. Market risk reflects the risk of economic loss resulting from
adverse changes in market price and interest rates. This risk of loss can be
reflected in either diminished current market values or reduced potential net
interest income in future periods.
BancShares' market risk arises primarily from interest rate risk inherent
in its lending and deposit taking activities. Management seeks to manage this
risk through the use of shorter term maturities. The composition and size of
the investment portfolio is managed so as to reduce the interest rate risk in
the deposit and loan portfolios while at the same time maximizing the yield
generated by the portfolio.
The table below presents in tabular form the contractual balances and the
estimated fair value of financial instruments at their expected maturity dates
as of December 31, 1997. The expected maturity categories take into
consideration historical prepayment experience as well as management's
expectations based on the interest rate environment as of December 31, 1997.
For core deposits without contractual maturity (i.e., interest bearing
checking, savings and money market accounts), the table presents principal cash
flows as maturing in 1998 since they are subject to immediate repricing.
<TABLE>
Maturing in years ended December 31
---------------------------------------------------------------------------
1998 1999 2000 2001 2002 Thereafter
------------ ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans
Fixed Rate ................... $ 72,961 $ 33,144 $ 35,370 $ 7,950 $ 4,582 $ 20,924
Average rate (%) ............. 10.23% 9.28% 9.20% 9.25% 8.97% 8.53%
Variable rate ................ $151,801 $ 15,975 $ 11,091 $ 2,168 $ 2,284 $ --
Average rate (%) ............. 9.30% 9.38% 9.38% 9.37% 9.35% --
Investment securities
Fixed rate ................... $117,117 $ 14,996 -- -- -- $ 18
Average rate (%) ............. 5.75% 5.96% -- -- -- 10.81%
Variable rate ................ $ 3,101 $ 1,400 -- -- -- --
Average rate (%) ............. 3.22% 9.34% -- -- -- --
Liabilities
Savings and interest bearing
checking
Fixed rate ................... $172,873 -- -- -- -- --
Average rate (%) ............. 2.71% -- -- -- -- --
Certificates of deposit
Fixed rate ................... $215,169 $ 28,836 $ 20,140 $ 762 -- --
Average rate (%) ............. 5.26% 5.64% 5.37% 5.96% -- --
Short-term obligations
Variable rate ................ $ 11,051 -- -- -- -- --
Average rate (%) ............. 4.47% -- -- -- -- --
Total Fair Value
------------- -----------
<S> <C> <C>
Assets
Loans
Fixed Rate ................... $ 174,931 $174,387
Average rate (%) ............. 9.43%
Variable rate ................ $ 183,319 $183,319
Average rate (%) ............. 9.22%
Investment securities
Fixed rate ................... $ 132,131 $132,289
Average rate (%) ............. 6.40%
Variable rate ................ $ 3,101 $ 11,809
Average rate (%) ............. 3.22%
Liabilities
Savings and interest bearing
checking
Fixed rate ................... $ 172,873 $172,873
Average rate (%) ............. 2.71%
Certificates of deposit
Fixed rate ................... $ 264,907 $263,518
Average rate (%) ............. 5.43%
Short-term obligations
Variable rate ................ $ 11,051 $ 11,051
Average rate (%) ............. 4.47%
</TABLE>
INTEREST SENSITIVITY. Deregulation of interest rates and short-term,
interest bearing deposits which are more volatile, has created a need for
shorter maturities of interest earning assets. As a result, an increasing
percentage of commercial, installment, and mortgage loans are being made with
variable rates or shorter maturities to increase liquidity and interest rate
sensitivity.
The difference between interest sensitive asset and interest sensitive
liability repricing within time periods is referred to as the interest rate
sensitivity gap. Gaps are identified as either positive (interest sensitive
assets in excess of interest sensitive liabilities) or negative (interest
sensitive liabilities in excess of interest sensitive assets).
31
<PAGE>
As of December 31, 1997, BancShares had a positive one year cumulative gap
position of 16.92%. BancShares has interest earning assets of $375.2 million
maturing or repricing within one year and interest bearing liabilities of
$284.3 million repricing or maturing within one year. This is primarily the
result of developing loan products and purchasing investment securities that
are either short-term in nature or subject to repricing in the near term in
order to protect BancShares from volatile interest rates. A positive gap
position implies that interest earning assets (loans and investments) will
reprice at a faster rate than interest bearing liabilities (deposits). In a
falling rate environment, this position will generally have a negative effect
on earnings, while in a rising rate environment this position will generally
have a positive effect on earnings.
INFLATION. The effect of inflation on financial institutions differs from
the impact on other types of businesses. Since assets and liabilities of banks
are primarily monetary in nature, they are more effected by changes in interest
rates than by the rate of inflation.
Inflation generates increased credit demands and fluctuations in interest
rates. Although credit demand and interest rates are not directly tied to
inflation, each can significantly impact net interest income. As in any
business or industry, expenses such as salaries, equipment, occupancy, and
other operating expenses are also subject to upward pressures created by
inflation.
Since the rate of inflation has been relatively stable during the last
several years, the impact of inflation on the earnings presented in this report
is insignificant.
CAPITAL RESOURCES.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY. Sufficient levels of capital
are necessary to sustain growth and absorb losses. To this end, the Federal
Reserve, which regulates BancShares, and the FDIC, which regulates the Bank,
have established risk based capital ("RBC") adequacy guidelines.
As of December 31, 1997, BancShares' Leverage Capital Ratio (as defined
herein) was 8.52%, as compared to 8.55% and 10.74%, respectively, at year end
1996 and 1995. For regulatory purposes, a 5.00% Leverage Capital Ratio
represents a well capitalized financial institution.
Within the RBC calculations, BancShares' assets, including commitments to
lend and other off-balance sheet items, are weighted according to Federal
regulatory guidelines for the risk considered inherent in the assets.
BancShares' Tier 1 Capital Ratio (as defined herein) as of December 31, 1997
was 12.80% which is, along with the ratios of 12.54% and 15.57% for 1996 and
1995, respectively, representative of a well capitalized institution (one whose
ratio exceeds 6.00%). The calculation of Total Capital Ratio (as defined
herein) allows, in BancShares' circumstances, the inclusion of BancShares'
allowance for loan losses in capital, but only to a maximum of 1.25% of risk
weighted assets. As of December 31, 1997 BancShares' Total Capital Ratio was
13.93%, which is representative of a well capitalized institution (one whose
ratio exceeds 10.00%). The Total Capital Ratios for 1996 and 1995 were 13.79%
and 16.82%, respectively. See "Supervision and Regulation -- Capital Adequacy."
The reason for the decline in ratios between 1995 and 1997 is the significant
balance sheet growth due to acquisitions creating intangible assets, de novo
branch openings, and normal growth in the existing branch network.
These ratios will only improve if BancShares' capital increases at a rate
proportionately faster than liabilities. Management is aware that growth must
be controlled. BancShares' 1998 expansion plans may appear to be contrary to
this policy but management is also aware that the process of expanding market
share by normal business processes can be very difficult and expensive.
Management believes that improvement in its overall market share within an
existing trade area is valuable in the long run and should be pursued by
BancShares, when it can be done prudently.
BancShares' primary source of new capital is earnings. In 1997, equity
capital increased through retention of earnings by $6.5 million, by $5.4
million in 1996 and by $5.3 million in 1995. BancShares' internal capital
generation rate was 11.81% in 1997, 11.51% in 1996, and 13.55% in 1995. At
December 31, 1997, shareholders' equity totaled $59.1 million compared to $51.2
million in 1996. The shareholders' equity for 1997 and 1996 included, as
discussed above, $5.2 million and $3.8 million, respectively, of net unrealized
securities gains on available-for-sale securities.
The ratio of average shareholders' equity to average total assets was
9.83% in both 1997 and 1996.
Retention of sufficient earnings to maintain an adequate capital position
that provides BancShares with expansion capabilities is an important factor in
determining dividends. During 1997, BancShares paid $909,000 in dividends,
versus $914,000 in 1996 and $686,000 in 1995. As a percentage of net income,
dividends were 12.31% in 1997, 14.51% in 1996 and 11.42%
32
<PAGE>
in 1995. The decrease in dividends paid in 1997 compared to 1996 is
attributable to a decrease in the number of shares outstanding between these
two periods.
ACCOUNTING AND OTHER MATTERS.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("Statement 130"). This statement establishes standards for reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. It does not address issues in recognition
or measurement for comprehensive income and its components. The provisions of
Statement 130 are effective for fiscal years beginning after December 31, 1997.
BancShares adopted this statement in the first quarter of 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information" ("Statement 131"). This statement
requires that public business enterprises report certain information about
operating segments in complete sets of financial statements issued to
shareholders. It also requires that public business enterprises report certain
information about their products and services, the geographic areas in which
they operate and their major customers. The provisions of Statement 131 are
effective for fiscal years beginning after December 31, 1997. Adoption of this
pronouncement is not expected to have a material effect on BancShares'
consolidated financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
About Pension and Other Postretirement Benefits." This statement standardizes
the disclosure requirements of pensions and other postretirement benefits. This
statement does not change any measurement or recognition provisions, and thus
will not materially impact BancShares. This statement is effective for fiscal
years beginning after December 15, 1997.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Earlier application of all provisions of this statement is encouraged.
The Company plans to adopt this Statement on January 1, 2000 and does not
anticipate any material effect on its consolidated financial statements.
Management is not aware of any other known trends, events, uncertainties,
or current recommendations by regulatory authorities that will have or are
reasonably likely to have a material effect on BancShares' liquidity, capital
resources, or other operations.
YEAR 2000 ISSUE.
In 1997 BancShares developed a plan to deal with the "Year 2000 Issue" and
contracted with a consultant to review its overall exposure to the Year 2000
Issue. The Year 2000 Issue relates to computer programs written using two
digits rather than four to define the applicable year. In 1997 management
committed the human resources and the financial resources for BancShares to
complete the resolution of the Year 2000 Issue. The total cost for this project
is estimated to be $150,000 and is being funded through cash flows. BancShares
is expensing all costs associated with the required systems changes as the
costs are incurred. Costs were immaterial in 1997. BancShares utilizes the
mainframe system of an affiliated bank holding company, First Citizens
BancShares, Inc. ("FCBancShares"), and its subsidiary, FCB, for most of its
mission-critical applications. These systems are currently being remediated,
replaced, or retired as part of FCBancShares' Year 2000 compliance program.
BancShares is closely monitoring FCBancShares' progress. Based upon discussions
with management of FCBancShares, BancShares' management does not expect
significant increases in future data processing costs relating to Year 2000
compliance, although a failure to complete the FCBancShares Year 2000
compliance program could have a material adverse effect on the business of
BancShares. See "Risk Factors -- Risk Factors Relating to BancShares --
Developments in Technology."
STATISTICAL INFORMATION.
The following tables contain certain additional statistical information
regarding BancShares' business operations.
33
<PAGE>
TABLE I.
AVERAGE BALANCE SHEET ITEMS AND NET INTEREST DIFFERENTIAL
AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID
<TABLE>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------------- --------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- ---------- --------- ----------- ---------- ---------
(DOLLARS IN THOUSANDS, TAXABLE-EQUIVALENT)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans (1)(2) ...................... $349,526 $34,116 9.76% $297,229 $29,060 9.78%
Taxable investment
securities ...................... 144,218 8,438 5.85 119,042 7,248 6.09
Non taxable investment
securities (3) .................. 88 5 5.68 158 11 6.96
Federal funds sold ................ 8,519 461 5.41 13,442 704 5.24
Other ............................. 12,059 229 1.89 8,009 218 2.72
-------- ------- ---- -------- ------- ----
Total interest earning assets ...... 514,410 43,249 8.41% 437,880 37,241 8.50%
-------- ------- ---- -------- ------- ----
Noninterest earning assets:
Cash and due from banks ........... 15,811 14,043
Premises and equipment ............ 19,974 17,519
Other ............................. 7,924 7,117
-------- --------
Total assets ....................... $558,119 $476,559
======== ========
LIABILITIES & EQUITY
Interest bearing liabilities:
Demand deposits ................... $118,582 3,321 2.80% $ 99,928 2,684 2.69%
Savings deposits .................. 46,008 1,142 2.48 42,954 1,073 2.50
Time deposits ..................... 262,000 14,230 5.43 221,304 12,201 5.51
Short-term borrowings (6) ......... 7,389 324 4.38 6,690 287 4.29
-------- ------- ---- -------- ------- ----
Total interest bearing
liabilities ....................... 433,979 19,017 4.38% 370,876 16,245 4.38%
-------- ------- ---- -------- ------- ----
Noninterest bearing liabilities:
Demand deposits ................... 61,395 50,643
Other ............................. 7,905 8,216
Shareholders' equity ............... 54,840 46,824
-------- --------
Total liabilities and equity ....... $558,119 $476,559
======== ========
Interest rate spread (4) ........... 4.03% 4.12%
==== ====
Net interest income and net
interest margin (5) ............... $24,232 4.71% $20,996 4.79%
======= ==== ======= ====
DECEMBER 31, 1995
---------------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE
----------- ---------- ----------
(DOLLARS IN THOUSANDS,
TAXABLE-EQUIVALENT)
<S> <C> <C> <C>
ASSETS
Interest earning assets:
Loans (1)(2) ...................... $260,103 $25,468 9.79%
Taxable investment
securities ...................... 70,013 4,312 6.16
Non taxable investment
securities (3) .................. 786 55 7.00
Federal funds sold ................ 11,584 658 5.68
Other ............................. 3,118 133 4.27
-------- ------- ----
Total interest earning assets ...... 345,604 30,626 8.86%
-------- ------- ----
Noninterest earning assets:
Cash and due from banks ........... 11,452
Premises and equipment ............ 12,599
Other ............................. 1,381
--------
Total assets ....................... $371,036
========
LIABILITIES & EQUITY
Interest bearing liabilities:
Demand deposits ................... $ 83,066 2,401 2.89%
Savings deposits .................. 38,018 1,039 2.73
Time deposits ..................... 159,865 8,896 5.56
Short-term borrowings (6) ......... 5,463 280 5.13
-------- ------- ----
Total interest bearing
liabilities ....................... 286,412 12,616 4.40%
-------- ------- ----
Noninterest bearing liabilities:
Demand deposits ................... 42,403
Other ............................. 2,966
Shareholders' equity ............... 39,255
--------
Total liabilities and equity ....... $371,036
========
Interest rate spread (4) ........... 4.46%
====
Net interest income and net
interest margin (5) ............... $18,010 5.21%
======= ====
</TABLE>
- ---------
(1) Average balances include non-accrual loans.
(2) Interest income includes related loan fee amounts which were immaterial.
(3) The average rate on nontaxable investment securities has been adjusted to a
tax equivalent yield using a 34% tax rate.
(4) Interest rate spread is the difference between earning asset yield and
interest bearing liability rate.
(5) Net interest margin is net interest income divided by average earning
assets.
(6) See Table XI.
34
<PAGE>
TABLE II.
AVERAGE BALANCE SHEET ITEMS AND NET INTEREST DIFFERENTIAL
ANALYSIS OF CHANGES IN INTEREST DIFFERENTIAL
<TABLE>
DECEMBER 31, 1997 INCREASE (DECREASE)
-------------------------------------------------------
AMOUNT AMOUNT AMOUNT
TOTAL ATTRIBUTABLE ATTRIBUTABLE ATTRIBUTABLE
CHANGE TO CHANGE TO CHANGE TO CHANGE IN
1996-1997 IN VOLUME IN RATE RATE/VOLUME
----------- -------------- -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans ..................................... $5,056 $5,115 $ (59) $ --
Taxable investment securities ............. 1,190 1,533 (286) (57)
Non taxable investment securities ......... (6) (5) (2) 1
Federal funds sold ........................ (243) (258) 23 (8)
Other ..................................... 11 110 (66) (33)
------- ------- ------- ------
Total interest income ...................... 6,008 6,495 (390) (97)
------- ------- ------- ------
LIABILITIES & EQUITY
Interest bearing liabilities:
Demand deposits ........................... 637 502 110 25
Savings deposits .......................... 69 76 (9) 2
Time deposits ............................. 2,029 2,242 (177) (36)
Short-term borrowings ..................... 37 30 6 1
------- ------- ------- ------
Total interest expense ..................... 2,772 2,850 (70) (8)
------- ------- ------- -------
Net interest income ........................ $3,236 $3,645 $(320) $(89)
======= ======= ======= ======
</TABLE>
<TABLE>
DECEMBER 31, 1996 INCREASE (DECREASE)
-------------------------------------------------------
AMOUNT AMOUNT AMOUNT
TOTAL ATTRIBUTABLE ATTRIBUTABLE ATTRIBUTABLE
CHANGE TO CHANGE TO CHANGE TO CHANGE IN
1995-1996 IN VOLUME IN RATE RATE/VOLUME
----------- -------------- -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans, net ................................ $3,592 $3,635 $ (26) $ (17)
Taxable investment securities ............. 2,936 3,020 (49) (35)
Non taxable investment securities ......... (44) (44) -- --
Federal funds sold ........................ 46 106 (51) (9)
Other ..................................... 85 209 (48) (76)
------ ------ ------ ------
Total interest income ...................... 6,615 6,926 (174) (137)
------ ------ ------ ------
LIABILITIES & EQUITY
Interest bearing liabilities:
Demand deposits ........................... 283 487 (166) (38)
Savings deposits .......................... 34 135 (87) (14)
Time deposits ............................. 3,305 3,416 (80) (31)
Short-term borrowings ..................... 7 63 (46) (10)
------ ------ ------ ------
Total interest expense ..................... 3,629 4,101 (379) (93)
------ ------ ------ ------
Net interest income ........................ $2,986 $2,825 $ 205 $ (44)
====== ====== ====== ======
</TABLE>
Average loan balances include nonaccrual loans. BancShares earns
tax-exempt interest on certain loans and investment securities due to the
borrower or issuer being either a governmental agency or a quasi-governmental
agency. Yields related to loans and securities exempt from both federal and
state income taxes, federal income taxes only, or state income taxes only, are
stated on a taxable-equivalent basis assuming a statutory federal income tax
rate of 34% for all periods. The taxable equivalent adjustment was immaterial
for the years 1997, 1996 and 1995, respectively.
35
<PAGE>
TABLE III. INVESTMENT PORTFOLIO
The following table sets forth the carrying amount of investment
securities:
<TABLE>
DECEMBER 31,
----------------------------------
1997 1996 1995
----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury and U.S. Government agencies ......... $130,131 $128,592 $71,028
States and political subdivisions .................. 2,000 219 1,000
Marketable equity securities ....................... 11,809 8,918 5,512
-------- -------- -------
Total ............................................. $143,940 $137,729 $77,540
======== ======== =======
</TABLE>
The following table sets forth the maturities of investment securities at
December 31, 1997 and the weighted average yields of such securities. (Note
that nontaxable investment securities have not been adjusted to a tax
equivalent basis and unrealized gain (loss) on available for sale is not
included.)
<TABLE>
MATURING AFTER ONE
WITHIN ONE YEAR BUT WITHIN FIVE YEARS AFTER TEN YEARS
---------------------- --------------------- --------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
----------- ---------- ---------- ---------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other U.S. Government agencies (1) ..... $115,117 5.75% $14,996 6.27% $18 10.81%
States and political subdivisions ........................ 2,000 5.73 -- -- -- --
Other (2) ................................................ 11,809 3.22 -- -- -- --
-------- ---- ------- ---- --- -----
$128,926 5.52% $14,996 6.27% $18 10.81%
======== ==== ======= ==== === =====
</TABLE>
- ---------
(1) Mortgage-backed securities are included in the obligations of U.S.
Government agencies and spread within the columns according to their
anticipated repayment schedules.
(2) The "Within One Year" column of the "Other" category includes marketable
equity securities held by BancShares. Accordingly, the yield on these
securities represents anticipated dividend income rather than interest
income.
TABLE IV. LOAN PORTFOLIO
ANALYSIS OF LOANS BY TYPE AND MATURITY
The table below classifies loans by major category:
<TABLE>
DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Real estate:
Construction and land development .......... $ 33,851 $ 28,787 $ 24,728 $ 24,369 $ 15,215
Mortgage:
One to four family residential .......... 141,301 144,331 99,228 94,743 88,902
Commercial .............................. 57,222 51,629 48,736 42,733 34,777
Equity lines of credit .................. 44,915 35,971 29,011 22,973 20,087
Other ................................... 4,579 5,839 4,757 6,933 7,434
Commercial and industrial ................... 41,851 36,330 30,080 24,129 18,092
Consumer .................................... 28,630 26,934 24,870 20,956 18,153
Agricultural ................................ 3,335 2,669 2,368 1,982 1,742
Other ....................................... 2,566 2,390 5,153 3,483 5,259
-------- -------- -------- -------- --------
Total ................................... 358,250 334,880 268,931 242,301 209,661
Less allowance for possible loan losses ..... 4,145 4,139 4,078 3,786 3,452
-------- -------- -------- -------- --------
Net loans ............................... $354,105 $330,741 $264,853 $238,515 $206,209
======== ======== ======== ======== ========
</TABLE>
36
<PAGE>
The following table identifies the maturities of all loans as of December
31, 1997 and addresses the sensitivity of these loans to changes in interest
rates:
LOAN SENSITIVITY
<TABLE>
DECEMBER 31, 1997
-----------------------------------------------
WITHIN ONE TO FIVE AFTER
ONE YEAR YEARS FIVE YEARS TOTAL
---------- ------------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate -- construction and land development $ 33,851 $ -- $ -- $ 33,851
Commercial and industrial ....................... 30,258 11,258 335 41,851
Other ........................................... 160,653 101,306 20,589 282,548
-------- -------- ------- --------
Total ....................................... $224,762 $112,564 $20,924 $358,250
======== ======== ======= ========
Loans maturing after one year with:
Fixed interest rates ........................... $ 81,046 $20,924 $101,970
Floating or adjustable rates ................... 31,518 -- 31,518
-------- ------- --------
Total ....................................... $112,564 $20,924 $133,488
======== ======= ========
</TABLE>
NONPERFORMING ASSETS
The following analysis identifies other real estate owned and loans that
were either non-accruing, past-due or
restructured:
<TABLE>
DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans ............................ $ -- $ -- $ -- $ -- $ --
Restructured loans .......................... -- -- -- -- --
--------- --------- --------- --------- ---------
Total nonperforming loans .................. -- -- -- -- --
Other real estate ........................... 57 57 -- -- 1,318
--------- --------- --------- --------- ---------
Total nonperforming assets ................. $ 57 $ 57 $ -- $ -- $ 1,318
========= ========= ========= ========= =========
Accruing loans 90 days or more past due ..... $ -- $ 85 $ 10 $ 109 $ --
Loans at December 31 ........................ $ 358,250 $ 334,880 $ 268,931 $ 242,301 $ 209,661
Ratio of nonperforming assets to total loans
plus other real estate ..................... 0.02% 0.02% 0.00% 0.00% 0.63%
Interest income that would have been
earned on nonperforming loans had they
been performing ............................ $ -- $ -- $ -- $ -- $ --
Interest income earned on nonperforming
loans ...................................... $ -- $ -- $ -- $ -- $ --
</TABLE>
Loans are placed on a non-accrual basis when they become 90 days past due
and the ability of the borrower to comply with the present terms is doubtful.
37
<PAGE>
TABLE V. SUMMARY OF LOAN LOSS EXPERIENCE
ANALYSIS OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
The table presented below summarizes activity in the allowance for
possible loan losses for each of the five years ended December 31, 1997:
<TABLE>
DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses -- beginning of year .. $ 4,139 $ 4,078 $ 3,786 $ 3,452 $ 3,096
Charge-offs:
Commercial, financial, and agricultural ................. 196 32 -- -- 2
Real estate:
Construction .......................................... -- -- -- -- --
Mortgage:
One to four family residential ...................... 273 283 -- -- 10
Commercial .......................................... -- -- -- -- --
Equity lines of credit .............................. -- 19 -- -- --
Other ............................................... -- -- -- -- --
Consumer ................................................ 379 262 153 85 54
--------- --------- --------- --------- ---------
Total charge-offs ........................................ 848 596 153 85 66
--------- --------- --------- --------- ---------
Recoveries:
Commercial, financial, and agricultural ................. 63 3 9 -- 2
Real estate:
Construction .......................................... -- -- -- -- --
Mortgage:
One to four family residential ...................... 308 90 -- 8 4
Commercial .......................................... -- -- -- -- --
Equity lines of credit .............................. -- 19 -- -- --
Other ............................................... -- -- -- -- --
Consumer ................................................ 123 68 76 51 56
--------- --------- --------- --------- ---------
Total recoveries ......................................... 494 180 85 59 62
--------- --------- --------- --------- ---------
Net charge-offs .......................................... 354 416 68 26 4
Provision for loan losses ................................ 360 360 360 360 360
Addition from acquisition of Perpetual Savings Bank ...... -- 117 -- -- --
--------- --------- --------- --------- ---------
Allowance for possible loan losses -- end of year ........ $ 4,145 $ 4,139 $ 4,078 $ 3,786 $ 3,452
========= ========= ========= ========= =========
Average loans outstanding during the year ................ $ 349,526 $ 297,229 $ 260,103 $ 226,400 $ 190,731
========= ========= ========= ========= =========
Ratio of net charge-offs (recoveries) to average loans
outstanding ............................................. 0.10% 0.14% 0.03% 0.01% 0.00%
========= ========= ========= ========= =========
</TABLE>
38
<PAGE>
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
The composition of the allowance by loan category shown in the table below
is based upon management's evaluation of the loan portfolio, past history, and
prevailing economic conditions:
<TABLE>
DECEMBER 31,
--------------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- ----------------------
% OF LOANS % OF LOANS % OF LOANS
IN EACH IN EACH IN EACH
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
-------- ------------- -------- ------------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate:
Construction and land
development .................. $ 254 10% $ 216 9% $ 185 9%
Mortgage:
One to four family
residential ................. 777 39 794 43 546 37
Commercial ................... 458 16 413 15 390 18
Equity lines of credit ....... 269 13 216 11 174 11
Commercial, industrial and
agricultural ................... 678 12 585 11 487 11
Consumer ........................ 1,575 8 1,616 8 1,492 9
Other ........................... 27 2 155 3 631 5
Unallocated ..................... 107 -- 144 -- 173 --
------ -- ------ -- ------ --
Total ........................ $4,145 100% $4,139 100% $4,078 100%
====== === ====== === ====== ===
DECEMBER 31,
--------------------------------------------
1994 1993
---------------------- ---------------------
% OF LOANS % OF LOANS
IN EACH IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
-------- ------------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate:
Construction and land
development .................. $ 183 10% $ 114 7%
Mortgage:
One to four family
residential ................. 521 39 489 42
Commercial ................... 342 18 278 17
Equity lines of credit ....... 138 9 121 10
Commercial, industrial and
agricultural ................... 392 10 298 9
Consumer ........................ 1,257 9 1,089 9
Other ........................... 771 5 841 6
Unallocated ..................... 182 -- 222 --
------ -- ------ --
Total ........................ $3,786 100% $3,452 100%
====== === ====== ===
</TABLE>
TABLE VI. DEPOSITS
The average monthly volume of deposits, which is considered representative
of BancShares' operations, and the average rates paid on such deposits are
presented below:
<TABLE>
1997 1996 1995
-------------------- -------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCES RATES BALANCES RATES BALANCES RATES
---------- --------- ---------- --------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand ......... $ 61,395 -- $ 50,643 -- $ 42,403 --
Interest bearing demand ............. 118,582 2.80% 99,928 2.69% 83,066 2.89%
Savings ............................. 46,008 2.48 42,954 2.50 38,018 2.73
Time deposits ....................... 262,000 5.43 221,304 5.51 159,865 5.56
-------- -------- --------
Total deposits ..................... $487,985 $414,829 $323,352
======== ======== ========
</TABLE>
Maturities of $100,000 or more time certificates of deposit at December
31, 1997 are summarized as follows (dollars in thousands):
<TABLE>
<S> <C>
Maturity category:
Three months or less ...................... $16,297
Over three through six months ............. 12,382
Over six months through twelve months ..... 12,475
Over one year through five years .......... 8,749
Over five years ........................... --
-------
$49,903
=======
</TABLE>
39
<PAGE>
TABLE VII. RETURN ON EQUITY AND ASSETS
The following table presents certain ratios of BancShares:
<TABLE>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Return on assets (net income divided by average total assets) ............ 1.32% 1.32% 1.62%
Return on equity (net income divided by average total equity) ............ 13.47 13.46 15.30
Dividend payout ratio (dividends paid divided by net income) ............. 12.31 14.51 11.42
Equity to assets ratio (average equity divided by average total assets) .. 9.83 9.83 10.58
</TABLE>
TABLE VIII. CAPITAL ADEQUACY
The following table presents certain calculations of BancShares' capital
and related ratios:
<TABLE>
DECEMBER 31,
--------------------------------------
1997 1996 1995
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total shareholders' equity ......... $ 59,117 $ 51,242 $ 44,351
Leverage capital ................... 46,977 40,113 39,577
Tier 1 capital ..................... 46,977 40,113 39,577
Total capital ...................... 51,122 44,112 42,754
Leverage capital ratio (1) ......... 8.52% 8.55% 10.74%
Tier 1 capital ratio ............... 12.80 12.54 15.57
Total capital ratio (2) ............ 13.93 13.79 16.82
</TABLE>
- ---------
(1) Bank holding companies operating at the 3% minimum are expected to have
well diversified risk profiles, including no undue interest rate risk,
excellent asset quality, high liquidity and strong earnings. Bank holding
companies not meeting these requirements are expected to maintain a
leverage ratio somewhat higher than the 3% minimum applicable to the
highest rated companies.
(2) The minimum ratio of qualifying total capital to risk weighted assets is
8%, of which 4% must be Tier 1 capital, which is common equity, retained
earnings, and a limited amount of perpetual preferred stock, less certain
intangibles.
TABLE IX. RATE OF INTERNAL CAPITAL GENERATION
<TABLE>
DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Return on average assets (based on net income) ................. 1.32% 1.32% 1.62%
Average equity as a percentage of total average assets ......... 9.83 9.83 10.58
Return on average equity ....................................... 13.47 13.46 15.30
Dividend payout ratio .......................................... 12.31 14.51 11.42
(dividends paid divided by net income)
Earnings retention ............................................. 87.69 85.49 88.58
(net income less dividends divided by net income)
Rate of internal capital generation ............................ 11.81 11.51 13.55
(return on average equity ratio times earnings retention ratio)
</TABLE>
40
<PAGE>
TABLE X. INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
DECEMBER 31, 1997
-----------------------------------------
1-30 31-90 91-180
DAYS DAYS DAYS
SENSITIVE SENSITIVE SENSITIVE
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS:
Loans .................................... $ 163,534 $ 18,170 $ 14,353
Investment securities .................... -- 88,213 2,000
Federal funds sold ....................... 33,300 -- --
--------- --------- ---------
Total interest earning
assets ................................ $ 196,834 $ 106,383 $ 16,353
========= ========= =========
LIABILITIES
Savings and checking with interest ....... $ -- $ -- $ --
Money market savings accounts ............ 58,060 -- --
Time deposits ............................ 25,523 52,076 68,613
Short-term borrowings .................... 11,051 -- --
--------- --------- ---------
Total interest bearing
liabilities ........................... $ 94,634 $ 52,076 $ 68,613
========= ========= =========
Interest sensitivity gap ................. $ 102,200 $ 54,307 $ (52,260)
========= ========= =========
Cumulative interest sensitivity gap ...... $ 102,200 $ 156,507 $ 104,247
Cumulative interest sensitivity gap to
total interest earning assets ........... 19.02% 29.13% 19.40%
DECEMBER 31, 1997
--------------------------------------------------------
181-365 TOTAL
DAYS ONE-YEAR TOTAL
SENSITIVE SENSITIVE NONSENSITIVE TOTAL
------------- ------------- -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Loans .................................... $ 28,705 $ 224,762 $133,488 $ 358,250
Investment securities .................... 26,904 117,117 28,626 145,743
Federal funds sold ....................... -- 33,300 -- 33,300
--------- --------- -------- ---------
Total interest earning
assets ................................ $ 55,609 $ 375,179 $162,114 $ 537,293
========= ========= ======== =========
Liabilities
Savings and checking with interest ....... $ -- $ -- $114,813 $ 114,813
Money market savings accounts ............ -- 58,060 -- 58,060
Time deposits ............................ 68,957 215,169 49,738 264,907
Short-term borrowings .................... -- 11,051 -- 11,051
--------- --------- -------- ---------
Total interest bearing
liabilities ........................... $ 68,957 $ 284,280 $164,551 $ 448,831
========= ========= ======== =========
Interest sensitivity gap ................. $ (13,348) $ 90,899 $ (2,437) $ 88,462
========= ========= ======== =========
Cumulative interest sensitivity gap ...... $ 90,899 $ 90,899 $ 88,462 $ 88,462
Cumulative interest sensitivity gap to
total interest earning assets ........... 16.92% 16.92% 16.46% 16.46%
</TABLE>
Assets and liabilities with maturities of one year or less and those that
may be adjusted within this period are considered interest-sensitive. The
interest-sensitivity position has meaning only as of the date for which it was
prepared.
TABLE XI. SHORT-TERM BORROWINGS
<TABLE>
1997 1996 1995
------------------- ------------------- -------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Federal funds purchased:
At December 31 ............................. $ -- -- $ -- -- $ -- --
Average during year ........................ 896 5.53% 1,359 5.37% 743 5.67%
Maximum month end balance during year ...... 4,800 7,100 4,950
Repurchase agreements:
At December 31 ............................. $7,632 4.12% $3,995 4.38% 4,322 4.43%
Average during year ........................ 4,741 3.86% 3,827 3.53% 3,278 4.20%
Maximum month-end balance during year ...... 7,632 4,111 4,414
U.S. Treasury tax and loan accounts:
At December 31 ............................. $3,419 5.25% $1,980 5.15% 1,170 5.15%
Average during year ........................ 1,752 5.20% 1,504 5.26% 1,442 5.63%
Maximum month-end balance during year ...... 3,594 3,441 3,718
</TABLE>
41
<PAGE>
TABLE XII. SELECTED QUARTERLY DATA -- Unaudited (1)
<TABLE>
1997
-------------------------------------------------------
FOURTH THIRD SECOND FIRST
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income ................. $ 11,240 $ 11,002 $ 10,719 $ 10,288
Interest expense ................ 4,875 4,819 4,708 4,614
---------- ---------- ---------- ----------
Net interest income ............. 6,365 6,183 6,011 5,674
Provision for loan losses ....... 90 90 90 90
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses ...... 6,275 6,093 5,921 5,584
Noninterest income .............. 992 1,065 997 920
Noninterest expense ............. 4,358 3,922 3,835 3,762
---------- ---------- ---------- ----------
Income before income taxes ...... 2,909 3,236 3,083 2,742
Income taxes .................... 1,154 1,232 1,189 1,007
---------- ---------- ---------- ----------
Net income ...................... $ 1,755 $ 2,004 $ 1,894 $ 1,735
========== ========== ========== ==========
PER SHARE OF STOCK
Net income per common share ..... $ 61.77 $ 71.54 $ 66.67 $ 61.77
Cash dividends -- common ........ 8.00 8.00 8.00 8.00
Common sales price
High ........................... 1,500.00 1,500.00 1,500.00 1,500.00
Low ............................ 1,500.00 1,500.00 1,500.00 1,500.00
1996
----------------------------------------------------
FOURTH THIRD SECOND FIRST
------------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income ................. $ 10,379 $ 9,720 $ 9,024 $ 8,115
Interest expense ................ 4,660 4,255 3,948 3,382
---------- ---------- ---------- ----------
Net interest income ............. 5,719 5,465 5,076 4,733
Provision for loan losses ....... 90 90 90 90
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses ...... 5,629 5,375 4,986 4,643
Noninterest income .............. 837 966 848 697
Noninterest expense ............. 4,107 3,956 3,284 2,844
---------- ---------- ---------- ----------
Income before income taxes ...... 2,359 2,385 2,550 2,496
Income taxes .................... 519 994 907 1,067
---------- ---------- ---------- ----------
Net income ...................... $ 1,840 $ 1,391 $ 1,643 $ 1,429
========== ========== ========== ==========
PER SHARE OF STOCK
Net income per common share ..... $ 64.40 $ 48.67 $ 57.51 $ 50.02
Cash dividends -- common ........ 8.00 8.00 8.00 8.00
Common sales price
High ........................... 1,500.00 1,300.00 1,300.00 1,100.00
Low ............................ 1,500.00 1,300.00 1,300.00 1,100.00
</TABLE>
- ---------------
(1) The selected quarterly data included in the tables for the quarterly periods
in 1997 and 1996 are unaudited, and limited quarterly review procedures have
not been performed by an independent certified public accountant.
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
NET INCOME. In the first six months of 1998, BancShares' net income
increased $586,000 from $3.6 million in the first six months of 1997 to $4.2
million in the first six months of 1998, an increase of 7.13%. Growth in net
income was limited due to the opening of three de novo branches in the first
six months of 1998 and initial expenses related to three other DE NOVO branches
scheduled to open in the third quarter of 1998.
Net income per share for the first six months of 1998 was $148.17 per
share, an increase of $20.62, or 16.17%, from $127.55 in 1997. The return on
average equity decreased to 13.80%, for the period ended June 30, 1998, from
13.82% for the period ended June 30, 1997 and the return on assets increased to
1.44% for the period ended June 30, 1998, from 1.33% for the period ended June
30, 1997. At June 30, 1998, BancShares' assets totaled $597.7 million, an
increase of $14.7 million, or 2.52%, from the $583.0 million at December 31,
1997. During this six month period, gross loans increased $27.0 million or
7.54% from $358.3 million to $385.3 million. During the six months ended June
30, 1998 investment securities decreased $31.0 million or 21.60% from $143.9
million at December 31, 1997 to $112.9 million at June 30, 1998. Total deposits
increased $10.7 million, or 2.12% from $505.2 million at December 31, 1997 to
$515.9 million at June 30, 1998. The above increases resulted from internal
growth as there were no branch acquisitions in the six months ended June 30,
1998.
INTEREST INCOME. Interest and fees on loans increased $1.4 million or
8.53%, from $16.5 million for the six months ended June 30, 1997 to $18.0
million for the six months ended June 30, 1998. This increase was due to
increased loan volume. Average loans for the six months ended June 30, 1998
were $370.5 million, an increase of 8.31% from $342.0 million for the prior
year six month period. The yield on the loan portfolio was 9.24% in the six
months ended June 30, 1998 and 9.25% in the six months ended June 30, 1997.
Interest income from investments securities, including US Treasury and
Government obligations, obligations of state and county subdivisions and other
securities decreased $903,000 or 21.30%, from $4.2 million for the six months
ended June 30, 1997 to $3.3 million for the six months ended June 30, 1998.
This decrease was due to a large percentage of US Treasuries maturing in the
six months ended June 30, 1998. For the six months ended June 30, 1998 and
1997, average securities totaled $126.0 million and $144.8 million,
respectively. The yield on investment securities was 5.29% and 5.42% for the
six months ended June 30, 1998 and 1997, respectively.
Interest income on federal funds sold increased $918,000 or 441.35% from
$208,000 for the six months ended June 30, 1997 to $1.1 million for the six
months ended June 30, 1998. This increase in income resulted primarily from the
increase in the average federal funds sold to $41.9 million for the six months
ended June 30, 1998 from $8.3 million for the six months ended June 30, 1997.
Average federal funds sold yields were 5.37% for the six months ended June 30,
1998, an increase from 5.03% for the six months ended June 30, 1997.
42
<PAGE>
Total interest income increased $1.4 million or 6.67%, from $21.0 million
for the six months ended June 30, 1997 to $22.4 million for the six months
ended June 30, 1998. This increase was the result of volume increases. Average
earning asset interest yields for the six months ended June 30, 1998 and June
30, 1997 were 8.33% and 8.49%, respectively. Average earning assets increased
from $495.1 million in the six months ended June 30, 1997 to $538.5 in the
period ended June 30, 1998. This $43.4 million increase in the average earning
assets resulted from internal growth and the opening of three de novo branches
in the six months ended June 30, 1998.
INTEREST EXPENSE. Total interest expense increased $364,000 or 3.90% from
$9.3 million for the six months ended June 30, 1997 to $9.7 million for the six
months ended June 30, 1998. The principal reason for the change was the
increase in average interest bearing liabilities from $428.5 million for the
six months ended June 30, 1997 to $448.1 million for the six months ended June
30, 1998. This increase was mitigated by a decrease in BancShares' total cost
of funds from 4.35% for the six months ended June 30, 1997 to 4.32% for the six
months ended June 30, 1998.
NET INTEREST INCOME. Net interest income was up $1.0 million, or 9.11%
from $11.7 million for the six months ended June 30, 1997 to $12.7 million for
the six months ended June 30, 1998. This increase was primarily due to the
increase in loan volume through the Bank's internal growth. The net interest
margin at June 30, 1998 was 4.73%, an increase of 59 basis points from the
4.14% net interest margin at June 30, 1997.
ASSET QUALITY AND PROVISION FOR POSSIBLE LOAN LOSSES. For the six months
ended June 30, 1998 and 1997, management added $180,000 as volume related
additions to the provision for loan losses. During the six months of 1998
management charged-off loans totaling $898,000 and received recoveries of
$282,000 resulting in net charge-offs of $616,000. During the same period in
1997, $341,000 in loans were charged-off and recoveries of $261,000 were
received resulting in net charge-offs of $80,000. The increase in net
charge-offs in 1998 was primarily due to management following its policy of
charging loans off early and conservatively. In management's opinion, the
charge-offs in the first six months of 1998 are not necessarily indicative of
deterioration in the quality of the loan portfolio. The following table
presents BancShares' comparative asset quality ratios:
<TABLE>
June 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Ratio of annualized net loans charged off to average loans ............ .33% .10%
Allowance for loan losses to loans .................................... .96 1.16
Non-performing assets to total gross loans and other real estate owned .01 .02
Non-performing assets to total assets ................................. -- --
Allowance for loan losses to non-performing assets .................... 6,495.89% 7,271.93%
</TABLE>
The ratio of net charge-off to average loans outstanding increased to
0.33% (annualized) at June 30, 1998 from 0.10% for the year ended December 31,
1997 primarily due to loans charged off in June 1998. The allowance for loan
losses represented 0.96% of loans at June 30, 1998, a decrease of 20 basis
points from the December 31, 1997 ratio of 1.16%. Loans increased $27.0
million, or 7.54% from December 31, 1997 to June 30, 1998.
Management considers the June 30, 1998 allowance for loan losses adequate
to cover the losses and risks inherent in the loan portfolio at June 30, 1998
and will continue to monitor its portfolio and to adjust the relative level of
the allowance as needed. BancShares had no impaired loans at June 30, 1998. At
June 30, 1998, BancShares had no loans classified for regulatory purposes as
loss or doubtful and less than $1.0 million of loans classified as substandard.
Management actively maintains a current loan watch list and knows of no other
loans which are material and (i) represent or result from trends or
uncertainties which management reasonably expects will materially impact future
operating results, liquidity or capital resources, or (ii) represent material
credits about which management is aware of any information which causes
management to have serious doubts as to the ability of such borrowers to comply
with the loan repayment terms.
NONINTEREST INCOME. Noninterest income increased $731,000 for the period
ended June 30, 1998 compared to the prior period ended June 30, 1997. Total
noninterest income was $2.6 million at June 30, 1998 compared to $1.9 million
at June 30, 1997. Noninterest income does not include any securities gains for
either six month period. During the six months ended June 30, 1998, noninterest
income was positively impacted by a gain of $507,000 on the sale of mortgage
servicing rights. Service charges on deposit accounts increased by $124,000 or
11.40% to from $1.1 million at June 30, 1997 to $1.2 million at June 30, 1998.
This increase was primarily attributable to internal growth of the existing
branch network. Additionally, other service charges, commissions and fees
increased $100,000 or 12.21% from $819,000 for the six months ended June 30,
1997, to $919,000 for the six months ended June 30, 1998, due to increased ATM,
mortgage and other miscellaneous fees.
43
<PAGE>
NONINTEREST EXPENSE. Noninterest expense which includes personnel,
occupancy, furniture and equipment, data processing, legal and professional
fees, postage, intangible amortization, FDIC insurance and state assessments,
printing and supplies and other expenses, increased $815,000 or 10.73% from
$7.6 million for the six months ended June 30, 1997 to $8.4 million for the six
months ended June 30, 1998.
This increase was primarily due to an increase in personnel expense of
$388,000 or 9.63%, from $4.0 million at June 30, 1997 to $4.4 million at June
30, 1998 and an increase in occupancy, furniture and equipment expense and
other volume related expenses resulting from three new de novo branch openings
in the six months ended June 30, 1998 and the expenses related to three more DE
NOVO branches being planned to open in the third quarter of 1998.
INCOME TAXES. In the six months ended June 30, 1998, BancShares had income
tax expense of $2.6 million, an increase of $393,000, or 17.92%, from $2.2
million in the prior year period. This increase was due to increased
profitability resulting from internal growth. The resulting effective income
tax rates based on the accruals for the six months ended June 30, 1998 and 1997
were 38.06% and 37.70%, respectively.
CAPITAL RESOURCES.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY. Sufficient levels of capital
are necessary to sustain growth and absorb losses. To this end, the Federal
Reserve, which regulates BancShares, and the FDIC, which regulates the Bank,
have established minimum capital guidelines for the institutions they
supervise.
Regulatory guidelines define minimum requirements for BancShares' leverage
capital ratio. Leverage capital equals total equity less goodwill and certain
other intangibles and is measured relative to total adjusted assets as defined
by regulatory guidelines. According to these guidelines, BancShares' leverage
ratio at June 30, 1998 was 8.82%. At December 31, 1997, BancShares' leverage
capital ratio was 8.52%.
BancShares is also required to meet minimum requirements for RBC.
BancShares' assets, including loan commitments and other off-balance sheet
items, are weighted according to federal guidelines for the risk considered
inherent in each asset. At June 30, 1998, the Total Capital Ratio was 13.99%.
At December 31, 1997 the Total Capital Ratio was 13.93%.
The net unrealized gains on securities available-for-sale at June 30, 1998
of $4.9 million and at December 31, 1997 of $5.2 million, although a part of
shareholders' equity, are not included in the calculation of either the Total
Capital or Leverage Capital Ratios pursuant to regulatory definitions of these
capital requirements. The following table presents capital adequacy
calculations and ratios of BancShares:
<TABLE>
JUNE 30, 1998 DECEMBER 31, 1997
--------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Tier 1 capital ................. $ 51,029 $ 46,977
Total capital .................. 54,738 51,122
Tier 1 capital ratio ........... 13.04%(1) 12.80%(1)
Total capital ratio ............ 13.99 (1) 13.93 (1)
Leverage capital ratio ......... 8.82 (1) 8.52 (1)
</TABLE>
- ---------
(1) These ratios exceed the minimum required regulatory capital ratios. See
"Supervision and Regulation -- Capital Adequacy."
At June 30, 1998 and December 31, 1997, the Bank also was in compliance
with its regulatory capital requirements, and all of its regulatory capital
ratios exceed the minimum ratios required for it to be classified as "well
capitalized." See "Supervision and Regulation -- Capital Adequacy."
LIQUIDITY, MARKET RISK AND INTEREST SENSITIVITY.
LIQUIDITY. Liquidity refers to the ability of the bank to generate
sufficient funds to meet its financial obligations and commitments at a
reasonable cost. Maintaining liquidity ensures that funds will be available for
reserve requirements, customer demand for loans, withdrawal of deposit balances
and maturities of other deposits and liabilities. Past experiences help
management anticipate cyclical demands and amounts of cash required. These
obligations can be met by existing cash reserves or funds from maturing loans
and investments, but in the normal course of business are met by deposit
growth.
In assessing liquidity, many relevant factors are considered, including
stability of deposits, quality of assets, economy of the markets served,
business concentration, competition and BancShares' overall financial
condition. BancShares' liquid assets include cash and due from banks, federal
funds sold and investments securities available-for-sale. The liquidity ratio,
which is defined as net cash plus short-term and marketable securities divided
by net deposits and short term liabilities, was 33.91% at June 30, 1998 and
34.74% at December 31, 1997.
44
<PAGE>
The consolidated statement of cash flows discloses the principal sources
and uses of cash from operating, investing and financing activities for the six
months ended June 30, 1998 and 1997, respectively. BancShares has no brokered
deposits. Jumbo time deposits are considered to include all time deposits of
$100,000 or more. BancShares has never aggressively bid on these deposits.
Almost all jumbo deposit customers have other relationships with the Bank,
including savings, demand and other time deposits, and in some cases, loans. At
June 30, 1998 and at December 31, 1997 jumbo time deposits represented 9.52%
and 9.88%, respectively, of total deposits.
Management believes that BancShares has the ability to generate sufficient
amounts of cash to cover normal requirements and any additional needs which
arise, within realistic limitations, and management is not aware of any known
demands, commitments or uncertainties that will affect liquidity in a material
way.
MARKET RISK AND INTEREST SENSITIVITY. Management is of the opinion that
there have been no material changes in BancShares' market risk and interest
sensitivity since December 31, 1997.
ACCOUNTING AND OTHER MATTERS.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("Statement 130"). Statement 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. It does not address issues in recognition
or measurement for comprehensive income and its components. The provisions of
Statement 130 are effective for fiscal years beginning after December 31, 1997.
BancShares adopted this statement in the first quarter of 1998. During the six
months ended June 30, 1998 and 1997, comprehensive income, which consisted of
net income and changes in net unrealized gains and losses, net of applicable
tax effects, amounted to $3.9 million and $4.3 million, respectively.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information" ("Statement 131"). Statement 131
requires that public business enterprises report certain information about
operating segments in complete sets of financial statements issued to
shareholders. It also requires that public business enterprises report certain
information about their products and services, the geographic areas in which
they operate and their major customers. The provisions of Statement 131 are
effective for fiscal years beginning after December 31, 1997. Adoption of this
pronouncement is not expected to have a material effect on BancShares'
consolidated financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
About Pension and Other Postretirement Benefits." This statement standardizes
the disclosure requirements of pensions and other postretirement benefits. This
statement does not change any measurement or recognition provisions, and thus
will not materially impact BancShares. This statement is effective for fiscal
years beginning after December 15, 1997.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Earlier application of all provisions of this statement is encouraged.
The Company plans to adopt this Statement on January 1, 2000 and does not
anticipate any material effect on its consolidated financial statements.
During the six month period ending June 30, 1998 the Bank has opened three
de novo branches and has received approval to open three additional de novo
branches in the third quarter of 1998. In addition, BancShares has entered into
definitive agreements to acquire five additional branches in 1998.
Management is not aware of any other trends, events, uncertainties, or
current recommendations by regulatory authorities that will have or that are
reasonably likely to have a material effect on BancShares' liquidity, capital
resources or other operations.
YEAR 2000 ISSUE.
In 1997 BancShares developed a plan to deal with the "Year 2000 Issue" and
contracted with a consultant to review its overall exposure to the Year 2000
Issue. The Year 2000 Issue relates to computer programs written using two
digits rather than four to define the applicable year. In 1997 management
committed the human resources and the financial resources for BancShares to
complete the resolution of the Year 2000 Issue. The total cost for this project
is estimated to be $150,000 and is being funded through cash flows. BancShares
is expensing all costs associated with the required systems changes as the
costs are incurred. Costs were immaterial in 1997. BancShares utilizes the
mainframe system of an affiliated bank holding company, FCBancShares, and its
subsidiary, FCB, for most of its mission-critical applications. These systems
are currently
45
<PAGE>
being remediated, replaced, or retired as part of FCBancShares' Year 2000
compliance program. BancShares is closely monitoring FCBancShares' progress.
Based upon discussions with management of FCBancShares, BancShares' management
does not expect significant increases in future data processing costs relating
to Year 2000 compliance, although a failure to complete the FCBancShares Year
2000 compliance program could have an material adverse effect on the business
of BancShares. See "Risk Factors -- Risk Factors Relating to BancShares --
Developments in Technology."
46
<PAGE>
BUSINESS
GENERAL
BancShares is a registered bank holding company, incorporated under the
laws of Delaware, and headquartered in Fuquay-Varina, North Carolina. It was
organized during 1987 as the holding company for the Bank. BancShares operates
through the Bank which provides a variety of retail and commercial banking
products and services to individuals and small- to medium-sized businesses in
the communities it serves. At June 30, 1998, BancShares had total consolidated
assets of approximately $597.7 million, total consolidated deposits of
approximately $515.9 million, and total consolidated shareholders' equity of
approximately $62.5 million.
BancShares currently is engaged in an expansion program which involves
acquisitions of other financial institutions, or offices and/or deposits of
other institutions, and the opening of de novo branches. The Bank is a North
Carolina-chartered bank that currently maintains 37 banking offices in 27
central North Carolina communities, nine of which were opened or acquired
within the last three fiscal years.
BancShares is focused on community-oriented banking via (i) localized
lending, (ii) core deposit funding, (iii) conservative balance sheet
management, and (iv) stable growth. BancShares' franchise includes many smaller
communities where competition is limited due to the exit of larger institutions
or to the limited product offerings of smaller institutions. By outsourcing its
core data processing requirements to an affiliated financial institution (see
"Certain Relationships and Related Transactions"), BancShares can offer a
complete array of financial services while maintaining its community banking
orientation. BancShares' focus on non-metropolitan markets and its emphasis on
customer service provide it with a stable source of core funding. At June 30,
1998, transaction accounts and non-interest bearing accounts equaled 40.13% and
15.02%, respectively, of total deposits, with the remaining 44.85% of total
deposits attributable to interest bearing savings and time deposit accounts.
BancShares' return on average assets and return on average equity were
1.32% and 13.47%, respectively, for the year ended December 31, 1997, and an
annualized 1.44% and 13.80%, respectively, for the six months ended June 30,
1998.
Members of the Holding family, including Lewis R. Holding, have been
actively involved in the management of BancShares, and, currently, various
members of the family control an aggregate of 77.31% of BancShares' common
stock. See "Beneficial Ownership of Securities" and "Certain Relationships and
Related Transactions." As a result, BancShares has been managed from a
long-term perspective with primary emphasis being placed on balance sheet
liquidity, loan quality, and earnings stability. At June 30, 1998, BancShares'
loan-to-deposit ratio was 74.67% and over 64% of its $158.1 million investment
portfolio was invested in U.S. government obligations with an average maturity
of 11 months. Consistent with its management philosophy, BancShares has
emphasized a low-risk loan portfolio derived from its local markets. At June
30, 1998, BancShares' non-performing assets were $57,000, or 0.01% of gross
loans and other real estate. Net charge-offs for the year ended December 31,
1997 were 0.10% of average loans and, for the six-month period ended June 30,
1998, were an annualized 0.33% of average loans. The allowance for loan losses
at June 30, 1998, was 0.96% of gross loans.
BancShares' principal executive offices are located at 100 South Main
Street, Fuquay-Varina, North Carolina 27526, and its telephone number is (919)
552-2242.
For additional information regarding BancShares and its financial
condition and results of operations, see "Available Information," "Risk Factors
- -- Risk Factors Relating to BancShares," "Consolidated Ratios of Earnings to
Fixed Charges," "Capitalization," "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Supervision and Regulation," "Beneficial Ownership of
Securities," "Directors and Executive Officers," "Executive Compensation,"
"Certain Relationships and Related Transactions," and "Fidelity BancShares
(N.C.), Inc. and Subsidiary Index to Consolidated Financial Statements."
DESCRIPTION OF BUSINESS
GENERAL. The Bank is a community-oriented bank which is engaged in a
general commercial and consumer banking business. Its operations are primarily
retail oriented and directed toward individuals, small- to medium-sized
businesses and local governmental units in its market area. While the Bank
provides most traditional commercial and consumer banking services, its
principal activities are the taking of demand and time deposits and the making
of secured and unsecured loans. The Bank's deposits are insured by the FDIC to
the maximum amount permitted by law.
The Bank's primary source of revenue is interest income from its lending
activities. Since it commenced business, the Bank has pursued a strategy of
growth through internal expansion by establishing branch offices in communities
in its geographic market and by acquiring smaller institutions or offices of
other institutions in its existing markets or in new markets.
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LENDING ACTIVITIES. The Bank's loans are concentrated in three major
areas: (i) real estate loans; (ii) commercial and agricultural loans; and (iii)
consumer loans.
At June 30, 1998, approximately 77% of the Bank's loan portfolio consisted
of real estate loans. All real estate loans are secured by liens on real
property. However, in addition to such real estate purpose loans (which
generally are made up of loans made to individuals and businesses for the
purchase and improvement of or investment in real estate, including
construction loans to individuals and builders), the Bank's real estate loans
include loans secured by first or junior liens on real estate but which were
made for various other commercial, agricultural and consumer purposes. The high
percentage of the Bank's loans which are secured by real estate generally is
reflective of efforts by management to minimize credit risk by taking real
estate as primary or additional collateral on loans made for purposes not
directly related to the real estate itself. Real estate loans may be made at
fixed or variable interest rates and for terms, or which provide for payments
based on an amortization schedule, of up to 30 years. However, loans having
terms of more than five years, or which are based on an amortization schedule
of more than that many years, generally will contain contractual provisions
which allow the Bank to call the loan in full, or provide for a "balloon"
payment in full, at any time after the fifth year.
The Bank's commercial and agricultural loans include loans to individuals
and small- to medium-sized businesses in its market area for working capital,
equipment purchases and various other business and agricultural purposes (other
than any such loan secured by real estate) and loans made to finance the
production of crops or livestock operations. A majority of the Bank's
commercial and agricultural loans are secured by inventory, equipment or
similar assets, but these loans also may be made on an unsecured basis.
Commercial and agricultural loans may be made at variable or fixed rates of
interest; however, it currently is the Bank's policy that those loans which
have terms or amortization schedules of longer than five years normally will
carry interest rates which vary with the prime lending rate and may be called
in full at any time after the fifth year.
The Bank's consumer loan portfolio consists primarily of loans to
individuals for various consumer purposes (other than any such loan secured by
real estate), but also includes the outstanding balances on consumer revolving
credit accounts, including credit card accounts. The majority of the Bank's
installment loans are secured by liens on various personal assets of the
borrowers, but these loans may also be made on an unsecured basis. Consumer
loans are made at fixed and variable interest rates and for terms which
generally do not exceed five years. However, the Bank will make consumer loans
for terms of up to seven years.
A discussion of and certain statistical information regarding the Bank's
loan portfolio, reserve for loan losses and its nonaccrual, past due and
restructured loans is contained in this Prospectus under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LOAN ADMINISTRATION AND UNDERWRITING. The Bank's loan portfolio is managed
under a defined credit review process which includes guidelines for loan
underwriting standards and risk assessment, procedures for ongoing
identification and management of credit deterioration and regular portfolio
reviews to assess loss exposure and to ascertain compliance with the Bank's
credit policies and procedures. This process includes a centralized credit
review and analysis prior to funding of all credit decisions in excess of
$500,000, a review of all loans over $20,000 within 30 days after funding, and
an annual review of all loans over $500,000.
The Bank's loan approval policies generally provide for various levels of
lending authority for lending personnel. All loans over $200,000 require the
approval of senior management, and all loans over $500,000 require the approval
of the Supervisory Loan Committee which consists of senior management officials
of the Bank.
During periodic reviews, loans are assigned a grade which indicates the
level of management attention to be given to that loan to protect the Bank's
position and to reduce loss exposure. Loans are placed in a nonaccrual status
whenever, in the opinion of management, collection becomes doubtful, and they
are charged off when the collection of principal and interest is doubtful and
the loans can no longer be considered sound collectible assets. Management
meets regularly to review asset quality trends and to discuss loan policy
issues. Potential losses are identified during these reviews and reserves are
established accordingly.
DEPOSIT ACTIVITIES. The Bank's deposit services include business and
individual checking accounts, savings accounts, NOW accounts, certificates of
deposit and market rate checking accounts. It is the Bank's policy to monitor
its competition in order to keep the rates paid on its deposits at a
competitive level. Time deposits of $100,000 and over made up approximately
9.52% of the Bank's total deposits at June 30, 1998. The vast majority of the
Bank's deposits are generated from within its market area. The Bank does not
accept brokered deposits but does actively solicit public funds deposits in its
market area.
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A discussion of and certain statistical information regarding the Bank's
deposit accounts is contained in this Prospectus under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
OTHER SERVICES. The Bank provides most other traditional commercial and
consumer banking services. Nondeposit investment products and services are
offered by the Bank through a subsidiary corporation, while discount brokerage
services are offered through an unaffiliated broker. Trust services are
provided through a correspondent bank.
INVESTMENT PORTFOLIO. At June 30, 1998, the Bank's investment portfolio
consisted almost entirely of U.S. government securities and obligations of
states and political subdivisions, 88.64% of which mature within one year and
11.35% of which mature after one through five years.
A discussion of and certain statistical information regarding the Bank's
investment portfolio is contained in this Prospectus under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SUBSIDIARIES. The Bank has a wholly-owned subsidiary, TFB Financial
Services, Inc., which provides non-deposit investment products, including
mutual funds and annuities, to the Bank's customers. A second subsidiary
corporation currently is inactive.
COMPETITION. Commercial banking in North Carolina is highly competitive.
In its market areas, the Bank competes directly with a number of local,
regional and superregional banking organizations. Competition among financial
institutions for loans and deposits is based, to a large extent, on interest
rates charged or paid. Fees and charges for other services, office location,
the quality of customer services, community reputation and continuity of
personnel, and, in the case of loans to large commercial borrowers, relative
lending limits, also are important competitive factors. Many of the Bank's
competitors have greater resources, broader geographic markets and higher
lending limits and offer more services than the Bank, and they can better
afford and make more effective use of media advertising, support services and
electronic technology than can the Bank. The Bank depends on its reputation in
its local community, direct customer contact, its ability to make credit and
other business decisions locally, and personalized service to counter these
competitive disadvantages.
In recent years, federal and state legislation has heightened the
competitive environment in which all financial institutions must conduct their
business, and the potential for competition among financial institutions of all
types has increased significantly. Additionally, with the elimination of
restrictions on interstate banking, a North Carolina commercial bank may be
required to compete not only with other North Carolina financial institutions,
but also with out-of-state financial institutions which may acquire North
Carolina institutions and are able to provide certain financial services across
state lines, thereby adding to the competitive atmosphere of the industry in
general.
EMPLOYEES. At June 30, 1998, the Bank employed 226 full-time employees and
27 part-time employees. It is not a party to any collective bargaining
agreements and considers relations with its employees to be good. BancShares
does not have any separate employees.
PROPERTY. BancShares does not own or lease any real property. Except for
four tracts of land that are leased and upon which are constructed leasehold
improvements for the conduct of its banking business, the Bank owns all of the
real property utilized in its operations. At June 30, 1998, the Bank's
investment in premises and equipment, net of depreciation, was approximately
$22.8 million.
LEGAL PROCEEDINGS. The Bank is a party to various legal proceedings in the
ordinary course of its business. However, based on information presently
available, and after consultation with legal counsel, BancShares' management
believes that the ultimate outcome in such proceedings, in the aggregate, will
not have any material adverse effect on BancShares' financial condition.
STATISTICAL INFORMATION. Certain statistical information with respect to
BancShares' business is contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which appears elsewhere in this
Prospectus.
CHANGE IN ACCOUNTANTS
During April 1997, BancShares appointed KPMG Peat Marwick LLP to serve as
its independent certified public accountants. KPMG Peat Marwick LLP replaced
Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers LLP) which had previously
been retained by BancShares. This change in accountants was approved by
BancShares' audit committee.
During BancShares' two fiscal years preceding the change (1996 and 1995),
and through the date of the change in April 1997, there were no disagreements
with Coopers & Lybrand L.L.P. on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure which,
if not resolved to such firm's satisfaction, would
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have caused it to make reference to the subject matter of such disagreement in
its reports on BancShares' consolidated financial statements; and, during that
period, Coopers & Lybrand L.L.P.'s reports on BancShares' consolidated
financial statements did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. KPMG Peat Marwick LLP audited BancShares' consolidated
financial statements for 1997.
SUPERVISION AND REGULATION
The following information is not intended to be an exhaustive description
of the statutes and regulations applicable to BancShares or the Bank. The
discussion is qualified in its entirety by reference to all particular
statutory or regulatory provisions.
The business and operations of BancShares and the Bank are subject to
extensive federal and state governmental regulation and supervision.
REGULATION OF BANCSHARES
BancShares is a bank holding company registered with the Federal Reserve
under the Bank Holding Company Act of 1956, as amended (the "BHCA"), and is
subject to supervision and examination by, and the regulations and reporting
requirements of, the Federal Reserve. Under the BHCA, the activities of
BancShares are limited to banking, managing or controlling banks or engaging in
any other activity which the Federal Reserve determines to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto.
The BHCA prohibits BancShares from acquiring direct or indirect control of
more than 5.0% of the outstanding voting stock or substantially all of the
assets of any financial institution, or merging or consolidating with another
bank holding company or savings bank holding company, without prior approval of
the Federal Reserve. Additionally, the BHCA prohibits BancShares from engaging
in, or acquiring ownership or control of more than 5.0% of the outstanding
voting stock of any company engaged in, a nonbanking activity unless such
activity is determined by the Federal Reserve to be so closely related to
banking as to be a proper incident thereto. In approving an application by
BancShares to engage in a nonbanking activity, the Federal Reserve must
consider whether that activity can reasonably be expected to produce benefits
to the public, such as greater convenience, increased competition or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest or unsound
banking practices.
There are a number of obligations and restrictions imposed by law on a
bank holding company and its insured depository institution subsidiaries that
are designed to minimize potential loss to depositors and the FDIC insurance
funds. For example, if a bank holding company's insured depository institution
subsidiary becomes "undercapitalized," the bank holding company is required to
guarantee (subject to certain limits) the subsidiary's compliance with the
terms of any capital restoration plan filed with its appropriate federal
banking agency. Also, a bank holding company is required to serve as a source
of financial strength to its depository institution subsidiaries and to commit
resources to support such institutions in circumstances where it otherwise
might not do so, absent such policy. Under the BHCA, the Federal Reserve has
the authority to require a bank holding company to terminate any activity or to
relinquish control of a nonbank subsidiary upon the Federal Reserve's
determination that such activity or control constitutes a serious risk to the
financial soundness and stability of a depository institution subsidiary of the
bank holding company.
REGULATION OF THE BANK
The Bank is a North Carolina-chartered commercial bank, and its deposits
are insured by the FDIC. It is subject to supervision and examination by, and
the regulations and reporting requirements of, the North Carolina Commissioner
of Banks (the "Commissioner") and the FDIC. As a result of its ownership of the
Bank, BancShares also is registered with and subject to regulation by the
Commissioner under the state's bank holding company laws.
As an insured institution, the Bank is prohibited from engaging as a
principal in activities that are not permitted for national banks unless (i)
the FDIC determines that the activity would pose no significant risk to the
appropriate deposit insurance fund and (ii) the Bank is, and continues to be,
in compliance with all applicable capital standards. Insured institutions also
are prohibited from directly acquiring or retaining any equity investment of a
type or in an amount not permitted for national banks.
The Federal Reserve, the FDIC and the Commissioner all have broad powers
to enforce laws and regulations applicable to BancShares and the Bank and to
require corrective action of conditions affecting the safety and soundness of
the
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Bank. Among others, these powers include cease and desist orders, the
imposition of civil penalties and the removal of officers and directors.
PAYMENT OF DIVIDENDS
BancShares is a legal entity separate and distinct from the Bank. The
principal sources of cash flow of BancShares, including cash flow to pay
dividends to its shareholders, are dividends it receives from the Bank. There
are statutory and regulatory limitations on the payment of dividends by the
Bank to BancShares, as well as by BancShares to its shareholders. As an insured
depository institution, the Bank also is prohibited from making capital
distributions, including the payment of dividends, if, after making such
distribution, it would become "undercapitalized" (as such term is defined in
the Federal Deposit Insurance Act). See "Fidelity BancShares (N.C.), Inc. and
Subsidiary Notes to Consolidated Financial Statements -- Note 10. Regulatory
Restrictions."
If, in the opinion of the FDIC, a depository institution under its
jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the depository
institution, could include the payment of dividends), the FDIC may require,
after notice and hearing, that such institution cease and desist from such
practice. The federal banking agencies have indicated that paying dividends
that deplete a depository institution's capital base to an inadequate level
would be an unsafe and unsound banking practice. Under current federal law, a
depository institution may not pay any dividend if payment would cause it to
become undercapitalized or if it already is undercapitalized. See " -- Prompt
Corrective Action." Moreover, the federal agencies have issued policy
statements which provide that bank holding companies and insured banks should
generally only pay dividends out of current operating earnings.
At June 30, 1998, approximately $6.6 million was available for payment of
dividends to BancShares from the Bank without affecting the Bank's
classification as a "well capitalized" bank under federal bank regulatory
capital guidelines and without regulatory approval.
The payment of dividends by BancShares and the Bank may also be affected
or limited by other factors, such as the requirement to maintain adequate
capital above regulatory guidelines.
CAPITAL ADEQUACY
BancShares and the Bank are required to comply with the capital adequacy
standards established by the Federal Reserve in the case of BancShares and the
FDIC in the case of the Bank. There are two basic measures of capital adequacy
that have been promulgated by the Federal Reserve and each of the federal bank
regulatory agencies: a risk-based measure and a leverage measure. All
applicable capital standards must be satisfied for a bank holding company or an
insured depository institution to be considered in compliance.
Under the Federal Reserve's standards, the minimum guideline for the ratio
("Total Capital Ratio") of total capital ("Total Capital") to risk-weighted
assets (including certain off-balance-sheet items, such as standby letters of
credit) is 8.0%. At least half of Total Capital must be composed of common
equity, undivided profits, minority interests in the equity accounts of
consolidated subsidiaries, qualifying noncumulative perpetual preferred stock,
and a limited amount of cumulative perpetual preferred stock, less goodwill and
certain other intangible assets ("Tier 1 Capital"). The remainder may consist
of certain subordinated debt, certain hybrid capital instruments and other
qualifying preferred stock, and a limited amount of loan loss reserves ("Tier 2
Capital"). At June 30, 1998, BancShares' consolidated Total Capital Ratio and
its ratio of Tier 1 Capital to risk-weighted assets ("Tier 1 Capital Ratio")
were 13.99% and 13.04%, respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Capital Ratio") of Tier 1 Capital to average assets, less
goodwill and certain other intangible assets, of 3.0% for bank holding
companies that meet certain specified criteria, including having the highest
regulatory rating. All other bank holding companies generally are required to
maintain an additional cushion of 100 to 200 basis points above the stated
minimums. The guidelines also provide that bank holding companies experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. Furthermore, the Federal Reserve has
indicated that it will consider a "Tangible Leverage Ratio" (deducting all
intangibles) and other indicia of capital strength in evaluating proposals for
expansion or new activities. BancShares' Leverage Capital Ratio at June 30,
1998 was 8.82%.
The Bank is subject to risk-based and leverage capital requirements
adopted by the FDIC which are substantially similar to those adopted by the
Federal Reserve for bank holding companies. At June 30, 1998, the Bank's
consolidated Total
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Capital, Tier I Capital and Leverage Capital Ratios were 12.51%, 11.61% and
8.46%, respectively. Neither BancShares nor the Bank has been advised by any
federal banking agency of any additional, specific minimum capital ratio
requirement applicable to it.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on the taking of
brokered deposits, and certain other restrictions on its business. As described
below, substantial additional restrictions can be imposed upon FDIC-insured
depository institutions that fail to meet applicable capital requirements. See
" -- Prompt Corrective Action."
The Federal Reserve and the FDIC also consider interest rate risk (when
the interest rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off-balance-sheet position) in the
evaluation of a bank's capital adequacy. The bank regulatory agencies'
methodology for evaluating interest rate risk requires banks with excessive
interest rate risk exposure to hold additional amounts of capital against such
exposures.
PROMPT CORRECTIVE ACTION
Current federal law establishes a system of prompt corrective action to
resolve the problems of undercapitalized institutions. Under this system, which
became effective in December 1992, the federal banking regulators are required
to establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories. The severity of such actions taken will
depend upon the capital category in which the institution is placed. Generally,
subject to a narrow exception, current federal law requires the banking
regulators to appoint a receiver or conservator for an institution that is
critically undercapitalized.
Under the final agency rules implementing the prompt corrective action
provisions, an institution that (i) has a Total Capital Ratio of 10% or
greater, a Tier 1 Capital Ratio of 6.0% or greater, and a Leverage Ratio of
5.0% or greater, and (ii) is not subject to any written agreement, order,
capital directive, or prompt corrective action directive issued by the
appropriate federal banking agency, is deemed to be well capitalized. An
institution with a Total Capital Ratio of 8.0% or greater, a Tier 1 Capital
Ratio of 4.0% or greater, and a Leverage Ratio of 4.0% or greater, is
considered to be adequately capitalized. A depository institution that has a
Total Capital Ratio of less than 8.0%, a Tier 1 Capital Ratio of less than
4.0%, or a Leverage Ratio of less than 4.0%, is considered to be
undercapitalized. A depository institution that has a Total Capital Ratio of
less than 6.0%, a Tier 1 Capital Ratio of less than 3.0%, or a Leverage Ratio
of less than 3.0%, is considered to be significantly undercapitalized, and an
institution that has a tangible equity capital to assets ratio equal to or less
than 2.0% is deemed to be critically undercapitalized. For purposes of the
regulation, the term "tangible equity" includes core capital elements counted
as Tier 1 Capital for purposes of the risk-based capital standards, plus the
amount of outstanding cumulative perpetual preferred stock (including related
surplus), minus all intangible assets with certain exceptions. A depository
institution may be deemed to be in a capitalization category that is lower than
is indicated by its actual capital position if it receives an unsatisfactory
examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
A bank holding company must guarantee that a subsidiary depository institution
meets its capital restoration plan, subject to certain limitations. The
obligation of a controlling bank holding company to fund a capital restoration
plan is limited to the lesser of 5.0% of an undercapitalized subsidiary's
assets or the amount required to meet regulatory capital requirements. An
undercapitalized institution is also generally prohibited from increasing its
average total assets, making acquisitions, establishing any branches, or
engaging in any new line of business, except in accordance with an accepted
capital restoration plan or with the approval of the FDIC. In addition, the
appropriate federal banking agency is given authority with respect to any
undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution as described above if it determines "that those actions are
necessary to carry out the purpose" of the law.
At June 30, 1998, the Bank had the requisite capital levels to qualify as
well capitalized.
RESERVE REQUIREMENTS
Pursuant to regulations of the Federal Reserve, all FDIC-insured
depository institutions must maintain average daily reserves against their
transaction accounts. No reserves are required to be maintained on the first
$4.7 million of transaction accounts, but reserves equal to 3% must be
maintained on the aggregate balances of such accounts between $4.7 million and
$47.8 million, and reserves equal to 10% must be maintained on aggregate
balances in excess of $47.8 million. These percentages are subject to
adjustment by the Federal Reserve. Because required reserves must be maintained
in the form of
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vault cash or in a non-interest-bearing account at a Federal Reserve Bank, the
effect of the reserve requirement is to reduce the amount of the institution's
interest-earning assets. As of June 30, 1998, the Bank met its reserve
requirements.
FDIC INSURANCE ASSESSMENTS
The FDIC currently uses a risk-based assessment system that takes into
account the risks attributable to different categories and concentrations of
assets and liabilities for purposes of calculating deposit insurance
assessments to be paid by insured depository institutions. The risk-based
assessment system, which went into effect on January 1, 1994, assigns an
institution to one of three capital categories: (i) well capitalized; (ii)
adequately capitalized; and (iii) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. An institution is also
assigned by the FDIC to one of three supervisory subgroups within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information which the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance assessment rate is
then determined based on the capital category and supervisory category to which
it is assigned. Under the final risk-based assessment system, there are nine
assessment risk classifications (i.e., combinations of capital groups and
supervisory subgroups) to which different assessment rates are applied.
In 1996, the FDIC imposed a special one-time assessment of approximately
65.7 basis points (0.657%) on a depository institution's assessable deposits
insured by the SAIF held as of March 31, 1995 (or approximately 52.6 basis
points on SAIF deposits acquired by banks in certain qualifying transactions),
and adopted revisions to the assessment rate schedules that would generally
eliminate the disparity between assessment rates applicable to the deposits
insured by the BIF and the SAIF. BancShares anticipates that the net effect of
the decrease in the premium assessment rate on SAIF deposits will result in a
reduction in the Bank's total deposit insurance premium assessments through
1999 as compared to years prior to 1997, assuming no further changes in
announced premium assessment rates. BancShares recorded a charge against
earnings for the special assessment in 1996 in the pre-tax amount of
approximately $353,000.
Under the Federal Deposit Insurance Act, insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in
unsafe and unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule, order, or
condition imposed by the FDIC.
COMMUNITY REINVESTMENT
Under the Community Reinvestment Act ("CRA"), as implemented by FDIC
regulations, an insured institution has a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the credit needs of
its entire community, including low and moderate income neighborhoods. The CRA
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the FDIC, in connection
with its examination of an insured institution, to assess the institution's
record of meeting the credit needs of its community, using the ratings of
"outstanding," "satisfactory," "needs to improve," or "substantial
noncompliance," and to take that record into account in its evaluation of
certain applications by the institution. All institutions are required to make
public disclosure of their CRA performance rating. The Bank received a
"satisfactory" rating in its last CRA examination by the FDIC as of March 2,
1998.
On May 4, 1995, the bank regulatory agencies, including the FDIC, adopted
new uniform CRA regulations that provide guidance to financial institutions on
their CRA obligations and the methods by which those obligations will be
assessed and enforced. The regulations establish three tests applicable to the
Bank: (i) a lending test to evaluate direct lending in low-income areas and
indirect lending to groups that specialize in community lending; (ii) a service
test to evaluate its delivery of services to such areas, and (iii) an
investment test to evaluate its investment in programs beneficial to such
areas. The new CRA regulations became effective on July 1, 1995, but reporting
requirements were not effective until January 1, 1997. Evaluation under the
regulations was not mandatory until July 1, 1997. The Bank believes its current
operations and policies substantially comply with the regulations and therefore
no material changes to operations or policies are expected.
TRANSACTIONS WITH AFFILIATES
The Bank is subject to restrictions imposed by federal law on extensions
of credit to, and certain other transactions with, BancShares and other
affiliates and on investments in the stock or other securities thereof. These
restrictions prevent
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BancShares and other affiliates from borrowing from the Bank unless the loans
are secured by specified collateral, and require such transactions to have
terms comparable to terms of arms-length transactions with third persons.
Further, such secured loans and other transactions and investments by the Bank
are generally limited in amount as to BancShares and as to any other affiliate
to 10.0% of the Bank's capital and surplus and as to BancShares and all other
affiliates to an aggregate of 20.0% of the Bank's capital and surplus. These
regulations and restrictions may limit BancShares' ability to obtain funds from
the Bank for its cash needs, including funds for acquisitions and for payment
of dividends, interest and operating expenses. The Bank's ability to extend
credit to its and BancShares' directors, executive officers, and 10.0%
stockholders, as well as to entities controlled by such persons, is governed by
the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and
Regulation O of the Federal Reserve thereunder.
INTERSTATE BANKING AND BRANCHING
The BHCA, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Law"), permits adequately capitalized and managed bank
holding companies to acquire control of the assets of banks in any state.
Acquisitions are subject to antitrust provisions that cap at 10.0% the portion
of the total deposits of insured depository institutions in the United States
that a single bank holding company may control and generally cap at 30.0% the
portion of the total deposits of insured depository institutions in a state
that a single bank holding company may control. Under certain circumstances,
states have the authority to increase or decrease the 30.0% cap, and states may
set minimum age requirements of up to five years on target banks within their
borders.
Beginning June 1, 1997, and subject to certain conditions, the Interstate
Banking Law also permitted interstate branching by allowing a bank to merge
with a bank located in a different state. A state was allowed to accelerate the
effective date for interstate mergers by adopting a law authorizing such
transactions prior to June 1, 1997, or it could "opt out" and thereby prohibit
interstate branching by enacting legislation to that effect prior to that date.
The Interstate Banking Law also permits banks to establish branches in other
states by opening new branches or acquiring existing branches of other banks,
provided the laws of those other states specifically permit that form of
interstate branching. North Carolina has adopted statutes which, subject to
conditions contained therein, specifically authorize out-of-state bank holding
companies and banks to acquire or merge with North Carolina banks and to
establish or acquire branches in North Carolina.
BENEFICIAL OWNERSHIP OF SECURITIES
PRINCIPAL SHAREHOLDERS
As of the close of business on July 31, 1998, the following persons were
known to management to own beneficially or of record more than 5% of
BancShares' voting securities:
<TABLE>
TITLE NAME AND ADDRESS AMOUNT AND NATURE OF PERCENTAGE
OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OF CLASS
- ---------- --------------------------------- -------------------------- -----------
<S> <C> <C> <C>
Common George H. Broadrick 8,032(2) 28.27%
Stock Post Office Box 31727
Charlotte, North Carolina 28231
Frank B. Holding 11,155(3) 39.26
Post Office Box 1377
Smithfield, North Carolina 27577
Lewis R. Holding 3,123(3) 10.99
Post Office Box 151
Raleigh, North Carolina 27602
</TABLE>
- ---------
(1) Except as otherwise indicated below and to the best knowledge of management
of BancShares, the individuals named above exercise sole voting and
investment power with respect to shares shown as beneficially owned.
(2) All shares are held by Mr. Broadrick as sole trustee or co-trustee of
various trusts. He exercises shared voting and investment power with
respect to 345 shares held as a co-trustee.
(3) Named individuals disclaim beneficial ownership with respect to the
following numbers of shares held of record by members of their immediate
families which are included in the shares listed for them above and as to
which they may be deemed to exercise shared voting and investment power;
Mr. F. Holding -- 3,968 shares; Mr. L. Holding -- 396 shares.
54
<PAGE>
MANAGEMENT
As of the close of business on July 31, 1998, the beneficial ownership of
BancShares' voting securities by the directors of BancShares, individually and
as a group, was as follows:
<TABLE>
Amount and
TITLE NAME AND ADDRESS NATURE OF BENEFICIAL PERCENTAGE
OF CLASS OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- ---------- ----------------------------------------- ---------------------- -----------
<S> <C> <C> <C>
Common F. Ray Allen 102(2) .36%
Stock Biscoe, N.C.
Wiley H. Cozart, M.D. 6 .02
Fuquay-Varina, N.C.
Haywood A. Lane, Jr. 140 .49
Cary, N.C.
Wallace H. Mitchell 100 .35
Fuquay-Varina, N.C.
Sam C. Riddle, Jr. 87(2) .31
Carthage, N.C.
Billy T. Woodard 719(2) 2.53
Fuquay-Varina, N.C.
All directors and executive officers as 1,154 4.06
a group (6 persons)
</TABLE>
- ---------
(1) Except as otherwise indicated below and to the best knowledge of management
of BancShares, the individuals named and included in the group exercise
sole voting and investment power with respect to all shares shown as
beneficially owned.
(2) Individuals named or included in the group exercise shared voting and
investment power with respect to the following numbers of shares: Mr.
Allen -- 80 shares held jointly with his spouse (40 shares) and a
corporation which he controls (40 shares); Mr. Riddle -- 22 shares held by
his spouse; Mr. Woodard -- 306 shares held by his spouse and adult
children.
55
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
BancShares' Bylaws, provide for not less than five nor more than twelve
directors, with the actual number being set and changed from time to time by
the Board of Directors. Each director serves for a term of one year or until
his successor has been duly elected and qualified. The following table contains
the name and certain information about BancShares' current directors.
<TABLE>
POSITION(S) YEAR
WITH BANCSHARES FIRST PRINCIPAL OCCUPATION AND
NAME AND AGE AND BANK ELECTED BUSINESS EXPERIENCE FOR PAST FIVE YEARS
- ----------------------- ------------------------ --------- ------------------------------------------
<S> <C> <C> <C>
F. Ray Allen Director 1993 President, Uwharrie Lumber Company,
39 Troy, N.C. (hardwood lumber manufacturer)
Wiley H. Cozart, M.D. Director 1963 Physician; Medical Consultant,
76 State of North Carolina, Raleigh, N.C.
Haywood A. Lane, Jr. President and Director 1979 Formerly Executive Vice President of
61 the Bank and BancShares
Wallace H. Mitchell Director 1968 Retired; Partner, Mitchell Farms; former
70 Secretary-Treasurer and General Manager,
Mitchell Chevrolet Company, Fuquay-
Varina, N.C. (automobile dealership)
Sam C. Riddle, Jr. Director 1979 Owner and former President,
71 Riddle Equipment Company, Inc.,
Carthage, N.C. (farm equipment dealer)
Billy T. Woodard Chairman and Chief 1970 Formerly President of the Bank and
67 Executive Officer BancShares
</TABLE>
EXECUTIVE OFFICERS
Information regarding BancShares' and the Bank's executive officers is set
forth in the following table. All executive officers serve at the pleasure of
the Board of Directors.
<TABLE>
NAME AND AGE POSITIONS WITH BANCSHARES AND THE BANK
- ---------------------- ---------------------------------------
<S> <C>
Billy T. Woodard Chairman and Chief Executive Officer
67
Haywood A. Lane, Jr. President
61
</TABLE>
56
<PAGE>
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
CASH COMPENSATION. The following table shows, for 1997, 1996, and 1995,
the cash and certain other compensation paid to or received or deferred by the
Chief Executive Officer and the President of BancShares and the Bank,
respectively, in all capacities in which they served.
SUMMARY COMPENSATION TABLE
<TABLE>
ANNUAL COMPENSATION
------------------------------------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION COMPENSATION
POSITION YEAR ($)(1) ($) ($)(2) ($)(3)
- ---------------------- ------ ----------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Billy T. Woodard 1997 $159,304 $44,000 $1,600 $7,260
Chairman and Chief 1996 148,883 39,000 1,600 7,240
Executive Officer 1995 139,143 24,000 1,600 7,066
Haywood A. Lane, Jr. 1997 $125,000 $30,000 $1,600 $6,921
President 1996 110,476 5,000 1,600 6,096
1995 103,249 14,000 1,600 5,276
</TABLE>
- ---------
(1) Includes all amounts of salary deferred at the election of each named
executive officer pursuant to the Bank's Section 401(k) salary deferral
plan.
(2) Consists entirely of directors' fees received by each named executive
officer.
(3) Consists entirely of the Bank's contributions on behalf of each named
executive officer to the Bank's Section 401(k) salary deferral plan.
PENSION PLAN. The following table shows the extimated annual benefits
payable to a covered participant at normal retirement age under the Bank's
qualified defined benefit pension plan based on various specified numbers of
years of service with the Bank and various levels of compensation covered under
the plan.
<TABLE>
FINAL YEARS OF SERVICE
AVERAGE -------------------------------------------------
COMPENSATION 10 YEARS 20 YEARS 30 YEARS 40 YEARS
- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$ 50,000 $ 7,345 $14,690 $22,036 $ 28,708
75,000 11,970 23,940 35,911 46,396
100,000 16,595 33,190 49,786 64,083
125,000 21,220 42,440 63,661 81,771
150,000 25,845 51,690 77,536 99,458
175,000 30,470 60,940 91,411 117,146
</TABLE>
Benefits shown in the table are computed as straight life annuities
beginning at age 65 and are not subject to a deduction for Social Security
benefits or any other offset amounts. A participant's compensation covered by
the pension plan includes base salary, bonuses, overtime pay, and earnings
deferred by the participant's own contribution pursuant to the Bank's Section
401(k) salary deferral plan (but excluding any special bonuses, any directors'
fees, the Bank's matching contributions to the Section 401(k) salary deferral
plan, or any other incidental compensation), and benefits are calculated based
on each participant's "final average compensation," which is defined as the
participant's average earnings during the five highest consecutive earning
years of the last ten complete calendar years as a participant.
The estimated years of service and the estimated final average
compensation as of December 31, 1997, for each of the named executive officers
in the Summary Compensation Table above are as follows: Billy T. Woodard - 41
years and $170,469; and Haywood A. Lane, Jr. - 35 years and $125,935.
57
<PAGE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS. During 1986, the Bank entered into Post-Retirement Noncompetition
and Consultation Agreements with Billy T. Woodard and Hayward A. Lane, Jr.,
both of which Agreements were amended on January 29, 1996. Each Agreement, as
amended, provides that, upon the officer's retirement from full time employment
with the Bank, he will serve as a consultant to the Bank and will receive
monthly payments ($5,583 for Mr. Woodard and $4,143 for Mr. Lane) for a period
of ten years. In the event of the officer's death prior to the expiration of
the ten-year period, any remaining monthly payments will be paid to the
officer's designated beneficiary or estate. If the officer dies prior to
retirement, his designated beneficiary or estate will receive those payments
for a period of ten years following his death.
DIRECTOR COMPENSATION
Each director of BancShares and the Bank (including directors who also are
employees) receives a fee of $400 for attendance at each meeting of BancShares'
or the Bank's Board of Directors. However, only one fee is paid for joint
meetings of the Boards and any committee meetings held on the same day.
Members of the Executive Committee of the Board of Directors receive a fee
of $300 for each Executive Committee meeting attended, except that Billy T.
Woodard and Haywood A. Lane, Jr. receive no compensation for attendance at
Executive Committee meetings. No fees are paid to any directors for attendance
at any other committee meetings. Directors are reimbused for expenses of travel
to and from all meetings.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank has had, and expects to have in the future, banking transactions
in the ordinary course of business with several of the directors, executive
officers, and principal shareholders of BancShares and the Bank and their
associates. Loans included in those transactions were made on the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with others, and did not involve more than the normal
risk of collectibility or present other unfavorable features. Each such
transaction has been approved by the Board of Directors of the Bank.
The Bank is party to a contract with FCB, an affiliated financial
institution located in Raleigh, North Carolina, pursuant to which FCB provides
the Bank with certain management consulting services and with various support
and data processing services relating to (i) its deposit and loan, item
processing, general ledger, statement rendering and securities portfolio
management functions which the Bank has chosen not to provide for itself, and
(ii) service as trustee for the Bank's pension plan and Section 401(k) salary
deferral plan. The Bank also purchases business forms, equipment and supplies
through FCB. Fees paid by the Bank to FCB for such services during 1997, 1996
and 1995 totaled approximately $1.9 million, $1.6 million and $1.3 million.
Management of the Bank estimates that fees payable during 1998 will total
approximately $2.0 million.
The Bank has agreed to purchase assets (including premises and loans)
totaling approximately $34.8 million, and to assume an aggregate of
approximately $75.1 million in deposit liabilities, of five branch offices of
FCB located in Gastonia (three branches), Salisbury and Siler City, North
Carolina. In connection with those transactions (which are expected to be
consummated during October 1998), the Bank expects to pay an aggregate deposit
premium of approximately $5.0 million.
FCB is the wholly-owned bank subsidiary of FCBancShares. Frank B. Holding,
who is a principal shareholder of BancShares, and Lewis R. Holding, also a
principal shareholder of BancShares, are directors and executive officers of
FCBancShares and FCB and are principal shareholders of FCBancShares; and, the
Holding family, whose control of BancShares' outstanding capital stock is
described under "Benficial Ownership of Securities," also controls 43.0% of the
Class A, and 68.8% of the Class B, common stock of FCBancShares. The Bank's
contract with FCB was negotiated at arms-length and was approved by BancShares'
Board of Directors. Based on its comparison of the terms of the contract in
previous years with terms available to it from other providers of the services
being obtained from FCB, management of the Bank believes the terms of its
contract with FCB, including prices, are no less favorable to the Bank than
could be obtained from an unrelated provider.
During January 1998, the Bank sold rights to service $51 million in
mortgage loans to Southern Bank and Trust Company ("SBT"), Mount Olive, North
Carolina, for $522,000. The Holding family controls an aggregate of 51.55% of
the outstanding common stock of SBT's parent holding company, Southern
BancShares (N.C.), Inc. ("Southern"). Lewis R. Holding and Frank B. Holding,
who are principal shareholders of BancShares, also are principal shareholders
of Southern, and Frank B. Holding serves as a director of Southern and Chairman
of its executive committee.
58
<PAGE>
DESCRIPTION OF THE CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement for the Issuer Trust, the
Issuer Trustees on behalf of the Issuer Trust will issue the Capital Securities
and the Common Securities. The Capital Securities will represent preferred
undivided beneficial interests in the assets of the Issuer Trust and the
holders thereof will be entitled to a preference in certain circumstances with
respect to Distributions and amounts payable on redemption or liquidation over
the Common Securities, as well as other benefits as described in the Trust
Agreement. This summary of certain provisions of the Capital Securities and the
Trust Agreement does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Trust
Agreement, including the definitions therein of certain terms. Wherever
particular defined terms of the Trust Agreement are referred to herein, such
defined terms are incorporated herein by reference. A copy of the form of the
Trust Agreement is available upon request from the Issuer Trust by contacting
the Issuer Trustees.
GENERAL
The Capital Securities will be limited to $20,000,000 aggregate
Liquidation Amount outstanding (unless the Underwriter's over allotment option
is exercised, in which case they will be limited to $23,000,000 aggregate
Liquidation Amount). The Capital Securities will rank pari passu, and payments
will be made thereon pro rata, with the Common Securities except as described
under " -- Subordination of Common Securities." The Junior Subordinated
Debentures will be registered in the name of the Issuer Trust and held by
Bankers Trust, as Property Trustee, in trust for the benefit of the holders of
the Capital Securities and Common Securities. The Guarantee will be a guarantee
on a subordinated basis with respect to the Capital Securities but will not
guarantee payment of Distributions or amounts payable on redemption or
liquidation of such Capital Securities when the Issuer Trust does not have
funds on hand available to make such payments. See "Description of the
Guarantee."
DISTRIBUTIONS
The Capital Securities represent preferred undivided beneficial interests
in the assets of the Issuer Trust, and Distributions on each Capital Security
will be payable at an annual rate equal to * % on the stated Liquidation
Amount of $10.00, payable quarterly in arrears on March 31, June 30, September
30 and December 31 of each year (each a "Distribution Date"), to the holders of
the Capital Securities at the close of business on the fifteenth day (whether
or not a Business Day (as defined below)) next preceding the relevant
Distribution Date. Distributions on the Capital Securities will be cumulative.
Distributions will accumulate from the date of original issuance. The first
Distribution Date for the Capital Securities will be * , 1998. 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 Capital
Securities is not a Business Day, then payment of the Distributions payable on
such date will be made on the next succeeding day that is a Business Day
(without any additional Distributions or other payment in respect of any such
delay), with the same force and effect as if made on the date such payment was
originally payable.
So long as no Debenture Event of Default has occurred and is continuing,
BancShares has the right under the Junior Subordinated Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarterly periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated Debentures or end on a
date other than a Distribution Date. As a consequence of any such deferral,
quarterly distributions on the Capital Securities by the Issuer Trust will be
deferred during any such Extension Period. Distributions to which holders of
the Capital Securities are entitled will accumulate additional Distributions
thereon at a rate equal to * % 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 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" as used herein shall include any such additional
Distributions. During any such Extension Period, BancShares may not (i) declare
or pay any dividends or distributions on, or redeem, purchase, acquire or make
a liquidation payment with respect to, any of BancShares' 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 BancShares that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of BancShares 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 shareholder stock purchase plan or in connection with
59
<PAGE>
the issuance of capital stock of BancShares (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 an exchange or conversion of any class or series of BancShares'
capital stock (or any capital stock of a subsidiary of BancShares) for any
class or series of BancShares' capital stock or of any class or series of
BancShares' indebtedness for any class or series of BancShares' capital stock,
(c) the purchase of fractional interests in shares of BancShares' 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 shareholder's rights plan, or the issuance of rights, stock
or other property under any shareholder's 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,
BancShares may further defer the payment of interest, provided that no
Extension Period may exceed 20 consecutive quarterly periods, extend beyond the
Stated Maturity of the Junior Subordinated Debentures, or end on a date other
than a Distribution Date. Upon the termination of any such Extension Period and
the payment of all amounts then due, BancShares may elect to begin a new
Extension Period. No interest shall be due and payable during an Extension
Period, except at the end thereof. BancShares must give the Issuer Trustees
notice of its election of such Extension Period at least one Business Day prior
to the earlier of (i) the date the Distributions on the Capital Securities
would have been payable but for the election to begin such Extension Period and
(ii) the date the Property Trustee is required to give notice to holders of the
Capital 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. The Property Trustee will give notice of BancShares' election to begin a
new Extension Period to the holders of the Capital Securities. Subject to the
foregoing, there is no limitation on the number of times that BancShares may
elect to begin an Extension Period. See "Description of the Junior Subordinated
Debentures -- Option To Extend Interest Payment Period" and "Certain Federal
Income Tax Consequences -- Interest Income and Original Issue Discount."
BancShares has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
The revenue of the Issuer Trust available for distribution to holders of
the Capital Securities will be limited to payments under the Junior
Subordinated Debentures in which the Issuer Trust will invest the proceeds from
the issuance and sale of the Capital Securities. See "Description of the Junior
Subordinated Debentures." If BancShares does not make payments on the Junior
Subordinated Debentures, the Issuer Trust will not have funds available to pay
Distributions or other amounts payable on the Capital Securities. The payment
of Distributions and other amounts payable on the Capital Securities (if and to
the extent the Issuer Trust has funds legally available for and cash sufficient
to make such payments) is guaranteed by BancShares on a limited basis as set
forth herein under "Description of the Guarantee."
REDEMPTION
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debentures, whether at maturity or upon earlier redemption as
provided in the Junior Subordinated Indenture, the proceeds from such repayment
or redemption shall be applied by the Property Trustee to redeem a Like Amount
(as defined herein) of the Trust Securities, upon not less than 30 nor more
than 60 days notice, at a redemption price (the "Redemption Price") equal to
the aggregate Liquidation Amount of such Capital Securities plus accumulated
but unpaid Distributions thereon to but excluding the date of redemption (the
"Redemption Date"). See "Description of the 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 such repayment
or redemption shall be allocated to the redemption pro rata of the Capital
Securities and the Common Securities.
BancShares has the right to redeem the Junior Subordinated Debentures (i)
on or after * , 2003, in whole at any time or in part from time to time, or
(ii) 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 subject to possible regulatory
approval. See " -- Liquidation Distribution Upon Dissolution." A redemption of
the Junior Subordinated Debentures would cause a mandatory redemption of a Like
Amount of the Capital Securities and Common Securities at the Redemption Price.
The Redemption Price, in the case of a redemption under (i) or (ii) above,
shall equal the Liquidation Amount, together with accumulated Distributions to
but excluding the date fixed for redemption.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day
on which banking institutions in the City of New York, New York, or the City of
Raleigh, North Carolina are authorized or required by law or executive order to
60
<PAGE>
remain closed, or (c) a day on which the Property Trustee's Corporate Trust
Office or the Corporate Trust Office of the Debenture Trustee is closed for
business.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to that portion of the
principal amount of Junior Subordinated Debentures to be contemporaneously
redeemed in accordance with the Junior Subordinated Indenture, allocated to the
Common Securities and to the Capital Securities pro rata based upon the
relative Liquidation Amounts of such classes and (ii) 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 $10.00 per Trust Security.
"Tax Event" means the receipt by the Issuer Trust of an opinion of counsel
to BancShares 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 Capital Securities (including, without limitation,
any of the foregoing arising with respect to, or resulting from, any proposal,
proceeding or other action commencing on or before such date), there is more
than an insubstantial risk that (i) the Issuer 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, (ii) interest payable by BancShares on the Junior Subordinated
Debentures is not, or within 90 days of the delivery of such opinion, will not
be, deductible by BancShares, in whole or in part, for United States federal
income tax purposes or (iii) the Issuer 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.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to BancShares 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 Capital Securities.
"Capital Treatment Event" means, in respect of the Issuer Trust, the
reasonable determination by BancShares 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 Capital Securities, there is more than an insubstantial risk
that BancShares will not be entitled to treat an amount equal to the
Liquidation Amount of the Capital Securities as Tier 1 Capital (or the then
equivalent thereof) for purposes of the risk-based capital adequacy guidelines
of the Federal Reserve, as then in effect and applicable to BancShares.
PAYMENT OF ADDITIONAL SUMS. If a Tax Event described in clause (i) or
(iii) of the definition of Tax Event above has occurred and is continuing and
the Issuer Trust is the holder of all the Junior Subordinated Debentures,
BancShares will pay Additional Sums (as defined herein), if any, on the Junior
Subordinated Debentures.
"Additional Sums" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Issuer Trust
on the outstanding Capital Securities and Common Securities of the Issuer Trust
will not be reduced as a result of any additional taxes, duties and other
governmental charges to which the Issuer Trust has become subject as a result
of a Tax Event.
61
<PAGE>
REDEMPTION PROCEDURES
Capital Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Capital
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 on hand
available for the payment of such Redemption Price. See also " -- Subordination
of Common Securities."
If the Issuer Trust gives a notice of redemption in respect of any Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are available, in the case of Capital 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 holders of the
Capital Securities. With respect to Capital 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 Capital Securities funds sufficient to
pay the applicable Redemption Price and will give such paying agent irrevocable
instructions and authority to pay the Redemption Price to the holders thereof
upon surrender of their certificates evidencing the Capital Securities.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Capital Securities called for redemption shall be
payable to the holders of the Capital Securities on the relevant record dates
for the related Distribution Dates. If notice of redemption shall have been
given and funds deposited as required, then upon the date of such deposit all
rights of the holders of such Capital Securities so called for redemption will
cease, except the right of the holders of such Capital Securities to receive
the Redemption Price, and any Distribution payable in respect of the Capital
Securities, but without interest on such Redemption Price, and such Capital
Securities will cease to be outstanding. If any date fixed for redemption of
Capital Securities is not a Business Day, then payment of the Redemption Price
payable on such date will be made on the next succeeding day which is a
Business Day (without any interest or other payment in respect of any such
delay), except that, if such Business Day falls in the next calendar year, such
payment will be made on the immediately preceding Business Day. In the event
that payment of the Redemption Price in respect of Capital Securities called
for redemption is improperly withheld or refused and not paid either by the
Issuer Trust or by BancShares pursuant to the Guarantee as described under
"Description of the Guarantee," Distributions on such Capital Securities will
continue to accumulate at the then applicable rate, from the Redemption Date
originally established by the Issuer Trust for such Capital Securities to the
date such Redemption Price is actually paid, in which case the actual payment
date will be the date fixed for redemption for purposes of calculating the
Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities laws), BancShares or its affiliates may at any time and from
time to time purchase outstanding Capital Securities by tender, in the open
market or by private agreement, and may resell such securities.
If less than all the Capital Securities and Common Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Capital Securities and Common Securities to be redeemed shall be allocated pro
rata to the Capital Securities and the Common Securities based upon the
relative Liquidation Amounts of such classes. The particular Capital 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
Capital Securities not previously called for redemption. The Property Trustee
shall promptly notify the securities registrar for the Trust Securities in
writing of the Capital Securities selected for redemption and, in the case of
any Capital Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For all purposes of the Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of
Capital Securities shall relate, in the case of any Capital Securities redeemed
or to be redeemed only in part, to the portion of the aggregate Liquidation
Amount of Capital Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each registered holder of Capital
Securities to be redeemed at its address appearing on the securities register
for the Trust Securities. Unless BancShares defaults in payment of the
Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof (and, unless payment of the Redemption Price in
respect of the Capital Securities is withheld or refused and not paid either by
the Issuer Trust or BancShares pursuant to the Guarantee, Distributions will
cease to accumulate on the Capital Securities or portions thereof) called for
redemption.
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SUBORDINATION OF COMMON SECURITIES
Payment of Distributions (including Additional Amounts, if applicable) on,
the Liquidation Distribution in respect of, and the Redemption Price of, the
Capital Securities and Common Securities, as applicable, shall be made pro rata
based on the Liquidation Amount of such Capital Securities and Common
Securities. However, if on any Distribution Date or Redemption Date a Debenture
Event of Default has occurred and is continuing as a result of any failure by
BancShares to pay any amounts in respect of the Junior Subordinated Debentures
when due, no payment of any Distribution (including Additional Amounts) on, or
Liquidation Distribution in respect of, or Redemption Price of, any of the
Common Securities, and no other payment on account of the redemption,
liquidation or other acquisition of such Common Securities, shall be made
unless payment in full in cash of all accumulated and unpaid Distributions
(including Additional Amounts) on all the outstanding Capital 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 the outstanding Capital 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 Capital 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 any Additional Amounts) on, or the Redemption Price
of, or Liquidation Distribution in respect of, the Capital Securities then due
and payable. The existence of an Event of Default does not entitle the Holders
of Capital Securities to accelerate the maturity thereof.
In the case of any Event of Default resulting from a Debenture Event of
Default, the holders of the Common Securities will be deemed to have waived any
right to act with respect to any such Event of Default under the Trust
Agreement until the effects of all such Events of Default with respect to such
Capital Securities have been cured, waived or otherwise eliminated. See " --
Events of Default; Notice" and "Description of the Junior Subordinated
Debentures -- Debenture Events of Default." Until all such Events of Default
under the Trust Agreement with respect to the Capital Securities have been so
cured, waived or otherwise eliminated, the Property Trustee will act solely on
behalf of the holders of the Capital Securities and not on behalf of the
holders of the Common Securities, and only the holders of the Capital
Securities will have the right to direct the Property Trustee to act on their
behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The amount payable on the Capital Securities in the event of any
liquidation of the Issuer Trust is $10.00 per Capital Security plus accumulated
and unpaid Distributions to the date of payment, subject to certain exceptions,
which may be in the form of a distribution of a Like Amount of Junior
Subordinated Debentures bearing accrued and unpaid interest in an amount equal
to the accumulated and unpaid Distributions.
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust.
The Federal Reserve's risk-based capital guidelines currently provide that
redemptions of permanent equity or other capital instruments before stated
maturity could have a significant impact on a bank holding company's overall
capital structure and that any organization considering such a redemption
should consult with the Federal Reserve before redeeming any equity or capital
instrument prior to maturity if such redemption could have a material effect on
the level or composition of the organization's capital base (unless the equity
or capital instrument were redeemed with the proceeds of, or replaced by, a
like amount of a similar or higher quality capital instrument and the Federal
Reserve considers the organization's capital position to be fully adequate
after the redemption).
In the event BancShares, while a holder of Common Securities, dissolves
the Issuer Trust prior to the Stated Maturity of the Capital Securities and the
dissolution of the Issuer Trust is deemed to constitute the redemption of
capital instruments by the Federal Reserve under its risk-based capital
guidelines or policies, the dissolution of the Issuer Trust by BancShares may
be subject to the prior approval of the Federal Reserve. Moreover, any changes
in applicable law or changes in the Federal Reserve's risk-based capital
guidelines or policies could impose a requirement on BancShares that it obtain
the prior approval of the Federal Reserve to dissolve the Issuer Trust.
Pursuant to the Trust Agreement, the Issuer Trust will automatically
dissolve upon expiration of its term or, if earlier, will dissolve on the first
to occur of: (i) certain events of bankruptcy, dissolution or liquidation of
BancShares or the holder of the Common Securities, (ii) if the holders of
Common Securities have given written direction to the Property Trustee to
dissolve the Issuer Trust (which direction, subject to the foregoing
restrictions, is optional and wholly within the discretion of the holders of
Common Securities), (iii) the repayment of all the Capital Securities in
connection with the redemption of
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all the Trust Securities as described under " -- Redemption" and (iv) the entry
of an order for the dissolution of the Issuer Trust by a court of competent
jurisdiction.
If dissolution of the Issuer Trust occurs as described in clause (i), (ii)
or (iv) above, the Issuer 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 Issuer
Trust as provided by applicable law, to the holders of such Trust Securities a
Like Amount of the Junior Subordinated Debentures, unless such distribution is
not practical, in which event such 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, in the case of holders of Capital
Securities, the aggregate of the Liquidation Amount plus accumulated and unpaid
Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because the Issuer Trust has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by the Issuer Trust on its Capital 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
Capital Securities, except that if a Debenture Event of Default has occurred
and is continuing as a result of any failure by BancShares to pay any amounts
in respect of the Junior Subordinated Debentures when due, the Capital
Securities shall have a priority over the Common Securities. See " --
Subordination of Common Securities."
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures (i) the Capital Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the registered holder of Capital
Securities represented by Global Capital Securities (as herein described) shall
receive a registered global certificate or certificates representing the Junior
Subordinated Debentures to be delivered upon such distribution with respect to
such Global Capital Securities, and (iii) each certificates representing the
Capital Securities other than Global Capital Securities will be deemed to
represent the Junior Subordinated Debentures having a principal amount equal to
the stated Liquidation Amount of the Capital Securities and bearing accrued and
unpaid interest in an amount equal to the accumulated and unpaid Distributions
on the Capital Securities until such certificates are presented to the security
registrar for the Trust Securities for transfer or reissuance.
If BancShares does not redeem the Junior Subordinated Debentures prior to
the Stated Maturity and the Issuer Trust is not liquidated and the Junior
Subordinated Debentures are not distributed to holders of the Capital
Securities, the Capital Securities will remain outstanding until the repayment
of the Junior Subordinated Debentures and the distribution of the Liquidation
Distribution to the holders of the Capital Securities.
There can be no assurance as to the market prices for the Capital
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Capital Securities if a dissolution and liquidation of the Issuer
Trust were to occur. Accordingly, the Capital Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive
on dissolution and liquidation of the Issuer Trust, may trade at a discount to
the price that the investor paid to purchase the Capital Securities offered
hereby.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an event of default under the
Trust Agreement (an "Event of Default") with respect to the Capital Securities
(whatever the reason for such Event of Default and whether it is voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description of
the Junior Subordinated Debentures -- Debenture Events of Default");
(ii) 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;
(iii) default by the Issuer Trust in the payment of any Redemption Price
of any Trust Security when it becomes due and payable;
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in the Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Issuer Trustees and
BancShares by the holders of at least
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25% in aggregate Liquidation Amount of the outstanding Capital Securities,
a written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" under the
Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee if a successor Property Trustee has not
been appointed within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrators, unless such Event of Default has been cured or waived.
BancShares, 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.
If a Debenture Event of Default has occurred and is continuing as a result
of any failure by BancShares to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Capital Securities will have a preference
over the Common Securities with respect to payments of any amounts in respect
of the Capital Securities as described above. See " -- Subordination of Common
Securities," " -- Liquidation Distribution Upon Dissolution" and "Description
of the Junior Subordinated Debentures -- Debenture Events of Default."
REMOVAL OF ISSUER TRUSTEES; APPOINTMENT OF SUCCESSORS
The holders of at least a majority in aggregate Liquidation Amount of the
outstanding Capital Securities may remove an Issuer Trustee for cause or, if a
Debenture Event of Default has occurred and is continuing, with or without
cause. If an Issuer Trustee is removed by the holders of the outstanding
Capital Securities, the successor may be appointed by the holders of at least
25% in Liquidation Amount of Capital Securities then outstanding. If an Issuer
Trustee resigns, such Issuer Trustee will appoint its successor. If an Issuer
Trustee fails to appoint a successor, the holders of at least 25% in
Liquidation Amount of the outstanding Capital Securities may appoint a
successor. If a successor has not been appointed by the holders, any holder of
Capital Securities or Common Securities or the other Issuer 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
a combined capital and surplus of at least $50,000,000. No resignation or
removal of an Issuer Trustee and no appointment of a successor trustee shall be
effective until the acceptance of appointment by the successor trustee in
accordance with the provisions of the Trust Agreement.
MERGER OR CONSOLIDATION OF ISSUER 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 Issuer
Trustee is a party, or any entity succeeding to all or substantially all of the
corporate trust business of such Issuer Trustee, will be the successor of such
Issuer Trustee under the Trust Agreement, provided such entity is otherwise
qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUER TRUST
The Issuer Trust may not merge with or into, consolidate, amalgamate, or
be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer 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 Capital Securities, merge with or into, consolidate, amalgamate, or
be replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to a trust organized as such under the laws of any
State, so long as (i) such successor entity either (a) expressly assumes all
the obligations of the Issuer Trust with respect to the Capital Securities or
(b) substitutes for the Capital Securities other securities having
substantially the same terms as the Capital Securities (the "Successor
Securities") so long as the Successor Securities have the same priority as the
Capital Securities with respect to distributions and payments upon liquidation,
redemption and otherwise, (ii) a trustee of such successor entity, possessing
the same powers and duties as the Property Trustee, is appointed to hold the
Junior Subordinated Debentures, (iii) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not cause the Capital
Securities (including any Successor Securities) to be downgraded by any
nationally recognized statistical rating organization, (iv) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
not adversely affect the rights, preferences and privileges of the holders of
the
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Capital Securities (including any Successor Securities) in any material
respect, (v) such successor entity has a purpose substantially identical to
that of the Issuer Trust, (vi) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Issuer Trust has
received an opinion from independent counsel experienced in such matters to the
effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Capital Securities (including any
Successor Securities) in any material respect and (b) following such merger,
consolidation, 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 (vii) BancShares
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 Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, the Issuer Trust may not, except with the
consent of holders of 100% in aggregate Liquidation Amount of the Capital
Securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an
entirety to, any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause
the Issuer Trust or the successor entity to be taxable other than as a grantor
trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under " -- Removal of Issuer Trustees;
Appointment of Successors" and "Description of the Guarantee -- Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Capital Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the holders of a
majority in Liquidation Amount of the Common Securities and the Property
Trustee, without the consent of the holders of the Capital Securities, (i) 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 Trust Securities, or (ii) to
modify, eliminate or add to any provisions of the Trust Agreement to such
extent as may be necessary to ensure that the Issuer Trust will not be taxable
other than as a grantor trust 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, and any such amendments of the Trust Agreement will
become effective when notice of such amendment is given to the holders of Trust
Securities. The Trust Agreement may be amended by the holders of a majority of
the Common Securities and the Property Trustee with (i) the consent of holders
representing not less than a majority in aggregate Liquidation Amount of the
outstanding Capital 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
affect the Issuer Trust's being taxable as a grantor trust for United States
federal income tax purposes or the Issuer Trust's exemption from status as an
"investment company" under the Investment Company Act, except that, without the
consent of each holder of Trust Securities affected thereby, the Trust
Agreement may not be amended to (x) 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 (y) restrict the right of a holder of Trust Securities
to institute suit for the enforcement of any such payment on or after such
date.
So long as any Junior Subordinated Debentures are held by the Issuer
Trust, the Property Trustee will not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
execute any trust or power conferred on the Property Trustee with respect to
the Junior Subordinated Debentures, (ii) waive any past default that is
waivable under Section 5.13 of the Junior Subordinated Indenture, (iii)
exercise any right to rescind or annul a declaration that the Junior
Subordinated Debentures shall be due and payable or (iv) consent to any
amendment, modification or termination of the Junior Subordinated 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 Capital Securities, except
that, if a consent under the Junior Subordinated 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 written
consent of each holder of the Capital Securities. The Property Trustee may not
revoke any action previously authorized or approved by a vote of the holders of
the Capital Securities except by subsequent vote of the holders of the Capital
Securities. The Property Trustee will notify each holder of Capital Securities
of any notice of default with respect to the Junior Subordinated Debentures. In
addition to obtaining the foregoing approvals of the holders of the
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Capital Securities, before taking any of the foregoing actions, the Property
Trustee will obtain an opinion of counsel experienced in such matters to the
effect that the Issuer Trust will not be taxable other than as a grantor trust
for United States federal income tax purposes on account of such action.
Any required approval of holders of Capital Securities may be given at a
meeting of holders of Capital Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Capital 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 Capital Securities in the manner set forth in the
Trust Agreement.
No vote or consent of the holders of Capital Securities will be required
to redeem and cancel Capital Securities in accordance with the Trust Agreement.
Notwithstanding that holders of Capital Securities are entitled to vote or
consent under any of the circumstances described above, any of the Capital
Securities that are owned by BancShares, the Issuer Trustees or any affiliate
of BancShares or any Issuer Trustees, will, for purposes of such vote or
consent, be treated as if they were not outstanding.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
The Capital Securities to be issued in the offering may be transferred or
exchanged in the manner and at the offices described below.
The Capital Securities to be issued in the offering initially will be
represented by one or more Capital Securities in registered, global form
(collectively, the "Global Capital Securities"). The Global Capital Securities
will be deposited upon issuance with the Property Trustee as custodian for DTC,
in New York, New York, and registered in the name of Cede & Co. as nominee for
DTC or another nominee designated by DTC, in each case for credit to an account
of a direct or indirect participant in DTC, as described below.
Except as set forth below, the Global Capital Securities may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the Global Capital
Securities may not be exchanged for Certificated Capital Securities except in
the limited circumstances described under " -- Exchange of Book-Entry Capital
Securities for Certificated Capital Securities" below. In addition, transfer of
beneficial interests in the Global Capital Securities will be subject to the
applicable rules and procedures of DTC and its direct or indirect participants,
which may change from time to time.
DEPOSITARY PROCEDURES
DTC has advised the Issuer Trust and BancShares that DTC is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the
clearance and settlement of transactions in those securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership
interest of each actual purchaser of each security held by or on behalf of DTC
are recorded on the records of the Participants and the Indirect Participants.
DTC has also advised the Issuer Trust and BancShares that, pursuant to
procedures established by it, (i) upon deposit of the Global Capital
Securities, DTC will credit the accounts of Participants on behalf of
purchasers of the Capital Securities with portions of the Liquidation Amount of
the Global Capital Securities and (ii) ownership of such interests in the
Global Capital Securities will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Capital
Securities).
Investors in the Global Capital Securities may hold their interests
therein directly through DTC if they are Participants in such system, or
indirectly through organizations which are Participants in such system. All
interests in a Global Capital Security may be subject to the procedures and
requirements of DTC. The laws of some states require that certain persons take
physical delivery in certificated form of securities that they own.
Consequently, the ability to transfer beneficial interests in a Global Capital
Security to such persons will be limited to that extent. Because DTC can act
only on behalf of Participants, which in turn act on behalf of Indirect
Participants and certain banks, the ability of a person having beneficial
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interests in a Global Capital Security to pledge such interests to persons or
entities that do not participate in the DTC system, or otherwise take actions
in respect of such interests, may be affected by the lack of a physical
certificate evidencing such interests. For certain other restrictions on the
transferability of the Capital Securities, see " -- Exchange of Book-Entry
Capital Securities for Certificated Capital Securities."
Except as described below, owners of interests in the Global Capital
Securities will not have Capital Securities registered in their name, will not
receive physical delivery of Certificated Capital Securities and will not be
considered the registered owners or holders thereof under the Trust Agreement
for any purpose.
Payments in respect of the Global Capital Securities registered in the
name of DTC or its nominee will be payable by the Property Trustee to DTC in
its capacity as the registered holder under the Trust Agreement. Under the
terms of the Trust Agreement, the Property Trustee will treat the persons in
whose names the Capital Securities, including the Global Capital Securities,
are registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the
Property Trustee nor any agent thereof has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Capital Securities, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Capital Securities or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised the Issuer Trust and BancShares that its current practice, upon receipt
of any payment in respect of securities such as the Capital Securities, is to
credit the account of the relevant Participants with the payment on the payment
date, in amounts proportionate to their respective holdings in Liquidation
Amount of beneficial interests in the relevant security as shown on the records
of DTC unless DTC has reason to believe it will not receive payment on such
payment date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Capital Securities will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility of
DTC, the Property Trustee, the Issuer Trust or BancShares. Neither the Issuer
Trust nor BancShares or the Property Trustee will be liable for any delay by
DTC or any of its Participants in identifying the beneficial owners of the
Capital Securities, and the Issuer Trust or BancShares and the Property Trustee
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee for all purposes.
DTC has advised the Issuer Trust and BancShares that it will take any
action permitted to be taken by a holder of Capital Securities only at the
direction of one or more Participants to whose account with DTC interests in
the Global Capital Securities are credited and only in respect of such portion
of the Liquidation Amount of the Capital Securities as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Trust Agreement, DTC reserves the right to
exchange the Global Capital Securities for Certificated Capital Securities and
to distribute such Certificated Capital Securities to its Participants.
The information in this section concerning DTC and book-entry systems has
been obtained from sources that the Issuer Trust and BancShares believe to be
reliable, but neither the Issuer Trust nor BancShares takes responsibility for
the accuracy thereof.
EXCHANGE OF BOOK-ENTRY CAPITAL SECURITIES FOR CERTIFICATED CAPITAL SECURITIES
A Global Capital Security is exchangeable for Certificated Capital
Securities if (i) DTC (x) notifies BancShares and the Property Trustee in
writing that it is unwilling or unable to properly discharge its
responsibilities as depositary for the Global Capital Security and BancShares
is unable to locate a qualified successor, or (y) has ceased to be a clearing
agency registered under the Exchange Act and BancShares is unable to locate a
qualified successor, (ii) the Issuer Trust at its option advises DTC in writing
that it elects to terminate the book-entry system through DTC, or (iii) there
shall have occurred and be continuing an Event of Default or any event which
after notice or lapse of time or both would be an Event of Default under the
Trust Agreement. In addition, beneficial interests in a Global Capital Security
may be exchanged for Certificated Capital Securities upon request but only upon
at least 20 days prior written notice given to the Property Trustee by or on
behalf of DTC in accordance with customary procedures. In all cases,
Certificated Capital Securities delivered in exchange for any Global Capital
Security or beneficial interests therein will be registered in the names, and
issued in any approved denominations, requested by or on behalf of DTC (in
accordance with its customary procedures).
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EXPENSES AND TAXES
In the Trust Agreement, BancShares has agreed to pay all debts and other
obligations (other than with respect to the Capital Securities) and all costs
and expenses of the Issuer Trust (including costs and expenses relating to the
organization of the Issuer Trust, the fees and expenses of the Issuer Trustees
and the costs and expenses relating to the operation of the Issuer Trust) and
to pay any and all taxes and all costs and expenses with respect thereto (other
than withholding taxes) to which the Issuer Trust might become subject. The
foregoing obligations of BancShares under the Trust Agreement are for the
benefit of, and shall be enforceable by, any person to whom any such debts,
obligations, costs, expenses and taxes are owed (a "Creditor") whether or not
such Creditor has received notice thereof. Any such Creditor may enforce such
obligations of BancShares directly against BancShares, and BancShares has
irrevocably waived any right or remedy to require that any such Creditor take
any action against the Issuer Trust or any other person before proceeding
against BancShares. BancShares has also agreed in the Trust Agreement to
execute such additional agreements as may be necessary or desirable to give
full effect to the foregoing.
PAYMENT AND PAYING AGENCY
Payments in respect of the Capital Securities will be made by check mailed
to the address of the holder entitled thereto as such address appears on the
securities register for the Trust Securities. The paying agent (the "Paying
Agent") initially will 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 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
Capital Securities.
Registration of transfers of Capital Securities will be effected without
charge by or on behalf of the Issuer Trust, but upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. The Issuer Trust will not be required to register or cause to be
registered the transfer of the Capital Securities after the Capital Securities
have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must
exercise the same degree of care and skill as a prudent person would exercise
or use in the conduct of his or her own affairs. Subject to this provision, the
Property Trustee is under no obligation to exercise any of the powers vested in
it by the Trust Agreement at the request of any holder of Capital Securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
For information concerning the relationships between the Property Trustee
and BancShares, see "Description of the 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 Issuer Trust in such a way that the
Issuer Trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or taxable other than as a grantor
trust for United States federal income tax purposes and so that the Junior
Subordinated Debentures will be treated as indebtedness of BancShares 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 Issuer
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 Capital Securities.
Holders of the Capital Securities have no preemptive or similar rights.
The Issuer Trust may not borrow money or issue debt or mortgage or pledge
any of its assets.
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GOVERNING LAW
The Trust Agreement will be governed by and construed in accordance with
the laws of the State of Delaware.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under the Junior
Subordinated Indenture, under which Bankers Trust is acting as Debenture
Trustee. This summary of certain terms and provisions of the Junior
Subordinated Debentures and the Junior Subordinated Indenture does not purport
to be complete and is subject to, and is qualified in its entirety by reference
to, all the provisions of the Junior Subordinated Indenture, including the
definitions therein of certain terms. Whenever particular defined terms of the
Junior Subordinated Indenture (as amended or supplemented from time to time)
are referred to herein, such defined terms are incorporated herein by
reference. A copy of the form of Junior Subordinated Indenture is available
from the Debenture Trustee upon request.
GENERAL
Concurrently with the issuance of the Capital Securities, the Issuer Trust
will invest the proceeds thereof, together with the consideration paid by
BancShares for the Common Securities, in the Junior Subordinated Debentures
issued by BancShares. The Junior Subordinated Debentures will bear interest,
accruing from the date of original issuance, at a rate equal to * % per annum
on the principal amount thereof, payable quarterly in arrears on March 31, June
30, September 30 and December 31 of each year (each, an "Interest Payment
Date"), commencing * , 1998, to the person in whose name each Junior
Subordinated Debenture is registered at the close of business on the fifteenth
day (whether or not a Business Day) next preceding such Interest Payment Date.
It is anticipated that, until the liquidation, if any, of the Issuer Trust,
each Junior Subordinated Debenture will be registered in the name of the Issuer
Trust and held by the Property Trustee in trust for the benefit of the holders
of the Trust 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), with the same force and effect as if made on the
date such payment was originally payable. Accrued interest that is not paid on
the applicable Interest Payment Date will bear additional interest on the
amount thereof (to the extent permitted by law) at a rate equal to * % per
annum, 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 quarterly interest payments, interest on quarterly
interest payments not paid on the applicable Interest Payment Date and
Additional Sums (as defined under "Description of the Capital Securities --
Redemption"), as applicable.
The Junior Subordinated Debentures will mature on * , 2028.
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Indebtedness of
BancShares. The Junior Subordinated Debentures will not be subject to a sinking
fund and will not be eligible as collateral for any loan made by BancShares.
The Junior Subordinated Indenture does not limit the incurrence or issuance of
other secured or unsecured debt by BancShares, including Senior Indebtedness,
whether under the Junior Subordinated Indenture or any existing or other
indenture or agreement that BancShares may enter into in the future or
otherwise. See " -- Subordination."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing,
BancShares has the right at any time during the term of the Junior Subordinated
Debentures to defer the payment of interest at any time or from time to time
for a period not exceeding 20 consecutive quarterly periods with respect to
each Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures or end on a date other
than an Interest Payment Date. At the end of such Extension Period, BancShares
must pay all interest then accrued and unpaid (together with interest thereon
at a rate equal to * % per annum, 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
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per annum by four. During an Extension Period, interest will continue to accrue
and holders of Junior Subordinated Debentures (or holders of Capital Securities
while outstanding) will be required to accrue interest income (in the form of
OID) for United States federal income tax purposes. See "Certain Federal Income
Tax Consequences -- Interest Income and Original Issue Discount."
During any such Extension Period, BancShares may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of BancShares' 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 BancShares that rank PARI PASSU in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of BancShares 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 shareholder stock purchase plan or in connection with the
issuance of capital stock of BancShares (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 an exchange or conversion of any class or series of BancShares'
capital stock (or any capital stock of a subsidiary of BancShares) for any
class or series of BancShares' capital stock or of any class or series of
BancShares' indebtedness for any class or series of BancShares' capital stock,
(c) the purchase of fractional interests in shares of BancShares' 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 shareholder's rights plan, or the issuance of rights, stock
or other property under any shareholders 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,
BancShares may further defer the payment of interest, provided that no
Extension Period may exceed 20 consecutive quarterly periods or extend beyond
the Stated Maturity of the Junior Subordinated Debentures or end on a date
other than an Interest Payment Date. Upon the termination of any such Extension
Period and the payment of all amounts then due, BancShares 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. BancShares
must give the Issuer Trustees notice of its election of such Extension Period
at least one Business Day prior to the earlier of (i) the date the
Distributions on the Capital Securities would have been payable but for the
election to begin such Extension Period and (ii) the date the Property Trustee
is required to give notice to holders of the Capital 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. The Property Trustee will give
notice of BancShares' election to begin a new Extension Period to the holders
of the Capital Securities. There is no limitation on the number of times that
BancShares may elect to begin an Extension Period.
REDEMPTION
The Junior Subordinated Debentures are redeemable prior to maturity at the
option of BancShares (i) on or after * , 2003, in whole at any time or in
part from time to time, or (ii) 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 the Capital Securities -- Redemption"), in each case at the
redemption price described below. The proceeds of any such redemption will be
used by the Issuer Trust to redeem the Capital Securities.
The Federal Reserve's risk-based capital guidelines, which are subject to
change, currently provide that redemptions of permanent equity or other capital
instruments before stated maturity could have a significant impact on a bank
holding company's overall capital structure and that any organization
considering such a redemption should consult with the Federal Reserve before
redeeming any equity or capital instrument prior to maturity if such redemption
could have a material effect on the level or composition of the organization's
capital base (unless the equity or capital instrument were redeemed with the
proceeds of, or replaced by, a like amount of a similar or higher quality
capital instrument and the Federal Reserve considers the organization's capital
position to be fully adequate after the redemption).
The redemption of the Junior Subordinated Debentures by BancShares prior
to their Stated Maturity would constitute the redemption of capital instruments
under the Federal Reserve's current risk-based capital guidelines and may be
subject to the prior approval of the Federal Reserve.
The redemption price for Junior Subordinated Debentures in the case of a
redemption under (i) or (ii) above shall equal their principal amount, together
with accrued interest to but excluding the date fixed for redemption.
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ADDITIONAL SUMS
BancShares has covenanted in the Junior Subordinated Indenture that, if
and for so long as (i) the Issuer Trust is the holder of all Junior
Subordinated Debentures and (ii) the Issuer Trust is required to pay any
additional taxes, duties or other governmental charges as a result of a Tax
Event, BancShares will pay as Additional Sums on the Junior Subordinated
Debentures such amounts as may be required so that the Distributions payable by
the Issuer Trust will not be reduced as a result of any such additional taxes,
duties or other governmental charges. See "Description of the Capital
Securities -- Redemption."
REGISTRATION, DENOMINATION AND TRANSFER
The Junior Subordinated Debentures will initially be registered in the
name of the Issuer Trust. If the Junior Subordinated Debentures are distributed
to holders of Capital Securities, it is anticipated that the depositary
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Capital Securities. See "Description of
the Capital Securities -- Form, Denomination, Book-Entry Procedures and
Transfer."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in
definitive form.
Payments on Junior Subordinated Debentures represented by a global
security will be made to Cede & Co., the nominee for DTC, as the registered
holder of the Junior Subordinated Debentures, as described under "Description
of the Capital Securities -- Form, Denomination, Book-Entry Procedures and
Transfer." If Junior Subordinated Debentures are issued in certificated 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 the Company, provided that payment
of interest may be made at the option of the Company by check mailed to the
address of the persons entitled thereto. 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.
The Junior Subordinated Debentures will be issuable only in registered
form without coupons in integral multiples of $10.00. 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
Junior Subordinated Indenture or at the office of any transfer agent designated
by BancShares for such purpose without service charge and upon payment of any
taxes and other governmental charges as described in the Junior Subordinated
Indenture. BancShares will appoint the Debenture Trustee as securities
registrar under the Junior Subordinated Indenture. BancShares may at any time
designate additional transfer agents with respect to the Junior Subordinated
Debentures.
In the event of any redemption, neither BancShares nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days 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 (ii) to 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 BancShares 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 such principal (and premium, if any) or interest
has become due and payable shall, at the request of BancShares, be repaid to
BancShares and the holder of such Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to BancShares for
payment thereof.
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RESTRICTIONS ON CERTAIN PAYMENTS; CERTAIN COVENANTS OF BANCSHARES
BancShares has covenanted that it will not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of BancShares' 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 BancShares that rank PARI PASSU in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of BancShares 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 shareholder stock purchase plan or in connection with the
issuance of capital stock of BancShares (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) as a result of an exchange or conversion of any
class or series of BancShares' capital stock (or any capital stock of a
subsidiary of BancShares) for any class or series of BancShares' capital stock
or of any class or series of BancShares' indebtedness for any class or series
of BancShares' capital stock, (c) the purchase of fractional interests in
shares of BancShares' 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 shareholder's rights
plan, or the issuance of rights, stock or other property under any
shareholder's 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), if at
such time (x) there has occurred any event (1) of which BancShares has actual
knowledge that with the giving of notice or the lapse of time, or both, would
constitute a Debenture Event of Default and (2) that BancShares has not taken
reasonable steps to cure, (y) if the Junior Subordinated Debentures are held by
the Issuer Trust, BancShares is in default with respect to its payment of any
obligations under the Guarantee or (z) BancShares 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.
BancShares has covenanted in the Junior Subordinated Indenture (i) to
continue to hold, directly or indirectly, 100% of the Common Securities,
provided that certain successors that are permitted pursuant to the Junior
Subordinated Indenture may succeed to BancShares' ownership of the Common
Securities, (ii) as holder of the Common Securities, not to voluntarily
terminate, wind up or liquidate the Issuer Trust, other than (a) in connection
with a distribution of Junior Subordinated Debentures to the holders of the
Capital Securities in liquidation of the Issuer Trust or (b) in connection with
certain mergers, consolidations or amalgamations permitted by the Trust
Agreement and (iii) to use its reasonable efforts, consistent with the terms
and provisions of the Trust Agreement, to cause the Issuer Trust to continue to
be taxable as a grantor trust for United States federal income tax purposes.
MODIFICATION OF JUNIOR SUBORDINATED INDENTURE
From time to time, BancShares and the Debenture Trustee may, without the
consent of any of the holders of the outstanding Junior Subordinated
Debentures, amend, waive or supplement the provisions of the Junior
Subordinated Indenture to: (i) evidence succession of another corporation or
association to BancShares and the assumption by such person of the obligations
of BancShares under the Junior Subordinated Indenture and the Junior
Subordinated Debentures; (ii) add further covenants for the benefit of holders
of the Junior Subordinated Debentures, or surrender any right or power
conferred upon BancShares by the Junior Subordinated Indenture; (iii) cure
ambiguities or correct or supplement any provision in 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 or the Capital Securities
in any material respect; (iv) change the terms of the Junior Subordinated
Indenture to facilitate the issuance of the Junior Subordinated Debentures in
certificated or other definitive form; (v) evidence or provide for the
acceptance of appointment under the Junior Subordinated Indenture of a
successor Debenture Trustee; (vi) comply with the requirements of the
Commission to qualify, or maintain the qualification of, the Junior
Subordinated Indenture under the Trust Indenture Act; (vii) convey, transfer,
assign, mortgage or pledge any property to or with the Debenture Trustee or to
surrender any right or power conferred on BancShares in the Junior Subordinated
Indenture; (viii) establish the form or terms of any series of the Junior
Subordinated Debentures as permitted by the Junior Subordinated Indenture; (ix)
change or eliminate any provision of the Junior Subordinated Indenture, so long
as at the time of such change there are no outstanding Junior Subordinated
Debentures entitled to the benefit of such provision or such change does not
apply to then outstanding Junior Subordinated Debentures; or (x) add any
additional Debenture Events of Default for the holders of the Junior
Subordinated Debentures. The Junior Subordinated Indenture contains provisions
permitting BancShares 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 the Junior
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Subordinated Indenture in a manner affecting the rights of the holders of the
Junior Subordinated Debentures, except that no such modification may, without
the consent of the holder of each outstanding Junior Subordinated Debenture so
affected, (i) change the Stated Maturity of the principal of, or any
installment of interest on, the Junior Subordinated Debentures, or reduce the
principal amount thereof, the rate of interest thereon 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 or impair the right to institute
suit for the enforcement of any Junior Subordinated Debenture or (ii) reduce
the percentage of principal amount of Junior Subordinated Debentures, the
holders of which are required to consent to any such modification of, or to
waive certain matters provided for in, the Junior Subordinated Indenture.
Furthermore, so long as any of the Capital Securities remain outstanding, no
such modification may be made that adversely affects the holders of such
Capital Securities in any material respect, and no termination of the Junior
Subordinated Indenture may occur, and no waiver of any Debenture Event of
Default or compliance with any covenant under the Junior Subordinated Indenture
may be effective, without the prior consent of the holders of at least a
majority of the aggregate Liquidation Amount of the outstanding Capital
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 Junior Subordinated Indenture provides that any one or more of the
following described events with respect to the Junior Subordinated Debentures
that has occurred and is continuing constitutes an "Event of Default" with
respect to the Junior Subordinated Debentures:
(i) failure to pay any interest on the Junior Subordinated Debentures
when 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);
(ii) failure to pay any principal of or premium, if any, on the Junior
Subordinated Debentures when due whether at maturity, upon redemption, by
declaration of acceleration or otherwise;
(iii) failure to duly observe or perform in any material respect certain
other covenants contained in the Junior Subordinated Indenture for 90 days
after written notice to BancShares from the Debenture Trustee or the
holders of at least 25% in aggregate outstanding principal amount of the
outstanding Junior Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of
BancShares.
For purposes of the Trust Agreement and this Offering Memorandum, each
such Event of Default under the Junior Subordinated Debenture is referred to as
a "Debenture Event of Default." As described in "Description of the Capital
Securities -- Events of Default; Notice," the occurrence of a Debenture Event
of Default will also constitute an Event of Default in respect of the Trust
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 upon a Debenture Event of Default which
is continuing, 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 Capital 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 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
Capital Securities shall have such right.
The holders of at least a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures affected thereby, and the holders of
a majority in aggregate Liquidation Amount of the Capital Securities issued by
the Issuer Trust, 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 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
Junior Subordinated Indenture cannot be modified or amended without the consent
of the holder of each outstanding Junior Subordinated Debenture affected
thereby. See " -- Modification of Junior Subordinated Indenture." BancShares is
required to file annually with the Debenture Trustee a
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certificate as to whether or not BancShares is in compliance with all the
conditions and covenants applicable to it under the Junior Subordinated
Indenture.
If a Debenture Event of Default 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 Junior
Subordinated Indenture, to be forthwith 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 CAPITAL SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of BancShares to pay any amounts payable
in respect of the Junior Subordinated Debentures on the date such amounts are
otherwise payable, a registered holder of Capital Securities may institute a
legal proceeding directly against BancShares for enforcement of payment to such
holder of an amount equal to the amount payable in respect of Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Capital Securities held by such holder (a "Direct
Action"). BancShares may not amend the Junior Subordinated Indenture to remove
the foregoing right to bring a Direct Action without the prior written consent
of the holders of all the Capital Securities. BancShares will have the right
under the Junior Subordinated Indenture to set-off any payment made to such
holder of Capital Securities by BancShares in connection with a Direct Action.
With certain exceptions, the holders of the Capital Securities would 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 paragraph. See "Description of the Capital Securities -- Events of
Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Junior Subordinated Indenture provides that BancShares may 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 may consolidate with or merge into BancShares or convey, transfer or
lease its properties and assets substantially as an entirety to BancShares,
unless (i) if BancShares consolidates with or merges into another Person or
conveys, or transfers or leases its properties and assets substantially as an
entirety to any Person, the successor Person is organized under the laws of the
United States or any state thereof or the District of Columbia, and such
successor Person expressly assumes BancShares' obligations in respect of the
Junior Subordinated Debentures; (ii) immediately after giving effect thereto,
no Debenture Event of Default, and no event which, after notice or lapse of
time or both, would constitute a Debenture Event of Default, has occurred and
is continuing; and (iii) certain other conditions as prescribed in the Junior
Subordinated Indenture are satisfied.
The provisions of the Junior Subordinated Indenture do not afford holders
of the Junior Subordinated Debentures protection in the event of a highly
leveraged or other transaction involving BancShares that may adversely affect
holders of the Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Junior Subordinated Indenture provides that when, among other things,
all Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation (i)(a) have become due and payable or (b) will become
due and payable at the Stated Maturity within one year, or (c) are to be called
for redemption within one year under arrangements satisfactory to the Debenture
Trustee, and (ii) BancShares 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 (and premium, if any) and interest (including any additional
interest) to the date of the deposit or to the Stated Maturity, as the case may
be, then the Junior Subordinated Indenture will, upon BancShares' request, be
satisfied and discharged and cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange, certain obligations
of BancShares to the Debenture Trustree and the obligations of the Debenture
Trustee to apply money deposited by BancShares in payment of the Junior
Subordinated Debentures).
SUBORDINATION
The Junior Subordinated Debentures will be subordinate and junior in right
of payment, to the extent set forth in the Junior Subordinated Indenture, to
all Senior Indebtedness (as defined below) of BancShares. If BancShares
defaults in the payment of any principal, premium, if any, or interest, if any,
on any Senior Indebtedness when the same becomes due and
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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 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
setoff 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 BancShares and whether or not contingent, (i) every
obligation of BancShares for money borrowed; (ii) every obligation of
BancShares evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of BancShares with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of BancShares; (iv) every obligation of BancShares issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of BancShares; (vi) every
obligation of BancShares 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 (vii) every obligation of the type referred to in
clauses (i) through (vi) of another person the payment of which BancShares has
guaranteed or is responsible or liable, directly or indirectly, as obligor or
otherwise. "Senior Indebtedness" shall not include (i) 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, (ii) any indebtedness of BancShares 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 BancShares, (iii) any
indebtedness of BancShares to any of its subsidiaries, (iv) indebtedness to any
executive officer or director of BancShares, or (v) any indebtedness in respect
of debt securities issued to any trust, or a trustee of such trust, partnership
or other entity affiliated with BancShares that is a financing entity of
BancShares in connection with the issuance of such financing entity of
securities that are similar to the Capital Securities.
In the event of (i) certain events of bankruptcy, dissolution or
liquidation of BancShares, (ii) any proceeding for the liquidation, dissolution
or other winding up of BancShares, voluntary or involuntary, whether or not
involving insolvency or bankruptcy proceedings, (iii) any assignment by
BancShares for the benefit of creditors or (iv) any other marshalling of the
assets of BancShares, 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 on account of the Junior Subordinated Debentures. In
such event, any payment or distribution on account of the Junior Subordinated
Debentures, whether in cash, securities or other property, that would otherwise
(but for the subordination provisions) be payable or deliverable in respect of
the Junior Subordinated Debentures will be paid or delivered directly to the
holders of Senior Indebtedness in accordance with the priorities then existing
among such holders until all Senior Indebtedness (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 BancShares ranking
on a parity with the Junior Subordinated Debentures, will be entitled to be
paid from the remaining assets of BancShares 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 BancShares 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 BancShares, holders of Senior Indebtedness may receive
more, ratably, and holders of the Junior Subordinated Debentures may receive
less, ratably, than the other creditors of BancShares. Such subordination will
not prevent the occurrence of any Event of Default in respect of the Junior
Subordinated Debentures.
At June 30, 1998, BancShares had no Senior Indebtedness. However, the
Junior Subordinated Indenture places no limitation on the amount of additional
Senior Indebtedness that may be incurred by BancShares. BancShares expects from
time to time to incur indebtedness that will constitute Senior Indebtedness.
See "Risk Factors -- Risk Factors Relating to the
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Capital Securities -- Ranking of Subordinated Obligations under the Guarantee
and the Junior Subordinated Debentures" and " -- Risk Factors Relating to
BancShares -- Status of BancShares as a Bank Holding Company."
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee, other than during the occurrence and continuance of
a Debenture Event of Default, undertakes to perform only such duties as are
specifically set forth in the Junior Subordinated Indenture, is under no
obligation to exercise any of the powers vested in it by the Junior
Subordinated Indenture, and, after such Debenture Event of Default, must
exercise the same degree of care and skill as a prudent person would exercise
in the conduct of his or her own affairs. 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.
The Debenture Trustee may serve from time to time as trustee under other
indentures or trust agreements with BancShares or its subsidiaries relating to
other issues of their securities. In addition, BancShares and certain of its
affiliates may have other banking relationships with the Debenture Trustee and
its affiliates.
GOVERNING LAW
The Junior Subordinated Indenture and the Junior Subordinated Debentures
will be governed by and construed in accordance with the laws of the State of
New York.
DESCRIPTION OF THE GUARANTEE
The Guarantee will be executed and delivered by BancShares concurrently
with the issuance of Capital Securities by the Issuer Trust for the benefit of
the holders from time to time of the Capital Securities. Bankers Trust will act
as Guarantee Trustee under the Guarantee. This summary of certain provisions of
the Guarantee does not purport to be complete and is subject to, and qualified
in its entirety by reference to, all the provisions of the Guarantee, including
the definitions therein of certain terms. A copy of the form of Guarantee is
available upon request from the Guarantee Trustee. The Guarantee Trustee will
hold the Guarantee for the benefit of the holders of the Capital Securities.
GENERAL
BancShares will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to
the holders of the Capital Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Issuer Trust may have or
assert other than the defense of payment. The following payments with respect
to the Capital Securities, to the extent not paid by or on behalf of the Issuer
Trust (the "Guarantee Payments"), will be subject to the Guarantee: (i) any
accumulated and unpaid Distributions required to be paid on such Capital
Securities, to the extent that the Issuer Trust has funds on hand available
therefor at such time; (ii) the Redemption Price with respect to any Capital
Securities called for redemption, to the extent that the Issuer Trust has funds
on hand available therefor at such time; and (iii) upon a voluntary or
involuntary dissolution, winding up or liquidation of the Issuer Trust (unless
the Junior Subordinated Debentures are distributed to holders of the Capital
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 Issuer Trust has funds on hand available therefor at such time, and (b) the
amount of assets of the Issuer Trust remaining available for distribution to
holders of the Capital Securities on liquidation of the Issuer Trust.
BancShares' obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by BancShares to the holders of the Capital
Securities or by causing the Issuer Trust to pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Issuer Trust's obligations under the Capital Securities, but will apply
only to the extent that the Issuer Trust has funds sufficient to make such
payments, and is not a guarantee of collection.
If BancShares does not make payments on the Junior Subordinated Debentures
held by the Issuer Trust, the Issuer Trust will not be able to pay any amounts
payable in respect of the Capital Securities and will not have funds legally
available therefor. The Guarantee will rank subordinate and junior in right of
payment to all Senior Indebtedness of BancShares. See " -- Status of the
Guarantee." The Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of BancShares, including Senior Indebtedness, whether
under the Junior Subordinated Indenture, any other indenture that BancShares
may enter into in the future or otherwise.
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BancShares has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture, taken together,
fully, irrevocably and unconditionally guaranteed all the Issuer Trust's
obligations under the Capital 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
Issuer Trust's obligations in respect of the Capital Securities. See
"Relationship Among the Capital Securities, the Junior Subordinated Debentures
and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of BancShares and
will rank subordinate and junior in right of payment to all Senior Indebtedness
of BancShares in the same manner as the Junior Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Capital Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Issuer
Trust or distribution to the holders of the Capital Securities of the Junior
Subordinated Debentures.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely
affect the rights of holders of the Capital Securities (in which case no vote
will be required), the Guarantee may not be amended without the prior approval
of the holders of not less than a majority of the aggregate Liquidation Amount
of the Capital Securities. The manner of obtaining any such approval will be as
set forth under "Description of the Capital 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 BancShares and shall inure to the benefit of the holders of
the Capital Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of
BancShares to perform any of its payment or other obligations thereunder, 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 Capital 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 Capital Securities may institute a legal
proceeding directly against BancShares to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Issuer
Trust, the Guarantee Trustee or any other person or entity.
BancShares, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not BancShares 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 BancShares 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 vested in it by
the Guarantee at the request of any holder of the Capital Securities unless it
is offered reasonable indemnity against the costs, expenses and liabilities
that might be incurred thereby.
For information concerning the relationship between the Guarantee Trustee
and BancShares, see "Description of the 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 Capital Securities, upon full
payment of the amounts payable with respect to the Capital Securities upon
liquidation of the
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Issuer Trust or upon distribution of Junior Subordinated Debentures to the
holders of the Capital 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
Capital Securities must restore payment of any sums paid under the Capital
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 CAPITAL SECURITIES, THE
JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Capital Securities
(to the extent the Issuer Trust has funds available for such payment) are
irrevocably guaranteed by BancShares as and to the extent set forth under
"Description of the Guarantee." Taken together, BancShares' obligations under
the Junior Subordinated Debentures, the Junior Subordinated Indenture, the
Trust Agreement and the Guarantee provide, in the aggregate, a full,
irrevocable and unconditional guarantee of payments of Distributions and other
amounts due on the Capital 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
Issuer Trust's obligations in respect of the Capital Securities. If and to the
extent that BancShares does not make payments on the Junior Subordinated
Debentures, the Issuer Trust will not have sufficient funds to pay
Distributions or other amounts due on the Capital Securities. The Guarantee
does not cover payment of amounts payable with respect to the Capital
Securities when the Issuer Trust does not have sufficient funds to pay such
amounts. In such event, the remedy of a holder of the Capital Securities is to
institute a legal proceeding directly against BancShares for enforcement of
payment of BancShares' obligations under Junior Subordinated Debentures having
a principal amount equal to the Liquidation Amount of the Capital Securities
held by such holder.
The obligations of BancShares under the Junior Subordinated Debentures and
the Guarantee are subordinate and junior in right of payment to all Senior
Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments are made when due on the Junior Subordinated
Debentures, such payments will be sufficient to cover Distributions and other
payments distributable on the Capital Securities, primarily because: (i) the
aggregate principal amount of the Junior Subordinated Debentures will be equal
to the sum of the aggregate stated Liquidation Amount of the Capital Securities
and Common Securities; (ii) the interest rate and interest and other payment
dates on the Junior Subordinated Debentures will match the Distribution rate,
Distribution Dates and other payment dates for the Capital Securities; (iii)
BancShares will pay for all and any costs, expenses and liabilities of the
Issuer Trust except the Issuer Trust's obligations to holders of the Trust
Securities; and (iv) the Trust Agreement further provides that the Issuer Trust
will not engage in any activity that is not consistent with the limited
purposes of the Issuer Trust.
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, BancShares has the right to set-off any payment it is otherwise
required to make thereunder against and to the extent BancShares has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF CAPITAL SECURITIES
A holder of any Capital Security may institute a legal proceeding directly
against BancShares to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Issuer Trust
or any other person or entity. See "Description of the Guarantee."
A default or event of default under any Senior Indebtedness of BancShares
would not constitute a default or Event of Default in respect of the Capital
Securities. However, in the event of payment defaults under, or acceleration
of, Senior Indebtedness of BancShares, the subordination provisions of the
Junior Subordinated 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 the Junior Subordinated Debentures -- Subordination."
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LIMITED PURPOSE OF ISSUER TRUST
The Capital Securities represent preferred undivided beneficial interests
in the assets of the Issuer Trust, and the Issuer Trust exists for the sole
purpose of issuing its Capital Securities and Common Securities and investing
the proceeds thereof in Junior Subordinated Debentures. A principal difference
between the rights of a holder of a Capital Security and a holder of a Junior
Subordinated Debenture is that a holder of a Junior Subordinated Debenture is
entitled to receive from BancShares payments on Junior Subordinated Debentures
held, while a holder of Capital Securities is entitled to receive Distributions
or other amounts distributable with respect to the Capital Securities from the
Issuer Trust (or from BancShares under the Guarantee) only if and to the extent
the Issuer Trust has funds available for the payment of such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution of the Issuer Trust, other
than any such dissolution involving the distribution of the Junior Subordinated
Debentures, after satisfaction of liabilities to creditors of the Issuer Trust
as required by applicable law, the holders of the Capital Securities will be
entitled to receive, out of assets held by the Issuer Trust, the Liquidation
Distribution in cash. See "Description of the Capital Securities -- Liquidation
Distribution Upon Dissolution." Upon any voluntary or involuntary liquidation
or bankruptcy of BancShares, the Issuer Trust, as registered holder of the
Junior Subordinated Debentures, would be a subordinated creditor of BancShares,
subordinated and junior in right of payment to all Senior Indebtedness as set
forth in the Junior Subordinated Indenture, but entitled to receive payment in
full of all amounts payable with respect to the Junior Subordinated Debentures
before any shareholders of BancShares receive payments or distributions. Since
BancShares is the guarantor under the Guarantee and has agreed under the Junior
Subordinated Indenture to pay for all costs, expenses and liabilities of the
Issuer Trust (other than the Issuer Trust's obligations to the holders of the
Trust Securities), the positions of a holder of the Capital Securities and a
holder of such Junior Subordinated Debentures relative to other creditors and
to shareholders of BancShares in the event of liquidation or bankruptcy of
BancShares are expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the principal United States federal income
tax consequences of the purchase, ownership and disposition of Capital
Securities. The statements of law and legal conclusions set forth in this
summary regarding the tax consequences to the beneficial owners of Capital
Securities (the "Securityholders") represent the opinion of Hunton & Williams,
Richmond, Virginia, special tax counsel to BancShares. This summary does not
address all tax consequences that may be applicable to a Securityholder, nor
does it address the tax consequences to (i) persons that may be subject to
special treatment under United States federal income tax law, such as banks,
insurance companies, thrift institutions, regulated investment companies, real
estate investment trusts, tax-exempt organizations and dealers in securities or
currencies, (ii) persons that will hold Capital Securities as part of a
position in a "straddle" or as part of a "hedging", "conversion" or other
integrated investment transaction for federal income tax purposes, (iii) except
with respect to the discussion under the caption "United States Alien
Securityholders", persons whose functional currency is not the United States
dollar or (iv) persons that do not hold Capital Securities as capital assets.
This summary is based upon the Code, Treasury Regulations, Internal
Revenue Service (the "IRS") rulings and pronouncements and judicial decisions
now in effect, all of which are subject to change at any time. Such changes may
be applied retroactively in a manner that could cause the tax consequences to
vary substantially from the consequences described below, possibly adversely
affecting a beneficial owner of Capital Securities. In addition, the
authorities on which this summary is based (including authorities
distinguishing debt from equity) are subject to various interpretations, and it
is therefore possible that the federal income tax treatment of the Capital
Securities may differ from the treatment described below. No ruling has been
received from the IRS regarding the tax consequences of the Capital Securities.
Counsel's opinion regarding such tax consequences represents only counsel's
best legal judgment based on current authorities and is not binding on the IRS
or the courts.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS
IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF CAPITAL SECURITIES,
AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
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CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are intended to be, in the opinion of
Hunton & Williams should be, and BancShares intends to take the position that
the Junior Subordinated Debentures will be, classified for United States
federal income tax purposes as indebtedness under current law. No assurance can
be given, however, that the IRS will not challenge that position. According to
a petition recently filed in the United States Tax Court by a corporation
unrelated to BancShares and the Issuer Trust, the IRS has challenged the status
as indebtedness, for United States federal income tax purposes, of certain
purported debt instruments held by entities intended to be taxable as
partnerships for United States federal income tax purposes, where those
entities, in turn, issued preferred securities to investors. Although the
overall structure of the financing arrangement involved in that case is
somewhat similar to the financing structure for the Junior Subordinated
Debentures and the Issuer Trust, the relevant facts involved in that case
appear to differ significantly from those relating to the Junior Subordinated
Debentures and the Issuer Trust. The remainder of this summary assumes that the
Junior Subordinated Debentures will be classified as indebtedness for United
States federal income tax purposes.
CLASSIFICATION OF THE ISSUER TRUST
In the opinion of Hunton & Williams, under current law and assuming
compliance with the terms of the Trust Agreement, the Issuer Trust will be
classified as a grantor trust and not as an association taxable as a
corporation for United States federal income tax purposes. As a result, each
Securityholder will be treated as owning an undivided beneficial interest in
the Junior Subordinated Debentures. Accordingly, each Securityholder will be
required to include in its gross income its PRO RATA share of the interest,
including any OID, and any other income received or accrued with respect to the
Junior Subordinated Debentures whether or not cash is actually distributed to
the Securityholders. See " -- Interest Income and Original Issue Discount." No
amount included in income with respect to the Capital Securities will be
eligible for the dividends received deduction.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under Treasury Regulations applicable to debt instruments issued after
August 12, 1996 (the "Regulations"), a "remote" contingency that stated
interest will not be timely paid will be ignored in determining whether a debt
instrument is issued with OID. BancShares believes that the likelihood of its
exercising its option to defer payments of interest on the Junior Subordinated
Debentures is remote. Based on the foregoing, in the opinion of Hunton &
Williams, the Junior Subordinated Debentures will not be considered to be
issued with OID at the time of their original issuance and, accordingly, a
Securityholder should include in gross income such Securityholder's allocable
share of interest on the Junior Subordinated Debentures (other than any portion
of the first interest payment attributable to pre-issuance accrued interest,
which a Securityholder may treat as a reduction of the issue price of the
Junior Subordinated Debentures rather than as gross income) in accordance with
such Securityholder's method of tax accounting.
Under the Regulations, if BancShares should actually exercise its option
to defer any payment of interest, the Junior Subordinated Debentures would at
that time be treated as issued with OID, and all stated interest on the Junior
Subordinated Debentures would thereafter be treated as OID so long as the
Junior Subordinated Debentures remained outstanding. In such event, all of a
Securityholder's taxable interest income with respect to the Junior
Subordinated Debentures would be accounted for as OID on an economic accrual
basis regardless of such Securityholder's method of tax accounting, and actual
payments of stated interest would not be reported as taxable income.
Consequently, a Securityholder would be required to include in gross income OID
even though BancShares would not make any cash payments during an Extension
Period.
The Regulations have not been addressed in any rulings or other
interpretations by the IRS, and it is possible that the IRS could take a
position contrary to the interpretation herein.
MARKET DISCOUNT AND AMORTIZABLE PREMIUM
A secondary market purchaser of Capital Securities at a discount from the
principal amount (or, if the Junior Subordinated Debentures are deemed to be
issued with OID, the issue price plus accrued but unpaid OID) of the PRO RATA
share of Junior Subordinated Debentures represented by the Capital Securities
acquires such Capital Securities with "market discount" if the discount is not
less than the product of (i) 0.25% of the principal amount (or, if the Junior
Subordinated Debentures are deemed to be issued with OID, the issue price plus
accrued but unpaid OID) multiplied by (ii) the number of complete years to
maturity of the Junior Subordinated Debentures after the date of purchase. A
purchaser of Capital Securities with market discount generally will be required
to treat any gain on the sale, redemption or other disposition of all or part
of such Capital Securities as ordinary income to the extent of accrued (but not
previously taxable) market discount. Market discount generally will accrue
ratably during the period from the date of purchase to the maturity date,
unless
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<PAGE>
the Securityholder elects to accrue such market discount on the basis of a
constant interest rate. A Securityholder who acquires Capital Securities at a
market discount may be required to defer some interest deductions attributable
to any indebtedness incurred or continued to purchase or carry the Capital
Securities.
A secondary market purchaser of Capital Securities at a premium over the
stated principal amount of the PRO RATA share of Junior Subordinated Debentures
(plus accrued interest) generally may elect to amortize such premium ("Section
171 premium"), under a constant yield method, as an offset to interest income
on the Junior Subordinated Debentures. If the Junior Subordinated Debentures
are deemed to be issued with OID and Capital Securities are acquired at a
premium, the premium will not be Section 171 premium but will be amortized as a
reduction in the amount of OID includable in the Securityholder's income.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF CAPITAL SECURITIES
Except as noted below, under current law a distribution by the Issuer
Trust of the Junior Subordinated Debentures as described under the caption
"Description of Capital Securities -- Liquidation Distribution Upon
Dissolution," would not be a taxable event to Securityholders for United States
federal income tax purposes; such a distribution would result in a
Securityholder receiving directly its PRO RATA share of the Junior Subordinated
Debentures previously held indirectly through the Issuer Trust, with a holding
period and aggregate tax basis equal to the holding period and aggregate tax
basis such Securityholder had in its Capital Securities before such
distribution; and a Securityholder would account for interest, market discount
and amortizable premium in respect of Junior Subordinated Debentures received
from the Issuer Trust in the manner described above under " -- Interest Income
and Original Issue Discount" and " -- Market Discount and Amortizable Premium."
If, however, the Junior Subordinated Debentures were distributed in connection
with a Tax Event that would cause the Issuer Trust to be subject to United
States federal income tax with respect to income received or accrued on the
Junior Subordinated Debentures, the distribution likely would be a taxable
event to Securityholders. In that case, Securityholders would recognize gain or
loss equal to the difference between their adjusted bases in their Capital
Securities and the fair market value of the Junior Subordinated Debentures
distributed to the Securityholders, and they would obtain new holding periods
and fair market value bases for such Junior Subordinated Debentures.
SALE OR REDEMPTION OF CAPITAL SECURITIES
Upon a sale (including redemption) of Capital Securities, a Securityholder
will recognize gain or loss equal to the difference between its adjusted tax
basis in the Capital Securities and the amount realized on the sale of such
Capital Securities (excluding any amount attributable to any accrued interest
with respect to such Securityholder's PRO RATA share of the Junior Subordinated
Debentures not previously included in income, which will be taxable as ordinary
income). Provided that BancShares does not exercise its option to defer payment
of interest on the Junior Subordinated Debentures and the Capital Securities
are not considered to be issued with OID, a Securityholder's adjusted tax basis
in the Capital Securities generally will be its initial purchase price,
increased by any market discount included in income and reduced by any
amortized Section 171 premium for such Capital Securities. If the Junior
Subordinated Debentures are deemed to be issued with OID as a result of
BancShares' deferral of any interest payment, a Securityholder's tax basis in
the Capital Securities generally will be increased by OID previously includable
in such Securityholder's gross income to the date of disposition and decreased
by distributions or other payments received on the Capital Securities since and
including the commencement date of the first Extension Period. Such gain or
loss, except to the extent of any accrued market discount, generally will be a
capital gain or loss and generally will be a long-term capital gain or loss if
the Capital Securities have been held for more than one year.
Should BancShares exercise its option to defer any payment of interest on
the Junior Subordinated Debentures, the Capital Securities may trade at a price
that does not accurately reflect the value of accrued but unpaid interest with
respect to the underlying Junior Subordinated Debentures. As a result, and
because a Securityholder will be required to include in income accrued but
unpaid interest on Junior Subordinated Debentures and to add such amount to its
adjusted tax basis, such Securityholder may recognize a capital loss on a sale
of Capital Securities during an Extension Period. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest paid and any OID accrued with respect to the
Capital Securities to Securityholders (other than corporations and other exempt
Securityholders) will be reported to the IRS. It is expected that such income
on the Capital Securities will be reported to Securityholders on Form 1099 and
mailed to Securityholders by January 31 following each
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calendar year. "Backup" withholding at a rate of 31% will apply to payments of
interest and payments of disposition (including redemption) proceeds to a
non-exempt Securityholder unless the Securityholder furnishes to the payor its
taxpayer identification number, certifies that such number is correct, and
meets certain other conditions. Any amounts withheld from a Securityholder
under the backup withholding rules will be allowable as a refund or a credit
against such Securityholder's United States federal income tax liability.
UNITED STATES ALIEN SECURITYHOLDERS
For purposes of this discussion, a United States Alien Securityholder is
any corporation, individual, partnership, estate or trust that for United
States federal income tax purposes is a foreign corporation, non-resident alien
individual, foreign partnership, foreign estate or foreign trust. This
discussion assumes that income with respect to the Capital Securities is not
effectively connected with a trade or business in the United States in which
the United States Alien Securityholder is engaged.
Under current United States federal income tax law:
(i) payments by the Issuer Trust or any of its paying agents to any
holder of Capital Securities that is a United States Alien Securityholder
generally will not be subject to withholding or other Untied States federal
income tax, provided that, in the case of payments with respect to interest
(including OID), (a) the beneficial owner of the Capital Securities does
not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of BancShares entitled to vote, (b) the
beneficial owner of the Capital Securities is not a controlled foreign
corporation that is related to BancShares through stock ownership, and (c)
either (A) the beneficial owner of the Capital Securities certifies to the
Issuer Trust or its agent, under penalties of perjury, that it is a United
States Alien Securityholder and provides its name and address or (B) a
securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business
(a "Financial Institution") and holds the Capital Securities in such
capacity certifies to the Issuer Trust or its agent under penalties of
perjury that such statement has been received from the beneficial owner by
it or by a Financial Institution between it and the beneficial owner and
furnishes the Issuer Trust or its agent with a copy thereof; and
(ii) a United States Alien Securityholder of Capital Securities generally
will not be subject to withholding or other United States federal income
tax on any gain realized upon the sale or other disposition of Capital
Securities.
POSSIBLE TAX LAW CHANGES
In both 1996 and 1997, the Clinton Administration proposed to amend the
Code to deny deductions of interest and OID on instruments with features
similar to those of the Junior Subordinated Debentures when issued under
arrangements similar to the Issuer Trust. That proposal was not passed by, and
is not currently pending before, Congress. There can be no assurance, however,
that future legislative proposals, future regulations or official
administrative pronouncements, or future judicial decisions will not affect the
ability of BancShares to deduct interest on the Junior Subordinated Debentures.
Such a change could give rise to a Tax Event, which may permit BancShares, upon
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve, to cause a redemption of the
Capital Securities, as described more fully under "Description of the Capital
Securities -- Redemption."
ERISA CONSIDERATIONS
Before authorizing an investment in the Capital Securities, fiduciaries of
pension, profit sharing or other employee benefit plans subject to the Employee
Retirement Income Security Act of 1974 ("ERISA") ("Plans") should consider,
among other matters, (a) ERISA's fiduciary standards (including its prudence
and diversification requirements), (b) whether such fiduciaries have authority
to make such investment in the Capital Securities under the applicable Plan
investment policies and governing instruments, and (c) rules under ERISA and
the Code that prohibit Plan fiduciaries from causing a Plan to engage in a
"prohibited transaction."
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well
as individual retirement accounts and Keogh plans subject to Section 4975 of
the Code (also "Plans"), from, among other things, engaging in certain
transactions involving "plan assets" with persons who are "parties in interest"
under ERISA or "disqualified persons" under the Code ("Parties in Interest")
with respect to such Plan. A violation of these "prohibited transaction" rules
may result in an excise tax or other liabilities under ERISA and/or Section
4975 of the Code for such persons, unless exemptive relief is available under
an applicable statutory or administrative exemption. Employee benefit plans
that are governmental plans (as defined
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in Section 3(32) of ERISA), certain church plans (as defined in Section 3(33)
of ERISA) and foreign plans (as described in Section 4(b)(4) of ERISA) are not
subject to the requirements of ERISA or Section 4975 of the Code.
The Department of Labor (the "DOL") has issued a regulation (29 C.F.R. ss.
2510.3-101) (the "Plan Assets Regulation") concerning the definition of what
constitutes the assets of a Plan. The Plan Assets Regulation provides that, as
a general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
"equity" investment will be deemed, for purposes of ERISA, to be assets of the
investing Plan unless certain exceptions apply.
Pursuant to an exception contained in the Plan Assets Regulation, the
assets of the Issuer Trust would not be deemed to be "plan assets" of investing
Plans if, immediately after the most recent acquisition of any equity interest
in the Issuer Trust, less than 25% of the value of each class of equity
interests in the Issuer Trust were held by Plans, other employee benefit plans
not subject to ERISA or Section 4975 of the Code (such as governmental, church
and foreign plans), and entities holding assets deemed to be "plan assets" of
any Plan (collectively, "Benefit Plan Investors"). No assurance can be given
that the value of the Capital Securities held by Benefit Plan Investors will be
less than 25% of the total value of such Capital Securities at the completion
of the initial offering or thereafter, and no monitoring or other measures will
be taken with respect to the satisfaction of the conditions to this exception.
All the Common Securities will be purchased and held directly by BancShares.
Under another exception contained in the Plan Assets Regulation, if the
Capital Securities qualify as "publicly offered securities" under the Plan
Assets Regulation, the assets of the Issuer Trust would not be deemed to be
"plan assets" by reason of a Plan's acquisition or holding of such securities.
The Capital Securities would qualify as "publicly offered securities" if, among
other things, they are offered pursuant to an effective registration statement,
are owned by 100 or more investors independent of the issuer and each other at
the time of the offering, and are subsequently registered under the Exchange
Act. It is expected that the 100 investor requirement will not be satisfied and
that the New Capital Securities will not be registered under the Exchange Act.
However, the Capital Securities are being offered pursuant to an effective
Registration Statement.
There can be no assurance that any of the exceptions set forth in the Plan
Assets Regulation will apply to the purchase of Capital Securities offered
hereby and, as a result, an investing Plan's assets could be considered to
include an undivided interest in the Junior Subordinated Debentures held by the
Issuer Trust. In the event that assets of the Issuer Trust are considered
assets of an investing Plan, the Trustees, BancShares and/or other persons, in
providing services with respect to the Junior Subordinated Debentures, could be
considered fiduciaries to such Plan and subject to the fiduciary responsibility
provisions of Title I of ERISA. In addition, certain transactions involving the
Issuer Trust and/or the Capital Securities could be deemed to constitute direct
or indirect prohibited transactions under ERISA and Section 4975 of the Code
with respect to a Plan. For example, if BancShares is a Party in Interest with
respect to an investing Plan (either directly or by reason of its ownership of
the Bank or other subsidiaries), extensions of credit between BancShares and
the Issuer Trust (as represented by the Junior Subordinated Debentures and the
Guarantee) would likely be prohibited by Section 406(a)(1)(B) of ERISA and
Section 4975(c)(1)(B) of the Code.
The DOL has issued five prohibited transaction class exemptions ("PTCEs")
that may provide exemptive relief for direct or indirect prohibited
transactions resulting from the purchase or holding of the Capital Securities,
assuming that assets of the Issuer Trust were deemed to be "plan assets" of
Plans investing in the Trust (see above). Those class exemptions are PTCE 96-23
(for certain transactions determined by in-house asset managers), PTCE 91-38
(for certain transactions involving bank collective investment funds), PTCE
95-60 (for certain transactions involving insurance company general accounts),
PTCE 90-1 (for certain transactions involving insurance company pooled separate
accounts), and PTCE 84-14 (for certain transactions determined by independent
qualified asset managers).
Because of ERISA's prohibitions and those of Section 4975 of the Code, the
Capital Securities may not be purchased or held by any Plan, any entity whose
underlying assets include "plan assets" by reason of any Plan's investment in
the entity (a "Plan Asset Entity") or any other person investing "plan assets"
of any Plan, unless such purchase or holding is covered by the exemptive relief
provided by PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another applicable
exemption. If a purchaser or holder of the Capital Securities that is a Plan or
a Plan Asset Entity elects to rely on an exemption other than PTCE 96-23,
95-60, 91-38, 90-1 or 84-14, BancShares and the Issuer Trust may require a
satisfactory opinion of counsel or other evidence with respect to the
availability of such exemption for such purchase and holding. Any purchaser or
holder of the Capital Securities that is a Plan or a Plan Asset Entity or is
purchasing such securities on behalf of or with "plan assets" will be deemed to
have represented by its purchase and holding thereof that (a) the purchase and
holding of the Capital Securities is covered by the exemptive relief provided
by PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another
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applicable exemption, (b) BancShares and the Administrators are not
"fiduciaries," within the meaning of Section 3(21) of ERISA and the regulations
thereunder, with respect to such person's interest in the Capital Securities or
the Junior Subordinated Debentures, and (c) in purchasing the Capital
Securities, such person approves the purchase of the Junior Subordinated
Debentures and the appointment of the Issuer Trustees.
Insurance companies considering an investment in the Capital Securities
should note that the Small Business Job Protection Act of 1996 added new
Section 401(c) of ERISA relating to the status of the assets of insurance
company general accounts under ERISA and Section 4975 of the Code. Pursuant to
Section 401(c), the Department of Labor issued proposed regulations (the
"Proposed General Accounting Regulations") in December 1997 with respect to
insurance policies that are supported by an insurer's general account. The
Proposed General Accounting Regulations are intended to provide guidance on
which assets held by the insurer constitute "plan assets" of an ERISA Plan for
purposes of the fiduciary responsibility provisions of ERISA and Section 4975
of the Code.
Any plans or other entities whose assets include Plan assets subject to
ERISA or Section 4975 of the Code proposing to acquire Capital Securities
should consult with their own counsel.
Governmental Plans and certain church plans are not subject to ERISA, and
are also not subject to the prohibited transaction provisions of Section 4975
of the Code. However, state laws or regulations governing the investment and
management of the assets of such plans may contain fiduciary and prohibited
transaction provisions similar to those under ERISA and the Code discussed
above. Accordingly, fiduciaries of governmental and church plans, in
consultation with the advisers, should consider the impact of their respective
state laws on investments in the Capital Securities and the considerations
discussed above to the extent applicable.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, BancShares and the Issuer Trust have agreed that the Issuer Trust
will sell 2,000,000 Capital Securities to Wheat First Union, a division of
Wheat First Securities, Inc. (the "Underwriter"), and the Underwriter has
agreed to purchase that number of Capital Securities from the Issuer Trust.
Under the terms and conditions set forth in the Underwriting Agreement,
the Underwriter is committed to take and pay for all such Capital Securities
offered hereby, if any are taken.
The Underwriter proposes to offer the Capital Securities in part directly
to the public at the initial public offering price set forth on the cover page
of this Prospectus and in part to certain securities dealers at such price less
a concession of $ * per Capital Security. The Underwriter may allow, and
such dealers may reallow, a concession not to exceed $ * per Capital
Security to certain brokers and dealers. After the Capital Securities are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Underwriter.
BancShares and the Issuer Trust have granted to the Underwriter an option,
exercisable not later than 30 days after the date of this Prospectus to
purchase up to an additional $3,000,000 aggregate Liquidation Amount of Capital
Securities (300,000 Capital Securities) at the public offering price, less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus, plus accumulated Distributions, if any, from the date of issuance.
To the extent that the Underwriter exercises such option, the Issuer Trust will
be obligated, pursuant to the option, to sell such additional Capital
Securities to the Underwriter. The Underwriter may exercise such option only to
cover over-allotments made in connection with the sale of Capital Securities
offered hereby. If purchased, the Underwriter will offer such additional
Capital Securities on the same terms as those on which the $20,000,000
aggregate Liquidation Amount of the Capital Securities are being offered.
In connection with the offering of the Capital Securities, the Underwriter
and any selling group members and their respective affiliates may engage in
transactions effected in accordance with Rule 104 of the Commission's
Regulation M that are intended to stabilize, maintain or otherwise affect the
market price of the Capital Securities. Such transactions may include
over-allotment transactions in which the Underwriter creates a short position
for their own account by selling more Capital Securities than they are
committed to purchase from the Issuer 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 Capital Securities in the open market
following completion of the initial offering of Capital Securities. The
Underwriter also may engage in stabilizing transactions in which it bids for,
and purchases, Capital 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 Capital 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 Capital Securities at a level
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above that which might otherwise prevail in the open market. Neither BancShares
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 Capital 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.
In view of the fact that the proceeds from the sale of the Capital
Securities will be used to purchase the Junior Subordinated Debentures issued
by BancShares, the Underwriting Agreement provides that BancShares will pay as
compensation for the Underwriter's arranging the investment therein of such
proceeds an amount of $ * per Capital Security for the account of the
Underwriter.
BancShares and the Issuer Trust have agreed that, during the period
beginning from the date of the Underwriting Agreement and continuing to and
including the earlier of 180 days following the Closing Date, they will not
offer, sell, contract to sell or otherwise dispose of any additional securities
of the Issuer Trust or BancShares substantially similar to the Capital
Securities or any securities convertible into or exchangeable for or that
represent the right to receive any such similar securities, without the consent
of the Underwriter.
Prior to this offering, there has been no public market for the Capital
Securities. BancShares intends to apply to have the Capital Securities approved
for listing on AMEX. However, no assurance can be given that such application
will be approved or as to the liquidity of or the existence of any trading
market for the Capital Securities.
BancShares and the Issuer Trust have agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
The Underwriter or its affiliates have provided from time to time, and
expect to provide in the future, investment or commercial banking services to
BancShares and its affiliates, for which the Underwriter or its affiliates have
received or will receive customary fees and commissions.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Capital
Securities, the enforceability of the Trust Agreement and the creation of the
Issuer Trust will be passed upon by Richards, Layton & Finger, P.A., special
Delaware counsel to BancShares and the Issuer Trust. Certain tax matters
relating to the Capital Securities and the Issuer Trust will be passed upon for
BancShares by Hunton & Williams, Richmond, Virginia, special tax counsel to
BancShares. The validity of the Guarantee and the Junior Subordinated
Debentures will be passed upon for BancShares by Ward and Smith, P.A., Raleigh,
North Carolina, General Counsel to BancShares, and for the Underwriter by
Alston & Bird LLP, Washington, D.C., special counsel to the Underwriter. Ward
and Smith, P.A. and Alston & Bird LLP, will rely as to certain matters of
Delaware law on the opinion of Richards, Layton & Finger, P.A.
EXPERTS
The consolidated balance sheet of Fidelity BancShares (N.C.), Inc. and
subsidiary as of December 31, 1997, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for the year then ended,
have been included herein and in the Registration Statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The consolidated balance sheet of Fidelity BancShares (N.C.) Inc. and
subsidiary as of December 31, 1996, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the years in
the two-year period ended December 31, 1996, have been included herein and in
the Registration Statement in reliance upon the report of PricewaterhouseCoopers
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
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FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Page
-----
<S> <C>
Independent Auditors' Report ............................................................. F-2
Independent Auditors' Report ............................................................. F-3
Consolidated Balance Sheets as of June 30, 1998 (unaudited), and as of December 31, 1997
and 1996................................................................................ F-5
Consolidated Statements of Income for the six months ended June 30, 1998 and 1997
(unaudited), and for each of the years in the three-year period ended
December 31, 1997 ...................................................................... F-6
Consolidated Statements of Changes in Shareholders' Equity for each of the years in the
three-year period ended December 31, 1997 and for the six months ended
June 30, 1998 (unaudited) ............................................................... F-7
Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997
(unaudited), and for each of the years in the three-year period ended
December 31, 1997 ...................................................................... F-8
Notes to Consolidated Financial Statements ............................................... F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Fidelity BancShares (N.C.), Inc.:
We have audited the accompanying consolidated balance sheet of Fidelity
BancShares (N.C.), Inc. and subsidiary (the "Company") as of December 31, 1997,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1997 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Fidelity BancShares (N.C.), Inc. and subsidiary as of December 31, 1997, and
the results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Raleigh, North Carolina
February 6, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Fidelity BancShares (N.C.), Inc. and Subsidiary
Fuquay-Varina, North Carolina
We have audited the accompanying consolidated balance sheet of Fidelity
BancShares (N.C.), Inc. and subsidiary as of December 31, 1996, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the years in the two year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Fidelity BancShares (N.C.), Inc. and subsidiary as of December 31, 1996, and
the consolidated results of their operations and their cash flows for each of
the years in the two year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
By: /s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
February 28, 1997
F-3
<PAGE>
(This Page Intentionally Left Blank)
F-4
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
JUNE 30, DECEMBER 31,
1998 1997 1996
---------------- ---------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks .................................................. $ 23,766,730 $ 17,125,430 $ 16,516,187
Federal funds sold ....................................................... 43,400,000 33,300,000 23,700,000
------------ ------------ ------------
Total cash and cash equivalents ....................................... 67,166,730 50,425,430 40,216,187
------------ ------------ ------------
Investment securities (note 3):
Held to maturity (estimated fair value of $102,125,862, $132,289,335
and $129,044,000, respectively) ....................................... 102,052,076 132,131,039 128,811,330
Available-for-sale (cost of $2,644,600, $3,100,600 and $3,100,600,
respectively) ......................................................... 10,804,252 11,809,125 8,917,876
------------ ------------ ------------
Total investment securities ........................................... 112,856,328 143,940,164 137,729,206
------------ ------------ ------------
Loans (note 4) ........................................................... 385,270,983 358,250,205 334,880,101
Allowance for possible loan losses (note 4) .............................. (3,708,958) (4,144,752) (4,138,816)
------------ ------------ ------------
Loans, net ............................................................ 381,562,025 354,105,453 330,741,285
Federal Home Loan Bank of Atlanta stock, at cost (note 1) ................ 1,862,400 1,803,300 1,653,900
Premises and equipment, net (note 5) ..................................... 22,816,231 20,906,093 19,843,077
Accrued interest receivable .............................................. 3,629,714 4,069,044 3,747,816
Intangible assets ........................................................ 6,628,320 6,903,955 7,289,642
Other assets ............................................................. 1,201,342 841,139 916,871
------------ ------------ ------------
Total assets .......................................................... $597,723,090 $582,994,578 $542,137,984
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits (note 6):
Noninterest-bearing demand deposits .................................... $ 77,518,550 $ 67,456,795 $ 55,465,256
Savings and interest-bearing demand deposits ........................... 175,027,491 172,873,085 165,519,791
Time deposits .......................................................... 263,390,987 264,907,190 258,154,974
------------ ------------ ------------
Total deposits ........................................................ 515,937,028 505,237,070 479,140,021
Short-term borrowings (note 7) ........................................... 11,037,014 11,051,315 5,974,642
Accrued interest payable ................................................. 3,894,955 3,303,447 3,136,280
Other liabilities ........................................................ 4,312,111 4,285,643 2,645,048
------------ ------------ ------------
Total liabilities ..................................................... 535,181,108 523,877,475 490,895,991
------------ ------------ ------------
Commitments and contingencies (note 11)
Shareholders' equity (note 10):
Common stock ($25 par value; 29,200 shares authorized; 28,410
shares issued and outstanding) ........................................ 710,250 710,250 710,250
Surplus ................................................................ 6,251,174 6,251,174 6,251,174
Net unrealized gain on securities available-for-sale ................... 4,905,955 5,235,996 3,839,402
Retained earnings ...................................................... 50,674,603 46,919,683 40,441,167
------------ ------------ ------------
Total shareholders' equity ............................................ 62,541,982 59,117,103 51,241,993
------------ ------------ ------------
$597,723,090 $582,994,578 $542,137,984
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
SIX MONTHS ENDED JUNE 30,
---------------------------------
1998 1997
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
Interest income:
Interest and fees on loans ..................... $ 17,970,223 $ 16,557,710
Interest and dividends on investment
securities:
Non taxable interest income .................. 22,699 1,010
Taxable interest and dividend income ......... 3,315,355 4,240,482
Interest on federal funds sold ................. 1,126,085 207,950
------------ ------------
Total interest income ....................... 22,434,362 21,007,152
------------ ------------
Interest expense:
Deposits (note 6) .............................. 9,494,947 9,176,481
Short-term borrowings .......................... 191,747 146,186
------------ ------------
Total interest expense ...................... 9,686,694 9,322,667
------------ ------------
Net interest income ......................... 12,747,668 11,684,485
Provision for possible loan losses (note 4) ..... 179,819 180,008
------------ ------------
Net interest income after provision for
possible loan losses ....................... 12,567,849 11,504,477
------------ ------------
Noninterest income:
Service charges on deposit accounts ............ 1,212,880 1,088,713
Other service charges, commissions and
fees ......................................... 918,688 819,352
Gain on sale of assets acquired in
settlement of loans .......................... -- --
Gain on sale of mortgage servicing rights
(note 15) .................................... 507,456 --
------------ ------------
Total noninterest income .................... 2,639,024 1,908,065
------------ ------------
Noninterest expenses:
Salaries and employee benefits ................. 4,419,429 4,031,082
Occupancy and equipment ........................ 1,563,510 1,482,155
Data processing ................................ 657,768 602,835
Other .......................................... 1,770,202 1,479,720
------------ ------------
Total noninterest expense ................... 8,410,909 7,595,792
------------ ------------
Net income before income taxes .............. 6,795,964 5,816,750
Income tax expense (note 8) ..................... 2,586,484 2,193,134
------------ ------------
Net income .................................. $ 4,209,480 $ 3,623,616
============ ============
Per share information:
Net income ..................................... $ 148.17 $ 127.55
Cash dividends declared ........................ $ 16.00 $ 16.00
Weighted average shares outstanding ............ 28,410 28,410
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans ..................... $ 34,116,250 $ 29,060,388 $ 25,467,719
Interest and dividends on investment
securities:
Non taxable interest income .................. 3,150 7,387 36,227
Taxable interest and dividend income ......... 8,668,343 7,466,128 4,445,352
Interest on federal funds sold ................. 461,434 703,633 657,582
------------ ------------ ------------
Total interest income ....................... 43,249,177 37,237,536 30,606,880
------------ ------------ ------------
Interest expense:
Deposits (note 6) .............................. 18,692,963 15,957,942 12,335,539
Short-term borrowings .......................... 323,548 287,329 280,473
------------ ------------ ------------
Total interest expense ...................... 19,016,511 16,245,271 12,616,012
------------ ------------ ------------
Net interest income ......................... 24,232,666 20,992,265 17,990,868
Provision for possible loan losses (note 4) ..... 360,000 360,000 360,000
------------ ------------ ------------
Net interest income after provision for
possible loan losses ....................... 23,872,666 20,632,265 17,630,868
------------ ------------ ------------
Noninterest income:
Service charges on deposit accounts ............ 2,310,203 1,999,341 1,570,107
Other service charges, commissions and
fees ......................................... 1,664,193 1,345,255 1,058,301
Gain on sale of assets acquired in
settlement of loans .......................... -- 3,391 --
Gain on sale of mortgage servicing rights
(note 15) .................................... -- -- --
------------ ------------ ------------
Total noninterest income .................... 3,974,396 3,347,987 2,628,408
------------ ------------ ------------
Noninterest expenses:
Salaries and employee benefits ................. 8,232,811 7,045,092 5,594,048
Occupancy and equipment ........................ 3,164,555 2,454,998 1,864,910
Data processing ................................ 1,213,034 1,225,585 1,012,214
Other .......................................... 3,267,203 3,464,266 2,526,873
------------ ------------ ------------
Total noninterest expense ................... 15,877,603 14,189,941 10,998,045
------------ ------------ ------------
Net income before income taxes .............. 11,969,459 9,790,311 9,261,231
Income tax expense (note 8) ..................... 4,581,823 3,486,933 3,253,778
------------ ------------ ------------
Net income .................................. $ 7,387,636 $ 6,303,378 $ 6,007,453
============ ============ ============
Per share information:
Net income ..................................... $ 260.04 $ 220.63 $ 210.18
Cash dividends declared ........................ $ 32.00 $ 32.00 $ 24.00
Weighted average shares outstanding ............ 28,410 28,570 28,582
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
NET
UNREALIZED
GAIN
COMMON STOCK ON SECURITIES TOTAL
---------------------- AVAILABLE-FOR- RETAINED SHAREHOLDERS'
SHARES AMOUNT SURPLUS SALE EARNINGS EQUITY
---------- ----------- ------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 ............... 28,582 $714,550 $6,289,020 $1,485,000 $29,944,094 $38,432,664
Net income .............................. -- -- -- -- 6,007,453 6,007,453
Cash dividends ($24.00 per share) ....... -- -- -- -- (685,968) (685,968)
Change in net unrealized gain, net of
deferred taxes of $566,000 ............ -- -- -- 596,500 -- 596,500
------ -------- ---------- ---------- ----------- -----------
Balance, December 31, 1995 ............... 28,582 714,550 6,289,020 2,081,500 35,265,579 44,350,649
Net income .............................. -- -- -- -- 6,303,378 6,303,378
Cash dividends ($32.00 per share) ....... -- -- -- -- (914,336) (914,336)
Purchase and retirement
of common stock ....................... (172) (4,300) (37,846) -- (213,454) (255,600)
Change in net unrealized gain, net of
deferred taxes of $646,874 ............ -- -- -- 1,757,902 -- 1,757,902
------ -------- ---------- ---------- ----------- -----------
Balance, December 31, 1996 ............... 28,410 710,250 6,251,174 3,839,402 40,441,167 51,241,993
Net income .............................. -- -- -- -- 7,387,636 7,387,636
Cash dividends ($32.00 per share) ....... -- -- -- -- (909,120) (909,120)
Change in net unrealized gain, net of
deferred taxes of $1,152,886 .......... -- -- -- 1,396,594 -- 1,396,594
------ -------- ---------- ---------- ----------- -----------
Balance, December 31, 1997 ............... 28,410 710,250 6,251,174 5,235,996 46,919,683 59,117,103
Net income .............................. -- -- -- -- 4,209,480 4,209,480
Cash dividends ($16.00 per share)........ -- -- -- -- (454,560) (454,560)
Change in net unrealized gain, net of
deferred taxes of $(218,832)........... -- -- -- (330,041) -- (330,041)
------ -------- ---------- ---------- ----------- -----------
Balance, June 30, 1998 ................... 28,410 $710,250 $6,251,174 $4,905,955 $50,674,603 $62,541,982
====== ======== ========== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
SIX MONTHS ENDED JUNE 30,
---------------------------------
1998 1997
---------------- ----------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................... $ 4,209,480 $ 3,623,616
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .......................... 831,808 768,150
Amortization (accretion) on investment securities ...... (12,647) (2,460)
Gain on sale of assets acquired in settlement of
loans ................................................. -- --
Loss (gain) on sales of premises and equipment ......... (10,000) (50)
Provision for possible loan losses ..................... 179,819 180,008
Origination of loans held for sale ..................... (9,560,050) (2,728,425)
Proceeds from sales of loans held for sale ............. 9,592,734 2,744,037
Gain on sale of mortgage servicing rights .............. (507,456) --
Gain on sales of loans held for sale ................... (32,684) (15,612)
Deferred income taxes .................................. 490,488 (316,952)
Decrease (increase) in accrued interest receivable ..... 439,330 (370,103)
Decrease (increase) in other assets .................... (84,568) (16,547)
Increase (decrease) in other liabilities ............... 210,812 478,634
Increase in accrued interest payable ................... 591,508 532,462
-------------- --------------
Net cash provided by operating activities ............. 6,338,574 4,876,758
-------------- --------------
Cash flows from investing activities:
Purchase of securities available-for-sale ................ -- --
Purchase of securities held to maturity .................. (60,111,328) (24,957,731)
Proceeds from maturities and issuer calls of
securities held to maturity ............................ 90,202,938 7,300,522
Purchase of FHLB of Atlanta stock ........................ (59,100) (149,400)
Proceeds from the redemption of FHLB of Atlanta
stock .................................................. -- --
Net increase in loans .................................... (27,636,391) (19,213,638)
Expenditures for premises and equipment .................. (2,741,946) (489,676)
Proceeds from sales of premises and equipment ............ 10,000 50
Proceeds from sales of assets acquired in settlement
of loans ............................................... -- --
Proceeds from sale of mortgage servicing rights .......... 507,456 --
Net cash received on purchases of bank and branches -- --
-------------- --------------
Net cash used in investing activities ................. 171,629 (37,509,873)
-------------- --------------
Cash flows from financing activities:
Net increase in deposits ................................. 10,699,958 5,577,496
Net increase (decrease) in short-term borrowings ......... (14,301) 7,122,584
Cash dividends paid ...................................... (454,560) (454,560)
Purchase and retirement of common stock .................. -- --
-------------- --------------
Net cash provided by financing activities ............. 10,231,097 12,245,520
-------------- --------------
Net increase (decrease) in cash and cash
equivalents .......................................... 16,741,300 (20,387,595)
Cash and cash equivalents at beginning of period .......... 50,425,430 40,216,187
-------------- --------------
Cash and cash equivalents at end of period ................ $ 67,166,730 $ 19,828,592
============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ................. $ 9,095,186 $ 8,790,205
============== ==============
Cash paid during the period for income taxes ............. $ 2,314,126 $ 1,877,546
============== ==============
Supplemental disclosure of noncash financing and
investing activities:
Unrealized gains (losses) on available-for-sale
securities, net of deferred tax effects of
$(218,832), $1,152,886, $646,874 and $566,000,
respectively ........................................... $ (330,041) $ 628,631
============== ==============
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
---------------- ----------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................... $ 7,387,636 $ 6,303,378 $ 6,007,453
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .......................... 2,192,046 1,659,572 1,176,643
Amortization (accretion) on investment securities ...... (16,999) 68,723 (36,615)
Gain on sale of assets acquired in settlement of
loans ................................................. -- (3,391) --
Loss (gain) on sales of premises and equipment ......... (4,569) (6,900) 4,112
Provision for possible loan losses ..................... 360,000 360,000 360,000
Origination of loans held for sale ..................... (6,811,425) (16,006,555) (17,191,218)
Proceeds from sales of loans held for sale ............. 6,845,794 16,056,305 17,249,987
Gain on sale of mortgage servicing rights .............. -- -- --
Gain on sales of loans held for sale ................... (34,369) (49,750) (58,769)
Deferred income taxes .................................. (163,177) (125,411) (367,800)
Decrease (increase) in accrued interest receivable ..... (321,228) (1,197,301) (375,292)
Decrease (increase) in other assets .................... 258,732 (340,251) (675,801)
Increase (decrease) in other liabilities ............... 126,118 548,851 369,884
Increase in accrued interest payable ................... 167,167 568,451 1,111,768
-------------- --------------- --------------
Net cash provided by operating activities ............. 9,985,726 7,835,721 7,574,352
-------------- --------------- --------------
Cash flows from investing activities:
Purchase of securities available-for-sale ................ -- (1,000,600) --
Purchase of securities held to maturity .................. (46,854,606) (115,082,700) (21,024,924)
Proceeds from maturities and issuer calls of
securities held to maturity ............................ 43,551,896 59,500,000 16,500,000
Purchase of FHLB of Atlanta stock ........................ (149,400) (105,200) (1,177,200)
Proceeds from the redemption of FHLB of Atlanta
stock .................................................. -- 48,900 --
Net increase in loans .................................... (23,724,169) (26,665,184) (10,087,866)
Expenditures for premises and equipment .................. (3,840,387) (6,587,279) (2,055,138)
Proceeds from sales of premises and equipment ............ 975,581 554,309 75,089
Proceeds from sales of assets acquired in settlement
of loans ............................................... -- 67,832 --
Proceeds from sale of mortgage servicing rights .......... -- -- --
Net cash received on purchases of bank and branches -- 42,028,648 5,334,523
-------------- --------------- --------------
Net cash used in investing activities ................. (30,041,085) (47,241,274) (12,435,516)
-------------- --------------- --------------
Cash flows from financing activities:
Net increase in deposits ................................. 26,097,049 36,577,301 33,102,501
Net increase (decrease) in short-term borrowings ......... 5,076,673 482,553 (1,951,807)
Cash dividends paid ...................................... (909,120) (914,336) (685,968)
Purchase and retirement of common stock .................. -- (255,600) --
-------------- --------------- --------------
Net cash provided by financing activities ............. 30,264,602 35,889,918 30,464,726
-------------- --------------- --------------
Net increase (decrease) in cash and cash
equivalents .......................................... 10,209,243 (3,515,635) 25,603,562
Cash and cash equivalents at beginning of period .......... 40,216,187 43,731,822 18,128,260
-------------- --------------- --------------
Cash and cash equivalents at end of period ................ $ 50,425,430 $ 40,216,187 $ 43,731,822
============== =============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ................. $ 18,849,344 $ 15,466,820 $ 11,504,244
============== =============== ==============
Cash paid during the period for income taxes ............. $ 4,437,300 $ 3,599,540 $ 3,585,973
============== =============== ==============
Supplemental disclosure of noncash financing and
investing activities:
Unrealized gains (losses) on available-for-sale
securities, net of deferred tax effects of
$(218,832), $1,152,886, $646,874 and $566,000,
respectively ........................................... $ 1,396,594 $ 1,757,902 $ 596,500
============== =============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
JUNE 30, 1998 AND 1997 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(a) NATURE OF OPERATIONS
Fidelity BancShares (N.C.), Inc. (the "Company") is a bank holding company
incorporated under the General Corporation Law of the State of Delaware. The
principal activity of the Company is ownership of The Fidelity Bank (the
"Bank"), which operates thirty-five offices in eastern and central North
Carolina. The Bank's primary source of revenue is derived from loans to
customers and from its investment securities portfolio. The loan portfolio is
comprised mainly of real estate, commercial, consumer, and equity line of
credit loans. These loans are primarily collateralized by residential and
commercial properties, commercial equipment, and personal property.
(b) CONSOLIDATION
The accompanying consolidated financial statements of the Company include
the accounts the Bank, its wholly-owned subsidiary. The Bank also has two
wholly-owned subsidiaries, Fidelity Properties, Inc. and TFB Financial Services.
Fidelity Properties, Inc. was incorporated on November 2, 1995 under the laws of
the State of North Carolina. There have been no transactions by Fidelity
Properties, Inc. other than the initial capitalization of 100,000 shares of no
par value common stock. TFB Financial Services, Inc., formerly Servco Service
Corporation, was acquired in the purchase of Perpetual State Bank in 1996 (see
note 2). TFB Financial Services, Inc., provides depositors alternative
non-deposit investment products. All significant intercompany transactions have
been eliminated in consolidation, and all adjustments considered necessary for a
fair presentation of the results for the interim periods presented, which are
unaudited, have been included (such adjustments are normal and recurring in
nature). Operating results for the six-month period ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
(c) BASIS OF FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the reporting date and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(d) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks,
and federal funds sold. Generally, federal funds are purchased and sold for
one-day periods.
(e) INVESTMENT SECURITIES
The Company accounts for investment securities under Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". This statement addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. These
investments are to be classified into three categories and accounted for as
follows: (1) debt securities that the entity has the positive intent and the
ability to hold to maturity are classified as HELD-TO-MATURITY and reported at
amortized cost; (2) debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as
TRADING securities and reported at fair value, with unrealized gains and losses
included in earnings; and (3) debt and equity securities not classified as
either securities held to maturity or trading securities are classified as
AVAILABLE-FOR-SALE and consist of securities which may be sold in response to
changes in interest rates, prepayment risk, regulatory capital requirements and
liquidity needs. Such securities are reported at fair value, with unrealized
gains and losses excluded from earnings and reported as a separate component of
stockholders' equity. The classification of securities is determined by
management at the date of purchase.
Amortization of premiums and accretion of discounts are recognized as
adjustments to interest income using the interest method. Gains and losses on
sales of securities, computed based on specific identification of adjusted cost
of each security, are included in other income at the time of the sale.
F-9
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES -- (Continued)
(f) LOANS
Loans are stated at the amount of unpaid principal, reduced by an
allowance for loan losses. Interest on loans is recorded as earned on an
accrual basis.
Loans, including impaired loans, are generally classified as nonaccrual if
they are past due as to maturity or payment of principal or interest for a
period of more than 90 days, unless such loans are well-secured and in the
process of collection. Loans that are current or past due less than 90 days may
also be classified as nonaccrual if repayment in full of principal and/or
interest is in doubt. Loans may be returned to accrual status when all
principal and interest amounts contractually due (including arrearages) are
reasonably assured of repayment within an acceptable period of time, and there
is a sustained period of repayment performance (generally a minimum of six
months) by the borrower, in accordance with the contractual terms.
While a loan (including an impaired loan) is classified as nonaccrual and
the future collectibility of the recorded loan balance is doubtful, collections
of interest and principal are generally applied as a reduction to the principal
outstanding. When the future collectibility of the recorded loan balance is not
in doubt, interest income may be recognized on a cash basis. In the case where
a nonaccrual 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. Receipts in excess of that
amount are recorded as recoveries to the allowance for loan losses until prior
charge-offs have been fully recovered.
(g) ALLOWANCE AND PROVISION FOR POSSIBLE LOAN LOSSES
The Company provides for loan losses on the allowance method. Additions to
the allowance for possible loan losses are provided by charges to operations
based on various factors which, in management's judgment, deserve current
recognition in estimating possible losses. Such factors considered by
management include the market value of the underlying collateral, growth and
composition of the loan portfolio, the relationship of the allowance for loan
losses to outstanding loans, delinquency trends, and economic conditions.
Management evaluates the carrying value of loans periodically and the
allowance is adjusted accordingly. While management uses the best information
available to make evaluations, future adjustments to the allowance may be
necessary if conditions differ substantially from the assumptions used in
making the evaluations.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for possible
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.
Allowances for possible loan losses related to loans that are identified
as impaired are based on discounted cash flows using the loans' initial
interest rates or the fair value of the collateral if the loan is collateral
dependent. Larger groups of smaller balance homogeneous loans that are
collectively evaluated for impairment (such as credit card, residential
mortgage and consumer installment loans) are excluded from this impairment
evaluation and their allowance for possible loan losses is calculated in
accordance with the allowance for possible loan losses policy discussed above.
(h) ASSETS ACQUIRED IN SETTLEMENT OF LOANS
Assets acquired in settlement of loans consists of property acquired
through a foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure
and loans classified as in-substance foreclosure. In accordance with SFAS No.
114, a loan is classified as in-substance foreclosure when the Company has
taken possession of the collateral regardless of whether formal foreclosure
proceedings have taken place. Assets acquired in settlement of loans are
recorded initially at the lower of the loan balance plus unpaid accrued
interest or estimated fair value of the property less estimated selling costs
at the date of foreclosure. The initial recorded value may be subsequently
reduced by additional allowances, which are charged to earnings, if the
estimated fair value of the property declines below the initial recorded value.
Costs related to the improvement of the property are capitalized, whereas those
related to holding the property are expensed.
F-10
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES -- (Continued)
(i) MEMBERSHIP/INVESTMENT IN FEDERAL HOME LOAN BANK OF ATLANTA STOCK
The Company is a member of the Federal Home Loan Bank of Atlanta ("FHLB").
Membership provides the Company with the ability to draw $40 million of
advances from the FHLB, subject to a signed blanket collateral agreement. No
advances were drawn by the Company in 1997 or 1996.
As a requirement for membership, the Company invests in stock of the FHLB
in the amount of 1% of its outstanding residential loans or 5% of its
outstanding advances from the FHLB, whichever is greater. Such stock is pledged
as collateral for any FHLB advances drawn by the Company. At December 31, 1997
and 1996, the Company owned 18,033 and 16,539 shares of the FHLB's $100 par
value capital stock, respectively. No ready market exists for such stock, which
is carried at cost.
(j) PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using an accelerated method based on the estimated
useful lives of assets. Useful lives range from 10 to 31.5 years for premises
and from 5 to 10 years for equipment and fixtures. Expenditures for repairs and
maintenance are charged to expense as incurred. Upon retirement or other
disposition of the assets, the cost and the related accumulated depreciation
are removed from the accounts and any gains or losses are included in income.
(k) INTANGIBLE ASSETS
Intangible assets are composed primarily of goodwill and core deposit
premiums. Amortization of goodwill and core deposit premiums is computed using
the straight-line method based on the estimated useful lives of the assets
(current useful lives range from 10 - 15 years). The lives of the assets are
estimated by management at the time the assets are acquired using information
available at that time and are subject to re-evaluation as new information
becomes available.
(l) INCOME TAXES
Income tax expense is based on consolidated net income and generally
differs from income taxes paid due to deferred income taxes and benefits
arising from income and expenses being recognized in different periods for
financial and income tax reporting. The Company uses the asset and liability
method to account for deferred income taxes. The objective of the asset and
liability method is to establish deferred tax assets and liabilities for the
temporary differences between the financial reporting basis and the income tax
basis of the Company's assets and liabilities at enacted rates expected to be
in effect when such amounts are recovered or settled. The Bank and its
subsidiaries are included in the consolidated federal return filed by the
Company. Each subsidiary pays its allocation of federal income taxes or
receives a payment to the extent that tax benefits are realized. The Company
and its subsidiaries each file separate state income tax returns.
(m) NET INCOME PER SHARE
Net income per share is computed based on the weighted average number of
common shares outstanding during the year. The Company adopted SFAS No. 128,
"Earnings Per Share," in 1997, which requires net income per share to be
calculated on both a basic and diluted basis. Because the Company has no
potentially dilutive securities, the adoption of SFAS No. 128, had no impact on
the Company's consolidated financial statements and restatement of prior years'
net income per share amounts was not necessary.
(n) NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. It does not address
issues of recognition or measurement for comprehensive income and its
components. The provisions of SFAS No. 130 are effective for fiscal years
beginning after December 15, 1997. The Company adopted this statement in the
first quarter of fiscal 1998. During the six months ended June 30, 1998 and
1997, comprehensive income, which consisted of net income and changes in net
unrealized gains and losses, net of applicable tax effects, amounted to
$3,879,439 (unaudited) and $4,252,247 (unaudited), respectively.
F-11
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES -- (Continued)
(o) RECLASSIFICATIONS
Certain amounts in the 1995 and 1996 consolidated financial statements of
the Company have been reclassified to conform with the 1997 presentation, with
no effect on previously reported stockholders' equity or net income.
(2) ACQUISITIONS
On September 1, 1996, the Company acquired Perpetual State Bank
("Perpetual"). The Company paid $17.85 per share for the 600,000 shares and
23,280 shares of Perpetual's common and restricted stock, respectively. The
acquisition was accounted for as a purchase and accordingly, the purchase price
was allocated to the assets acquired and liabilities assumed based on estimated
fair values at the date of the acquisition. Goodwill of approximately $971,000
was recorded, representing the excess of the purchase price over the fair value
of the net assets acquired. Loans and deposits acquired in the acquisition were
$40 million and $35 million, respectively. The results of operations of
Perpetual have been included in the consolidated financial statements from the
date of acquisition.
Pro-forma net interest income and net income for 1996 and 1995 would have
been approximately $22,350,000 and $19,638,000 and $6,550,000 and $6,203,000,
respectively, assuming the acquisition of Perpetual occurred at the beginning
of the respective periods.
On April 16, 1996 the Company purchased four branches from a North
Carolina commercial bank for which $4,026,000 was paid by the Company. Assets
and deposits acquired were $928,000 and $55,304,000, respectively.
There were no acquisitions by the Company during 1997 or 1998.
(3) INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities at
December 31, 1997 and 1996 are as follows:
<TABLE>
1997
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Available-for-sale:
Marketable equity securities ......... $ 3,100,600 $8,708,525 $ -- $ 11,809,125
============= ========== ========= ============
Held to maturity:
U.S. agency obligations .............. $ 217,718 $ 2,867 $ -- $ 220,585
U.S. Treasury ........................ 129,913,321 180,789 (25,360) 130,068,750
State and political subdivisions ..... 2,000,000 -- -- 2,000,000
------------- ---------- --------- ------------
$ 132,131,039 $ 183,656 $ (25,360) $132,289,335
============= ========== ========= ============
</TABLE>
<TABLE>
1996
------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Available-for-sale:
Marketable equity securities .... $ 3,100,600 $5,817,276 $ -- $ 8,917,876
============= ========== ========== ============
Held to maturity:
U.S. Treasury ................... $ 128,591,717 $ 378,695 $ (149,412) $128,821,000
State and political subdivisions 219,613 3,387 -- 223,000
------------- ---------- ---------- ------------
$ 128,811,330 $ 382,082 $ (149,412) $129,044,000
============= ========== ========== ============
</TABLE>
F-12
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVESTMENT SECURITIES -- (Continued)
The amortized cost and estimated fair value of debt securities at December
31, 1997 by contractual maturities are as follows:
<TABLE>
ESTIMATED
AMORTIZED FAIR
COST VALUE
---------------- ---------------
<S> <C> <C>
Due in one year or less:
U.S. Treasury ............................ $ 114,916,857 $114,965,625
U.S. agency obligations .................. 200,000 200,178
State and political subdivisions ......... 2,000,000 2,000,000
Due after one year through five years:
U.S. Treasury ............................ 14,996,464 15,103,125
Due after ten years:
U.S. agency obligations .................. 17,718 20,407
------------- ------------
$ 132,131,039 $132,289,335
= ============ ============
</TABLE>
There were no sales of investment securities during 1997, 1996 and 1995.
Investment securities with an amortized cost of approximately $27,343,000
were pledged to secure public deposits at December 31, 1997.
(4) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Major classifications of loans as of December 31, 1997 and 1996 are
summarized as follows:
<TABLE>
1997 1996
----------------- ----------------
<S> <C> <C>
Loans secured by real estate:
Construction ........................... $ 33,850,960 $ 28,786,688
Single-family residential .............. 186,216,002 180,301,590
Commercial ............................. 57,221,618 51,628,480
Other .................................. 4,579,022 5,839,090
Commercial ............................. 41,850,966 36,330,439
Consumer ............................... 28,630,156 26,934,399
Agricultural ........................... 3,335,116 2,669,149
Other .................................. 2,566,365 2,390,266
------------- ------------
358,250,205 334,880,101
Allowance for possible loan losses ..... (4,144,752) (4,138,816)
------------- ------------
$ 354,105,453 $330,741,285
============= ============
</TABLE>
There were no loans designated as held for sale at December 31, 1997 and
1996.
The Company offers loans to its officers, directors, and employees for the
financing of their personal residences and for other personal purposes. These
loans are made in the ordinary course of business and are made on substantially
the same terms prevailing at the time as comparable transactions with other
persons. Management does not believe these loans involve more than the normal
risk of collectibility or present other unfavorable features.
F-13
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES -- (Continued)
The following is a reconciliation of aggregate loans outstanding to
executive officers, directors, and their immediate families for the year ended
December 31, 1997:
<TABLE>
<S> <C>
Balance at beginning of year ..... $ 1,641,214
New loans ........................ 800,000
Principal repayments ............. (294,183)
-----------
Balance at end of year ........... $ 2,147,031
===========
</TABLE>
A summary of the allowance for possible loan losses for the years ended
December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Balance at beginning of year ...... $ 4,138,816 $4,077,691 $3,785,930
Allowance acquired in acquisition . -- 116,765 --
Provision for possible loan losses 360,000 360,000 360,000
Charge-offs ....................... (848,275) (595,288) (152,513)
Recoveries ........................ 494,211 179,648 84,274
----------- ---------- ----------
Balance at end of year ............ $ 4,144,752 $4,138,816 $4,077,691
=========== ========== ==========
</TABLE>
At December 31, 1997 and 1996, the Company had no nonaccrual loans. In
addition, at and during the years ended December 31, 1997 and 1996, the Company
had no impaired loans as defined by SFAS No. 114. Accruing loans ninety or more
days past due totaled $-0- and $85,000 at December 31, 1997 and 1996,
respectively.
At December 31, 1997 and 1996 the Company was servicing loans for others
amounting to $47,936,000 and $46,257,000, respectively. Servicing loans for
others generally consists of collecting mortgage payments, maintaining escrow
accounts, disbursing payments to investors and foreclosure processing. Loan
servicing income is recorded on the accrual basis and includes service fees
from investors and certain charges collected from borrowers, such as late fees
(see note 15).
Effective January 1, 1997, the Company adopted SFAS No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities" ("SFAS No. 125"). Among other provisions, SFAS No. 125 provides
accounting standards for contractually specified servicing fees. Servicing
rights were previously accounted for under the provisions of SFAS No. 122,
"Accounting for Mortgage Servicing Rights". There were no capitalized servicing
rights material to the consolidated financial statements at either December 31,
1997 or 1996.
(5) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1997 and 1996 are as follows:
<TABLE>
1997 1996
--------------- ---------------
<S> <C> <C>
Land .............................. $ 6,069,565 $ 5,114,063
Building and improvements ......... 16,746,236 16,023,395
Furniture and equipment ........... 5,704,251 6,064,833
------------ ------------
28,520,052 27,202,291
Less accumulated depreciation ..... (7,613,959) (7,359,214)
------------ ------------
Premises and equipment, net ....... $ 20,906,093 $ 19,843,077
============ ============
</TABLE>
(6) DEPOSITS
At December 31, 1997 and 1996, time deposits of $100,000 or more amounted
to approximately $49,903,000 and $47,353,000, respectively. For the years ended
December 31, 1997, 1996 and 1995 interest expense on time deposits of $100,000
or more amounted to approximately $2,596,000, $2,304,000 and $1,444,000,
respectively.
F-14
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) DEPOSITS -- (Continued)
Time deposit accounts as of December 31, 1997, mature in the following
years and approximate amounts: 1998 - $215,169,000; 1999 - $28,836,000; 2000 -
$20,140,000; and thereafter - $762,000.
(7) SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 1997 and 1996 consist of the
following:
<TABLE>
1997 1996
-------------- -------------
<S> <C> <C>
Securities sold under agreements to repurc$a 7,632,000 $3,995,000
Treasury tax and loan deposits -- note option3,419,315 1,979,642
------------ ----------
$ 11 ,051,315 $5,974,642
==== ======== ==========
</TABLE>
Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<S> <C> <C>
Average rate during year .................. 3.86% 3.53%
Average balance during year ............... $ 4,741,000 $3,827,000
Maximum month-end balance during year ..... $ 7,632,000 $4,111,000
</TABLE>
These borrowings have maturities of less than 90 days. Securities sold
under agreements to repurchase represent transactions whereby the Company sells
investment securities to certain of its commercial customers on an overnight
basis and repurchases such securities the next day.
(8) INCOME TAXES
The components of income taxes for the years ended December 31, 1997, 1996
and 1995 are as follows:
<TABLE>
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal ......... $ 4,399,708 $3,374,644 $3,201,216
State ........... 345,292 237,700 420,362
----------- ---------- ----------
4,745,000 3,612,344 3,621,578
----------- ---------- ----------
Deferred:
Federal ......... (139,382) (197,950) (367,800)
State ........... (23,795) 72,539 --
----------- ---------- ----------
(163,177) (125,411) (367,800)
----------- ---------- ----------
$ 4,581,823 $3,486,933 $3,253,778
=========== ========== ==========
</TABLE>
The reconciliation of expected income tax expense at the statutory federal
rate with income tax expense for the years ended December 31, 1997, 1996 and
1995 is as follows:
<TABLE>
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Expected income tax expense at statutory rate (35%) ..... $ 4,189,311 $3,426,609 $3,241,431
Increase (decrease) in income tax expense resulting from:
State taxes, net ....................................... 208,973 (48,560) 273,235
Tax exempt income ...................................... (25,389) (23,482) (14,328)
Other, net ............................................. 208,928 132,366 (246,560)
----------- ---------- ----------
Income tax expense ..................................... $ 4,581,823 $3,486,933 $3,253,778
=========== ========== ==========
</TABLE>
F-15
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) INCOME TAXES -- (Continued)
The deferred tax components at December 31, 1997 and 1996 are as follows:
<TABLE>
1997 1996
-------------- -------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses ........................... $ 1,312,939 $1,259,625
Amortization of intangibles ......................... 102,750 94,305
Deferred compensation ............................... 163,777 121,189
Depreciation ........................................ 54,474 15,522
Other ............................................... 155,525 155,115
----------- ----------
Total gross deferred tax assets ....................... 1,789,465 1,645,756
----------- ----------
Less: Valuation allowance .................... -- --
----------- ----------
Net deferred tax asset ................................ 1,789,465 1,645,756
Deferred tax liabilities:
Premises and equipment .............................. 193,426 194,022
Bond accretion ...................................... 70,309 64,811
Pension costs ....................................... 58,824 83,194
Unrealized gains on available-for-sale securities ... 3,472,529 1,977,874
----------- ----------
Total gross deferred tax liabilities .................. 3,795,088 2,319,901
----------- ----------
Net deferred tax liability ............................ $ 2,005,623 $ 674,145
=========== ==========
</TABLE>
No valuation allowance for deferred tax assets was required at December
31, 1997 or 1996 as management has determined that it is more likely than not
that the net deferred tax asset can be realized. During 1997, the net deferred
tax liability related to unrealized gains on available-for-sale securities
increased approximately $1,152,886 due to 1997 fair value adjustments required
under SFAS 115 for securities available-for-sale and further increased due to
other adjustments totaling $341,769.
(9) EMPLOYEE BENEFIT PLANS
CAPITAL ACCUMULATION PLAN
The Company has a profit sharing 401(k) plan (the "Plan") for all full
time employees with at least one year of service, which covers substantially
all employees. Under the Plan, employees may contribute up to an annual maximum
as determined under the Internal Revenue Code, not to exceed 16% of the
participant's compensation. The Company matches 100% of such contributions for
the first three percent of the participant's contributions and 50% of the next
three percent. Further, the Company may make additional contributions on a
discretionary basis. The Plan provides that employees' contributions are 100%
vested at all times and the Company's contributions are 100% vested after five
years of service. The Company incurred $227,427, $196,491 and $166,242 of
expense related to the Plan for the years ended December 31, 1997, 1996 and
1995, respectively.
PENSION PLAN
The Company has a noncontributory, defined benefit pension plan which
covers substantially all full-time employees. The Company's funding policy is
based on actuarially calculated amounts to fund normal pension cost and any
unfunded accrued liability. The Plan utilizes the projected unit credit
actuarial cost method.
F-16
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) EMPLOYEE BENEFIT PLANS -- (Continued)
Net pension expense for the years ended December 31, 1997, 1996 and 1995
includes the following components:
<TABLE>
1997 1996 1995
--------------- ------------- ---------------
<S> <C> <C> <C>
Service cost -- benefits earned during the year ........... $ 167,609 $ 131,738 $ 130,738
Interest cost on projected benefit obligation ............. 343,859 310,667 295,047
Return on assets .......................................... (1,244,808) (496,602) (1,279,949)
Net deferral of actuarial gain ............................ 840,787 123,257 912,783
Net amortization of unrecognized net transition asset ..... (45,613) (55,173) (55,173)
------------ ---------- ------------
Net pension expense .................................... $ 61,834 $ 13,887 $ 3,446
============ ========== ============
</TABLE>
The funded status of the Plan as of December 31, 1997 and 1996 was as
follows:
<TABLE>
1997 1996
-------------- ---------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation:
Vested benefits ........................................ $ 4,225,782 $ 3,715,927
Nonvested benefits ..................................... 125,663 58,409
------------ ------------
Total accumulated benefit obligation .................. 4,351,445 3,774,336
Effect of anticipated salary increases ................. 986,675 812,726
------------ ------------
Projected benefit obligation .............................. 5,338,120 4,587,062
Plan assets, at fair value ................................ (7,296,169) (6,178,798)
------------ ------------
Plan assets in excess of projected benefit obligation ..... 1,958,049 1,591,736
Unrecognized prior service costs .......................... 76,588 86,148
Unrecognized net gain ..................................... (1,457,873) (984,113)
Unrecognized net asset from transition date ............... (257,491) (312,664)
------------ ------------
Prepaid pension expense ............................... $ 319,273 $ 381,107
============ ============
</TABLE>
Actuarial assumptions used to determine the Plan's funded status were as
follows:
<TABLE>
1997 1996
---------- ----------
<S> <C> <C>
Discount rate .............................. 7.25% 7.25%
Rate of increase in compensation levels .... 4.25% 4.25%
Expected long-term rate of return on assets 8.25% 8.25%
</TABLE>
The Plan's investment portfolio consists of approximately 50% equity
securities, 49% fixed income investments, and 1% cash equivalents at December
31, 1997.
EMPLOYEE DEATH BENEFIT AND POST-RETIREMENT NON-COMPETITION AND
CONSULTATION AGREEMENTS
The Company has in place Employee Death Benefit and Post-Retirement
Non-Competition and Consultation Agreements (the "Agreements") covering two of
its executive officers. The Agreements provide for certain benefits to be paid
to the executive officers upon either their retirement (as defined in the
Agreements) or their death. The Company's accrual for these future benefits was
$420,000 and $310,000 at December 31, 1997 and 1996, respectively.
(10) REGULATORY RESTRICTIONS
The Company is regulated by the Board of Governors of the Federal Reserve
System ("FRB"). The Bank is regulated by the Federal Deposit Insurance
Corporation ("FDIC") and the State of North Carolina Office of the Commissioner
of Banks.
Subject to applicable law, the Boards of Directors of the Company and the
Bank may each provide for the payment of dividends. Future declarations of cash
dividends, if any, by the Company may depend upon dividend payments by the Bank
F-17
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) REGULATORY RESTRICTIONS -- (Continued)
to the Company. The Bank, as a North Carolina banking corporation, may pay
dividends only out of undivided profits as determined pursuant to North
Carolina General Statutes Section 53-87. However, regulatory authorities may
limit payment of dividends by any bank when it is determined that such a
limitation is in the public interest and is necessary to ensure the financial
soundness of the bank.
Under regulations of the Federal Reserve, banking affiliates are required
to maintain certain average reserve balances which include both cash on hand
and deposits with the Federal Reserve. These deposits are included in cash and
cash equivalents in the accompanying balance sheets. At December 31, 1997 and
1996 the Bank was required to maintain such balances at $5,782,000 and
$4,375,000, respectively.
The Company and the Bank are subject to various regulatory capital
requirements administered by federal and state banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Company's consolidated financial statements.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios, as set
forth in the table below. Management believes, as of December 31, 1997, that
the Company and the Bank meet all capital adequacy requirements to which they
are subject.
As of December 31, 1997, the most recent notification from the FDIC
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 amounts and ratios, as set forth in the table below. There are
no conditions or events since that notification that management believes have
changed the Bank's category.
The actual capital amounts and ratios for the Company and the Bank are
presented in the table below (dollars in thousands):
<TABLE>
TO BE WELL
FOR CAPITALIZED
ACTUAL
----------------------------------------------- CAPITAL UNDER PROMPT
COMPANY BANK
----------------------- -----------------------
ADEQUACY CORRECTIVE
AMOUNT RATIO AMOUNT RATIO PURPOSES ACTION PROVISIONS
----------- ----------- ----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997:
Total Capital (to Risk Weighted Assets) ...... $ 51,122 13.93% $ 48,345 13.55% =>8.00% =>10.00%
Tier 1 Capital (to Risk Weighted Assets) ..... 46,977 12.80 44,200 12.39 =>4.00 =>6.00
Tier 1 Capital (to Average Adjusted Assets) .. 46,977 8.52 44,200 7.87 =>4.00 =>5.00
</TABLE>
<TABLE>
TO BE WELL
FOR CAPITALIZED
ACTUAL
--------------------------------------------- CAPITAL UNDER PROMPT
COMPANY BANK
---------------------- ----------------------
ADEQUACY CORRECTIVE
AMOUNT RATIO AMOUNT RATIO PURPOSES ACTION PROVISIONS
---------- ----------- ---------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
Total Capital (to Risk Weighted Assets) ...... $44,112 13.79% $42,111 13.80% =>8.00% =>10.00%
Tier 1 Capital (to Risk Weighted Assets) ..... 40,113 12.54 37,972 12.44 =>4.00 =>6.00
Tier 1 Capital (to Average Adjusted Assets) .. 40,113 8.55 37,972 8.21 =>4.00 =>5.00
</TABLE>
(11) COMMITMENTS AND CONTINGENCIES
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. These financial instruments include commitments to extend credit,
lines of credit and standby letters of credit. These instruments involve
elements of credit risk in excess of amounts recognized in the accompanying
consolidated financial statements.
The Company's risk of loss in the event of nonperformance by the other
party to the commitment to extend credit, line of credit or standby letter of
credit is represented by the contractual amount of these instruments. The
Company uses the
F-18
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) COMMITMENTS AND CONTINGENCIES -- (Continued)
same credit policies on the borrower in making commitments under such
instruments as it does for on-balance sheet instruments. The amount of
collateral obtained, if any, is based on management's credit evaluation of the
borrower. Collateral held varies, but may include accounts receivable,
inventory, real estate and time deposits with financial institutions. Since
many of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements.
As of December 31, 1997 and 1996, outstanding financial instruments whose
contract amounts represent credit risk were as follows:
<TABLE>
1997 1996
--------------- --------------
<S> <C> <C>
Outstanding commitments to lend, unfunded loans
and lines of credit ................. $113,927,044 $92,233,410
============ ===========
Standby and commercial letters of credit $ 5,806,858 $ 877,918
============ ===========
</TABLE>
The Company's lending is concentrated primarily in eastern and central
North Carolina and the surrounding communities in which it operates. Credit has
been extended to certain of the Company's customers through multiple lending
transactions; however, there is no concentration to any single customer or
industry.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS No. 107), requires the disclosure of
estimated fair values for financial instruments. Quoted market prices, if
available, are utilized as an estimate of the fair value of financial
instruments. Because no quoted market prices exist for a significant part of
the Company's financial instruments, the fair value of such instruments has
been derived based on management's assumptions with respect to future economic
conditions, the amount and timing of future cash flows and estimated discount
rates. Different assumptions could significantly affect these estimates.
Accordingly, the net realizable value could be materially different from the
estimates presented below. In addition, the estimates are only indicative of
individual financial instruments' values and should not be considered an
indication of the fair value of the Company taken as a whole. The following
methods and assumptions were used to estimate the fair value of each class of
financial instrument:
CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD
The carrying amounts of cash and due from banks from federal funds sold are
equal to the fair value due to the liquid nature of these financial
instruments.
INVESTMENT SECURITIES
Fair values of investment securities are based on quoted market prices. If
a quoted market price is not available, fair value is estimated using
quoted market prices for similar investment securities.
LOANS RECEIVABLE
Fair values have been estimated by type of loan: residential real estate
loans, consumer loans, and commercial and other loans. For variable-rate
loans that reprice frequently and with no significant credit risk, fair
values are based on carrying values. The fair values of fixed rate loans
are estimated by discounting the future cash flows using the current rates
at which loans with similar terms would be made to borrowers with similar
credit ratings and for the same remaining maturities. The Company has
assigned no fair value to off-balance sheet financial instruments since
they are either short term in nature or subject to immediate repricing.
DEPOSITS
The fair value of demand deposits, savings accounts and money market
deposits is the amount payable on demand at year end. Fair value of
certificates of deposit is estimated by discounting the future cash flows
using the current rate offered for similar deposits with the same
maturities.
F-19
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS -- (Continued)
SHORT-TERM BORROWINGS
The carrying amounts of short-term borrowings approximate fair values due
to the fact these borrowings mature within 90 days.
ACCRUED INTEREST RECEIVABLE AND PAYABLE
The carrying amount of accrued interest approximates market.
The following table presents information for financial assets and
liabilities as of December 31, 1997 and 1996 (in thousands):
<TABLE>
1997 1996
------------------------ ---------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks ................. $ 17,125 $ 17,125 $ 16,516 $ 16,516
Federal funds sold ...................... 33,300 33,300 23,700 23,700
Investment securities available-for-sale 11,809 11,809 8,918 8,918
Investment securities held to maturity .. 132,131 132,289 128,811 129,044
Federal Home Loan Bank of Atlanta stock . 1,803 1,803 1,654 1,654
Accrued interest receivable ............. 4,069 4,069 3,748 3,748
Loans, net .............................. 354,105 353,561 330,741 332,062
--------- -------- -------- --------
Total financial assets ............... $ 554,342 $553,956 $514,088 $515,642
========= ======== ======== ========
Financial liabilities:
Deposits ................................ 505,237 503,848 479,140 477,025
Short-term borrowings ................... 11,051 11,051 5,975 5,975
Accrued interest payable ................ 3,303 3,303 3,136 3,136
--------- -------- -------- --------
Total financial liabilities .......... $ 519,591 $518,202 $488,251 $486,136
========= ======== ======== ========
</TABLE>
(13) PARENT COMPANY FINANCIAL DATA
The Company's principal asset is its investment in The Fidelity Bank.
Condensed financial statements for the parent company as of December 31, 1997
and 1996 and for the three years then ended are as follows (in thousands):
CONDENSED BALANCE SHEETS
<TABLE>
1997 1996
----------- ----------
<S> <C> <C>
Cash ................................. $ 141 $ 34
Investments .......................... 11,809 7,900
Investment in wholly-owned subsidiary 50,604 45,273
Other assets ......................... 36 8
-------- -------
Total assets .............................. $ 62,590 $53,215
======== =======
Deferred tax liability ............... 3,473 1,973
Shareholders' equity ................. 59,117 51,242
-------- -------
Total liabilities and stockholders' equity $ 62,590 $53,215
======== =======
</TABLE>
F-20
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) PARENT COMPANY FINANCIAL DATA -- (Continued)
CONDENSED STATEMENTS OF INCOME
<TABLE>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Dividends from wholly-owned subsdiairy ..................... $ 1,971 $ 965 $ 768
Other dividends ............................................ 100 90 81
Miscellaneous expenses ..................................... (26) (40) (47)
------- ------ ------
Income before equity in undistributed earnings of
wholly-owned subsidiary .............................. 2,045 1,015 802
Equity in undistributed earnings of wholly-owned subsidiary 5,343 5,288 5,205
------- ------ ------
Net income ............................................. $ 7,388 $6,303 $6,007
======= ====== ======
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income ........................................................ $ 7,388 $ 6,303 $ 6,007
Equity in undistributed earnings of wholly-owned subsidiary ....... (5,343) (5,288) (5,205)
Dividend of investment securities from wholly-owned subsidiary .... (1,001) -- --
(Increase) decrease in other assets ............................... (28) 1 37
-------- -------- --------
Net cash provided by operating activities ...................... 1,016 1,016 839
-------- -------- --------
Cash flows from financing activities:
Dividends paid .................................................... (909) (914) (686)
Redemption of common stock ........................................ -- (255) --
-------- -------- --------
Net cash used in financial activities .......................... (909) (1,169) (686)
Net increase (decrease) in cash and cash equivalents ........... 107 (153) 153
Cash and cash equivalents at beginning of year ..................... 34 187 34
-------- -------- --------
Cash and cash equivalents at end of year ........................... $ 141 $ 34 $ 187
======== ======== ========
</TABLE>
(14) RELATED PARTIES
The Company has entered into various service contracts with another bank
holding company and its subsidiary (the "Corporation"). The Corporation has two
significant shareholders, which are also significant shareholders of the
Company. At December 31, 1997, the first significant shareholder beneficially
owned 11,155 shares, or 39.26 percent, of the Company's outstanding common
stock. At the same date, the second significant shareholder beneficially owned
3,123 shares, or 10.99 percent, of the Company's outstanding common stock.
These two significant shareholders are directors and executive officers of
the Corporation and at December 31, 1997, beneficially owned 2,548,519 shares,
or 26.46 percent, and 1,157,052 shares, or 12.01 percent, respectively, of the
Corporation's outstanding Class A common stock, and 632,146 shares, or 36.04
percent, and 190,191 shares, or 10.84 percent, respectively, of the
Corporation's outstanding Class B common stock. The above totals include
258,136 Class A common shares, or 2.68 percent, and 41,825 Class B Common
shares, or 2.38 percent, that are considered to be beneficially owned by both
of the shareholders and, therefore, are included in each of their totals. A
subsidiary of the Corporation is First-Citizens Bank & Trust Company ("FCB").
Data and item processing expenses, including courier services, proof and
encoding, microfilming, check storage, statement rendering and item processing
forms, paid by the Company to the Corporation totaled approximately $1,213,000,
$1,226,000 and $1,012,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. Other expenses paid by the Company to the Corporation totaled
approximately $639,000, $392,000 and $329,000 for the years ended December 31,
1997, 1996 and 1995, respectively. The Company also has a correspondent
relationship with the Corporation. Correspondent
F-21
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) RELATED PARTIES -- (Continued)
account balances with the Corporation included in cash, due from banks and
federal funds sold totaled $41,253,338 and $30,905,906 at December 31, 1997 and
1996, respectively.
(15) SUBSEQUENT COMPANY EVENTS (UNAUDITED)
During January 1998, the Company sold rights to service $51 million in
mortgage loans to Southern Bank and Trust Company ("SBT"), Mount Olive, North
Carolina, for $522,000 (including accrued interest), resulting in a gain of
$507,456. The two significant shareholders of the Company also are significant
shareholders of Southern BancShares (N.C.), Inc., the parent holding company
for SBT.
The Company has entered into an agreement, subject to regulatory approval,
to buy five branches from another bank. The effect on the Company will be an
increase of approximately $75.1 million in deposits and $34.8 million in assets
(including premises and loans). This transaction is scheduled to be completed
October 1998.
The Company has opened five DE NOVO branches subsequent to December 31,
1997. The Company is currently planning the opening of a sixth DE NOVO branch
by the end of 1998.
F-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY BANCSHARES, THE ISSUER TRUST OR BY THE UNDERWRITER. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF BANCSHARES OR THE ISSUER TRUST SINCE THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
UNTIL * , 1998 ALL DEALERS EFFECTING TRANSACTIONS IN THE CAPITAL
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
--------------------------------
TABLE OF CONTENTS
<TABLE>
Page
---------
<S> <C>
Available Information ...................................... 4
Prospectus Summary ......................................... 5
Risk Factors ............................................... 12
Fidelity BancShares (N.C.), Inc. ........................... 18
FIDBANK Capital Trust I .................................... 19
Accounting Treatment ....................................... 20
Use of Proceeds ............................................ 20
Consolidated Ratios of Earnings to Fixed Charges ........... 21
Capitalization ............................................. 22
Selected Consolidated Financial Data ....................... 23
Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 24
Business ................................................... 47
Supervision and Regulation ................................. 50
Beneficial Ownership of Securities ......................... 54
Directors and Executive Officers ........................... 56
Executive Compensation ..................................... 57
Certain Relationships and Related Transactions ............. 58
Description of the Capital Securities ...................... 59
Description of the Junior Subordinated Debentures .......... 70
Description of the Guarantee ............................... 77
Relationship Among the Capital Securities, the Junior
Subordinated Debentures and the Guarantee ............... 79
Certain Federal Income Tax Consequences .................... 80
ERISA Considerations ....................................... 83
Underwriting ............................................... 85
Legal Matters .............................................. 86
Experts .................................................... 86
Fidelity BancShares (N.C.), Inc. and Subsidiary
Index to Consolidated Financial Statements .............. F-1
</TABLE>
$20,000,000
FIDBANK CAPITAL TRUST I
% CAPITAL SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED,
AS DESCRIBED HEREIN, BY
FIDELITY BANCSHARES
(N.C.), INC.
--------------------------
PROSPECTUS
--------------------------
WHEAT FIRST UNION
* , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of
the Securities covered by this Registration Statement, other than underwriting
discounts and commissions, are as follows:
<TABLE>
<S> <C>
Printing fees and expenses ........... $ 40,000
Legal fees and expenses .............. 75,000
Accounting fees and expenses ......... *
Blue Sky fees and expenses ........... 1,000
Trustees' fees and expenses .......... 7,500
Other (1) ............................ 20,000
--------
Total .............................. $ *
========
</TABLE>
- ---------
(1) Includes Securities and Exchange Commission registration fee of $6,785.
* To be added by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
PERMISSIBLE INDEMNIFICATION. Under the General Corporation Law of the
State of Delaware, Registrant generally may 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 (other than an action by or in the right
of Registrant), whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director or officer of Registrant,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of Registrant
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful.
In the case of an action or suit by or in the right of Registrant to
procure a judgment in its favor, Registrant generally may indemnify any person
who was or is a party, or is threatened to be made a party, to any such
threatened, pending or completed action or suit by reason of the fact that he
is or was a director or officer of Registrant, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
Registrant and, if he shall have been adjudged to be liable to Registrant, only
to the extent the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
MANDATORY INDEMNIFICATION. To the extent that a director or officer of
Registrant is successful on the merits or otherwise in defense of any action,
suit or proceeding, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
ADVANCE FOR EXPENSES. Expenses incurred by a director or officer of
Registrant in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by Registrant in advance of the final
disposition of the action, suit or proceeding upon receipt of an undertaking by
or on behalf of such person to repay amounts advanced if it ultimately is
determined that such person is not entitled to be indemnified by Registrant
against such expenses.
INDEMNIFICATION BY REGISTRANT. Registrant's Bylaws provide for
indemnification of its directors and officers to the fullest extent permitted
by Delaware law and require its Board of Directors to take all actions
necessary and appropriate to authorize such indemnification.
Under Delaware law, Registrant may purchase insurance on behalf of any
person who is or was a director or officer against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not Registrant would have the power to indemnify him
against such liability. Registrant maintains a liability insurance policy
covering its directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Registrant has not sold any securities within the past three years.
II-1
<PAGE>
ITEM 16. EXHIBITS.
An index of exhibits appears at page II-5 and is incorporated herein by
reference.
ITEM 17. UNDERTAKINGS.
Each of the undersigned Registrants hereby undertakes that:
1. The Registrants will provide to the Underwriter at the closing
specified in the underwriting agreements certificates in such denominations and
registered in such names as required by the Underwriter to permit prompt
delivery to each purchaser.
2. For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the 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.
3. For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions set forth in Item 15 hereof, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission (the "Commission") such indemnification is
against public policy as expressed in the Securities 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 Securities Act and will be governed
by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Fidelity
BancShares (N.C.), Inc., certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-1 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Fuquay-Varina, North Carolina, on
August 25, 1998.
FIDELITY BANCSHARES (N.C.), INC.
By: /s/ BILLY T. WOODARD
---------------------------------
BILLY T. WOODARD
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on August 25,
1998, in the capacities and on the date indicated.
<TABLE>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------------ ----------------
<S> <C> <C>
/s/ BILLY T. WOODARD Chairman, Chief Executive August 25, 1998
- ----------------------------------
BILLY T. WOODARD Officer and Director
(principal executive officer)
/s/ HAYWOOD A. LANE President and Director August 25, 1998
- ----------------------------------
HAYWOOD A. LANE
/s/ F. RAY ALLEN Director August 25, 1998
- ----------------------------------
F. RAY ALLEN
/s/ WILEY H. COZART, M.D. Director August 25, 1998
- ----------------------------------
WILEY H. COZART, M.D.
/s/ WALLACE H. MITCHELL Director August 25, 1998
- ----------------------------------
WALLACE H. MITCHELL
/s/ SAM C. RIDDLE Director August 25, 1998
- ----------------------------------
SAM C. RIDDLE, JR.
</TABLE>
II-3
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, FIDBANK
Capital Trust I certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-1 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Fuquay-Varina, North Carolina, on August 25, 1998.
FIDBANK CAPITAL TRUST I
By: FIDELITY BANCSHARES (N.C.), INC.
By: /s/ BILLY T. WOODARD
---------------------------------
BILLY T. WOODARD
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ------------- ---------------------------------------------------------------------------------------------------- ---------
<S> <C> <C>
1.1 Form of Underwriting Agreement for Capital Securities (filed herewith)
3.1 BancShares' Certificate of Incorporation (filed herewith)
3.2 BancShares' By-laws (filed herewith)
4.1 Initial Trust Agreement of FIDBANK Capital Trust I, as amended (filed herewith)
4.2 Certificate of Trust of FIDBANK Capital Trust I (filed herewith)
4.3 Form of Amended and Restated Trust Agreement of FIDBANK Capital Trust I (filed herewith)
4.4 Form of Capital Security Certificate for FIDBANK Capital Trust I (included as an Exhibit to
Exhibit 4.3 hereto)
4.5 Form of Guarantee Agreement (filed herewith)
4.6 Form of Junior Subordinated Indenture between BancShares and Bankers Trust Company, as
Debenture Trustee (filed herewith)
4.7 Form of Junior Subordinated Debenture (included in Section 2.2 of Exhibit 4.6 hereto)
5.1 Opinion of Ward and Smith, P.A., relating to the legality of the Junior Subordinated Debentures and
the Guarantee (filed herewith)
5.2 Opinion of Richards, Layton & Finger, P.A., as to the legality of the Capital Securities (filed
herewith)
8.1 Opinion of Hunton & Williams as to certain federal income tax matters (filed herewith)
10.1 Employee Death Benefit and Post-Retirement Noncompetition and Consultation Agreement between
Billy T. Woodard and The Fidelity Bank (filed herewith)
10.2 First Amendment to Employee Death Benefit and Post-Retirement Noncompetition and Consultation
Agreement between Billy T. Woodard and The Fidelity Bank (filed herewith)
10.3 Employee Death Benefit and Post-Retirement Noncompetition and Consultation Agreement between
Haywood A. Lane, Jr., and The Fidelity Bank (filed herewith)
10.4 First Amendment to Employee Death Benefit and Post-Retirement Noncompetition and Consultation
Agreement between Haywood A. Lane, Jr., and The Fidelity Bank (filed herewith)
10.5 *Agreement for Banking Support Services
12.1 Statement re: computation of ratio of earnings to fixed charges (filed herewith)
16.1 Letter regarding change in certifying accountant (filed herewith)
21.1 List of subsidiaries (filed herewith)
23.1 Consent of KPMG Peat Marwick LLP (filed herewith)
23.2 Consent of PricewaterhouseCoopers LLP (filed herewith)
23.3 Consent of Ward and Smith, P.A. (included in Exhibit 5.1 hereto)
23.4 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2 hereto)
23.5 Consent of Hunton & Williams (included in Exhibit 8.1 hereto)
25.1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of Bankers Trust
Company, as Trustee under the Junior Subordinated Indenture, as Property Trustee under the
Amended and Restated Trust Agreement of FIDBANK Capital Trust I, and as Guarantee Trustee
under the Guarantee for the benefit of holders of Capital Securities of FIDBANK Capital Trust I
(filed herewith)
27.1 Financial data schedule (filed herewith)
27.2 Financial data schedule (filed herewith)
</TABLE>
- ---------
* To be filed by amendment.
II-5
2,000,000
Capital Securities
FIDBANK Capital Trust I
UNDERWRITING AGREEMENT
__________, 1998
Wheat First Securities, Inc.
as Representative of the Several Underwriters
c/o Wheat First Securities, Inc.
901 East Byrd Street
Richmond, Virginia 23219
Ladies and Gentlemen:
FIDBANK Capital Trust I (the "Trust"), a statutory business trust created
under the Business Trust Act (the "Delaware Act") of the State of Delaware
(Chapter 38, Title 12, of the Delaware Code, 12 Del. (Sections 3801, ET SEQ.))
and Fidelity BancShares (N.C.), Inc., a Delaware corporation (the "Company" and
together with the Trust, the "Offerors"), confirm their agreement (the
"Agreement") with Wheat First Securities, Inc. ("Wheat First") and each of the
other Underwriters named in Schedule A hereto (collectively, the "Underwriters,"
which term shall also include any underwriter substituted as hereinafter
provided in Section 10 hereof) for whom Wheat First is acting as representative
(in such capacity, Wheat First will be referred to as the "Representative"),
with respect to the issue and sale by the Trust and the purchase by the
Underwriters, acting severally and not jointly, of the respective number set
forth in Schedule A of 2,000,000 _____% Capital Securities (liquidation amount
of $10.00 per security) of the Trust. Said aggregate of 2,000,000 Capital
Securities are herein referred to as the "Firm Capital Securities." In addition,
the Company proposes to grant to the Underwriters an option to purchase up to
300,000 additional ______% Capital Securities (the "Optional Capital
Securities"), as provided in Section 2 hereof. The Firm Capital Securities and,
to the extent such option is exercised, the Optional Capital Securities are
hereinafter collectively referred to as the "Capital Securities." The Capital
Securities will be guaranteed by the Company, to the extent described in the
Prospectus, with respect to distributions and payments upon liquidation,
redemption and otherwise pursuant to the Guarantee Agreement (the "Guarantee"),
to be dated as of _______, 1998, between the Company and Bankers Trust Company,
as Trustee (the "Guarantee Trustee"). The Capital Securities issued in
book-entry form will be issued to Cede & Co. as nominee of The Depository Trust
Company ("DTC") pursuant to a letter agreement, to be dated as of
<PAGE>
the First Closing Date (as defined herein) or the Second Closing Date (as
defined herein), as the case may be, (the "DTC Agreement"), among the Trust, the
Property Trustee (as defined below) and DTC.
The entire proceeds from the sale of the Capital Securities in the Offering
will be combined with the entire proceeds from the sale by the Trust to the
Company of its common securities (the "Common Securities") to purchase
$3,092,790 aggregate principal amount (plus up to an additional $20,618,560
aggregate principal amount if the Underwriters' over-allotment option is
exercised) of ____% Subordinated Debentures due _______, 2028 (the "Subordinated
Debentures") issued by the Company. The Capital Securities and the Common
Securities will be issued pursuant to the amended and restated trust agreement,
to be dated as of ________, 1998 (the "Trust Agreement"), among the Company, as
depositor, and _____________ and ______________ as administrators (the
"Administrators"), Bankers Trust Company, as property trustee (the "Property
Trustee"), and Bankers Trust Company (Delaware), as Delaware trustee (the
"Delaware Trustee," and, together with the Property Trustee and the
Administrators, the "Trustees"), and the holders, from time to time, of
undivided beneficial interests in the assets of the Trust. The Subordinated
Debentures will be issued pursuant to an indenture, to be dated as of _______,
1998 (the "Indenture"), between the Company and Bankers Trust Company, as
trustee (the "Debenture Trustee").
The Capital Securities, the Guarantee and the Subordinated Debentures are
hereinafter collectively referred to as the "Securities."
The Indenture, the Trust Agreement, the Guarantee, the DTC Agreement, and
this Agreement are hereinafter referred to collectively as the "Operative
Documents."
The Offerors have filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 333-______)
containing a preliminary prospectus relating to the Offering under the
Securities Act of 1933, as amended (the "1933 Act"), and have filed such
amendments thereto and such amended preliminary prospectuses as may have been
required by the Commission on or prior to the date hereof and will file such
additional amendments to the registration statement and such amended
prospectuses relating to the Offering (pursuant to the Securities Exchange Act
of 1934, as amended (the "1934 Act"), the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), the 1933 Act, the rules and
regulations of the Commission under the 1933 Act (the "1933 Act Regulations") or
otherwise) as may hereafter be required by the Commission or pursuant to the
terms of this Agreement. Such registration statement, as amended, at the time
such registration statement becomes effective and, in the event any
post-effective amendment thereto becomes effective prior to the First Closing
Date (as hereinafter defined), at the time such post-effective amendment becomes
effective, and the prospectus relating to the Offering constituting a part
thereof (including, in the case of such registration statement, as amended, and
in the case of such prospectus, all financial statements, schedules and exhibits
thereto and the
-2-
<PAGE>
information, if any, deemed to be a part thereof pursuant to Rule 430A(b) of the
1933 Act Regulations), as from time to time amended or supplemented pursuant to
the 1934 Act, the 1934 Act Regulations, the 1933 Act, the 1933 Act Regulations
or otherwise, are referred to herein as the "Registration Statement" and the
"Prospectus," respectively, except that if any revised prospectus relating to
the Offering shall be provided to the Underwriters by the Offerors for use in
the Offering which differs from the prospectus relating to the Offering on file
at the Commission at the time of such use (whether or not such revised
prospectus is required to be filed by the Offerors pursuant to Rule 424(b) of
the 1933 Act Regulations), the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first provided to the Underwriters for
such use. The term "Preliminary Prospectus" means the preliminary prospectus
dated ______, 1998 distributed by the Underwriters prior to the date hereof.
The Offerors understand that the Underwriters propose to make the Offering
of the Securities as soon as the Representative deems advisable after the
Registration Statement becomes effective and after the Trust Agreement, the
Indenture and the Guarantee have been qualified under the Trust Indenture Act of
1939, as amended (the "1939 Act").
SECTION 1. Representations and Warranties.
(a) The Offerors jointly and severally represent and warrant to each
Underwriter as of the date hereof and as of each of the First Closing Date and
the Second Closing Date, and agree with each Underwriter as follows:
(i) The Registration Statement and any Rule 462(b) Registration
Statement have been declared effective by the Commission under the
Securities Act. The Company has complied with the Commission's
satisfaction with all requests of the Commission for additional and
supplemental information. No stop order suspending the effectiveness of
the Registration Statement, or any other amendment thereto and no cease
and desist order or temporary order under Section 8A of the 1933 Act has
been issued, and no proceeding for such purpose has been instituted or is
pending or threatened by the Commission. No order preventing or suspending
the use of any Prospectus or any Preliminary Prospectus has been issued by
the Commission, and each Preliminary Prospectus, at the time of filing
thereof, conformed in all material respects to the requirements of the
1933 Act and the 1933 Act Regulations and did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty shall not apply
to any statements or omissions made in reliance upon and in conformity
with the "Underwriter Information" (as defined in Section 6(a) hereof)
relating to the Underwriters furnished in writing to the Company by or on
behalf of the Underwriters expressly for use therein.
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<PAGE>
(ii) At the time the Registration Statement and any amendment
thereto becomes effective, the Registration Statement and any amendment
thereto, and the Prospectus and any further amendment or supplement
thereto, will conform in all material respects to the requirements of the
1933 Act and the 1933 Act Regulations and will not, as of effective date
of each of the Registration Statement, and any amendment thereto, and as
of the applicable filing date of the Prospectus and any amendment or
supplement thereto, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that this
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with the Underwriter Information.
(iii) KPMG Peat Marwick LLP, and PriceWaterhouseCoopers which has
audited certain financial statements of the Company, are independent
public accountants with respect to the Company and its subsidiaries, as
required by the 1933 Act, the 1933 Regulations, the 1934 Regulations and
Commission Regulation S-X.
(iv) The consolidated financial statements, together with the
related schedules and notes, included in the Registration Statement and
the Prospectus present fairly the consolidated financial position of the
Company and its subsidiaries at the dates indicated and the consolidated
results of operations and cash flows of the Company and its subsidiaries
for the periods specified; said financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP") applied
on a consistent basis throughout the periods involved, except as disclosed
in the notes to such financial statements. The supporting schedules, if
any, included in the Registration Statement and the Prospectus present
fairly, in all material respects, the information required to be stated
therein. The summary financial data included in the Registration Statement
and the Prospectus present fairly, in all material respects, the
information shown therein and have been compiled on a basis consistent
with that of the audited financial statements included in the Registration
Statement and the Prospectus.
(v) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein or contemplated thereby and, except for normal recurring dividends
on the capital stock of the Company, there has not been (A) any material
adverse change in the condition (financial or otherwise), earnings,
business affairs or business prospects of the Trust, or the Company and
its subsidiaries, considered as one enterprise, whether or not arising in
the ordinary course of business, (B) any transaction entered into by the
Trust, the Company or any subsidiary, other than in the
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<PAGE>
ordinary course of business, that is material to the Trust, or the Company
and its subsidiaries, considered as one enterprise, or (C) any dividend or
distribution of any kind declared, paid or made by the Company on its
capital stock.
(vi) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power and authority under such laws to own, lease and operate
its properties and to conduct its business as described in the
Registration Statement and the Prospectus; and the Company is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which it owns or leases property of a
nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure to so
qualify or be in good standing would not have a material adverse effect on
the condition (financial or otherwise), earnings, business affairs or
business prospects of the Company and its subsidiaries, considered as one
enterprise.
(vii) The Fidelity Bank is a duly organized and validly existing
state-chartered bank under the laws of the State of North Carolina and
continues to hold a valid certificate to do business as such and has full
power and authority to conduct its business as such. The Fidelity Bank is
referred to herein as the "Significant Subsidiary". The Significant
Subsidiary has the authority under its jurisdiction of organization to
own, lease and operate its properties and to conduct its business and is
duly authorized to transact business and is in good standing in each
jurisdiction in which it owns or leases property of a nature, or transacts
business of a type, that would make such qualification necessary, except
to the extent that the failure to so qualify or to be in good standing
would not have a material adverse effect on the condition (financial or
otherwise), earnings, business affairs or business prospects of the
Company and its subsidiaries, considered as one enterprise.
(viii) The Company does not have any subsidiaries which are material
to its business, except to the extent that the Significant Subsidiary may
be deemed to be so material.
(ix) (a) The Company had at the date indicated a duly authorized and
outstanding capitalization as set forth in the Registration Statement and
the Prospectus, (b) all of the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid
and non-assessable, and (c) none of the outstanding shares of capital
stock of the Company was issued in violation of the preemptive rights of
any stockholder of the Company.
(x) The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Act with the power and
authority to own property and to conduct its business as described in the
Registration
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<PAGE>
Statement and the Prospectus and to enter into and perform its obligations
under the Operative Documents, as applicable, and the Capital Securities;
the Trust is not a party to or otherwise bound by any material agreement
other than those described in the Registration Statement and the
Prospectus; and based on an opinion of counsel, the Company believes the
Trust is and will, under current law, be classified for United States
federal income tax purposes as a grantor trust and not as an association
taxable as a corporation.
(xi) The Common Securities have been duly authorized by the Trust
Agreement and, when issued and delivered by the Trust to the Company
against payment therefor as described in the Registration Statement and
the Prospectus, will be validly issued and will represent undivided
beneficial interests in the assets of the Trust; the issuance of the
Common Securities is not subject to preemptive or other similar rights;
and at the First Closing Date and at the Second Closing Date, as the case
may be, all of the issued and outstanding Common Securities of the Trust
will be directly owned by the Company free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equitable right.
(xii) As of the First Closing Date and at the Second Closing Date,
as the case may be, the Capital Securities will have been duly authorized
by the Trust Agreement and, when issued and delivered against payment
therefor in accordance with the Trust Agreement, as provided herein, will
be validly issued and fully paid and non-assessable undivided beneficial
interests in the assets of the Trust and will conform in all material
respects to the description thereof contained in the Prospectus and the
issuance of the Capital Securities will not be subject to preemptive or
other similar rights.
(xiii) This Agreement has been duly authorized, executed and
delivered by the Offerors.
(xiv) The Trust Agreement has been duly authorized by the Company
and, at the First Closing Date and at the Second Closing Date, will have
been duly executed and delivered by the Company and the Trustees, and
assuming due authorization, execution and delivery of the Trust Agreement
by the Trustees, the Trust Agreement will, at the First Closing Date and
at the Second Closing Date, be a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
except to the extent that enforcement thereof may be limited by the
receivership, conservatorship and supervisory powers of bank regulatory
agencies generally as well as to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally or
by general principles of equity (regardless of whether enforcement is
considered in a proceeding at law or in equity) and the availability of
equitable remedies (collectively, the "Enforceability Exceptions").
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<PAGE>
(xv) The Guarantee has been duly authorized by the Company and, at
the First Closing Date and at the Second Closing Date, the Guarantee will
have been duly executed and delivered by the Company, and will constitute
a valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except to the extent that
enforcement thereof may be limited by the Enforceability Exceptions.
(xvi) The Indenture has been duly authorized by the Company and, at
the First Closing Date and at the Second Closing Date, will have been duly
executed and delivered by the Company and will constitute a valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except to the extent that enforcement thereof
may be limited by the Enforceability Exceptions; and at the First Closing
Date, the Indenture will have been duly qualified under the 1939 Act.
(xvii) The Subordinated Debentures have been duly authorized by the
Company and, at the First Closing Date and at the Second Closing Date,
will have been duly executed by the Company and, when authenticated in the
manner provided for in the Indenture and delivered against payment
therefor as described in the Registration Statement and the Prospectus,
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as enforcement
thereof may be limited by the Enforceability Exceptions; and the
Subordinated Debentures will be in the form contemplated by, and entitled
to the benefits of, the Indenture and will conform in all material
respects to the description thereof in the Prospectus.
(xix) Each of the Administrators of the Trust is an officer of the
Company and has been duly authorized by the Company to execute and deliver
the Trust Agreement.
(xx) The Trust is not, and following consummation of the
transactions contemplated hereby will not be, an "investment company" or a
company "controlled" by an "investment company" which is required to be
registered under the Investment Company Act of 1940, as amended (the "1940
Act").
(xxi) The Operative Documents described in the Registration
Statement and the Prospectus conform in all material respects to the
summary descriptions thereof contained in the Registration Statement and
the Prospectus.
(xxii) None of the Trust, the Company nor the Significant Subsidiary
is in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, loan agreement, note, lease or other agreement or instrument to
which it is a party or by which it may be bound or to which any of its
properties may be subject, except for
-7-
<PAGE>
such defaults that would not have a material adverse effect on the
condition (financial or otherwise), earnings, business affairs or business
prospects of the Company and its subsidiaries, considered as one
enterprise; the execution and delivery of the Operative Documents by the
Trust or the Company, as the case may be, the issuance and delivery of the
Securities, the consummation by the Offerors of the transactions
contemplated in the Operative Documents, and compliance by the Offerors
with the terms of the Operative Documents to which they are a party have
been duly authorized by all necessary corporate action on the part of the
Company, and do not and will not result in any violation of the charter or
by-laws of the Company or of the Significant Subsidiary or the Trust
Agreement or the certificate of trust of the Trust filed with the State of
Delaware on July 14, 1998 (the "Trust Certificate"), and do not and will
not conflict with, or result in a breach of any of the terms or provisions
of, or constitute a default under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the
Trust, the Company or any of the Significant Subsidiary under (A) any
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument to which the Trust, the Company or the Significant Subsidiary is
a party or by which it may be bound or to which any of its properties may
be subject, except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not have a material adverse effect on
the condition (financial or otherwise), earnings, business affairs or
business prospects of the Trust, or the Company and its subsidiaries
considered as one enterprise or (B) any existing applicable law, rule,
regulation, judgment, order or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over the
Trust, the Company or the Significant Subsidiary or any of its properties,
except for such defaults that would not have a material adverse effect on
the condition (financial or otherwise), earnings, business affairs or
business prospects of the Company and its subsidiaries, considered as one
enterprise.
(xxiii) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental authority or agency, other than those that have been made or
obtained, is necessary or required for the performance by the Company or
the Trust of their obligations hereunder, in connection with the issuance
and sale of the Capital Securities or the consummation of the transactions
contemplated by the Operative Documents, except such as may be required by
the securities as "Blue Sky" laws of the various states in connection with
the offer and sale of the Capital Securities.
(xxiv) Except as disclosed in the Registration Statement and the
Prospectus, there is no action, suit or proceeding before or by any
government, governmental instrumentality or court, domestic or foreign,
now pending or, to the knowledge of the Company or the Trust, threatened
against or affecting the Trust, or the Company or the Significant
Subsidiary that is required to be disclosed in the Registration Statement
and the Prospectus or that, in the final outcome, could,
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<PAGE>
in the judgment of the Company, result in any material adverse effect on
the condition (financial or otherwise), earnings or business of the Trust,
or the Company and its subsidiaries considered as one enterprise, or that
could materially and adversely affect the properties or assets of the
Trust, or the Company and its subsidiaries considered as one enterprise, or
that could adversely affect the consummation of the transactions
contemplated in the Operative Documents; the aggregate liability or loss,
if any, resulting from the final outcome of all pending legal or
governmental proceedings to which the Trust, the Company or any of the
Significant Subsidiaries is a party or which affect any of its properties
that are not described in the Registration Statement and the Prospectus,
including ordinary routine litigation incidental to its business, would not
have a material adverse effect on the condition (financial or otherwise),
earnings or business affairs of the Trust, or the Company and its
subsidiaries considered as one enterprise.
(xxv) There are no contracts or documents of a character required to
be described in the Registration Statement and the Prospectus that are not
described as required.
(xxvi) The Offerors and the Significant Subsidiary each owns or
possesses, or can acquire on reasonable terms, adequate patents, patent
licenses, trademarks, service marks and trade names necessary to carry on
their businesses as presently conducted, except where the failure to own,
procure or obtain any of the foregoing would not have a material adverse
effect on the condition (financial or otherwise), earnings, business
affairs or business prospects of the Company and its subsidiaries,
considered as one enterprise, and none of the Offerors nor the Significant
Subsidiary has received any notice of infringement of or conflict with
asserted rights of others with respect to any patents, patent licenses,
trademarks, service marks or trade names that, in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a
material adverse effect on the condition (financial or otherwise),
earnings or business of the Trust, or the Company and its subsidiaries
considered as one enterprise.
(xxvii) The Offerors and the Significant Subsidiary each owns,
possesses or has obtained all material governmental licenses, permits,
certificates, consents, orders, approvals and other authorizations
necessary to own or lease, as the case may be, and to operate its
properties and to carry on its business as presently conducted, and
neither the Offerors nor any of the Significant Subsidiary has received
any notice of proceedings relating to revocation or modification of any
such licenses, permits, certificates, consents, orders, approvals or
authorizations that, in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could materially adversely affect the
condition (financial or otherwise), earnings or business of the Trust, or
the Company and its subsidiaries considered as one enterprise.
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<PAGE>
(xxix) The Offerors and the Significant Subsidiary each has good and
marketable title to all properties and assets described in the
Registration Statement and the Prospectus as owned by it, free and clear
of all liens, charges, encumbrances or restrictions, except such as (A)
are described in the Registration Statement and the Prospectus or (B) are
neither material in amount nor materially significant in relation to the
business of the Trust, or the Company and its subsidiaries considered as
one enterprise; and all of the leases and subleases material to the
business of the Trust, and the Company and its subsidiaries considered as
one enterprise, and under which the Offerors or the Significant Subsidiary
holds properties described in the Registration Statement and the
Prospectus, are in full force and effect, and neither the Offerors nor the
Significant Subsidiary has any notice of any material claim of any sort
that has been asserted by anyone adverse to the rights of the Offerors or
such Significant Subsidiary under any of the leases or subleases mentioned
above, or affecting or questioning the rights of such corporation to the
continued possession of the leased or subleased premises under any such
lease or sublease.
(xxx) The Company has not taken and will not take, directly or
indirectly, any action designed to, or that might be reasonably expected
to, cause or result in stabilization or manipulation of the price of the
Capital Securities or the Common Stock.
(xxxi) None of the Trust, the Company, or any of their affiliates,
as such term is defined in Rule 501(b) under the 1933 Act ("Affiliates"),
or any person acting on its or any of their behalf (other than the
Underwriters, as to whom the Offerors make no representation) has engaged
or will engage, in connection with the offering of the Capital Securities,
in any form of general solicitation or general advertising within the
meaning of Rule 502(c) under the 1933 Act.
(xxxii) There are no persons with registration or other similar
rights to have any securities registered pursuant to the Registration
Statement or otherwise registered by the Company under the 1933 Act.
(b) Any certificate signed by any Trustee of the Trust or any duly
authorized officer of the Company or the Significant Subsidiary and delivered to
the Representative or to counsel for the Underwriters shall be deemed only a
representation and warranty by the Trust or the Company, as the case may be, to
each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) On the basis of the representations and warranties herein contained
and subject to the terms and conditions herein set forth, the Trust agrees to
sell to each
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Underwriter, severally and not jointly, and each Underwriter, severally and not
jointly, agrees to purchase from the Trust, at a price of $10.00 per Security,
the number of Firm Capital Securities set forth in Schedule A opposite the name
of such Underwriter, plus any additional Capital Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
(b) Deliveries of certificates for the Firm Capital Securities shall be
made at the office of Wheat First in Richmond, Virginia, and payment of the
purchase price for the Firm Capital Securities shall be made by Wheat First, on
behalf of the several Underwriters, to the Trust by wire transfer of immediately
available funds contemporaneous with closing at such place as shall be agreed
upon by Wheat First and the Offerors, at 10:00 A.M. on _________, 1998 (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by
Wheat First and the Offerors (such time and date of payment and delivery being
herein called the "First Closing Date").
(c) Payment for the Firm Capital Securities purchased by the Underwriters
shall be made to the Trust by wire transfer of immediately available funds,
against delivery for the respective accounts of the Underwriters of certificates
for the Firm Capital Securities. Certificates for the Firm Capital Securities
shall be in such denominations and registered in such names as the Underwriters
may request in writing at least one business day before the First Closing Date.
It is understood that each Underwriter has authorized Wheat First, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Firm Capital Securities which it has agreed to purchase. Wheat
First, individually and not as representative of the Underwriters, may (but
shall not be obligated to) make payment of the purchase price for the Firm
Capital Securities, if any, to be purchased by any Underwriter whose funds have
not been received by the First Closing Date, but such payment shall not relieve
such Underwriter from its obligations hereunder. The certificates representing
the Firm Capital Securities shall be made available for examination and
packaging by the Underwriters in Richmond, Virginia not later than 10:00 A.M. on
the last business day prior to the First Closing Date.
(d) In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 300,000 Optional
Capital Securities at the purchase price per security to be paid for the Firm
Capital Securities, plus accumulated distributions thereon from the date of
issuance for use solely in covering any over-allotments made by the
representative for the account of the Underwriters in the sale and distribution
of the Firm Capital Securities. The option granted hereunder may be exercised at
any time (but not more than once) within 30 days after the first date that any
of the Capital Securities are released by the Representative for sale to the
public, upon
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<PAGE>
notice by the Representative to the Company setting forth the aggregate number
of Optional Capital Securities as to which the Underwriters are exercising the
option, the names and denominations in which the certificates for such
securities are to be registered and the time and place at which such
certificates will be delivered. Such time of delivery (which may not be earlier
than the First Closing Date), being herein referred to as the "Second Closing
Date," shall be determined by the Representative, but if at any time other than
the First Closing Date shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. The number of Optional
Capital Securities to be purchased by each Underwriter shall be determined by
multiplying the number of Optional Capital Securities to be sold by the Company
pursuant to such notice of exercise by a fraction, the numerator of which is the
number of Firm Capital Securities to be purchased by such Underwriter as set
forth opposite its name in Schedule A and the denominator of which is 2,000,000
(subject to such adjustments to eliminate any fractional share purchases as the
Representative in its discretion may make). The manner of payment for and
delivery of the Capital Securities shall be the same as for the Firm Capital
Securities purchased from the Company as specified in the three preceding
paragraphs. At any time before lapse of the option, you may cancel such option
by giving written notice of such cancellation to the Company. If the option is
cancelled or expires unexercised in whole or in part, the Company will
deregister under the 1933 Act the number of Optional Capital Securities as to
which the option has not been exercised.
(e) As compensation to the Underwriters for their commitments hereunder
and in view of the fact that the proceeds of the sale of the Capital Securities
will be used to purchase Subordinated Debentures of the Company, the Company
hereby agrees to pay at the First Closing Date or the Second Closing Date, as
the case may be, to Wheat First in immediately available funds, for the accounts
of the several Underwriters, $____ per Capital Security to be delivered by the
Trust hereunder at the First Closing Date or the Second Closing Date, as the
case may be.
(f) The Underwriter will comply with all material applicable laws and
rules in connection with the sale of the Securities and the Underwriters are not
acting as an agent for the Company.
SECTION 3. Covenants of the Offerors. The Offerors covenant with each
Underwriter as follows:
(a) The Company will use its best efforts to cause the Registration
Statement and any post-effective amendments to the Registration Statement to be
declared effective by the Commission (as and when specified in the reasonable
request of the Representative) and will prepare the Prospectus in a form
reasonably approved by the
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Representative and file such Prospectus pursuant to Rule 424(b) under the 1933
Act not later than the Commission's close of business on the second business day
following the execution and delivery of this Agreement or, if applicable, such
earlier time as may be required by Rule 430A(a)(3) under the 1933 Act. The
Company will make no further amendment or any supplement to the Registration
Statement or the Prospectus prior to any First Closing Date which shall be
reasonably disapproved by the Representative after reasonable notice thereof.
The Company will notify the Representative immediately and confirm the notice in
writing (i) when the Registration Statement or any post-effective amendment
thereto (and any other amendment thereto) has been declared effective by the
Commission, (ii) of the transmittal to the Commission for filing of any
amendment or supplement to the Prospectus, (iii) of the receipt by the Company
of any comments from the Commission or any state securities commission with
respect to the transactions contemplated by this Agreement, (iv) of any request
by the Commission or any state securities commission for any amendment or
supplement to the Registration Statement or the Prospectus, or for additional
information, (v) of the issuance by the Commissioner or any state securities
commission or court of competent jurisdiction of any order suspending either the
Offering or the use of either the Preliminary Prospectus or the Prospectus or of
the threat of any such action by any such entity, (vi) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any amendment thereto or of the receipt by the Company of any
notification with respect to the suspension of the registration, qualification
or exemption of the Capital Securities for offering or sale in any jurisdiction,
or the initiation or threatening of any proceeding for such purpose. In the
event of the issuance of any stop order or of any order preventing or suspending
the use of any Preliminary Prospectus or Prospectus or suspending any such
registration, qualification or exemption, the Company promptly will use its best
efforts to obtain its withdrawal.
(b) The Company will give the Representative notice of its intention to
file or prepare any amendment or supplement to the Registration Statement or any
amendment or supplement to the Prospectus (whether, in the case of the
Registration Statement and the Prospectus, by the filing of documents pursuant
to the 1934 Act, the 1933 Act or otherwise and, in the case of the Prospectus,
by amending or supplementing the Prospectus then being used by the
Underwriters).
(c) The Company has furnished or will deliver to the Representative and
counsel for the Underwriters, without charge, signed copies of the Registration
Statement as originally filed and of each amendment thereto (including exhibits
filed therewith) and signed copies of all consents and certificates of experts,
and will also deliver to the Representative a conformed copy of the Registration
Statement as originally filed and of each amendment thereto (without exhibits)
for each of the Underwriters.
(d) The Company will deliver to each Underwriter, without charge, from
time to time until the effective date of the Registration Statement, as many
copies of each Preliminary Prospectus as such Underwriter may reasonably
request, and the Company
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<PAGE>
hereby consents to the use of such copies for purposes permitted by the 1933
Act. The Company will furnish to each Underwriter, without charge, from time to
time during the period when the Prospectus is required to be delivered under the
1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or
supplemented) as such Underwriter may reasonably request for the purposes
contemplated by the 1933 Act or the 1934 Act or the respective applicable rules
and regulations of the Commission thereunder.
(e) If any event shall occur or condition shall exist as a result of which
it is necessary, in the opinion of counsel for the Underwriters or for the
Company, to amend the Registration Statement or the Prospectus in order that the
Prospectus will not include any untrue statements of a material fact or omit to
state a material fact necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, or if it shall be necessary, in the opinion of such
counsel, at any such time to amend the Registration Statement or the Prospectus
in order to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such statement or omission or to make the Registration Statement or the
Prospectus comply with such requirements, and the Company will furnish to the
Underwriters such number of copies of such amendment or supplement as the
Underwriters may reasonably request.
(f) If, at the time that the Registration Statement or a post-effective
amendment thereto becomes effective, any information shall have been omitted
therefrom in reliance upon Rule 430A of the 1933 Act Regulations, then
immediately following effectiveness, the Company will prepare, and file or
transmit for filing with the Commission in accordance with such Rule 430A and
Rule 424(b) of the 1933 Act Regulations, copies of an amended Prospectus, or, if
required by such Rule 430A, a post-effective amendment to the Registration
Statement (including an amended Prospectus), containing all information so
omitted and will use its best efforts to cause any such post-effective amendment
to be declared effective as promptly as practicable.
(g) The Company will use its best efforts, in cooperation with the
Underwriters, to qualify the Capital Securities for offering and sale under the
applicable securities laws of such states and other jurisdictions of the United
States as the Representative may designate and to maintain such qualifications
in effect for a period of not less than one year from the effective date of the
Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Capital Securities have been so qualified the Company
will file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification
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in effect for a period of not less than one year from the effective date of the
Registration Statement.
(h) The Company will make generally available to its security holders as
soon as practicable, but not later than 90 days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 of the 1933 Act Regulations) covering a 12-month period beginning not
later than the first day of the Company's fiscal quarter next following the
"effective date" (as defined in said Rule 158) of the Registration Statement.
(i) The Offerors will cooperate with the Underwriters and use their best
efforts to permit the Capital Securities to be eligible for clearance and
settlement through the facilities of DTC.
(j) The Trust will use the net proceeds received by it from the sale of
the Capital Securities, and the Company will use the proceeds received by it
from the sale of the Subordinated Debentures, in the manners specified in the
Prospectus under "Use of Proceeds."
(k) Prior to ____________, 1999, neither the Trust nor the Company will,
without the prior written consent of Wheat First, directly or indirectly, issue,
sell, offer or agree to sell, grant any option for the sale of, or otherwise
dispose of, any securities that are substantially similar to the Capital
Securities, any security convertible into exchangeable or exercisable for
Capital Securities or any equity security substantially similar to the Capital
Securities (except for the Securities issued pursuant to this Agreement or with
the prior written consent of Wheat First).
SECTION 4. Payment of Expenses.
The Company will pay all costs and expenses incident to the performance of
its obligations under this Agreement, whether or not the transactions
contemplated herein are consummated or this Agreement is terminated pursuant to
Section 9 hereof, including all costs and expenses incident to (i) the printing
or other production of documents, including the Operative Documents, with
respect to the transactions, including any costs of printing the Registration
Statement originally filed with respect to the Capital Securities and any
amendment thereto, any Rule 462(b) Registration Statement, and the Prospectus
and any amendment or supplement thereto, this Agreement and any blue sky
memoranda, (ii) all arrangements relating to the delivery to the Underwriters of
copies of the foregoing documents, (iii) the fees and disbursements of the
counsel, the accountants and any other experts or advisors retained by the
Company, (iv) preparation, issuance and delivery to the Underwriters of any
certificates evidencing the Capital Securities, including transfer agent's and
registrar's fees, (v) the qualification of the Capital Securities under state
securities and blue sky laws, including filing fees and fees and disbursements
of counsel for the Underwriters relating thereto, (vi) the filing fees of the
Commission
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and the National Association of Securities Dealers, Inc. relating to the Capital
Securities, and (vii) the fees and expenses of any trustee appointed under any
of the Operative Documents, including the fees and disbursements of counsel for
such trustees in connection with the Operative Document. If the sale of the
Capital Securities provided for herein is not consummated because any condition
to the obligations of the Underwriters set forth in Section 5 hereof is not
satisfied, because this Agreement is terminated pursuant to Section 9 hereof or
because of any failure, refusal or inability on the part of the Company to
perform all obligations and satisfy all conditions on its part to be performed
or satisfied hereunder other than by reason of a default by any of the
Underwriters, the Company will reimburse the Representative upon demand for all
reasonable out-of-pocket expenses (including counsel fees and disbursements)
that shall have been incurred by it in connection with the proposed purchase and
sale of the Capital Securities. The Company shall not in any event be liable to
any of the Underwriters for the loss of anticipated profits from the
transactions covered by this Agreement.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Offerors contained in Section 1 hereof or
in certificates of any Trustee of the Trust, officer of the Company or any of
its subsidiaries delivered pursuant to the provisions hereof, to the performance
by the Offerors of their obligations hereunder, and to the following further
conditions:
(a) If the Registration Statement or any post-effective amendment to the
Registration Statement filed prior to the First Closing Date has not been
declared effective as of the time of execution hereof, the Registration
Statement or any such post-effective amendment, and, if the Company has elected
to rely upon Rule 462(b), the Rule 462(b) Registration Statement, shall have
been declared effective not later than the earlier of (i) 11:00 A.M., Eastern
Standard Time, on the first business day following the date on which this
Agreement is executed, and (ii) the time confirmations are sent or given as
specified by Rule 462(b) or, with respect to the Registration Statement, such
later time and date as shall have been consented to by the Representative; if
required, the Prospectus or any term sheet that constitutes a part thereof and
any amendment or supplement thereto shall have been filed with the Commission in
the manner and within the time period required by Rules 434 and 424(b) under the
Act; no stop order suspending the effectiveness of the Registration Statement or
any amendment thereto shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company or Wheat First, shall be contemplated by the Commission; and the Company
shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise).
(b) OPINION OF OUTSIDE COUNSEL FOR OFFERORS. At the Closing Date, the
Underwriters shall have received the favorable opinion, dated as of the Closing
Date, of Ward and Smith, P.A., counsel for the Company, to the effect set forth
in Exhibit A
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hereto. Such counsel may also state that, insofar as such opinion involves
factual matters, they have relied, to the extent they deem proper, upon
certificates of Trustees of the Trust, officers of the Company and its
subsidiaries and certificates of public officials.
(c) OPINION OF SPECIAL DELAWARE COUNSEL FOR OFFERORS. If the opinion
referred to in Section 5(b) does not cover applicable matters of Delaware law,
at the Closing Date, the Underwriters shall have received the favorable opinion,
dated as of the Closing Date, of special Delaware counsel to the Offerors, to
the effect set forth in Exhibit B hereto.
(d) OPINION OF COUNSEL FOR BANKERS TRUST COMPANY. At the Closing Date, the
Underwriters shall have received the favorable opinion, dated as of the Closing
Date, of White & Case, counsel to Bankers Trust Company, as Property Trustee
under the Trust Agreement, and Guarantee Trustee under the Guarantee Agreement,
to the effect set forth in Exhibit C hereto.
(e) OPINION OF SPECIAL TAX COUNSEL FOR THE OFFERORS. At the Closing Date,
the Underwriters shall have received an opinion, dated as of the Closing Date,
of Hunton & Williams, special tax counsel to the Offerors, that (i) the Trust
will be classified for United States federal income tax purposes as a grantor
trust and not as an association taxable as a corporation and (ii) although the
discussion set forth in the Prospectus under the heading "Certain Federal Income
Tax Consequences" does not purport to discuss all possible United States federal
income tax consequences of the purchase, ownership and disposition of the
Capital Securities, such discussion constitutes, in all material respects, a
fair and accurate summary of the United States federal income tax consequences
of the purchase, ownership and disposition of the Capital Securities under
current law. Such opinion may be conditioned on, among other things, the initial
and continuing accuracy of the facts, financial and other information, covenants
and representations set forth in certificates of officers of the Company and
other documents deemed necessary for such opinion.
(f) OPINION OF COUNSEL FOR UNDERWRITERS. At the Closing Date, the
Underwriters shall have received the favorable opinion, dated as of the Closing
Date, of Alston & Bird LLP, counsel for the Underwriters, with respect to the
incorporation and legal existence of the Company, the Capital Securities, the
Indenture, the Guarantee, this Agreement, and the Prospectus and other related
matters as the Underwriters may require. Such counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to the
extent they deem proper, upon certificates of Trustees of the Trust, officers of
the Company and its subsidiaries and certificates of public officials. Such
counsel may rely as to matters of Delaware law on the opinions of counsel
furnished pursuant to subsection (c) of this Section.
(g) CERTIFICATES. At the Closing Date, there shall not have been, since
the date hereof or since the respective dates as of which information is given
in the Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings,
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business affairs or business prospects of the Trust, or the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, and the Underwriters shall have received a
certificate of the Chairman, any Vice Chairman, the Chief Executive Officer, the
President or any Vice President of the Company and of the chief financial
officer or the chief accounting officer of the Company and a certificate of an
Administrative Trustee of the Trust, dated as of the Closing Date, to the effect
that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 1 hereof were true and correct, in all
material respects, when made and are true and correct, in all material respects,
with the same force and effect as though expressly made at and as of the Closing
Date, and (iii) the Offerors have complied with all agreements and satisfied all
conditions on their part to be performed or satisfied at or prior to the Closing
Date.
(h) ACCOUNTANT'S COMFORT LETTER. At the time of the execution of this
Agreement, the Underwriters shall have received from KPMG Peat Marwick LLP a
letter, dated such date, in form and substance reasonably satisfactory to the
Underwriters, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to Underwriters with respect to the
financial statements and certain financial information contained in the
Prospectus.
(i) BRING-DOWN COMFORT LETTER. At the Closing Date, the Underwriters shall
have received from KPMG Peat Marwick LLP a letter, dated as of the Closing Date,
to the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (h) of this Section, except that the specified date
referred to shall be a date not more than three business days prior to the
Closing Date.
(j) On or before the Closing Date, the Representative and counsel for the
Underwriters shall have received such further certificates, documents or other
information as they may have reasonably requested from the Company.
(k) TERMINATION OF AGREEMENT. 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 Underwriters by notice to the Offerors at any
time at or prior to the Closing Date, and such termination shall be without
liability of any party to any other party except as provided in Section 4 and
except that Sections 6, 7 and 8 and this Section 5(l) shall survive any such
termination and remain in full force and effect.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representative and
counsel for the Underwriters. The Company shall furnish to the Representative
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Representative and counsel for the Underwriters shall
reasonably request.
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The respective obligations of the several Underwriters to purchase and pay
for any Optional Capital Securities shall be subject, in their discretion, to
each of the foregoing conditions to purchase the Firm Capital Securities, except
that all references to the Firm Capital Securities and the First Closing Date
shall be deemed to refer to such Optional Capital Securities and the related
Second Closing Date, respectively.
SECTION 6. Indemnification.
(a) INDEMNIFICATION OF UNDERWRITERS. The Offerors agree to jointly and
severally indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact included in the Registration Statement
or any amendment to the Registration Statement, including the information
deemed to be part of the Registration Statement pursuant to Rule 430A(b)
of the 1933 Act Regulations, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or prospectus, including the
Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of
the Offerors; and
(iii) against any and all expense whatsoever, as incurred (including
the reasonable fees and disbursements of counsel chosen by Wheat First),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or
(ii) above; PROVIDED, HOWEVER, that this Section 6(a) shall not apply to
any loss, liability, claim, damage or expense to the extent arising out of
any untrue statement or omission or alleged untrue statement
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<PAGE>
or omission made in reliance upon and in conformity with written
information furnished to the Offerors by any Underwriter through Wheat
First expressly for use in the Registration Statement or any amendment to
the Registration Statement or any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto). Such written information provided
by the Underwriters is referred to as "Underwriter Information."
The foregoing indemnification with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Capital Securities, or any person controlling such Underwriter, if a copy
of the Prospectus (as then amended or supplemented if the Offerors shall
have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Underwriter to such person, if such is
required by law, at or prior to the written confirmation of the sale of
such shares to such person and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage or liability.
(b) INDEMNIFICATION OF OFFERORS, DIRECTORS AND OFFICERS. Each Underwriter
severally agrees to indemnify and hold harmless the Company, its directors and
officers, the Trust, each of the Trustees and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto) or any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Offerors by such Underwriter through the
Representative expressly for use in the Registration Statement (or any amendment
thereto) or such preliminary prospectus or the Prospectus (or any amendment or
supplement thereto).
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Wheat First, and, in the
case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Offerors. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties
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be liable for fees and expenses of more than one counsel (in addition to any
local counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 or Section 7 hereof (whether or not the indemnified parties
are actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of any indemnified party.
SECTION 7. Contribution. In order to provide for just and equitable
contribution in circumstances under which the indemnification provided for in
Section 6 hereof is for any reason held to be unenforceable by an indemnified
party in respect of any losses, liabilities, claims, damages or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Offerors on the one
hand and the Underwriters on the other hand from the offering of the Capital
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company, on the one hand, and the
Underwriters, on the other hand, in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant considerations.
The relative benefits received by the Offerors on the one hand and the
Underwriters on the other hand in connection with the offering of the Capital
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Capital Securities pursuant to this Agreement (before deducting expenses)
received by the Offerors and the total commission received by the Underwriters
in the Preferred Offering, bear to the aggregate initial offering price of the
Capital Securities. The relative fault of the Company, on the one hand, and the
Underwriters, on the other hand, shall be determined by reference to, among
other things, whether any such untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Company, on the one hand, or the Underwriters, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
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The Offerors and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Capital Securities purchased by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each officer and director of the Company, and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as the Company. The
Underwriters' respective obligations to contribute pursuant to this Section 7
are several in proportion to the number of Securities set forth opposite their
respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company or trustees of the Trust submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any Underwriter or controlling
person, or by or on behalf of the Trust or the Company, and shall survive
delivery of the Capital Securities to the Underwriters.
SECTION 9. Termination of Agreement.
(a) TERMINATION; GENERAL. The Underwriters may terminate this Agreement
with respect to the Firm Capital Securities or any Optional Capital Securities,
by notice to the Offerors, at any time at or prior to the First Closing Date or
the Second Closing Date,
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respectively (i) if there has been, since the time of execution of this
Agreement or since the respective dates as of which information is given in the
Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Trust or the Company and its subsidiaries considered as one enterprise, whether
or not arising in the ordinary course of business, or (ii) if there has occurred
any material adverse change in the financial markets in the United States or any
outbreak of hostilities or escalation thereof or other calamity or crisis, in
each case the effect of which is such as to make it, in the judgment of the
Underwriters, impracticable to market the Capital Securities or to enforce
contracts for the sale of the Capital Securities, or (iii) if trading in any
securities of the Company has been suspended or limited by the Commission, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market System has been suspended or limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the Commission, the National Association of Securities Dealers, Inc. or
any other governmental authority, or (iv) if a banking moratorium has been
declared by either Federal or North Carolina authorities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof, and provided further that Sections 6, 7,
and 8 and this Section 9 shall survive such termination and remain in full force
and effect.
SECTION 10. Default by One or More of the Underwriters. If one or more of
the Underwriters shall fail at the First Closing Date or at the Second Closing
Date to purchase the First Capital Securities or the Optional Capital
Securities, as the case may be, which it or they are obligated to purchase under
this Agreement (the "Defaulted Securities"), the Underwriters shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other Underwriters, to purchase all, but not
less than all, of the Defaulted Securities in such amounts as may be agreed upon
and upon the terms herein set forth; if, however, the Underwriters shall not
have completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the total
number of Securities to be purchased hereunder, each of the non-defaulting
Underwriters shall be obligated, severally and not jointly, to purchase the full
amount thereof in the proportions that their respective purchasing obligations
hereunder bear to the purchasing obligations of all non-defaulting Underwriters,
or
(b) if the number of Defaulted Securities exceeds 10% of the Securities to
be purchased hereunder, this Agreement shall terminate without liability on the
part of any non-defaulting Underwriter.
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No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement, either the Underwriters or the Company shall have the right to
postpone the First Closing Date or the Second Closing Date, as the case may be,
for a period not exceeding seven days in order to effect any required changes in
the Prospectus or in any other documents or arrangements. As used herein, the
term "Underwriter" includes any person substituted for an Underwriter under this
Section 10.
SECTION 11. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Underwriters c/o Wheat First at 901 East
Byrd Street, Richmond, Virginia 23219, attention of Scott R. Anderson with a
copy to Alston & Bird LLP, 601 Pennsylvania Avenue, N.W., North Building, 11th
Floor, Washington, D.C. 20004, attention of Frank M. Conner III; notices to the
Offerors shall be directed to Fidelity BancShares (N.C.), Inc., 100 South Main
Street, Fuquay-Varina, North Carolina 27526, attention of ____________,
_____________--, with a copy to Ward and Smith, P.A., 1001 College Court, New
Bern, North Carolina 28560, attention of William R. Lathan, Jr..
SECTION 12. Parties. This Agreement shall inure to the benefit of and be
binding upon the Underwriters and the Offerors and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Underwriters
and the Offerors and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters and the Offerors and their respective
successors, and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Capital Securities from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA.
SECTION 14. Effect of Headings. The Article and Section headings herein and
the Table of Contents are for convenience only and shall not affect the
construction hereof.
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If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriters and the Offerors in accordance with its terms.
Very truly yours,
FIDELITY BANCSHARES (N.C.), INC.
By:_______________________________
Title:____________________________
FIDBANK CAPITAL TRUST I
By: Fidelity BancShares (N.C.), Inc.
By:________________________________
Title:_____________________________
CONFIRMED AND ACCEPTED,
as of the date first above written:
WHEAT FIRST SECURITIES, INC.
By: ___________________________
Scott R. Anderson
Managing Director
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SCHEDULE A
Number of
Capital Securities
------------------
Name of Underwriters
- ----------------------------------------------------
Wheat First Securities, Inc.
-----------
Total 2,000,000
-----------
<PAGE>
EXHIBIT A
Form of Opinion of Ward and Smith, P.A., Counsel for the Company, to be
delivered pursuant to Section 5(b) of this Agreement:
1. The Company is validly existing as a corporation under the laws of the
State of Delaware and has full corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and in the Prospectus. The Company is duly authorized to
transact business and is in good standing in each jurisdiction in which it owns
or leases property of a nature, or transacts business of a type, that would make
such qualification necessary, except to the extent that the failure to so
qualify or to be in good standing would not have a material adverse effect on
the condition (financial or otherwise), earnings, business affairs or business
prospects of the Company and its subsidiaries, considered as one enterprise.
2. Based solely on a letter dated ____________ from ______________ of the
Federal Reserve, the Company is registered as a bank holding company under the
Bank Holding Company Act of 1956, as amended.
3. The Fidelity Bank is validly existing as a state-chartered bank under
the laws of the State of North Carolina and has full corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Registration Statement and in the Prospectus The Fidelity
Bank being referred to herein as the "Significant Subsidiary." The Significant
Subsidiary is duly authorized to transact business and is in good standing in
each jurisdiction in which it owns or leases property of a nature, or transacts
business of a type, that would make such qualification necessary, except to the
extent that the failure to so qualify or to be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
business affairs or business prospects of the Company and its subsidiaries,
considered as one enterprise.
4. All of the outstanding shares of capital stock of the Company have been
duly authorized and validly issued, are fully paid and non-assessable and have
not been issued in violation of the preemptive rights of any shareholder of the
Company.
5. Under the laws of the State of Delaware, its Certificate of
Incorporation and its Bylaws, the Company has the corporate power and authority
to execute and deliver, and to perform its obligations under, the Operative
Documents to which it is a party and to issue and perform its obligations under
the Subordinated Debentures.
6. This Agreement has been duly and validly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except to
the extent that enforcement thereof may be limited by the Enforceability
Exceptions.
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The Trust Agreement has been duly authorized, executed and delivered
by the Company.
The Guarantee has been duly and validly authorized, executed and
delivered by the Company, and constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except to
the extent that enforcement thereof may be limited by the Enforceability
Exceptions; and the Guarantee has been duly qualified under the 1939 Act.
The Indenture has been duly and validly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except to
the extent that enforcement thereof may be limited by the Enforceability
Exceptions; and the Indenture has been duly qualified under the 1939 Act.
The Subordinated Debentures have been duly and validly authorized
for issuance by the Company, and when executed, authenticated and delivered in
the manner provided for in the Indenture and paid for in accordance with the
Subordinated Debenture Purchase Agreement, will constitute valid and binding
obligations of the Company entitled to the benefits of the Indenture and
enforceable against the Company in accordance with their terms, except to the
extent that enforcement thereof may be limited by the Enforceability Exceptions;
and the issuance of the Subordinated Debentures is not subject to preemptive or
other similar rights arising under the Certificate of Incorporation or Bylaws of
the Company, under the laws of the State of Delaware or, to our knowledge of
such counsel, otherwise.
Such counsel has reviewed the statements in the Prospectus under the
captions "Capitalization," "Description of the Capital Securities," "Description
of the Junior Subordinated Debentures," "Description of the Guarantee," and
"Relationship Among the Capital Securities, the Junior Subordinated Debentures
and the Guarantee" to the extent that such statements purport to summarize
certain provisions of the Capital Securities, the Subordinated Debentures, the
Guarantee, and the Indenturesuch statements fairly summarize such provisions in
all material respects and conform in all material respects to the instruments
defining the same.
Neither the Company nor the Trust is or, immediately following
consummation of the transactions contemplated by the Agreement, will be required
to be registered under the Investment Company Act of 1940, as amended.
13. Except as disclosed in the Registration Statement or the Prospectus,
to the knowledge of such counsel, there is no action, suit or proceeding before
or by any government, governmental instrumentality or court, domestic or
foreign, now pending or threatened against or affecting the Company or any
subsidiary that in the final outcome would in our judgment result in any
material adverse change in the condition (financial or otherwise), earnings,
business affairs or business prospects of the Company and its subsidiaries
considered as one enterprise, or that could materially and adversely affect the
properties or assets of the Company and its
A-2
<PAGE>
subsidiaries considered as one enterprise, or that would adversely affect the
consummation of the transactions contemplated in the Operative Documents. To the
knowledge of such counsel, the aggregate liability or loss, if any, resulting
from the final outcome of all pending legal or governmental proceedings to which
the Company or any subsidiary is a party or which affect any of its properties
that are not described in the Registration Statement or the Prospectus,
including ordinary routine litigation incidental to its business, would not have
a material adverse effect on the condition, financial or otherwise, earnings,
business affairs or business prospects of the Company and its subsidiaries
considered as one enterprise.
14. The execution and delivery by the Company of the Operative Documents
to which it is a party, the issuance and delivery of the Capital Securities and
the Common Securities and the consummation by the Company of the transactions
contemplated by the Operative Documents do not and will not violate or conflict
with the Certificate of Incorporation or the Bylaws of the Company.
15. The execution and delivery by the Company of the Operative Documents
to which it is a party, the issuance and delivery of the Capital Securities and
the Common Securities and the consummation by the Company of the transactions
contemplated by the Operative Documents do not and will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any subsidiary under
(a) any indenture, mortgage, loan agreement, note, lease or other agreement or
instrument to which the Company or any subsidiary is a party or by which it may
be bound or to which any of its properties may be subject and which would have
been filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, if the Company had been required to file such a
report, or (b) to the knowledge of such counsel, any existing applicable law,
rule, regulation, qualification, judgment, order or decree of any governmental
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any subsidiary or any of its properties, except for such conflicts,
breaches or defaults or liens, charges or encumbrances that would not have a
material adverse effect on the condition (financial or otherwise), earnings,
business affairs or business prospects of the Company or its subsidiaries
considered as one enterprise.
16. No Governmental Approval which has not been made or obtained is
required for the execution or delivery by the Company of the Operative Documents
to which it is a party, or the consummation by the Company of the transactions
contemplated thereby, except approvals issued by the NASD and pursuant to the
securities or "blue sky" laws of the State of North Carolina, as to which such
counsel need express no opinions.
The Registration Statement and any post-effective amendments thereto
have become effective under the 1933 Act and, to
A-3
<PAGE>
the knowledge of such counsel, no stop order suspending the effectiveness of the
Registration Statement or such amendments thereto has been issued under the 1933
Act, and no proceeding therefor has been instituted or is pending or threatened
by the Commission.
The Registration Statement and the Prospectus and any further
amendments and supplements thereto made by the Company prior to the Closing Date
(other than the financial statements and related notes thereto, related
schedules and financial and statistical data, and descriptions of accounting
treatment included therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of the 1933 Act
and the 1933 Act Regulations.
19. In addition, such counsel shall state that they have participated in
the preparation of the Registration Statement and the Prospectus and, while they
are not passing upon and do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus (except as specified above), or the basis of the
foregoing, no facts have come to the attention of such counsel to lead them to
believe that, as of the effective date of the Registration Statement or any
post-effective amendment thereto or the date of the Prospectus or as of the
Closing Date, either the Registration Statement, any post-effective amendment
thereto, or the Prospectus (or, as of its date, any further amendment or
supplement thereto made by the Company prior to the Closing Date) contained an
untrue statement of a material fact or omitted to state a 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 (except for the
financial statements and related notes thereto, related schedules and financial
and statistical data, and descriptions of accounting treatment included therein,
as to which such counsel need express no belief).
Such counsel does not know of any amendment or supplement to the
Registration Statement or any post-effective amendment thereto required to be
filed or of any contract, agreement, instrument, lease, license, arrangement or
understanding of a character required to be filed as an exhibit to, described
in, the Registration Statement, post-effective amendment thereto, or the
Prospectus, as amended or supplemented, which is not filed or described as
required.
A-4
<PAGE>
EXHIBIT B
Form of Opinion of Richards, Layton & Finger, Special Delaware Counsel to
the Offerors, to be delivered pursuant to Section 5(c) of this Agreement:
1. The Trust has been duly created and is validly existing in good
standing as a statutory business trust under the Delaware Business Trust Act.
2. Under the Delaware Business Trust Act and the Trust Agreement, the
Trust has the trust power and authority to (a) execute and deliver, and to
perform its obligations under, the Operative Documents to which it is a party,
(b) issue and perform its obligations under the Capital Securities and the
Common Securities, and (c) conduct its business as described in the Registration
Statement, or the Prospectus.
The Trust Agreement constitutes a valid and binding obligation of
the Company and the Administrators, and is enforceable against the Company and
the Administrators, in accordance with its terms, except to the extent that
enforcement thereof may be limited by (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 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.
The Capital Securities have been duly authorized by the Trust
Agreement, and the Capital Securities, when duly issued, executed and
authenticated in accordance with the Trust Agreement and delivered and paid for
in accordance with the Agreement, will be, subject to the qualifications set
forth in paragraph 6 below, fully paid and nonassessable undivided beneficial
interests in the assets of the Trust and will be entitled to the benefits of the
Trust Agreement, except to the extent that enforcement thereof may be limited by
(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 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.
The Common Securities have been duly authorized for issuance by the
Trust Agreement and, when issued, executed and authenticated in accordance with
the Trust Agreement and delivered and paid for in accordance with the Common
Security Purchase Agreement, will be validly issued undivided beneficial
interests in the assets of the Trust. The issuance of the Common Securities is
not subject to preemptive rights under the Delaware Business Trust Act or the
Trust Agreement.
B-1
<PAGE>
The holders of the Capital Securities will be entitled to the same
limitation of personal liability extended to stockholders of private
corporations for profit organized under the Delaware General Corporation Law. We
bring to your attention, however, that the holders of the Capital Securities may
be obligated, pursuant to the Trust Agreement, to (a) provide indemnity and/or
security in connection with, and pay taxes or governmental charges arising from,
transfers or exchange of Capital Securities and the issuance of replacement
Capital Securities Certificates and (b) 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.
No authorization, approval, consent or order of any Delaware court
or any Delaware governmental authority or Delaware agency is required to be
obtained by the Trust solely in connection with the execution, delivery or
performance by the Trust of the Operative Documents to which it is a party, or
the consummation by the Trust of the transactions contemplated thereby or the
issuance and sale of the Capital Securities. We express no opinion in this
paragraph 7, however, as to any governmental approvals which may be required
under state securities or "blue sky" laws.
8. None of the execution and delivery by the Trust of the Operative
Documents, or the issuance and sale of the Capital Securities by the Trust in
accordance with the terms of the Agreement or the consummation by the Trust of
the other transactions contemplated thereby, (a) violate any applicable Delaware
laws, or (b) conflict with the Certificate of Trust or the Trust Agreement,
except that we express no opinion in this paragraph 8 with respect to (i) the
rights to indemnity and contribution contained in the Trust Agreement which may
be limited by state securities laws or the public policy underlying such laws or
(ii) any state securities or "blue sky" laws.
B-2
<PAGE>
EXHIBIT C
Form of Opinion of _________, Special Counsel for the Property Trustee,
Guarantee Trustee, and Debenture Trustee to be delivered pursuant to Section
5(d) of this Agreement:
1. Bankers Trust Company is a New York banking corporation validly
existing 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 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, and has taken all
necessary action to authorize the execution, delivery and performance by it of
the Guarantee.
4. The Property Trustee has the requisite power and authority to execute
and deliver the Trustee Agreement, and has taken all necessary action to
authorize the execution and delivery of the Trust Agreement.
5. Each of the Indenture and the Guarantee 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, 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).
6. The Securities delivered on the date hereof have been duly
authenticated by the Indenture Trustee in accordance with the terms of the
Indenture.
C-1
CERTIFICATE OF INCORPORATION
OF
FIDELITY BANCSHARES (N.C.), INC.
ARTICLE I
The name of the corporation is Fidelity BancShares (N.C.),
Inc.
ARTICLE II
The address of the corporation's registered office in the
State of Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle, 19801, and the name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The purpose of the corporation is to operate as a one-bank or
as a multi-bank holding company and to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
The aggregate number of shares which the corporation shall
have authority to issue is Twenty-Nine Thousand Two Hundred (29,200) shares of
Common Stock, par value Twenty-Five and No/100 Dollars ($25.00) per share, which
the Board of Directors shall have the authority to issue.
ARTICLE V
In furtherance, and not in limitation of the powers conferred
upon the Board of Directors by law, the Board of Directors shall have the power
to make, adopt, alter, amend and repeal, from time to time, the Bylaws of the
corporation, subject to the rights of the shareholders entitled to vote with
respect thereto to alter or repeal Bylaws made by the Board of Directors.
ARTICLE VI
No Director shall be personally liable to the corporation or
its shareholders for monetary damages for breach of fiduciary duty as a Director
for any act or omission occurring subsequent to the date when this provision
becomes effective, except that he may be liable (i) for any breach of the
Director's duty of loyalty to the corporation or its shareholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of Delaware or (iv) for any transaction from which the Director derived an
improper personal benefit. The corporation shall, to the full extent permitted
by Section 145 of the General Corporation Law of Delaware, indemnify all persons
whom it may indemnify pursuant thereto.
<PAGE>
ARTICLE VII
The name and mailing address of the sole incorporator of the
corporation are:
Name Address
David L. Ward, Jr. Post Office Box 867
New Bern, North Carolina 28560
ARTICLE VIII
The name and mailing address of each person who is to serve as
a director until the first annual meeting of shareholders or until his successor
is elected and qualifies are as follows:
Name Address
Billy T. Woodard Route 3, Box 86-C
Fuquay-Varina, NC 27526
Sam C. Riddle, Jr. Post Office Box 158
Carthage, NC 28327
Haywood A. Lane, Jr. 1304 Lake Pine Road
Cary, NC 27511
Wallace H. Mitchell 710 Holland Road
Fuquay-Varina, NC 27526
Wiley H. Cozart, M.D. 312 Pine Street
Fuquay-Varina, NC 27526
Harold A. Scott, Jr. Biscoe Road
Troy, NC 27371
ARTICLE IX
The principal place of business of the corporation shall be
100 South Main Street, City of Fuquay-Varina, County of Wake, State of North
Carolina 27526.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day
of November, 1987.
Witnesseth:
/s/ Carolyn C. McCulley /s/ David L. Ward, Jr.
- ------------------------ -------------------------------------
David L. Ward, Jr., Sole Incorporator
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF CRAVEN
This is to certify that on the 10th day of November, 1987,
before me, a Notary Public, personally appeared DAVID L. WARD, JR., who I am
satisfied is the person named in and who executed the foregoing Certificate of
Incorporation, and I having first made known to him the contents thereof, he did
acknowledge that he signed and delivered the same as his voluntary act and deed
for the uses and purposes therein expressed.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
seal, this the 10th day of November, 1987.
/s/ Mildred I. Rice
---------------------------
Notary Public
My Commission Expires:
April 16, 1990
- ---------------
BYLAWS
OF
FIDELITY BANCSHARES (N.C.), INC.
Index
ARTICLE I
Offices
-------
Section 1. Principal Office
Section 2. Registered Offices
Section 3. Other Offices
ARTICLE II
Meetings of Shareholders
------------------------
Section 1. Place of Meetings
Section 2. Annual Meetings
Section 3. Special Meetings
Section 4. Notice of Meetings
Section 5. Voting Lists
Section 6. Quorum
Section 7. Proxies
Section 8. Voting of Shares
Section 9. Informal Action By Shareholders
Section 10. Presiding Officer
ARTICLE III
Directors
---------
Section 1. General Powers
Section 2. Number, Term and Qualifications
Section 3. Election of Directors
Section 4. Removal
Section 5. Vacancies
Section 6. Chairman of the Board
Section 7. Compensation
Section 8. Committees of the Board
ARTICLE IV
Meetings of Directors
---------------------
Section 1. Regular Meetings
Section 2. Special Meetings
Section 3. Notice of Meetings
Section 4. Quorum
Section 5. Manner of Acting
Section 6. Informal Action by Directors
<PAGE>
ARTICLE V
Executive Committee
-------------------
Section 1. Membership and General Powers
Section 2. Vacancies
Section 3. Removal
Section 4. Minutes
Section 5. Responsibility of Directors
ARTICLE VI
Officers
--------
Section 1. Number
Section 2. Election and Term
Section 3. Removal
Section 4. Compensation
Section 5. Chairman of the Board and President
Section 6. Additional Duties of President
Section 7. Vice Presidents
Section 8. Secretaries
Section 9. Assistant Secretaries
Section 10. Treasurer
Section 11. Assistant Treasurers
Section 12. Other Officers
Section 13. Bonds
ARTICLE VII
Contracts, Loans, Checks and Deposits
-------------------------------------
Section 1. Contracts
Section 2. Loans
Section 3. Checks and Drafts
Section 4. Deposits
ARTICLE VIII
Certificates of Stock and Their Transfer
----------------------------------------
Section 1. Certificates of Stock
Section 2. Transfer of Stock
Section 3. Fixing Record Date
Section 4. Lost Certificates
Section 5. Registered Shareholders
Section 6. Treasury Shares
<PAGE>
ARTICLE IX
General Provisions
------------------
Section 1. Dividends
Section 2. Seal
Section 3. Annual Statement
Section 4. Notice and Waiver of Notice
Section 5. Amendments
Section 6. Fiscal Year
Section 7. Indemnification
Section 8. Disallowance of Deductions
<PAGE>
BYLAWS
OF
FIDELITY BANCSHARES (N.C.), INC.
ARTICLE I
Offices
--------
Section 1. Principal Office: The principal office of the corporation shall
be located in Fuquay-Varina, Wake County, North Carolina.
Section 2. Registered Offices: The registered office of the corporation
required by law to be maintained in the State of Delaware shall be located in
Wilmington, New Castle County, Delaware. The registered office of the
corporation required by law to be maintained in the State of North Carolina may
be, but need not be, identical with the principal office.
Section 3. Other Offices: The corporation may have offices at such
other places, either within or without the State of Delaware, as the Board of
Directors from time to time may determine, or as the affairs of the corporation
may require.
ARTICLE II
Meetings of Shareholders
------------------------
Section 1. Place of Meetings: All meetings of shareholders shall be
held at the principal office of the corporation or at such other place, either
within or without the State of Delaware, as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting or agreed
upon by a majority of the shareholders entitled to vote thereat.
Section 2. Annual Meetings: The annual meeting of shareholders shall be
held at the designated location on such date during the first six months of each
year as shall be determined by the Chairman of the Board, the President or the
Board of Directors. The purpose of such annual meeting shall be to elect
directors of the corporation and for the transaction of such other business as
may properly be brought before the meeting.
Section 3. Special Meetings: Special meetings of the shareholders may
be called at any time by the Chairman of the Board, President or Secretary, and
shall be called by the President or Secretary at the request in writing of a
majority of the Board of Directors. Such written request shall state the purpose
or purposes of the proposed meeting.
<PAGE>
Business transacted at any special meeting of shareholders shall be
limited to the purpose stated in the notice.
Section 4. Notice of Meetings: Written or printed notice stating the
place, day and hour of the meeting shall be delivered not less than ten nor more
than sixty days before the date thereof, either personally or by mail, by or at
the direction of the Chairman of the Board, President, Secretary, or other
person calling the meeting, to each shareholder of record entitled to vote at
such meeting.
In the case of an annual meeting, the notice of meeting need not
specifically state the business to be transacted thereat unless such a statement
is expressly required by the provisions of the General Corporation Law of the
State of Delaware.
In the case of a special meeting, the notice of meeting shall
specifically state the purpose or purposes for which the meeting is called. In
the case of a special meeting called by the written request of a majority of the
members of the Board of Directors or the written request of the holders of a
majority in amount of the entire capital stock of the corporation issued,
outstanding and entitled to vote, the notice also shall state that the meeting
is being called upon such written request.
When a meeting is adjourned for thirty (30) days or more, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each shareholder of record entitled
to vote at the meeting. When a meeting is adjourned for less than thirty (30)
days in any one adjournment, it is not necessary to give any notice of the
adjourned meeting other than by announcement of the time and place thereof at
the meeting at which the adjournment is taken.
Section 5. Voting Lists: The officer who has charge of the stock ledger
of the corporation shall prepare and make, at least ten days before every
meeting of shareholders, a complete list of the shareholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
shareholder and the number of shares registered in the name of each shareholder.
Such list shall be opened to the examination of any shareholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any shareholder who is
present.
2
<PAGE>
Section 6. Quorum: The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the shareholders for the
transaction of business except as otherwise provided by the General Corporation
Law of the State of Delaware or by the Certificate of Incorporation of the
corporation. If, however, such quorum shall not be present or represented at any
meeting of the shareholders, the shareholders entitled to vote thereat, present
in person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting, at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
The shareholders present at a duly organized meeting may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Section 7. Proxies: Each shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent to corporate action in writing
without a meeting may vote in person or may authorize another person or persons
to act for him by proxy, but no such proxies shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period.
Section 8. Voting of Shares: Unless otherwise provided in the
Certificate of Incorporation and subject to the provisions of the General
Corporation Law of the State of Delaware, each shareholder shall at every
meeting of shareholders be entitled to one vote for each share of issued and
outstanding capital stock held by such shareholder. If the Certificate of
Incorporation provides for more or less than one vote for any share on any
matter, any reference in these Bylaws to a majority or other proportion of stock
shall refer to such majority or other proportion of the votes of such stock.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one which by express provision of the statutes or of the Certificate of
Incorporation, a different vote is required in which case such express provision
shall govern and control the decision of such question.
Voting on all matters except the election of directors shall be by
voice vote or by a show of hands unless the holders of a majority of the shares
represented at the meeting shall,
3
<PAGE>
prior to the voting on any matter, demand a ballot vote on that particular
matter.
Section 9. Informal Action by Shareholders: Unless otherwise provided
in the Certificate of Incorporation, any action required to be taken at any
annual or special meeting of shareholders of the corporation, or any action
which may be taken at any annual or special meeting of such shareholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those shareholders who have not consented in writing.
Section 10. Presiding Officer: The succession order for purposes of
these Bylaws shall be: the Chairman of the Board, President, Executive Vice
President in order of seniority, Senior Vice President in order of seniority,
and Secretary. In the event neither the Chairman of the Board, nor the President
is present, the shareholders may elect a Chairman of the meeting.
ARTICLE III
Directors
---------
Section 1. General Powers: The business and affairs of the corporation
shall be managed by the Board of Directors or by such Committees of the Board as
the Board may establish pursuant to these Bylaws. The directors shall have and
exercise full power in the management and conduct of the business and affairs of
the corporation and do all such lawful acts and things as are not by statute, or
by Certificate of Incorporation, or by these Bylaws directed or required to be
exercised or done by the shareholders.
Section 2. Number, Term and Qualifications: The number of directors of
the corporation shall be not less than five nor more than twelve. The directors,
by a majority vote of the remaining directors, though less than a quorum, or by
the sole remaining director, shall determine the exact number of directors,
which shall be not less than five nor more than twelve without a Bylaw
modification. Each director shall hold office until his death, resignation,
retirement, removal, disqualification, or until his successor is elected and
qualified. Directors need not be residents of the State of Delaware nor
shareholders of the corporation; provided, however, that not less than
three-fourths (3/4) of the
4
<PAGE>
directors shall be residents of the State of North Carolina and stock
ownership for qualification shall be subject to North Carolina law.
Section 3. Election of Directors: Except as provided in Section 5 of
this Article, the directors shall be elected by written ballot at the annual
meeting of the shareholders and those persons who receive the highest number of
votes shall be deemed to have been elected.
Section 4. Removal: Any director may be removed from office, with or
without cause, by a vote of shareholders holding a majority of the shares
entitled to vote at an election of directors. If any directors are so removed,
new directors may be elected at the same meeting.
Section 5. Vacancies: Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority vote of the directors then in office, though less than a quorum,
or by a sole remaining director, and the directors so chosen shall hold office
until the next annual election and until their successors are duly elected and
shall qualify, unless sooner displaced. If there are no directors in office,
then an election of directors may be held in the manner provided by statute. If,
at the time of filling any vacancy or any newly created directorship, the
directors then in office shall constitute less than a majority of the whole
Board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any shareholder or shareholders owning at
least ten percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office.
Section 6. Chairman of the Board: There may be a Chairman of the Board
of Directors elected by the directors from their number at any meeting of the
Board. The Chairman shall preside at all meetings of the Board of Directors and
perform such other duties as may be directed by the Board.
Section 7. Compensation: The Board of Directors may compensate
directors for their services as such and may provide for the payment of all
expenses incurred by directors in attending regular and special meetings of the
Board. Members of special or standing committees of the Board of Directors may
be allowed like compensation for attending such committee meetings.
Section 8. Committees of the Board: The Board of Directors may, by
resolution adopted by a majority of the whole Board, designate one or more
committees of the Board, each
5
<PAGE>
committee to consist of two or more directors of the corporation. The Board
may designate one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee.
Any such committee, to the extent provided in the resolution and these Bylaws,
shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it, except
as limited by the provisions of the General Corporation Law of the State of
Delaware; provided, however, that in the absence or disqualification of any
member of such committee or committees, the member or members thereof present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors or
as set forth in these Bylaws. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
ARTICLE IV
Meetings of Directors
---------------------
Section 1. Regular Meetings: A regular meeting of the Board of
Directors will be held immediately after, and at the same place as, the annual
meeting of shareholders. In addition, the Board of Directors may provide, by
resolution, the time and place, either within or without the State of Delaware,
for the holding of additional regular meetings, one of which will be held in
each calendar quarter.
Section 2. Special Meetings: Special meetings of the Board of Directors may
be called by or at the request of the Chairman of the Board, President or any
two directors. Such meetings may be held either within or without the State of
Delaware.
Section 3. Notice of Meetings: Regular meetings of the Board of Directors
may be held without notice.
The person or persons calling a special meeting of the Board of
Directors shall, at least one day before the meeting, give notice thereof by any
usual means of communication. Such notice need not specify the purpose for which
the meeting is called.
Section 4. Quorum: A majority of the Board of Directors as established by
the Bylaws and fixed by the Board of
6
<PAGE>
Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
Section 5. Manner of Acting: Except as otherwise provided in these
Bylaws, or as specifically provided by statute or by the Certificate of
Incorporation, the act of the majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 6. Informal Action by Directors: Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board or
of a committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or the
committee, whether done before or after the action so taken.
ARTICLE V
Executive Committee
-------------------
Section 1. Members and General Powers: A majority of the qualified
members of the Board of Directors then in office may, by proper resolution,
appoint an Executive Committee which shall be composed of not less than three
nor more than five directors who shall have and exercise the powers of the Board
of Directors in the management of the business affairs of the corporation,
except at such time as the Board of Directors is in session. However, the Board
of Directors shall have the power to direct, limit or control said Executive
Committee by resolution at any special or regular meeting or by general rules
adopted for its guidance. The Executive Committee shall not have any authority
to take any action prohibited by the General Corporation Law of the State of
Delaware; provided, however, that such Executive Committee shall have the power
to declare dividends and to authorize the issuance of stock.
A majority of the members of the Executive Committee shall constitute a
quorum. Further, the Executive Committee shall have authority to take informal
action by written consent as provided in Article IV, Section 6 for the Board of
Directors.
Section 2. Vacancies: Any vacancy occurring on the Executive Committee
shall be filled by the vote of a majority of the number of qualified directors
at a regular or special meeting of the Board of Directors.
7
<PAGE>
Section 3. Removal: Any member of the Executive Committee may be removed at
any time with or without cause by a majority of the number of qualified
directors then in office.
Section 4. Minutes: The Executive Committee shall keep regular minutes of
its proceedings and report the same to the Board when required.
Section 5. Responsibility of Directors: The designation of an Executive
Committee and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility or
liability imposed upon it or him by law.
If such action taken by the Executive Committee is not thereafter
formally considered by the full Board, a director may dissent from such action
by filing his written objection with the Secretary with reasonable promptness
after learning of such action.
ARTICLE VI
Officers
--------
Section 1. Number: The officers of the corporation shall consist of a
Chairman of the Board, President and Secretary and may also consist of one or
more Executive Vice Presidents, one or more Senior Vice Presidents, one or more
Vice Presidents, a Treasurer, and other specially designated Vice Presidents or
Assistant Vice Presidents as may be determined by the Board of Directors, and
such Assistant Secretaries and other officers as may be deemed necessary or
advisable by the Board of Directors, each of which officers or assistant
officers thereto shall have such powers as may be delegated to them by the Board
of Directors and these Bylaws. Any two or more offices may be held by the same
person, except that no officer may act in more than one capacity where action of
two or more officers is required.
Section 2. Election and Term: The officers of the corporation shall be
elected by the Board of Directors. Such elections may be held at any regular or
special meeting of the Board. Each officer shall hold office until his death,
resignation, retirement, removal, disqualification, or until his successor is
duly elected and qualified.
Section 3. Removal: Any officer or agent elected or appointed by the
Board of Directors may be removed by the affirmative vote of a majority of the
Board with or without cause; but such removal shall be without prejudice to the
contract rights, if any, of the person so removed.
8
<PAGE>
Section 4. Compensation: The compensation of all officers of the
corporation shall be fixed by the Board of Directors or as delegated by the
Board of Directors.
Section 5. Chairman of the Board and President: The Chairman of the
Board shall preside at all meetings of the Board of Directors, the Executive
Committee and the meetings of shareholders. In his absence or disability, the
President shall perform the duties of the Chairman of the Board at all such
meetings. In the absence or disability of both the Chairman of the Board and the
President the other provisions of these bylaws concerning succession shall
apply.
Section 6. Additional Duties of President: The President shall be the
principal executive officer of the corporation and, subject to the control of
the Board of Directors shall supervise and control the management of the
corporation in accordance with these Bylaws. He shall sign, with any other
proper officer, certificates for shares of the corporation and any deeds,
leases, mortgages, bonds, contracts or other instruments which may be lawfully
executed on behalf of the corporation, except where required or permitted by law
to be otherwise signed and executed and except where the signing and execution
thereof shall be delegated by the Board of Directors to some other officer or
agent and, in general, he shall perform all duties incident to the office of
President and such other duties as may be prescribed by the Board of Directors
from time to time.
Section 7. Vice Presidents: In the absence of the President or in the
event of his death, inability or refusal to act, the Vice Presidents in the
order of succession herein specified and in the order of their length of service
within the category or class of Vice President, unless otherwise determined by
the Board of Directors, shall perform the duties of the President and when so
acting shall have all the powers of and be subject to all the restrictions upon
the President. Any Vice President, with the Secretary and/or Assistant
Secretary, may sign certificates for shares of the corporation; and shall
perform such other duties as from time to time may be assigned to him by the
President or the Board of Directors.
Section 8. Secretary: The Secretary shall attend and keep accurate
records of the acts and proceedings of all meetings of shareholders and
directors. He shall give or cause to be given all notices required by law and by
these Bylaws. He shall have general charge of the corporate books and records
and of the corporate seal, and he shall affix the corporate seal to any lawfully
executed instrument requiring it. He shall have general charge of the stock
transfer books of the corporation and shall keep, at the registered or principal
office of the corporation, a record of shareholders showing the name and address
of each shareholder and the number and class
9
<PAGE>
of the shares held by each. He shall sign such instruments as may require his
signature, and, in general, shall perform all duties incident to the office of
Secretary and such other duties as may be assigned him from time to time by the
President or by the Board of Directors.
Section 9. Assistant Secretaries: In the absence of the Secretary or in
the event of his death, inability or refusal to act, the Assistant Secretaries
in the order of their length of service as Assistant Secretaries, unless
otherwise determined by the Board of Directors, shall perform the duties of the
Secretary, and when so acting shall have all the powers of and be subject to all
the restrictions upon the Secretary. They shall perform such other duties as may
be assigned to them by the Secretary, by the President or by the Board of
Directors. Any Assistant Secretary may sign, with the President, or a Vice
President, or other authorized officer, certificates for shares of the
corporation.
Section 10. Treasurer: The Treasurer shall have custody of all funds
and securities belonging to the corporation and shall receive, deposit or
disburse the same under the direction of the Board of Directors. He shall keep
full and accurate accounts of the finances of the corporation and shall render
to the President and Board of Directors, at its regular meetings or when the
Board of Directors so requires, an account of all his transactions as Treasurer
and of the financial condition of the corporation. The Treasurer, in general,
shall perform all duties incident to his office and such other duties as may be
assigned to him from time to time by the President or by the Board of Directors.
Section 11. Assistant Treasurers: In the absence of the Treasurer or in
the event of his death, inability, or refusal to act, the Assistant Treasurers
in the order of their length of service as Assistant Treasurers, unless
otherwise determined by the Board of Directors, shall perform the duties of the
Treasurer, and when so acting shall have all the powers of and be subject to all
the restrictions upon the Treasurer. They shall perform such other duties as may
be assigned to them by the Treasurer, by the President or by the Board of
Directors.
Section 12. Other Officers: The duties of all officers and employees
not defined and enumerated in the Bylaws shall be prescribed and fixed by the
President and in carrying out the authority to do all other acts necessary to be
done to carry out the prescribed duties unless otherwise ordered by the Board of
Directors, including but not limited to the power to sign, certify or endorse
notes, certificates of indebtedness, deeds, checks, drafts or other contracts
for and on behalf of the corporation and/or to affix the seal of the corporation
to such documents as may require it.
10
<PAGE>
Section 13. Bonds: The Board of Directors may by resolution require any
or all officers, agents and employees of the corporation to give bond to the
corporation, with sufficient sureties, conditioned on the faithful performance
of the duties of their respective offices or positions, and to comply with such
other conditions as may from time to time be required by the Board of Directors.
ARTICLE VII
Contracts, Loans, Checks and Deposits
-------------------------------------
Section 1. Contracts: The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract, lease, or to execute
and deliver any instrument on behalf of the corporation, and such authority may
be general or confined to specific instances. The Board of Directors may enter
into employment contracts for any length of time it deems wise.
Section 2. Loans: No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or specific in nature and scope.
Section 3. Checks and Drafts: All checks, drafts or other orders for
the payment of money issued in the name of the corporation shall be signed by
such officer or officers, agent or agents of the corporation and in such manner
as from time to time shall be determined by resolution of the Board of
Directors.
Section 4. Deposits: All funds of the corporation not otherwise
employed from time to time shall be deposited to the credit of the corporation
in such depositories as the Board of Directors shall direct.
ARTICLE VIII
Certificates of Stock and Their Transfer
----------------------------------------
Section 1. Certificates of Stock: Certificates representing stock in
the corporation shall be issued in such form as the Board of Directors shall
determine to every shareholder for the fully paid shares owned by him; such
stock certificates shall indicate thereon a reference to any and all restrictive
conditions of said stock. These certificates shall be signed by the Chairman of
the Board of Directors, or the President or any Vice President and the
Secretary, an Assistant Secretary, Treasurer or an Assistant Treasurer or may
have facsimile signatures of such officers placed thereon and such officers
shall have the power to make or order to be made by an
11
<PAGE>
authorized officer or transfer agent any and all transfers of the securities of
the corporation. They shall be consecutively numbered or otherwise identified;
and the name and address of the persons to whom they are issued, with the number
of shares and the date of issue, shall be entered on the stock transfer books of
the corporation. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such an officer, transfer agent or registrar at the date of issue.
Section 2. Transfer of Stock: Transfer of stock shall be made on the
stock transfer books of the corporation only upon surrender of the certificates
for the shares sought to be transferred by the registered holder thereof or by
his duly authorized agent, transferee or legal representative. All certificates
surrendered for transfer shall be cancelled before new certificates for the
transferred shares shall be issued.
Upon surrender to the corporation or its transfer agent of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation or its transfer agent to issue a new certificate to the person
entitled thereto, to cancel the old certificate and to record the transaction
upon its books.
Section 3. Fixing Record Date: In order that the corporation may
determine the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of shareholders of record entitled to notice of or
to vote at a meeting of shareholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 4. Lost Certificates: The Board of Directors may authorize and direct
the issuance of a new share certificate or certificates in place of a
certificate or certificates claimed to have been lost, stolen or destroyed, upon
receipt of an affidavit to such fact from the person claiming the loss, theft or
destruction. When authorizing such issuance of a new certificate or
certificates, the Board may, in its discretion
12
<PAGE>
and as a condition precedent to the issuance thereof, require the claimant, or
his legal representative, to advertise the same in such manner as it may require
and/or to give the corporation a bond in such sum as the Board may direct to
indemnify the corporation against loss from any claim with respect to the
certificate claimed to have been lost, stolen or destroyed; or the Board may, by
resolution reciting the circumstances justifying such action, authorize the
issuance of the new certificate or certificates without requiring such a bond.
Section 5. Registered Shareholders: The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice hereof, except as otherwise provided by
the laws of Delaware.
Section 6. Treasury Shares: Treasury shares of the corporation shall
consist of such shares as have been issued and thereafter acquired but not
cancelled by the corporation. Treasury shares shall not carry voting or dividend
rights.
ARTICLE IX
General Provisions
------------------
Section 1. Dividends: Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors or the Executive Committee at any
regular or special meeting, pursuant to law. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation.
Before payment of any dividend, there may be set aside out of any funds
of the corporation available for dividends, such sum or sums as the directors
from time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
directors shall think conducive to the interest of the corporation, and the
directors may modify or abolish any such reserve in the manner in which it was
created.
Section 2. Seal: The corporate seal of the corporation shall have
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal,
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<PAGE>
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Section 3. Annual Statement: The Board of Directors shall present at
each annual meeting, and at any special meeting of the shareholders when called
for by majority vote of the shareholders, a full and clear statement of the
business and condition of the corporation.
Section 4. Notice and Waiver of Notice: Whenever any notice is required
to be given to any shareholder or director under the provisions of the General
Corporation Law of the State of Delaware or under the provisions of the
Certificate of Incorporation or Bylaws of this corporation, it shall not be
construed to mean personal notice, but such notice may be given in writing, by
mail, addressed to such director or shareholder, at his address as it appears on
the records of the corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Notice to directors may also be given by telegram,
telephone, telecopier or other electronic communication media.
Whenever notice is required to be given under the provisions of the
General Corporation Law of the State of Delaware or of the Certificate of
Incorporation or of these Bylaws, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
The attendance by a director at a meeting of the Board or a committee
of the Board shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 5. Amendments: Except as otherwise provided herein, these
Bylaws may be altered, amended or repealed and new bylaws may be adopted at any
regular meeting of the Board of Directors or the shareholders, or at any special
meeting of the Board of Directors or shareholders if notice of such alteration,
amendment, repeal or adoption, be contained in the notice of said special
meeting.
Section 6. Fiscal Year: The fiscal year of the corporation shall be
fixed by the Board of Directors.
Section 7. Indemnification: The corporation shall indemnify its
officers, directors, employees and agents to the maximum extent permitted by the
General Corporation Law of the State of Delaware.
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<PAGE>
Section 8. Disallowance of Deductions: Any payments made to or on
behalf of an officer or director of the corporation, including salary,
commission, bonus, interest, rent or entertainment expense incurred by him,
which shall be disallowed in whole or in part as a deductible expense of the
corporation by the Internal Revenue Service (and such determination shall be
acceded to by the corporation, or such determination shall be rendered final by
the appropriate taxing authority, or a judgment of a court of competent
jurisdiction and no appeal shall be taken therefrom, or the applicable period
for filing notice of appeal shall have expired), then such sum shall be
reimbursed by such officer or director to the corporation to the full extent of
such disallowance. It shall be the duty of the Board of Directors to enforce the
payment of any such sum disallowed and such repayment may not be waived.
However, in lieu of such direct payment by the officer or director involved to
the corporation, and subject to the determination of the Board of Directors in
its sole discretion, proportionate amounts may be withheld from future
compensation payments of such officer or director until the amount owed to the
corporation as a result of such disallowance has been fully recovered.
15
EXHIBIT 4.1
FIDBANK CAPITAL TRUST I
TRUST AGREEMENT
THIS TRUST AGREEMENT, dated as of July 14, 1998, is by and between (i)
Fidelity BancShares (N.C.), Inc., a Delaware corporation (the "Depositor"), and
(ii) Bankers Trust (Delaware), a Delaware banking corporation, as Delaware
trustee ("Trustee"). The Depositor and the Trustee hereby agree as follows:
1. The trust created hereby (the "Trust") shall be known as "FIDBANK
Capital Trust I."
2. The Depositor hereby assigns, transfers, conveys and sets over to the
Trust the sum of $10. Such amount shall constitute the initial trust estate. The
Trustee hereby declares that it will hold the trust estate in trust for the
Depositor.
3. 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.
4. The Trustee is 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.
5. The Depositor, the Trustee and others will enter into an amended and
restated Trust Agreement, satisfactory to each such party and substantially in
the form to be included as an exhibit to the Registration Statement on Form S-1
(the "1933 Act Registration Statement") referred to below, or in such other form
as the Trustee and the Depositor may approve, to provide for the contemplated
operation of the Trust created hereby and the issuance of Capital Securities and
Common Securities referred to therein. Prior to the execution and delivery of
such amended and restated Trust Agreement, the Trustee 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, any licenses, consents or approvals required by
applicable law or otherwise. Notwithstanding the foregoing, the Trustee may take
all actions deemed proper as are necessary to effect the transactions
contemplated herein.
6. The Depositor and the Trustee hereby authorize and direct the
Depositor, as the sponsor of the Trust, (i) to file with the Securities and
Exchange Commission (the "Commission") and to execute, in the case of the 1933
Act Registration Statement and 1934 Act Registration Statement (as herein
defined), on behalf of the Trust, (a) the 1933 Act Registration Statement,
including pre-effective or post-effective amendments to such Registration
Statement, relating to the registration under the Securities Act of 1933, as
amended (the "1933 Act"), of the Capital Securities of the Trust, (b) any
preliminary prospectus or prospectus or supplement thereto relating to the
Capital Securities required to be filed pursuant to Rule 424 under the 1933 Act,
and (c) a Registration Statement on Form 8-A or other appropriate form (the
"1934 Act Registration Statement") (including all pre-effective and
post-effective amendments thereto) relating to the
<PAGE>
registration of the Capital Securities of the Trust under Section 12(b) of the
Securities Exchange Act of 1934, as amended; (ii) to file with the American
Stock Exchange and execute on behalf of the Trust a listing application and all
other applications, statements, certificates, agreements and other instruments
as shall be necessary or desirable to cause the Capital Securities to be listed
on the American Stock Exchange; (iii) to file and execute on behalf of the Trust
such applications, reports, surety bonds, irrevocable consents, appointments of
attorney for service of process and other papers and documents as shall be
necessary or desirable to register the Capital Securities under the securities
or "Blue Sky" laws of such jurisdictions as the Depositor, on behalf of the
Trust, may deem necessary or desirable; and (iv) to execute, deliver and perform
on behalf of the Trust, an underwriting agreement with the Depositor and the
underwriter or underwriters of the Capital Securities of the Trust. In the event
that any filing referred to in clauses (i)-(iii) above is required by the rules
and regulations of the Commission, the American Stock Exchange or state
securities or Blue Sky laws to be executed on behalf of the Trust by the
Trustee, the Trustee, in its capacity as 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, it being understood that Bankers Trust
(Delaware), in its capacity as trustee of the Trust, shall not be require to
join in any such filing or execute on behalf of the Trust any such document
unless required by the rules and regulations of the Commission, the American
Stock Exchange or state securities or Blue Sky laws. In connection with all of
the foregoing, each of the Trustee, solely in its capacity as trustee of the
Trust, and the Depositor hereby constitute and appoint Jeffrey W. Slack as its
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for the Depositor or in the Depositor's name, place and stead, in
any and all capacities, to sign any and all amendments (including all
pre-effective and post-effective amendments) to the 1933 Act Registration
Statement and the 1934 Act Registration Statement and to file the same, with all
exhibits thereto, and any other documents in connection therewith, with the
Commission, granting unto said attorney-in-fact and agent 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 attorney-in-fact and agent or his respective substitute or substitutes,
shall do or cause to be done by virtue hereof.
7. This Trust Agreement may be executed in one or more counterparts.
8. The number of trustees initially shall be one (1) 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, who 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 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. Any
trustee may resign upon thirty (30) days' prior written notice to the Depositor.
9. 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
principles).
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have caused this Trust Agreement to be duly executed as of the date first
written above.
FIDELITY BANCSHARES (N.C.) , INC.
as Depositor
By: /s/ Jeffrey W. Slack
-------------------
Name: Jeffrey W. Slack
Title: Senior Vice President
BANKERS TRUST (DELAWARE),
as Delaware trustee, and not in its
individual capacity
By: /s/ M. Lisa Wilkins
------------------------
Name: M. Lisa Wilkins
Title: Assistant Secretary
<PAGE>
AMENDMENT NO. 1 TO TRUST AGREEMENT
OF
FIDBANK CAPITAL TRUST I
This Amendment No. 1 to Trust Agreement of FIDBANK Capital Trust I
(this "Amendment"), is entered into by and between Fidelity BancShares (N.C.),
Inc., a Delaware corporation, as depositor (the "Depositor"), and Bankers Trust
(Delaware), a Delaware banking corporation, as trustee (the "Delaware Trustee").
WHEREAS, the Depositor and the Delaware Trustee heretofore created
and continued a business trust known as FIDBANK Capital Trust I (the "Trust")
pursuant to and in accordance with the Delaware Business Trust Act (12 Del. C.
ss. 3801, et seq.), as amended from time to time, and the Trust Agreement of the
Trust, dated as of July 14, 1998 (the "Original Agreement");
WHEREAS, in accordance with the terms of the Original Agreement, the
Depositor and the Delaware Trustee hereby consent to the adoption of this
Amendment; and
WHEREAS, the parties hereto desire to amend the Original Agreement
as set forth herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
AMENDMENT
Notwithstanding anything in the Original Agreement to the contrary,
the parties hereto amend Section 6 of the Original Agreement by deleting the
reference to "Jeffrey W. Slack" contained therein and substituting therefor a
reference to "Billy T. Woodard".
MISCELLANEOUS
1. Successors and Assigns. This Amendment shall be binding upon, and
shall enure to the benefit of, the parties hereto and their respective
successors and assigns.
2. Full Force and Effect. Except to the extent modified hereby, the
Original Agreement shall remain in full force and effect.
3. Counterparts. This Amendment may be executed in counterparts, all
of which together shall constitute one agreement binding on all parties hereto,
notwithstanding that all such parties are not signatories to the original or
same counterpart.
4. Governing Law. This Amendment shall be governed by, and construed
under, the laws of the State of Delaware, all rights and remedies being governed
by said laws.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, have duly executed this Amendment as of the 21st day of July, 1998.
DEPOSITOR:
FIDELITY BANCSHARES (N.C.), INC.
By: /s/ Billy T. Woodard
-----------------------
Name: Billy T. Woodard
Title: Chairman and CEO
TRUSTEE:
BANKERS TRUST(DELAWARE), as Delaware
trustee and not in its individual capacity
By: /s/ M. Lisa Wilkins
----------------------
Name: M. Lisa Wilkins
Title: Assistant Secretary
EXHIBIT 4.2
CERTIFICATE OF TRUST OF
FIDBANK CAPITAL TRUST I
THIS CERTIFICATE OF TRUST of FIDBANK Capital Trust I (the "Trust"), dated
July 14, 1998, is being duly executed and filed by Bankers Trust (Delaware), a
Delaware banking corporation, as trustee, 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 "FIDBANK
Capital Trust I".
2. Delaware Trustee. The name and address of the trustee of the Trust
with a principal place of business 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
3. Effective Date. This Certificate of Trust shall be effective
upon its filing with the Secretary of State of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the Trust,
has executed this Certificate of Trust as of the date first written above.
BANKERS TRUST (DELAWARE),
not in its individual capacity, but
solely as trustee
By: /s/ M. Lisa Wilkins
-------------------
Name: M. Lisa Wilkins
Title: Assistant Secretary
EXHIBIT 4.3
AMENDED AND RESTATED
TRUST AGREEMENT
AMONG
FIDELITY BANCSHARES (N.C.), INC.
AS DEPOSITOR,
BANKERS TRUST COMPANY
AS PROPERTY TRUSTEE,
AND
BANKERS TRUST (DELAWARE),
AS DELAWARE TRUSTEE
DATED AS OF _________, 1998
---------------------------
FIDBANK CAPITAL TRUST I
---------------------------
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FIDBANK CAPITAL TRUST I
Certain Sections of this Trust Agreement relating, to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
Trust Indenture Act Section Trust Agreement Section
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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)
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Trust Agreement.
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I DEFINED TERMS........................................................................................
SECTION 1.1. DEFINITIONS..........................................................................................
ARTICLE II CONTINUATION OF THE ISSUER TRUST....................................................................
SECTION 2.1. NAME -11-
SECTION 2.2. OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF BUSINESS.........................................
SECTION 2.3. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL EXPENSES.....................................
SECTION 2.4. ISSUANCE OF THE CAPITAL SECURITIES..................................................................
SECTION 2.5. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND
PURCHASE OF JUNIOR SUBORDINATED DEBENTURES.................................................
SECTION 2.6. DECLARATION OF TRUST................................................................................
SECTION 2.7. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS....................................................
SECTION 2.8. ASSETS OF TRUST.....................................................................................
SECTION 2.9. TITLE TO TRUST PROPERTY.............................................................................
ARTICLE III PAYMENT ACCOUNT.....................................................................................
SECTION 3.1. PAYMENT ACCOUNT.....................................................................................
ARTICLE IV DISTRIBUTIONS; REDEMPTION...........................................................................
SECTION 4.1. DISTRIBUTIONS.......................................................................................
SECTION 4.2. REDEMPTION..........................................................................................
SECTION 4.3. SUBORDINATION OF COMMON SECURITIES..................................................................
SECTION 4.4. PAYMENT PROCEDURES..................................................................................
SECTION 4.5. TAX RETURNS AND REPORTS.............................................................................
SECTION 4.6. PAYMENT OF TAXES, DUTIES, ETC. OF THE ISSUER TRUST..................................................
SECTION 4.7. PAYMENTS UNDER INDENTURE OR PURSUANT TO DIRECT ACTIONS..............................................
SECTION 4.8. LIABILITY OF THE HOLDER OF COMMON SECURITIES........................................................
ARTICLE V TRUST SECURITIES CERTIFICATES.......................................................................
SECTION 5.1. INITIAL OWNERSHIP...................................................................................
SECTION 5.2. THE TRUST SECURITIES CERTIFICATES...................................................................
SECTION 5.3. EXECUTION AND DELIVERY OF TRUST SECURITIES CERTIFICATES.............................................
SECTION 5.4. GLOBAL CAPITAL SECURITIES...........................................................................
SECTION 5.5. REGISTRATION OF TRANSFER AND EXCHANGE GENERALLY; CERTAIN
TRANSFERS AND EXCHANGES; CAPITAL SECURITIES CERTIFICATES...................................
SECTION 5.6. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES CERTIFICATES..................................
SECTION 5.7. PERSONS DEEMED HOLDERS..............................................................................
SECTION 5.8. ACCESS TO LIST OF HOLDERS' NAMES AND ADDRESSES......................................................
SECTION 5.9. MAINTENANCE OF OFFICE OR AGENCY.....................................................................
SECTION 5.10. APPOINTMENT OF PAYING AGENT.........................................................................
SECTION 5.11. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR.........................................................
SECTION 5.12. NOTICES TO CLEARING AGENCY..........................................................................
SECTION 5.13. RIGHTS OF HOLDERS...................................................................................
<PAGE>
ARTICLE VI ACTS OF HOLDERS; MEETINGS; VOTING...................................................................
SECTION 6.1. LIMITATIONS ON HOLDER'S VOTING RIGHTS..............................................................
SECTION 6.2. NOTICE OF MEETINGS..................................................................................
SECTION 6.3. MEETINGS OF HOLDERS................................................................................
SECTION 6.4. VOTING RIGHTS......................................................................................
SECTION 6.5. PROXIES, ETC.......................................................................................
SECTION 6.6. HOLDER ACTION BY WRITTEN CONSENT...................................................................
SECTION 6.7. RECORD DATE FOR VOTING AND OTHER PURPOSES..........................................................
SECTION 6.8. ACTS OF HOLDERS....................................................................................
SECTION 6.9. INSPECTION OF RECORDS..............................................................................
ARTICLE VII REPRESENTATIONS AND WARRANTIES......................................................................
SECTION 7.1. REPRESENTATIONS AND WARRANTIES OF THE PROPERTY TRUSTEE AND THE DELAWARE TRUSTEE.....................
SECTION 7.2. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR.........................................................
ARTICLE VIII THE ISSUER TRUSTEES; THE ADMINISTRATORS.............................................................
SECTION 8.1. CERTAIN DUTIES AND RESPONSIBILITIES.................................................................
SECTION 8.2. CERTAIN NOTICES.....................................................................................
SECTION 8.3. CERTAIN RIGHTS OF PROPERTY TRUSTEE..................................................................
SECTION 8.4. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.............................................
SECTION 8.5. MAY HOLD SECURITIES................................................................................
SECTION 8.6. COMPENSATION; INDEMNITY; FEES.......................................................................
SECTION 8.7. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF
TRUSTEES AND ADMINISTRATORS................................................................
SECTION 8.8. CONFLICTING INTERESTS...............................................................................
SECTION 8.9. CO-TRUSTEES AND SEPARATE TRUSTEE....................................................................
SECTION 8.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR...................................................
SECTION 8.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR..............................................................
SECTION 8.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.........................................
SECTION 8.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR ISSUER TRUST.................................
SECTION 8.14. TRUSTEE MAY FILE PROOFS OF CLAIM....................................................................
SECTION 8.15. REPORTS BY PROPERTY TRUSTEE.........................................................................
SECTION 8.16. REPORTS TO THE PROPERTY TRUSTEE.....................................................................
SECTION 8.17. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT....................................................
SECTION 8.18. NUMBER OF ISSUER TRUSTEES...........................................................................
SECTION 8.19. DELEGATION OF POWER.................................................................................
SECTION 8.20. APPOINTMENT OF ADMINISTRATORS.......................................................................
ARTICLE IX DISSOLUTION, LIQUIDATION AND MERGER.................................................................
SECTION 9.1. DISSOLUTION UPON EXPIRATION DATE....................................................................
SECTION 9.2. EARLY DISSOLUTION..................................................................................
SECTION 9.3. TERMINATION.........................................................................................
SECTION 9.4. LIQUIDATION.........................................................................................
SECTION 9.5. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE
ISSUER TRUST...............................................................................
ARTICLE X MISCELLANEOUS PROVISIONS............................................................................
<PAGE>
SECTION 10.1. LIMITATION OF RIGHTS OF HOLDERS.....................................................................
SECTION 10.2. AMENDMENT...........................................................................................
SECTION 10.3. SEPARABILITY........................................................................................
SECTION 10.4. GOVERNING LAW.......................................................................................
SECTION 10.5. PAYMENTS DUE ON NON-BUSINESS DAY....................................................................
SECTION 10.6. SUCCESSORS..........................................................................................
SECTION 10.7. HEADINGS -54-
SECTION 10.8. REPORTS, NOTICES AND DEMANDS........................................................................
SECTION 10.9. AGREEMENT NOT TO PETITION...........................................................................
SECTION 10.10. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT..............................................
SECTION 10.11. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND INDENTURE.....................................
</TABLE>
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Exhibit A Certificate of Trust
Exhibit B [Intentionally Omitted]
Exhibit C Form of Common Securities Certificate
Exhibit D Form of Capital Securities Certificate
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AGREEMENT
THIS AMENDED AND RESTATED TRUST AGREEMENT, dated as of ___________,
1998, is by and among (i) Fidelity BancShares (N.C.), Inc., a Delaware
corporation (including any successors or assigns, the "Depositor"), (ii) 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"), (iii) 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"), (iv) the Administrators, as
hereinafter defined, and (v) the several Holders, as hereinafter defined.
WITNESSETH
WHEREAS, the Depositor and the Delaware Trustee have heretofore duly
declared and established a business trust pursuant to the Delaware Business
Trust Act by entering into a certain Trust Agreement, dated as of July 14, 1998,
as amended by Amendment No. 1 to Trust Agreement of FIDBANK Capital Trust I
dated as of July 21, 1998 (as so amended, the "Original Trust Agreement"), and
by the execution and filing by the Delaware Trustee with the Secretary of State
of the State of Delaware of the Certificate of Trust, filed on July 14, 1998
(the "Certificate of Trust"), attached as Exhibit A; and
WHEREAS, the Depositor and the Delaware Trustee desire to amend and
restate the Original Trust Agreement in its entirety as set forth herein to
provide for, among other things, (i) the issuance of the Common Securities by
the Issuer Trust to the Depositor, (ii) the issuance and sale of the Capital
Securities by the Issuer Trust pursuant to the Underwriting Agreement, (iii) the
acquisition by the Issuer Trust from the Depositor of all of the right, title
and interest in the Junior Subordinated Debentures, (iv) the appointment of the
Administrators and (v) the addition of the Property Trustee as a party to this
Trust Agreement.
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:
<PAGE>
ARTICLE I
DEFINED TERMS
SECTION 1.1. Definitions
For all purposes of this Trust Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(a) The terms defined in this Article have the meanings assigned to them
in this Article and include the plural as well as the singular;
(b) All other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) 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 Capital Securities were originally
issued shall refer to the date the ______% Capital Securities were originally
issued.
"ACT" has the meaning specified in Section 6.8.
"ADDITIONAL AMOUNTS" means, with respect to Trust Securities of a given
Liquidation Amount and/or 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.
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"ADMINISTRATORS" means each Person appointed in accordance with Section
8.20 solely in such Person's capacity as Administrator of the Issuer Trust
continued hereunder and not in such Person's individual capacity, or any
successor Administrator appointed as herein provided; with the initial
Administrators being _______________ and .________________.
"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 Capital Security or beneficial interest therein, the rules
and procedures of the Depositary for such Capital 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
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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 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.
"BOARD RESOLUTION" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Depositor to have been duly adopted by the
Depositor's Board of Directors, or such committee of the Board of Directors or
officers of the Depositor to which authority to act on behalf of the Board of
Directors has been delegated, and to be in full force and effect on the date of
such certification, and delivered to the Issuer Trustees.
"BUSINESS DAY" means a day other than (a) a Saturday or Sunday, (b) a day
on which banking institutions in the City of New York, New York, or the City of
Raleigh, North Carolina 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 SECURITIES CERTIFICATE" means a certificate evidencing ownership
of Capital Securities, substantially in the form attached as Exhibit D.
"CAPITAL SECURITY" means a preferred undivided beneficial interest in the
assets of the Issuer Trust, having a Liquidation Amount of $10.00 and having the
rights provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution as provided herein.
"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 Capital 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 Capital Securities as "Tier 1 Capital"
(or the then equivalent thereof) for purposes of the risk-based capital adequacy
guidelines of the Board of Governors of the Federal Reserve System, as then in
effect and applicable to the Depositor.
"CEDE" means Cede & Co., nominee of the Depositary.
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"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 Closing Time, which date is also the date of
execution and delivery of this Trust Agreement.
"CLOSING TIME" has the meaning in the Underwriting Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, as amended, or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"COMMON SECURITIES CERTIFICATE" means a certificate evidencing ownership
of Common Securities, substantially in the form attached as Exhibit C.
"COMMON SECURITIES PURCHASE AGREEMENT" means the Common Securities
Purchase Agreement dated as of ______________________, 1998 between the Issuer
Trust and the Depositor, as the same may be amended from time to time.
"COMMON SECURITY" means an undivided beneficial interest in the assets of
the Issuer Trust, having a Liquidation Amount of $10.00 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 the principal office of the Property
Trustee located in the City of 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.
"DEBENTURE EVENT OF DEFAULT" means an "Event of Default" as defined in the
Indenture.
"DEBENTURES PURCHASE AGREEMENT" means the Junior Subordinated Deferrable
Interest Debentures Purchase Agreement dated as of _________________, 1998
between the Depositor and the Issuer Trust, as the same may be amended from time
to time.
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"DEBENTURE REDEMPTION DATE" means, with respect to any Junior Subordinated
Debentures to be redeemed under the Junior Subordinated Indenture, the date
fixed for redemption of such Debentures under the Indenture.
"DEBENTURE TRUSTEE" means Bankers Trust Company, a New York banking
corporation and any successor.
"DELAWARE BUSINESS TRUST ACT" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. C.ss. 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 continued hereunder 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.
"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; or
(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; or
(c) default by the Issuer Trust in the payment of any Redemption Price of
any Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in this Trust Agreement (other
than a covenant or warranty a default in the performance of which or the breach
of which is dealt with in clause (b) or (c) above) and continuation of such
default or breach for a period of 60 days after there has been given, by
registered
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or certified mail, to the Issuer Trustees and the Depositor by the Holders of at
least 25% in aggregate Liquidation Amount of the Outstanding Capital 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, as amended from time to time.
"EXPIRATION DATE" has the meaning specified in Section 9.1.
"GLOBAL CAPITAL SECURITIES CERTIFICATE" means a Capital Securities
Certificate evidencing ownership of Global Capital Securities.
"GLOBAL CAPITAL SECURITY" means a Capital Security, the ownership and
transfers of which shall be made through book entries by a Clearing Agency as
described in Section 5.4.
"GUARANTEE" means the Guarantee Agreement executed and delivered by the
Depositor and Bankers Trust Company, as trustee, contemporaneously with the
execution and delivery of this Trust Agreement, for the benefit of the Holders
of the Capital 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 deemed to be
a beneficial owner within the meaning of the Delaware Business Trust Act.
"INDENTURE" means the Junior Subordinated Indenture, dated as of
______________, 1998, 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.
"INVESTMENT COMPANY 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 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
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<PAGE>
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 Capital Securities.
"ISSUER TRUST" means FIDBANK Capital Trust I.
"ISSUER TRUSTEES" has the meaning specified in the preamble to this Trust
Agreement.
"JUNIOR SUBORDINATED DEBENTURES" means the aggregate principal amount of
the Depositor's __________% Junior Subordinated Deferrable Interest Debentures,
due ________________, 2028, 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 Capital Securities pro rata 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 $10.00 per Trust Security.
"LIQUIDATION DATE" means the date on which Junior Subordinated Debentures
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 CAPITAL SECURITIES" or "MAJORITY IN
LIQUIDATION AMOUNT OF THE COMMON SECURITIES" means, except as provided by the
Trust Indenture Act, Capital Securities
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or Common Securities, as the case may be, representing more than 50% of the
aggregate Liquidation Amount of all then Outstanding Capital Securities or
Common Securities, as the case may be.
"OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of the
Board, Vice Chairman of the Board, Chief Executive Officer, President or an
Executive Vice President, a Senior Vice President or Vice President, and by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of
the Depositor, and delivered to the party provided herein. 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;
(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.
"ORIGINAL TRUST AGREEMENT" has the meaning specified in the preamble 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 Capital 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
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(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 Capital Securities have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, Capital
Securities owned by the Depositor, any Issuer Trustee, any Administrator or any
Affiliate of the Depositor, shall be disregarded and deemed not to be
Outstanding, except that (a) in determining whether any Issuer Trustee or any
Administrator shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Capital Securities
that such Issuer Trustee or such Administrator, as the case may be, knows to be
so owned shall be so disregarded and (b) the foregoing shall not apply at any
time when all of the Outstanding Capital Securities are owned by the Depositor,
one or more of the Issuer Trustees, one or more of the Administrators and/or any
such Affiliate. Capital 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 Capital 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 Capital
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 with 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.
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"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 continued hereunder and not in its individual
capacity, or its successor in interest in such capacity, or any successor
property trustee appointed as herein provided.
"REDEMPTION DATE" means, with respect to any Trust Security to be
redeemed, the date fixed for such redemption by or pursuant to this Trust
Agreement; provided that each Debenture Redemption Date and the stated maturity
of the 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 a price equal to the Liquidation Amount, together
with accumulated Distributions to but excluding the date fixed for redemption.
"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, vice president, principal, 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.
"SENIOR INDEBTEDNESS" has the meaning specified in the Indenture.
"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 CAPITAL SECURITIES CERTIFICATE" of any particular Capital
Securities Certificate means every Capital Securities Certificate issued after,
and evidencing all or a
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portion of the same beneficial interest in the Issuer Trust as that evidenced
by, such particular Capital Securities Certificate; and, for the purposes of
this definition, any Capital Securities Certificate executed and delivered under
Section 5.6 in exchange for or in lieu of a mutilated, destroyed, lost or stolen
Capital Securities Certificate shall be deemed to evidence the same beneficial
interest in the Issuer Trust as the mutilated, destroyed, lost or stolen Capital
Securities Certificate.
"SUCCESSOR CAPITAL SECURITY" has the meaning specified in Section 9.5.
"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 Capital Securities (including, without limitation, any of the
foregoing arising with respect to, or resulting from, any proceeding or other
action commencing on or before such date), there is more than an insubstantial
risk that (i) 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,
(ii) 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 (iii) 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 this Amended and Restated Trust Agreement, as the
same may be modified, amended or supplemented in accordance with the applicable
provisions hereof, including (i) all exhibits hereto, and (ii) for all purposes
of this Amended and Restated Trust Agreement 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 or any
successor statute, in each case as amended from time to time.
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"TRUST PROPERTY" means (a) the Junior Subordinated Debentures, (b) any
cash on deposit in, or owing to, the Payment Account, (c) all proceeds and
rights in respect of the foregoing and (d) 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 Capital Securities Certificates.
"TRUST SECURITY" means any one of the Common Securities or the Capital
Securities.
"UNDERWRITER" has the meaning specified in the Underwriting Agreement.
"UNDERWRITING AGREEMENT" means the Underwriting Agreement, dated as of
______________________, 1998, 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 "FIDBANK Capital
Trust I", 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: 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
Fidelity BancShares (N.C.), Inc., 100 South Main Street, Fuquay-Varina, North
Carolina 27526, Attention: Billy T. Woodard.
SECTION 2.3. Initial Contribution of Trust Property; Organizational
Expenses
The Property Trustee acknowledges receipt in trust from the Depositor
in connection with this Trust Agreement of the sum of $10.00, 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 expenses paid by such
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Issuer Trustee. The Depositor shall make no claim upon the Trust Property for
the payment of such expenses.
SECTION 2.4. Issuance of the Capital Securities
The Depositor and the Issuer Trust executed and delivered the
Underwriting Agreement pursuant to the Original Trust 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, Capital Securities
Certificates, registered in the names requested by the Underwriter, in an
aggregate amount of 2,000,000 Capital Securities having an aggregate Liquidation
Amount of $20,000,000, against receipt of the aggregate purchase price of such
Capital Securities of $________________, by the Property Trustee.
If the Underwriter exercises its option to purchase all or any
portion of an additional 300,000 Capital Securities pursuant to the terms of the
Underwriting Agreement, then 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, additional Capital Securities Certificates, registered in the names
requested by the Underwriter, in an aggregate amount of up to 300,000 additional
Capital Securities having an aggregate Liquidation Amount of up to $3,000,000,
against receipt of the aggregate purchase price of such additional Capital
Securities of up to $3,000,000, 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 or
cause to be executed in accordance with Section 5.3 and the Property Trustee
shall authenticate and shall deliver to the Depositor, Common Securities
Certificates, registered in the name of the Depositor, in an aggregate amount of
61,856 Common Securities having an aggregate Liquidation Amount of $618,560
against receipt of the aggregate purchase price of such Common Securities of
$618,560 by the Property Trustee. Contemporaneously therewith, an Administrator,
on behalf of the Issuer Trust, shall subscribe for and purchase from the
Depositor the Junior Subordinated Debentures, registered in the name of the
Issuer Trust and having an aggregate principal amount equal to $20,618,560, 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 $_________________ (being the sum of the amounts delivered
to the Property Trustee pursuant to (i) the second sentence of Section 2.4, and
(ii) the first sentence of this Section 2.5) and receive on behalf of the Issuer
Trust the Junior Subordinated Debentures.
If the Underwriter exercises its option to purchase additional
Capital Securities pursuant to the terms of the Underwriting Agreement, then an
Administrator, on behalf of the Issuer Trust, shall execute or cause to be
executed in accordance with Section 5.3 and the Property Trustee shall
authenticate and deliver to the Depositor additional Common Securities
Certificates, registered in the name of the Depositor, in an aggregate amount of
up to 9,279 additional Common Securities
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having an aggregate Liquidation Amount of up to $92,790 against receipt of the
aggregate purchase price of such additional Common Securities of up to $92,790
by the Property Trustee. Contemporaneously therewith, an Administrator, on
behalf of the Issuer Trust, shall subscribe for and purchase from the Depositor
the Junior Subordinated Debentures, registered in the name of the Issuer Trust
and having an aggregate principal amount of up to $3,092,790, 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
an aggregate amount equal to the sum of the amounts delivered to the Property
Trustee pursuant to (i) the third sentence of Section 2.4, and (ii) the third
sentence of this Section 2.5.
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 (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, 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, to the fullest extent permitted by
law, 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 and power 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 and in
accordance with the following provisions (i), (ii) and (iii), the Issuer
Trustees and the Administrators shall act as follows:
(i) each Administrator, acting jointly or singly, shall:
(A) comply with the Underwriting Agreement regarding the issuance
and sale of the Trust Securities;
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(B) assist in compliance with the Securities Act, applicable
state securities or blue sky laws, and the Trust Indenture Act;
(C) assist in the listing of the Capital Securities upon such
securities exchange or exchanges as shall be determined by the
Depositor, with the registration of the Capital 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;
(D) execute the Trust Securities on behalf of the Issuer Trust in
accordance with this Trust Agreement;
(E) execute and deliver an application for a taxpayer
identification number for the Issuer Trust;
(F) assist in the filing with the Commission, at such time as
determined by the Depositor, any registration statement under the
Securities Act relating to the Trust Securities, including any
amendments thereto;
(G) unless otherwise required by the Trust Indenture Act, execute
on behalf of the Issuer Trust any documents that the Administrators
have the power to execute pursuant to this Trust Agreement, including
without limitation, the Debentures Purchase Agreement and the Common
Securities Purchase Agreement; and
(H) take any action incidental to the foregoing as necessary or
advisable to give effect to the terms of this Trust Agreement.
(ii) The Property Trustee shall have the power and authority to act on
behalf of the Issuer Trust with respect to the following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Junior Subordinated Debentures;
(C) the receipt and collection of interest, principal and any
other payments made in respect of the Junior Subordinated Debentures
in the Payment Account;
(D) the distribution of amounts owed to the Holders in respect of
the Trust Securities;
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(E) the exercise of all of the rights, powers and privileges of a
holder of the Junior Subordinated Debentures;
(F) the sending of notices of default and other information
regarding the Trust Securities and the Junior Subordinated Debentures
to the Holders thereof in accordance with this Trust Agreement;
(G) the distribution of the Trust Property in accordance with the
terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the
winding-up of the affairs of and liquidation of the Issuer Trust and
the preparation, execution and filing of the certificate of
cancellation with the Secretary of State of the State of Delaware; and
(I) after an Event of Default (other than under paragraph (b),
(c), (d), or (e) 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);
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.
(iii) The Property Trustee shall comply with the listing requirements
of the Capital Securities upon such securities exchange or exchanges as
shall be determined by the Depositor, the registration of the Capital
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.
(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 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
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therein, including to Holders, except as expressly provided herein, (iii) take
any action that would cause the Issuer Trust to become taxable other than as a
grantor trust for United States Federal income tax purposes, (iv) incur any
indebtedness for borrowed money or issue any other debt, or (v) take or consent
to any action that would result in the placement of a Lien on any of the Trust
Property. The 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 Capital Securities, the
Depositor shall have the right and responsibility 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, execution and filing with the Commission of a
registration statement on the appropriate form under the Securities Act
with respect to the Capital Securities;
(ii) the determination of the states in which to take appropriate
action to qualify or register for sale all or part of the Capital
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 sale of
the Capital Securities;
(iii) the negotiation of the terms of, and the execution and delivery
of, the Underwriting Agreement providing for the sale of the Capital
Securities; and
(iv) 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 other than as a grantor trust
for the United States Federal income tax purposes and so that the Junior
Subordinated Debentures will be treated as indebtedness of
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the Depositor 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 or
this Trust Agreement, that the Property Trustee 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 Capital Securities. In no event
shall the Administrators 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.
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
Property Trustee (in its capacity as such) and shall be held and administered by
the Property Trustee 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.
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ARTICLE IV
DISTRIBUTIONS; REDEMPTION
SECTION 4.1. Distributions
(a) The Trust Securities represent undivided beneficial interests in the
Trust Property, and Distributions (including of Additional Amounts) will be made
on the Trust Securities at the rate and on the dates that payments of interest
(including of Additional Interest, as defined in the Indenture) are made on the
Junior Subordinated Debentures. Accordingly:
(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
____________________, 1998, 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 ______________________, 1998. If
any date on which a Distribution is otherwise payable on the Trust
Securities is not a Business Day, then the payment of such Distribution
shall be made on the next succeeding day that is a Business Day (without
any additional Distributions or other payment in respect of any such
delay), 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
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"Extension Period"), provided that no Extension Period may extend beyond
_______________, 2028. 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
a rate 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 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" 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.
(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 fifteenth day
(whether or not a Business Day) next preceding the relevant Distribution Date.
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 soon
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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 Capital 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 may use "CUSIP" or
"private placement" numbers (if then generally in use), and, if so, the Property
Trustee shall indicate the "CUSIP" or "private placement" 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 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 Issuer Trust gives a notice of redemption in respect of any
Capital 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
Capital Securities held in global form, irrevocably deposit with the Clearing
Agency for such Capital 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
Holders of the Capital Securities. With respect to Capital 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
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and will give the Paying Agent irrevocable instructions and authority to pay the
Redemption Price to the Holder of the Capital Securities upon surrender of their
Capital 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 Distribution 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 falls in the next calendar
year, such payment will 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, Distributions on
such Trust Securities will continue to accumulate, as set forth in Section 4.1
and in accordance with the continued accrual of interest on the Junior
Subordinated Debentures, 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 aggregate
Liquidation Amount of such Trust Securities to be redeemed shall be allocated
pro rata to the Common Securities and the Capital Securities based on the
relative Liquidation Amounts of such classes. The particular Capital Securities
to be redeemed shall be selected on a pro rata basis based on their respective
Liquidation Amounts not more than 60 days prior to the Redemption Date by the
Property Trustee from the Outstanding Capital Securities not previously called
for redemption, or if the Capital Securities are then held in the form of a
Global Capital Security in accordance with the customary procedures for the
Clearing Agency. The Property Trustee shall promptly notify the Securities
Registrar in writing of the Capital Securities selected for redemption and, in
the case of any Capital Securities selected for partial redemption, the
Liquidation Amount
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thereof to be redeemed. For all purposes of this Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of Capital
Securities shall relate, in the case of any Capital Securities redeemed or to be
redeemed only in part, to the portion of the aggregate Liquidation Amount of
Capital Securities that has been or is to be redeemed.
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, as set forth in Section 4.2(e),
pro rata among the Common Securities and the Capital 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(1) or 5.1(2) of the Indenture shall
have occurred and be continuing, no payment of any Distribution (including any
Additional Amounts) on, 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 any Additional Amounts) on all Outstanding Capital 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 Capital 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 Capital 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
any Additional Amounts) on, or the Redemption Price of, or Liquidation
Distribution in respect of, Capital Securities then due and payable. The
existence of an Event of Default does not entitle the Holders of Capital
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 Holders of the Common Securities shall be
deemed to have waived any right to act with respect to any such Event of Default
under this Trust Agreement until the effects of all such Events of Default with
respect to the Capital Securities have been cured, waived or otherwise
eliminated. Until all such Events of Default under this Trust Agreement with
respect to the Capital Securities have been so cured, waived or otherwise
eliminated, the Property Trustee shall act solely on behalf of the Holders of
the Capital Securities and not on behalf of the Holder of the Common Securities,
and only the
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Holders of the Capital Securities will have the right to direct the Property
Trustee to act on their behalf.
SECTION 4.4. Payment Procedures
Payments of Distributions (including any Additional Amounts) in
respect of the Capital 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 Capital Securities are held by a Clearing Agency, such
Distributions shall be made to the Clearing Agency in immediately available
funds, which will credit the relevant accounts on the applicable Distribution
Dates. Payments in respect of the Common Securities shall be made in such manner
as shall be mutually agreed between the Property Trustee and the Holder of the
Common Securities.
SECTION 4.5. Tax Returns and Reports
The Administrators shall prepare (or cause to be prepared), at the
Depositor's expense, and file all United States Federal, state and local tax and
information returns and reports required to be filed by or in respect of the
Issuer Trust. In this regard, the Administrators shall (a) 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 (b) 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 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.
On or before December 15 of each year during which any Capital
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 includable in income for each outstanding Capital Security during
such year, if any.
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 shall promptly pay any taxes, duties or governmental
charges of whatsoever nature (other than
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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 Capital Securities
shall be reduced by the amount of any corresponding payment such Holder has
directly received pursuant to Section 5.8 of the Indenture or Section 5.13 of
this Trust Agreement.
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 of the Indenture
regarding allocation of expenses.
ARTICLE V
TRUST SECURITIES CERTIFICATES
SECTION 5.1. Initial Ownership
Upon the creation of the Issuer Trust and the contribution by the
Depositor pursuant to Section 2.3 and until the issuance of the Trust
Securities, and at any time during which no Trust Securities are Outstanding,
the Depositor shall be the sole beneficial owner of the Issuer Trust.
SECTION 5.2. The Trust Securities Certificates
(a) The Capital Securities Certificates shall be issued in fully
registered form. The Trust Securities Certificates shall be executed on behalf
of the Issuer Trust by manual or facsimile signature of at least one
Administrator except as provided in Section 5.3. Trust Securities Certificates
bearing the manual or facsimile signatures of individuals who were, at the time
when such signatures shall have been affixed, authorized to sign on behalf of
the Issuer Trust, shall be validly issued and entitled to the benefits of this
Trust Agreement, notwithstanding that such individuals or any of them shall have
ceased to be so authorized prior to the delivery of such Trust Securities
Certificates or did not hold such offices at the date of delivery of such Trust
Securities Certificates. A transferee of a Trust Securities Certificate shall
become a 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, Capital Securities Certificates shall be
issued in the form of one or more Global Capital Securities Certificates
registered in the name of Cede as
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Depositary's nominee and deposited with or on behalf of Depositary for credit by
Depositary to the respective accounts of the Owners thereof (or such other
accounts as they may direct). Except as set forth herein, record ownership of
the Global Capital Securities may be transferred, in whole or in part, only to
another nominee of Depositary or to a successor of Depository or its nominee.
(c) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.
SECTION 5.3. Execution and Delivery of Trust Securities Certificates
At the Closing Time, and on the date, if any, on which the
Underwriter exercises its option to purchase additional Capital Securities
pursuant to the terms of the Underwriting Agreement, as applicable, an
Administrator shall cause Trust Securities Certificates, in an aggregate
Liquidation Amount as provided in Sections 2.4 and 2.5, 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 Trust,
executed by an Administrator thereof, without further corporate action by the
Depositor, in authorized denominations.
SECTION 5.4. Global Capital Securities
(a) The Global Capital Securities issued under this Trust Agreement shall
be registered in the name of the nominee of the Clearing Agency and delivered to
the Property Trustee as custodian for the Clearing Agency.
(b) Notwithstanding any other provision in this Trust Agreement, the
Global Capital Securities may not be exchanged in whole or in part for Capital
Securities registered, and no transfer of the Global Capital Securities in whole
or in part may be registered, in the name of any Person other than the Clearing
Agency for such Global Capital Security, Cede, or other nominee thereof unless
(i) such Clearing Agency advises the Depositor and the Property Trustee 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
Capital Security, and the Depositor is unable to locate a qualified successor,
(ii) the Issuer Trust 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 or any event
which after notice or lapse of time or both would be an Event of Default. In
addition, beneficial interests in a Global Capital Security may be exchanged
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for a Capital Securities Certificate registered in the name of the owner of such
beneficial interest upon request but only upon at least twenty (20) days prior
written notice given to the Property Trustee by or on behalf of the Depositary
in accordance with the Applicable Procedures.
(c) Every Capital Security executed, authenticated and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Global Capital
Security or any portion thereof, whether pursuant to this Article V or Article
IV or otherwise, shall be authenticated and delivered in the form of, and shall
be, a Global Capital Security, unless such Global Capital Security is registered
in the name of a Person other than the Clearing Agency for such Global Capital
Security or a nominee thereof.
(d) The Clearing Agency or its nominee, as the registered owner of the
Global Capital Security, shall be considered the Holder of the Capital
Securities represented by the Global Capital Security for all purposes under
this Trust Agreement and the Capital Securities, and owners of beneficial
interests in the Global Capital Security shall hold such interests pursuant to
the Applicable Procedures and, except as otherwise provided herein, shall not be
entitled to have any of the individual Capital Securities represented by the
Global Security registered in their names, shall not receive nor be entitled to
receive physical delivery of any such Capital 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 Capital 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 nor the Securities Registrar shall have any liability in
respect of any transfers effected by the Clearing Agency.
(e) The rights of owners of beneficial interests in the Global Capital
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; CAPITAL SECURITIES CERTIFICATE.
(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 Capital
Securities Certificates and transfers and exchanges of Capital Securities
Certificates in which the registrar and transfer agent with respect to the
Capital Securities (the "Securities Registrar"), subject to such reasonable
regulations as it may prescribe, shall provide for the registration of Capital
Securities Certificates and Common Securities Certificates (subject
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to Section 5.11 in the case of Common Securities Certificates) and registration
of transfers and exchanges of Capital 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 Capital Securities and transfers of Capital Securities as
herein provided.
Upon surrender for registration of transfer of any Capital Security
at the offices or agencies of the Property Trustee designated for that purpose
the Administrators shall execute, and the Property Trustee shall authenticate
and deliver, in the name of the designated transferee or transferees, one or
more new Capital Securities of the same series of any authorized denominations
of like tenor and aggregate principal amount and bearing such restrictive
legends as may be required by this Trust Agreement.
At the option of the Holder, Capital Securities may be exchanged for
other Capital Securities of any authorized denominations, of like tenor and
aggregate Liquidation Amount and bearing such restrictive legends as may be
required by this Trust Agreement, upon surrender of the Capital Securities to be
exchanged at such office or agency. Whenever any Capital Securities are so
surrendered for exchange, the Administrators shall execute and the Property
Trustee shall authenticate and deliver the Capital Securities that the Holder
making the exchange is entitled to receive.
All Capital Securities issued upon any transfer or exchange of
Capital Securities shall be the valid obligations of the Issuer Trust,
evidencing the same debt, and entitled to the same benefits under this Trust
Agreement, as the Capital Securities surrendered upon such transfer or exchange.
Every Capital 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 Capital 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 Capital Securities.
Neither the Issuer Trust nor the Property Trustee shall be required,
pursuant to the provisions of this Section 5.5, (i) to issue, register the
transfer of or exchange any Capital Security during a period beginning at the
opening of business 15 days before the day of selection for redemption of
Capital Securities pursuant
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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
Capital Security so selected for redemption in whole or in part, except, in the
case of any such Capital Security to be redeemed in part, any portion thereof
not to be redeemed.
(b) CERTAIN TRANSFERS AND EXCHANGES. Notwithstanding any other provision of
this Trust Agreement, transfers and exchanges of Capital Securities and
beneficial interests in a Global Capital Security shall be made only in
accordance with this Section 5.5(b).
(i) NON-GLOBAL CAPITAL SECURITY TO NON-GLOBAL CAPITAL SECURITY. A
Trust Security that is not a Global Capital 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 Capital Security as provided in Section
5.5(a).
(ii) EXCHANGES BETWEEN GLOBAL CAPITAL SECURITY AND NON-GLOBAL TRUST
SECURITY. A beneficial interest in a Global Capital Security may be
exchanged for a Trust Security that is not a Global Capital 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,
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 5.6
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,
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stolen or destroyed Trust Securities Certificate shall be found at any time.
SECTION 5.7. Persons Deemed Holders
The Issuer Trustees or the Securities Registrar shall treat the
Person in whose name any Trust Securities are issued as the owner of such Trust
Securities for the purpose of receiving Distributions and for all other purposes
whatsoever, and none of the Issuer Trustees, the Administrators nor the
Securities Registrar shall be bound by any notice to the contrary.
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 Capital 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 at Four Albany Street, New York, NY 10006, Attention:
Corporate Trust and Agency Group - Corporate Market Services, as its corporate
trust office for such purposes. The Property Trustee shall give prompt written
notice to the Depositor, the Administrators and to 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
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successor Paying Agent 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.
SECTION 5.11. Ownership of Common Securities by Depositor
At each Closing Time, 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 the
Common Securities, and the Depositor or any such successor Holder may transfer
the Common Securities only (i) 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 (ii) to an Affiliate of the
Depositor in compliance with applicable law (including the Securities Act and
applicable state securities and blue sky laws); provided that any such transfer
shall be subject to the condition that the transferor shall have obtained (A)
either a ruling from the Internal Revenue Service or an unqualified written
opinion addressed to the Issuer Trust and delivered to the Issuer Trustees of
nationally recognized independent tax counsel experienced in such matters to the
effect that such transfer will not (1) cause the Issuer Trust to be treated as
issuing a class of interests in the Issuer Trust differing from the class of
interests represented by the Common Securities originally issued to the
Depositor, (2) result in the Issuer Trust acquiring or disposing of, or being
deemed to have acquired or disposed of, an asset, or (3) result in or cause the
Issuer Trust to be treated as anything other than a grantor trust for United
States Federal income tax purposes and (B) an unqualified written opinion
addressed to the Issuer Trust and delivered to the Issuer Trustees of a
nationally recognized independent counsel experienced in such matters that such
transfer will not cause the Issuer Trust to be an "investment company" or
controlled by an "investment company" that is required to be registered under
the Investment Company Act. To the fullest extent
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permitted by law, any attempted transfer of the Common Securities, other than as
set forth in the immediately preceding sentence, 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 THE DEPOSITOR OR AN AFFILIATE OF THE DEPOSITOR IN COMPLIANCE WITH
APPLICABLE LAW AND SECTION 5.11 OF THE TRUST AGREEMENT."
SECTION 5.12. Notices to Clearing Agency
To the extent that a notice or other communication to the Holders is
required under this Trust Agreement, with respect to Capital Securities
represented by Global Capital Securities Certificates, the Administrators and
the Issuer Trustees shall give all such notices and communications specified
herein to be given to the Clearing Agency, and shall have no obligations to the
Owners.
SECTION 5.13. Rights of Holders
(a) The legal title to the Trust Property is vested exclusively in 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 ownership 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, as provided herein, will
be fully paid and nonassessable by the Issuer Trust. Except as otherwise
provided in Section 4.8, 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. (1)
(b) For so long as any Capital 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 Capital 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
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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 Capital 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 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.
If the Property Trustee fails to annul any such declaration and waive
such default, the Holders of at least a Majority in Liquidation Amount of the
Capital Securities shall also have the right to rescind and annul such
declaration and its consequences by written notice to the Depositor, the
Property Trustee and the Debenture Trustee, subject to the satisfaction of the
conditions set forth in clauses (i) and (ii) of this Section 5.13(b).
The Holders of at least a Majority in Liquidation Amount of the
Capital Securities may, on behalf of the Holders of all the Capital 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 outstanding Junior
Subordinated Debentures. No such
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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 Capital
Securities all or part of which is represented by Global Capital Securities, a
record date shall be established for determining Holders of Outstanding Capital
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 Capital 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(1)
or 5.1(2) of the Indenture, any Holder of Capital 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
Capital Securities of such Holder (a "Direct Action"). Except as set forth in
Sections 5.13(b) and 5.13(c), the Holders of Capital 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
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(a) Except as provided in this Trust Agreement and in the Indenture and as
otherwise required by law, no Holder of Capital 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 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 Debenture Trustee, or execute any trust or power conferred on the
Property 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 Capital 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 Capital
Securities. The Property Trustee shall not revoke any action previously
authorized or approved by a vote of the Holders of Capital Securities, except by
a subsequent vote of the Holders of Capital Securities. The Property Trustee
shall notify all Holders of the Capital 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 Capital 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 other than as a grantor trust 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 Capital Securities, whether by way of amendment to the Trust
Agreement or otherwise, or (ii) the dissolution, winding-up or termination 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
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approval of the Holders of at least a Majority in Liquidation Amount of the
Capital 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 other than as a grantor
trust 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.
SECTION 6.3. Meetings of Holders
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 Capital Securities and the Administrators or the Property Trustee
may, at any time in their discretion, call a meeting of Holders of Capital
Securities to vote on any matters as to which Holders are entitled to vote.
Holders of at least a Majority in Liquidation Amount of the Capital
Securities, present in person or represented by proxy, shall constitute a quorum
at any meeting of Holders of the Capital Securities.
If a quorum is present at a meeting, an affirmative vote by the
Holders of record present, in person or by proxy, holding Capital Securities
representing at least a Majority in Liquidation Amount of the Capital Securities
held by the Holders present, either in person or by proxy, at such meeting shall
constitute the action of the Holders of Capital Securities, unless this Trust
Agreement requires a greater number of affirmative votes.
SECTION 6.4. Voting Rights
Holders shall be entitled to one vote for each $10.00 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.
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At any meeting of Holders, any Holder entitled to vote at such
meeting 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 if Holders holding at least a Majority in Liquidation Amount
of all Trust Securities entitled to vote in respect of such action (or such
larger proportion thereof as shall be 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 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 Property Trustee 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, 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
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
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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 an "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.
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.
The ownership of Trust Securities shall be proved by the Securities
Register.
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, the Administrators or the Issuer Trust in reliance thereon,
whether or not notation of such action is made upon such Trust Security.
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.
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.
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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, 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 trust 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 has 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 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 does not conflict with or constitute a breach of the
certificate of incorporation or by-laws of the Property Trustee.
(d) At the Closing Time, the Property Trustee has not knowingly created
any Liens 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.
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(f) The Delaware Trustee is duly organized, validly existing and in good
standing under the laws of the State of Delaware, with trust power and authority
to execute and deliver, and to carry out and perform its obligations under the
terms of, this Trust Agreement.
(g) The execution, delivery and performance by the Delaware Trustee of
this Trust Agreement has 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' right
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 does 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 DEPOSITOR
The Depositor hereby represents and warrants for the benefit of the
Holders that:
(a) the Trust Securities Certificates issued at the Closing Time on behalf
of the Issuer 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,
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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. 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 or an Issuer Trustee from liability for its own negligent action,
its own negligent failure to act, or its own 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 its
acceptance of a Trust Security, agrees that it will look solely to the revenue
and proceeds from the Trust Property to the extent legally available for
distribution to it as herein provided and that neither the Issuer Trustees nor
the Administrators are personally liable to it for any amount distributable in
respect of any Trust Security or for any other liability in respect of any Trust
Security. This Section 8.1(b) does not limit the liability
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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;
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(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;
(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 Capital 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
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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.
(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.
SECTION 8.3. CERTAIN RIGHTS OF PROPERTY TRUSTEE
Subject to the provisions of Section 8.1:
(a) the Property Trustee may conclusively 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, refiling or reregistration 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
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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) 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
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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.
SECTION 8.5. May Hold Securities
Except as provided in the definition of the term "Outstanding" in
Article I, 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, 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, as borrower, 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 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 their 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
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Trust, (referred to herein as an "Indemnified Person") from and against any
loss, damage, liability, tax, 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.
The provisions of this Section 8.6 shall survive the termination of
this Trust Agreement.
No Issuer Trustee may claim any Lien 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 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
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$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.
(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 and the Indenture shall be deemed to be sufficiently
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.
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SECTION 8.9. Co-Trustees and Separate Trustee
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. Any co-trustee or
separate trustee appointed pursuant to this Section shall either be (i) a
natural person who is at least 21 years of age and a resident of the United
States or (ii) a legal entity with its principal place of business in the United
States that shall act through one or more persons authorized to bind such
entity.
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.
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:
(a) The Trust Securities shall be executed by one or more Administrators,
and the Trust Securities shall be authenticated 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 Trustee specified hereunder, shall be
exercised, solely by the Property Trustee and not by such co-trustee or separate
trustee.
(b) 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
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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.
(c) 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.
(d) 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.
(e) The Property Trustee shall not be liable by reason of any act of a
co-trustee or separate trustee.
(f) 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
No resignation or removal of any Issuer Trustee (the "Relevant
Trustee") and no appointment of a successor trustee pursuant to this Article
shall become effective until the acceptance of appointment by the successor
trustee in accordance with the applicable requirements of Section 8.11.
Subject to the immediately preceding paragraph, 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 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 trustee required by Section 8.11
shall not have been delivered to the Relevant Trustee within 60 days after the
giving
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of such notice of resignation, the Relevant Trustee may petition, at the expense
of the Issuer Trust, any court of the State of Delaware for the appointment of a
successor Relevant Trustee.
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
Capital Securities, delivered to the Relevant Trustee (in its individual
capacity and on behalf of the Issuer Trust) (i) for cause (including upon the
occurrence of an Event of Default described in subparagraph (e) of the
definition thereof with respect to the Relevant Trustee), or (ii) if a Debenture
Event of Default shall have occurred and be continuing at any time.
If any Issuer Trustee shall resign, it shall appoint its successor.
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 Capital Securities, by Act of the Holders of
record of not less than 25% in aggregate Liquidation Amount of the Capital
Securities then Outstanding delivered to such Relevant Trustee, shall promptly
appoint a successor Relevant Trustee or Trustees, and such successor Issuer
Trustee shall comply with the applicable requirements of Section 8.11. If no
successor trustee shall have been so appointed by the Holders of the Capital
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 trustee.
The Property Trustee shall give notice of each resignation and each
removal of a Relevant Trustee and each appointment of a successor 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.
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 the Delaware Trustee, as the case may
be, set forth in Section 8.7).
SECTION 8.11. Acceptance of Appointment by Successor
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In case of the appointment hereunder of a successor Relevant Trustee,
the retiring Relevant Trustee and each such successor Relevant Trustee with
respect to the Trust Securities shall execute, acknowledge and deliver an
amendment hereto wherein each successor Relevant Trustee shall accept such
appointment and which (a) shall contain such provisions as shall be necessary or
desirable to transfer and confirm to, and to vest in, each successor Relevant
Trustee all the rights, powers, trusts and duties of the retiring Relevant
Trustee with respect to the Trust Securities and the Issuer Trust, and (b) shall
add to or change any of the provisions of this Trust Agreement as shall be
necessary to provide for or facilitate the administration of the Issuer Trust by
more than one Relevant Trustee, it being understood that nothing herein or in
such amendment shall constitute such Relevant Trustee a co-trustee and upon the
execution and delivery of such amendment the resignation or removal of the
retiring Relevant Trustee shall become effective to the extent provided therein
and each such successor Relevant Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Relevant Trustee; but, on request of the Issuer Trust or any
successor Relevant Trustee such retiring Relevant Trustee shall duly assign,
transfer and deliver to such successor Relevant Trustee all Trust Property, all
proceeds thereof and money held by such retiring Relevant Trustee hereunder with
respect to the Trust Securities and the Issuer Trust.
Upon request of any such successor Relevant Trustee, the Issuer Trust
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Relevant Trustee all such rights, powers and
trusts referred to in the first or second preceding paragraph, as the case may
be.
No successor Relevant Trustee shall accept its appointment unless at
the time of such acceptance such successor Relevant Trustee shall be qualified
and eligible under this Article VIII.
SECTION 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
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If and when the Property Trustee shall be or become a creditor of the
Depositor (or any other obligor upon 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 any such other obligor) only if
this Trust Agreement is subject to the Trust Indenture Act.
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.
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SECTION 8.15. REPORTS BY PROPERTY TRUSTEE
(a) Not later than January 31 of each year commencing with January 31,
1999, 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 December 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.
(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.
(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 (if any) and the compliance
certificate required by Section 314(a) of the Trust Indenture Act in the form,
in the manner and at the times required by Section 314 of the Trust Indenture
Act. 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.
Any certificate or opinion required to be given by an officer pursuant to
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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 case, the number of Issuer
Trustees may 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.
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; and
(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 shall be appointed by the Holders of a Majority in
Liquidation Amount of the Common Securities and may be removed by the Holders of
a Majority in Liquidation Amount of the Common Securities or may resign at any
time. Upon any resignation or removal, the Depositor shall appoint a successor
Administrator. Each Administrator shall execute this Trust Agreement thereby
agreeing to comply with, and be legally bound by, all of the terms, conditions
and provisions of this Trust Agreement. 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
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Administrator in accordance with this Section 8.20, the Administrators in
office, regardless of their number (and notwithstanding any other provision of
this 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 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, as the case may be, set forth in
Section 8.7).
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.
ARTICLE IX
DISSOLUTION, LIQUIDATION AND MERGER
SECTION 9.1. Dissolution Upon Expiration Date
Unless earlier dissolved, the Issuer Trust shall automatically
dissolve on June 30, 2029 (the "Expiration Date"), and thereafter the Trust
Property shall be distributed in accordance with Section 9.4.
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 the appointment of a receiver or other similar
official in any liquidation, insolvency or similar proceeding with respect to
the Depositor or all or substantially all of its property, or a court or other
governmental agency shall enter a decree or order and such decree or order shall
remain unstayed and undischarged for a period of 60 days, unless the Depositor
shall transfer the Common Securities as provided by Section 5.11, in which case
this provision shall refer instead to any such successor Holder of the Common
Securities;
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(b) the written direction to the Property Trustee from the Holder of the
Common Securities at any time to dissolve the Issuer Trust and to distribute the
Junior Subordinated Debentures to Holders in exchange for the Capital 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 repayment of all of the Capital 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
As soon as is practicable after the occurrence of an event referred
to in Section 9.1 or 9.2, and upon the completion of the winding-up and
liquidation of the Issuer Trust, the Administrators and the Issuer Trustees
(each of whom is hereby authorized to take such action) shall file a certificate
of cancellation with the Secretary of State of the State of Delaware terminating
the Issuer Trust and, upon such filing, the respective obligations and
responsibilities of the Issuer Trustees, the Administrators and the Issuer Trust
created and continued hereby shall terminate.
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
wound-up and liquidated by the Property Trustee as expeditiously as the Property
Trustee determines to be possible by distributing, after paying or making
reasonable provision to pay all claims and obligations of the Issuer Trust in
accordance with Section 3808(e) of the Delaware Business Trust Act, 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
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(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 Capital Securities or its nominee, as the registered
Holder of the Global Capital Securities Certificates, shall receive a registered
global certificate or certificates representing the Junior Subordinated
Debentures to be delivered upon such distribution with respect to Capital
Securities held by the Clearing Agency or its nominee, and, (iii) any Trust
Securities Certificates not held by the Clearing Agency for the Capital
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 reissuance.
(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 Issuer Trust shall be dissolved, and the Trust Property shall be
liquidated, by the Property Trustee in such manner as the Property Trustee
determines. In such event, on the date of the dissolution of the Issuer Trust,
Holders will be entitled to receive out of the assets of the Issuer Trust
available for distribution to Holders, after paying or making reasonable
provision to pay all claims and obligations of the Issuer Trust in accordance
with Section 3808(e) of the Delaware Business Trust Act, an amount equal to the
aggregate of Liquidation Amount per Trust Security plus accumulated and unpaid
Distributions thereon to the
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date of payment (such amount being the "Liquidation Distribution"). If, upon any
such dissolution, 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
dissolution, pro rata (determined as aforesaid) with Holders of Capital
Securities, except that, if a Debenture Event of Default has occurred and is
continuing, the Capital Securities shall have a priority over the Common
Securities as provided in Section 4.3.
SECTION 9.5. Mergers, Consolidations, Amalgamations or Replacements
of the Issuer Trust
The Issuer Trust may not merge with or into, consolidate, amalgamate,
or be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, 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
Capital Securities, but without the consent of the Issuer Trustees, the Issuer
Trust may merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized as such under the laws of any state; provided, however,
that (i) such successor entity either (a) expressly assumes all of the
obligations of the Issuer Trust with respect to the Capital Securities or (b)
substitutes for the Capital Securities other securities having substantially the
same terms as the Capital Securities (the "Successor Capital Securities") so
long as the Successor Capital Securities have the same priority as the Capital
Securities with respect to distributions and payments upon liquidation,
redemption and otherwise, (ii) a trustee of such successor entity possessing the
same powers and duties as the Property Trustee is appointed to hold the Junior
Subordinated Debentures, (iii) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not cause the Capital Securities
(including any Successor Capital Securities) to be downgraded by any nationally
recognized statistical rating organization, (iv) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Capital
Securities (including any Successor Capital Securities) in any material respect,
(v) such successor entity has a purpose substantially identical to that of the
Issuer Trust, (vi) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Issuer Trustee has received an
Opinion of Counsel from independent counsel experienced in such matters to the
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effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights preferences
and privileges of the holders of the Capital Securities (including any Successor
Capital Securities) in any material respect, and (b) following such merger,
consolidation, 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 (vii) 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 Capital
Securities at least to the extent provided by the Guarantee. Notwithstanding the
foregoing, the Issuer Trust shall not, except with the consent of Holders of
100% in Liquidation Amount of the Capital Securities, consolidate, amalgamate,
merge with or into, or be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to, any other entity or
permit any other entity to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger, replacement, conveyance,
transfer or lease would cause the Issuer Trust or the successor entity to be
taxable other than as a grantor trust for United States Federal income tax
purposes.
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, 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. Any merger or similar
agreement shall be executed by the Administrators on behalf of the Issuer Trust.
SECTION 10.2. Amendment
(a) This Trust Agreement may be amended from time to time by the Property
Trustee and the Holders of a Majority in Liquidation Amount of the Common
Securities, without the consent of any Holder of the Capital 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
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<PAGE>
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 other
than as a grantor trust 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 10.2(c) hereof, any provision of this
Trust Agreement may be amended by the Property Trustee 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 Capital 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 affect the Issuer Trust's being
taxable as a grantor trust for United States Federal income tax purposes or 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.
(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 other than as a grantor trust for United States Federal income
tax purposes.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor 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.
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<PAGE>
(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 made 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.
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<PAGE>
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 SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF DELAWARE AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH
LAWS WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS OF THE STATE OF
DELAWARE OR ANY OTHER JURISDICTION THAT WOULD CALL FOR THE APPLICATION OF THE
LAW OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE; PROVIDED, HOWEVER,
THAT THERE SHALL NOT BE APPLICABLE TO THE HOLDERS, THE ISSUER TRUST, THE
DEPOSITOR, THE ISSUER TRUSTEES, THE ADMINISTRATORS OR THIS TRUST AGREEMENT ANY
PROVISION OF THE LAWS (STATUTORY OR COMMON) OF THE STATE OF DELAWARE PERTAINING
TO TRUSTS OTHER THAN THE DELAWARE BUSINESS TRUST ACT THAT RELATE TO OR REGULATE,
IN A MANNER INCONSISTENT WITH THE TERMS HEREOF (A) THE FILING WITH ANY COURT OR
GOVERNMENTAL BODY OR AGENCY OF TRUSTEE ACCOUNTS OR SCHEDULES OF TRUSTEE FEES AND
CHARGES, (B) AFFIRMATIVE REQUIREMENTS TO POST BONDS FOR TRUSTEES, OFFICERS,
AGENTS OR EMPLOYEES OF A TRUST, (C) THE NECESSITY FOR OBTAINING COURT OR OTHER
GOVERNMENTAL APPROVAL CONCERNING THE ACQUISITION, HOLDING OR DISPOSITION OF REAL
OR PERSONAL PROPERTY, (D) FEES OR OTHER SUMS PAYABLE TO TRUSTEES, OFFICERS,
AGENTS OR EMPLOYEES OF A TRUST, (E) THE ALLOCATION OF RECEIPTS AND EXPENDITURES
TO INCOME OR PRINCIPAL, (F) RESTRICTIONS OR LIMITATIONS ON THE PERMISSIBLE
NATURE, AMOUNT OR CONCENTRATION OF TRUST INVESTMENTS OR REQUIREMENTS RELATING TO
THE TITLING, STORAGE OR OTHER MANNER OF HOLDING OR INVESTING TRUST ASSETS OR (G)
THE ESTABLISHMENT OF FIDUCIARY OR OTHER STANDARDS OF RESPONSIBILITY OR
LIMITATIONS ON THE ACTS OR POWERS OF TRUSTEES THAT ARE INCONSISTENT WITH THE
LIMITATIONS OR LIABILITIES OR AUTHORITIES AND POWERS OF THE ISSUER TRUSTEES OR
THE ADMINISTRATOR AS SET FORTH OR REFERENCED IN THIS TRUST AGREEMENT. SECTION
3540 OF TITLE 12 OF THE DELAWARE CODE SHALL NOT APPLY TO THE ISSUER TRUST.
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)), 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 or sale involving the Depositor that is
permitted under
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<PAGE>
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.
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
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, (a) in the case of
a Holder of Capital Securities, to such Holder as such Holder's name and address
may appear on the Securities Register; and (b) in the case of the Holder of
Common Securities or the Depositor, to Southern BancShares (N.C.), Inc., 100
South Main Street, Fuquay-Varina, North Carolina 27526, Attention: Billy T.
Woodard, Facsimile No. (919) 557-4553 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.
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 Issuer Trust, 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: (a) 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; (b) with respect to the Delaware Trustee to Bankers Trust (Delaware),
E.A. Delle Donne Corporate Center, Montgomery Building , 1011 Centre Road, Suite
200, Wilmington, Delaware 19805-1266, Attention: Lisa Wilkins; and (c) 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.
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<PAGE>
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 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 Issuer Trustee 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 Capital 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 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.
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<PAGE>
(c) REPORTS BY THE PROPERTY TRUSTEE. Within 60 days after January 31 of
each year commencing January 31, 1999, 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
Administrators 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 315(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 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 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 AND THE INDENTURE, AND THE AGREEMENT TO THE SUBORDINATION PROVISIONS
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<PAGE>
AND OTHER TERMS OF THE GUARANTEE 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.
* * * *
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.
IN WITNESS WHEREOF, the parties hereto have caused this
Trust Agreement to be duly executed, all as of the day
and year first above written.
FIDELITY BANCSHARES (N.C.), INC.
as Depositor
By:______________________________
Name: _______________________
Title: _______________________
BANKERS TRUST COMPANY,
as Property Trustee, and not in its
individual capacity
By:_______________________________
Name:_____________________________
Title:____________________________
BANKERS TRUST (DELAWARE),
as Delaware Trustee, and not
in its individual capacity
By:________________________________
Name:______________________________
Title:_____________________________
Agreed to and Accepted by,
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<PAGE>
_______________________________
Name: _______________________
Title: Administrator
____________________________
Name: _____________________
Title: Administrator
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<PAGE>
Exhibit A
CERTIFICATE OF TRUST OF
FIDBANK CAPITAL TRUST 1
THIS CERTIFICATE OF TRUST of FIDBANK Capital Trust I (the "Trust"), dated
July 14, 1998, is being duly executed and filed by Bankers Trust (Delaware), a
Delaware banking corporation, as trustee, 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 "FIDBANK
Capital Trust I".
2. Delaware Trustee. The name and address of the trustee of the Trust
with a principal place of business 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
3. Effective Date. This Certificate of Trust shall be effective
upon its filing with the Secretary of State of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the Trust,
has executed this Certificate of Trust as of the date first written above.
BANKERS TRUST (DELAWARE),
not in its individual capacity, but
solely as trustee
By: /s/ M. Lisa Wilkins
-------------------
Name: M. Lisa Wilkins
Title: Assistant Secretary
<PAGE>
EXHIBIT B
[INTENTIONALLY OMITTED]
<PAGE>
EXHIBIT C
THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT 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
C-1 _______________
($ AGGREGATE LIQUIDATION AMOUNT)
CERTIFICATE EVIDENCING COMMON SECURITIES
OF
FIDBANK CAPITAL TRUST I
_______% COMMON SECURITIES
(LIQUIDATION AMOUNT $10.00 PER COMMON SECURITY)
FIDBANK Capital Trust I, a statutory business trust created under the
laws of the State of Delaware (the "Issuer Trust"), hereby certifies that
Fidelity BancShares (N.C.), Inc. (the "Holder") is the registered owner of
______________________ (________ ) common securities of the Issuer Trust
representing undivided beneficial interests in the assets of the Issuer Trust
and designated as the FIDBANK Capital Trust I __________% Common Securities
(liquidation amount $10.00 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 __________________, 1998, as the same may be amended
from time to time (the "Trust Agreement") among Fidelity BancShares (N.C.),
Inc., as Depositor, Bankers Trust Company, as Property Trustee, Bankers Trust
(Delaware), as Delaware Trustee, the Administrators named therein 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 or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
<PAGE>
Terms used but not defined herein have the meanings set forth in the
Trust Agreement.
IN WITNESS WHEREOF, one of the Administrators of the Issuer Trust has
executed this certificate this ___________ day of __________________, 1998.
FIDBANK CAPITAL TRUST I
By: _________________________________
Name:________________________________
Administrator
AUTHENTICATED:
BANKERS TRUST COMPANY,
as Property Trustee
By: ________________________
Authorized Signatory
<PAGE>
EXHIBIT D
[IF THE CAPITAL SECURITIES CERTIFICATE IS TO BE A GLOBAL CAPITAL SECURITIES
CERTIFICATE, INSERT:] This Capital Securities Certificate is a Global Capital
Securities 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 Capital Securities Certificate is exchangeable for Capital
Securities 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 Capital Securities Certificate is presented by an
authorized representative of The Depository Trust Company, a New York
Corporation ("DTC"), to FIDBANK Capital Trust I or its agent for registration of
transfer, exchange or payment, and any Capital Securities Certificate issued is
registered in the name of Cede & Co. or such other name as is requested by an
authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO A PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
NO EMPLOYEE BENEFIT OR OTHER PLAN OR INDIVIDUAL RETIREMENT ACCOUNT
SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "CODE") (EACH, A "PLAN"), NO ENTITY WHOSE UNDERLYING ASSETS INCLUDE
"PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY (A "PLAN ASSET
ENTITY"), AND NO PERSON INVESTING "PLAN ASSETS" OF ANY PLAN, MAY ACQUIRE OR HOLD
THIS CAPITAL SECURITIES CERTIFICATE OR ANY INTEREST HEREIN, UNLESS SUCH PURCHASE
OR HOLDING IS COVERED BY THE EXEMPTIVE RELIEF PROVIDED BY U.S. DEPARTMENT OF
LABOR PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 96-23, 95-60, 91-38, 90-1
OR 84-14 OR ANOTHER APPLICABLE EXEMPTION WITH RESPECT TO SUCH PURCHASE OR
HOLDING. ANY PURCHASER OR HOLDER OF THIS CAPITAL SECURITIES CERTIFICATE OR ANY
INTEREST HEREIN THAT IS A PLAN OR A PLAN ASSET ENTITY OR IS PURCHASING SUCH
SECURITIES ON BEHALF OF OR WITH "PLAN ASSETS" WILL BE DEEMED TO HAVE REPRESENTED
BY ITS PURCHASE AND HOLDING HEREOF THAT (A) THE PURCHASE AND HOLDING OF THE
CAPITAL SECURITIES IS COVERED BY THE EXEMPTIVE RELIEF PROVIDED BY PTCE 96-23,
95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION, (B) THE COMPANY AND
THE ADMINISTRATORS ARE NOT "FIDUCIARIES" WITHIN THE MEANING OF SECTION 3(21) OF
ERISA AND THE REGULATIONS THEREUNDER, WITH RESPECT TO SUCH PERSON'S INTEREST IN
THE CAPITAL SECURITIES OR THE JUNIOR SUBORDINATED DEBENTURES, AND (C) IN
PURCHASING THE CAPITAL SECURITIES SUCH PERSON APPROVES THE PURCHASE OF THE
JUNIOR SUBORDINATED DEBENTURES AND THE APPOINTMENT OF THE ISSUER TRUSTEES.
<PAGE>
CERTIFICATE NUMBER AGGREGATE LIQUIDATION AMOUNT
D-___ $_______________
(_______ CAPITAL SECURITIES)
CUSIP NO.
CERTIFICATE EVIDENCING CAPITAL SECURITIES
OF
FIDBANK CAPITAL TRUST I
_______% CAPITAL SECURITIES
(LIQUIDATION AMOUNT $10.00 PER CAPITAL SECURITY)
FIDBANK Capital Trust I, a statutory business trust created under the
laws of the State of Delaware (the "Issuer Trust"), hereby certifies that
______________________ (the "Holder") is the registered owner of
_______________________ Dollars ($____________) aggregate liquidation amount of
capital securities of the Issuer Trust representing a preferred undivided
beneficial interest in the assets of the Issuer Trust and designated as the
FIDBANK Capital Trust I __________% Capital Securities (liquidation amount
$10.00 per Capital Security) (the "Capital Securities"). The Capital Securities
are transferable on the books and 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 Capital Securities are set
forth in, and this certificate and the Capital 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
___________________, 1998, as the same may be amended from time to time (the
"Trust Agreement"), among Fidelity BancShares (N.C.), Inc., as Depositor,
Bankers Trust Company, as Property Trustee, Bankers Trust (Delaware), as
Delaware Trustee, the Administrators named herein and the Holders of Trust
Securities, including the designation of the terms of the Capital Securities as
set forth therein. The Holder is entitled to the benefits of the Guarantee
Agreement entered into by Fidelity BancShares (N.C.), Inc., as Guarantor, and
Bankers Trust Company, as Guarantee Trustee, dated as of _____________________,
1998 (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 by contacting
the Issuer Trustees.
<PAGE>
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 meanings set forth in the
Trust Agreement.
IN WITNESS WHEREOF, one of the Administrators of the Issuer Trust has
executed this certificate this __________ day of _____________________, 1998.
FIDBANK CAPITAL TRUST I
By:________________________
Name:________________________
Administrator
AUTHENTICATED:
BANKERS TRUST COMPANY,
as Property Trustee
By: ________________________
Authorized Signatory
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security
to:
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints _______________________________________________________
________________________________________________________________________________
agent to transfer this Capital Securities 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 Capital Securities 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 17Ad-15.
EXHIBIT 4.5
GUARANTEE AGREEMENT
BETWEEN
FIDELITY BANCSHARES (N.C.), INC.
AS GUARANTOR,
AND
BANKERS TRUST COMPANY
AS GUARANTEE TRUSTEE,
DATED AS OF ______________, 1998
<PAGE>
FIDBANK CAPITAL TRUST I
CERTAIN SECTIONS OF THIS GUARANTEE AGREEMENT RELATING TO
SECTIONS 310 THROUGH 318 OF THE
TRUST INDENTURE ACT OF 1939:
TRUST INDENTURE GUARANTEE AGREEMENT
ACT SECTION SECTION
- --------------- --------------------
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)..................................1.1, 2.5, 3.2
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
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Guarantee Agreement.
<PAGE>
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS.......................................................
SECTION 1.1. DEFINITIONS.....................................................
ARTICLE II. TRUST INDENTURE ACT..............................................
SECTION 2.1. TRUST INDENTURE ACT; APPLICATION................................
SECTION 2.2. LIST OF HOLDERS.................................................
SECTION 2.3. REPORTS BY THE GUARANTEE TRUSTEE................................
SECTION 2.4. PERIODIC REPORTS TO THE GUARANTEE TRUSTEE.......................
SECTION 2.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT................
SECTION 2.6. EVENTS OF DEFAULT; WAIVER.......................................
SECTION 2.7. EVENT OF DEFAULT; NOTICE........................................
SECTION 2.8. CONFLICTING INTERESTS...........................................
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE..............
SECTION 3.1. POWERS AND DUTIES OF THE GUARANTEE TRUSTEE......................
SECTION 3.2. CERTAIN RIGHTS OF GUARANTEE TRUSTEE.............................
SECTION 3.3. INDEMNITY.......................................................
SECTION 3.4. EXPENSES........................................................
ARTICLE IV. GUARANTEE TRUSTEE...............................................
SECTION 4.1. GUARANTEE TRUSTEE; ELIGIBILITY.................................
SECTION 4.2. APPOINTMENT, REMOVAL AND RESIGNATION OF THE GUARANTEE TRUSTEE..
ARTICLE V. GUARANTEE.........................................................
SECTION 5.1. GUARANTEE......................................................
SECTION 5.2. WAIVER OF NOTICE AND DEMAND....................................
SECTION 5.3. OBLIGATIONS NOT AFFECTED.......................................
SECTION 5.4. RIGHTS OF HOLDERS..............................................
SECTION 5.5. GUARANTEE OF PAYMENT...........................................
SECTION 5.6. SUBROGATION....................................................
SECTION 5.7. INDEPENDENT OBLIGATIONS........................................
ARTICLE VI. COVENANTS AND SUBORDINATION.....................................
SECTION 6.1. SUBORDINATION..................................................
SECTION 6.2. PARI PASSU GUARANTEES..........................................
ARTICLE VII. TERMINATION....................................................
SECTION 7.1. TERMINATION....................................................
<PAGE>
ARTICLE VIII. MISCELLANEOUS.................................................
SECTION 8.1. SUCCESSORS AND ASSIGNS.........................................
SECTION 8.2. AMENDMENTS.....................................................
SECTION 8.3. NOTICES........................................................
SECTION 8.4. BENEFIT........................................................
SECTION 8.5. INTERPRETATION.................................................
SECTION 8.6. GOVERNING LAW..................................................
SECTION 8.7. COUNTERPARTS...................................................
<PAGE>
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT, dated as of _________________, 1998 is
executed and delivered by FIDELITY BANCSHARES (N.C.), INC., a Delaware
corporation (the "Guarantor") having its principal office at 100 South Main
Street, Fuquay-Varina, North Carolina 27526, and BANKERS TRUST COMPANY, a New
York banking corporation, as trustee (the "Guarantee Trustee"), for the benefit
of the Holders (as defined herein) from time to time of the Capital Securities
(as defined herein) of FIDBANK Capital Trust I, a Delaware statutory business
trust (the "Issuer Trust").
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the
"Trust Agreement"), dated as of ___________________, 1998, among Fidelity
BancShares (N.C.), Inc., 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$_________________ aggregate Liquidation Amount (as
defined herein) of its __________% Capital Securities, Liquidation Amount $10.00
per capital security (the "Capital 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 Capital 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 __________________________, 2028
(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 Capital
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth herein, to pay to the Holders of the Capital 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 Capital
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 Capital Securities.
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.
<PAGE>
"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.
"CAPITAL SECURITIES" shall have the meaning specified in the
first recital of this Guarantee Agreement.
"COMMON SECURITIES" means the securities representing common
undivided beneficial interests in the assets of the Issuer Trust.
"DISTRIBUTIONS" means preferential cumulative cash distributions
accumulating from _________________, 1998 and payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year, commencing
_____________________, 1998, at an annual rate of ____________% of the
Liquidation Amount.
"EVENT OF DEFAULT" means (i) a default by the Guarantor in any of
its payment obligations under this Guarantee Agreement, or (ii) 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 Capital Securities, to
the extent not paid or made by or on behalf of the Issuer Trust: (i) any
accumulated and unpaid Distributions (as defined in the Trust Agreement)
required to be paid on the Capital Securities, to the extent the Issuer Trust
shall have funds on hand available therefor at such time, (ii) the Redemption
Price, with respect to the Capital Securities called for redemption by the
Issuer Trust to the extent that the Issuer Trust shall have funds on hand
available therefor at such time, and (iii) upon a voluntary or involuntary
termination, winding-up or liquidation of the Issuer Trust, unless the Junior
Subordinated Debentures are distributed to the Holders, the lesser of (a) 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 (b) the amount of assets of the
Issuer Trust remaining available for distribution to Holders on 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 first
paragraph of this Guarantee Agreement.
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"HOLDER" means any holder, as registered on the books and records
of the Issuer Trust, of any Capital Securities; PROVIDED, HOWEVER, that, in
determining whether the holders of the requisite percentage of Capital
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
_________________, 1998, between Fidelity BancShares (N.C.), Inc. 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 first
paragraph of this Guarantee Agreement.
"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 Capital 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 $ 10.00 per
Capital Security.
"MAJORITY IN LIQUIDATION AMOUNT OF THE CAPITAL SECURITIES" means,
except as provided by the Trust Indenture Act, Capital Securities representing
more than 50% of the aggregate Liquidation Amount of all then outstanding
Capital Securities issued by the Issuer Trust.
"OFFICERS' CERTIFICATE" means a certificate signed by the
Chairman of the Board, Vice Chairman of the Board, Chief Executive Officer,
President, Executive Vice President or a Senior Vice President or Vice
President, and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary of the Guarantor, 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
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<PAGE>
(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.
"REDEMPTION DATE" means, with respect to any Capital 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 and
the stated maturity of the Junior Subordinated Debentures shall be a Redemption
Date for a Like Amount of Capital Securities.
"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, vice president, principal, 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 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.
"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" means the Amended and Restated Trust Agreement,
dated _________________________, 1998, executed by Fidelity BancShares (N.C.),
Inc., as Depositor, Bankers Trust (Delaware), as Delaware Trustee, Bankers Trust
Company, as Property Trustee, the Administrators named therein and the Holders
defined therein.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939 (15
U.S.C. ss.ss. 77aaa-77bbbb), as amended.
"TRUST SECURITIES" means the Common Securities and the Capital
Securities.
ARTICLE II. TRUST INDENTURE ACT
SECTION 2.1. Trust Indenture Act; Application
4
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If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required under such Act 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 a list of Holders at the following times:
(i) quarterly, not more than 15 days after the last day of
February, May, August and November 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 the last day of February, May, August and November, as applicable;
and
(ii) at such other times as the Guarantee Trustee may request
in writing, within 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
Not later than January 31 of each year, commencing January 31,
1999, 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. If this Guarantee
Agreement shall have been qualified under 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, provided that such
documents, reports and information shall be required to be provided to the
Securities and Exchange Commission only if this Guarantee Agreement shall have
been qualified under the Trust Indenture Act.
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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 Capital
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, notice of all Events of Default known to the Guarantee Trustee, unless
such Events of Default have been cured before the giving 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 a Responsible Officer charged with the administration of
this Guarantee Agreement shall have received written notice of such Event of
Default.
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.
6
<PAGE>
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 a Holder exercising his or her rights
pursuant to Section 5.4(iv) 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 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 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;
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(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 Capital 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 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 written 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.
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(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.
(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 wilful misconduct on the part of any such
agent or attorney appointed with due care by it hereunder.
(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 for, and to hold
it harmless against, any loss, liability or expense incurred without negligence,
wilful 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 costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder. 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.
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SECTION 3.4. Expenses
The Guarantor shall from time to time reimburse the Guarantee Trustee
for its 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(c) 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.
(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 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 the immediately preceding paragraph, 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 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.
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(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 Capital 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 Capital Securities, by Act
of the Holders of record of not less than 25% in aggregate Liquidation Amount of
the Capital 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 Capital 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 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 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 Capital Securities to be
performed or observed by the Issuer Trust;
11
<PAGE>
(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 Capital Securities or the extension of time for the performance of
any other obligation under, arising out of, or in connection with, the Capital
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 Capital 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 Capital
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.
SECTION 5.4. Rights of Holders
The Guarantor expressly acknowledges that: (i) this Guarantee
Agreement will be deposited with the Guarantee Trustee to be held for the
benefit of the Holders; (ii) the Guarantee Trustee has the right to enforce this
Guarantee Agreement on behalf of the Holders; (iii) the Holders of a Majority in
Liquidation Amount of the Capital 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 (iv) 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.
12
<PAGE>
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 Capital
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.
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.
13
<PAGE>
ARTICLE VII. TERMINATION
SECTION 7.1. Termination
This Guarantee Agreement shall terminate and be of no further
force and effect upon (i) full payment of the Redemption Price of all Capital
Securities, (ii) the distribution of Junior Subordinated Debentures to the
Holders in exchange for all of the Capital Securities or (iii) 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 restore payment of any sums paid
under the Capital Securities or this Guarantee Agreement.
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 Capital 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 Capital 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:
14
<PAGE>
Fidelity BancShares (N.C.), Inc.
100 South Main Street
Fuquay-Varina, North Carolina 27526
Facsimile No.: (919) 557-4553
Attention: Billy T. Woodard
(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:
FIDBANK Capital Trust I
c/o Fidelity BancShares (N.C.), Inc.
100 South Main Street
Fuquay-Varina, North Carolina 27526
Facsimile No.: (919) 557-4553
Attention: Billy T. Woodard
with a copy to:
Bankers Trust Company
Four Albany Street - 4th Floor
New York, NY 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, NY 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.
15
<PAGE>
SECTION 8.4. Benefit
This Guarantee Agreement is solely for the benefit of the Holders
and is not separately transferable from the Capital Securities.
SECTION 8.5. INTERPRETATION
In this Guarantee Agreement, unless the context otherwise
requires:
(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.
16
<PAGE>
THIS GUARANTEE AGREEMENT is executed as of the day and year first
above written.
FIDELITY BANCSHARES (N.C.), INC.
as Guarantor
By: _____________________________________
Name: ______________________
Title: ______________________
BANKERS TRUST COMPANY,
as Guarantee Trustee, and not
in its individual capacity
By: _____________________________________
Name: _________________________________
Title:_________________________________
17
EXHIBIT 4.6
JUNIOR SUBORDINATED INDENTURE
BETWEEN
FIDELITY BANCSHARES (N.C.), INC.
AND
BANKERS TRUST COMPANY
(AS TRUSTEE)
DATED AS OF __________, 1998
<PAGE>
FIDBANK CAPITAL TRUST I
Certain Sections of this Junior Subordinated Indenture relating
to Sections 310 through 318 of the
Trust Indenture Act of 1939:
Trust Indenture Junior Subordinated
Act Section Indenture Section
- ------------------- -------------------
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)(4)...................................7.3(a)
(b)......................................7.3(b)
(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
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION......................................................................
SECTION 1.1. DEFINITIONS................................................................
SECTION 1.2. COMPLIANCE CERTIFICATE AND OPINIONS........................................
SECTION 1.3. FORMS OF DOCUMENTS DELIVERED TO TRUSTEE....................................
SECTION 1.4. ACTS OF HOLDERS............................................................
SECTION 1.5. NOTICES, ETC. TO TRUSTEE AND COMPANY.......................................
SECTION 1.6. NOTICE TO HOLDERS; WAIVER..................................................
SECTION 1.7. CONFLICT WITH TRUST INDENTURE ACT..........................................
SECTION 1.8. EFFECT OF HEADINGS AND TABLE OF CONTENTS...................................
SECTION 1.9. SUCCESSORS AND ASSIGNS.....................................................
SECTION 1.10. SEPARABILITY CLAUSE........................................................
SECTION 1.11. BENEFITS OF INDENTURE......................................................
SECTION 1.12. GOVERNING LAW..............................................................
SECTION 1.13. NON-BUSINESS DAYS..........................................................
ARTICLE II SECURITY FORMS...................................................................
SECTION 2.1. FORMS GENERALLY............................................................
SECTION 2.2. FORM OF FACE OF SECURITY...................................................
SECTION 2.3. FORM OF REVERSE OF SECURITY................................................
SECTION 2.4. ADDITIONAL PROVISIONS REQUIRED IN GLOBAL SECURITY..........................
SECTION 2.5. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION............................
ARTICLE III THE SECURITIES..................................................................
SECTION 3.1. TITLE AND TERMS............................................................
SECTION 3.2. DENOMINATIONS..............................................................
SECTION 3.3. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.............................
SECTION 3.4. TEMPORARY SECURITIES.......................................................
SECTION 3.5. GLOBAL SECURITIES..........................................................
SECTION 3.6. REGISTRATION, TRANSFER AND EXCHANGE GENERALLY;
CERTAIN TRANSFERS AND EXCHANGES............................................
SECTION 3.7. MUTILATED, LOST AND STOLEN SECURITIES......................................
SECTION 3.8. PAYMENT OF INTEREST AND ADDITIONAL INTEREST; INTEREST RIGHTS PRESERVED.....
SECTION 3.9. PERSONS DEEMED OWNERS......................................................
SECTION 3.10. CANCELLATION...............................................................
SECTION 3.11. COMPUTATION OF INTEREST....................................................
SECTION 3.12. DEFERRALS OF INTEREST PAYMENT DATES........................................
SECTION 3.13. RIGHT OF SET-OFF...........................................................
SECTION 3.14. AGREED TAX TREATMENT.......................................................
SECTION 3.15. SHORTENING OR EXTENSION OF STATED MATURITY.................................
SECTION 3.16. CUSIP NUMBERS..............................................................
ARTICLE IV SATISFACTION AND DISCHARGE.......................................................
SECTION 4.1. SATISFACTION AND DISCHARGE OF INDENTURE....................................
<PAGE>
SECTION 4.2 APPLICATION OF TRUST MONEY.................................................
ARTICLE V REMEDIES..........................................................................
SECTION 5.1. EVENTS OF DEFAULT..........................................................
SECTION 5.2. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT........................
SECTION 5.3. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE............
SECTION 5.4. TRUSTEE MAY FILE PROOFS OF CLAIM...........................................
SECTION 5.5. TRUSTEE MAY ENFORCE CLAIM WITHOUT POSSESSION OF SECURITIES.................
SECTION 5.6 APPLICATION OF MONEY COLLECTED.............................................
SECTION 5.7 LIMITATION ON SUITS........................................................
SECTION 5.8. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST;
DIRECT ACTION BY HOLDERS OF CAPITAL SECURITIES.............................
SECTION 5.9. RESTORATION OF RIGHTS AND REMEDIES.........................................
SECTION 5.10. RIGHTS AND REMEDIES CUMULATIVE.............................................
SECTION 5.11. DELAY OR OMISSION NOT WAIVER...............................................
SECTION 5.12. CONTROL BY HOLDERS.........................................................
SECTION 5.13. WAIVER OF PAST DEFAULTS....................................................
SECTION 5.14. UNDERTAKING FOR COSTS......................................................
SECTION 5.15. WAIVER OF USURY, STAY OR EXTENSION LAWS....................................
ARTICLE VI THE TRUSTEE......................................................................
SECTION 6.1. CERTAIN DUTIES AND RESPONSIBILITIES........................................
SECTION 6.2. NOTICE OF DEFAULTS.........................................................
SECTION 6.3. CERTAIN RIGHTS OF TRUSTEE..................................................
SECTION 6.4. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.....................
SECTION 6.5. MAY HOLD SECURITIES........................................................
SECTION 6.6. MONEY HELD IN TRUST........................................................
SECTION 6.7. COMPENSATION AND REIMBURSEMENT.............................................
SECTION 6.8. DISQUALIFICATION; CONFLICTING INTERESTS....................................
SECTION 6.9. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY....................................
SECTION 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR..........................
SECTION 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.....................................
SECTION 6.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS................
SECTION 6.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY..........................
SECTION 6.14. APPOINTMENT OF AUTHENTICATING AGENT........................................
ARTICLE VII HOLDER'S LISTS AND REPORTS BY TRUSTEE,PAYING AGENT AND COMPANY..................
SECTION 7.1. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS..................
SECTION 7.2. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.....................
SECTION 7.3. REPORTS BY TRUSTEE AND PAYING AGENT........................................
SECTION 7.4. REPORTS BY COMPANY.........................................................
ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE...........................................................................
SECTION 8.1. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.......................
SECTION 8.2. SUCCESSOR COMPANY SUBSTITUTED..............................................
<PAGE>
ARTICLE IX SUPPLEMENTAL INDENTURES..........................................................
SECTION 9.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.........................
SECTION 9.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS............................
SECTION 9.3. EXECUTION OF SUPPLEMENTAL INDENTURES.......................................
SECTION 9.4. EFFECT OF SUPPLEMENTAL INDENTURES..........................................
SECTION 9.5. CONFORMITY WITH TRUST INDENTURE ACT........................................
SECTION 9.6. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.........................
ARTICLE X COVENANTS.........................................................................
SECTION 10.1. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.................................
SECTION 10.2. MAINTENANCE OF OFFICE OR AGENCY............................................
SECTION 10.3. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST............................
SECTION 10.4. STATEMENT AS TO COMPLIANCE.................................................
SECTION 10.5. WAIVER OF CERTAIN COVENANTS................................................
SECTION 10.6. ADDITIONAL SUMS............................................................
SECTION 10.7. ADDITIONAL COVENANTS.......................................................
SECTION 10.8. FURNISHING ANNUAL INFORMATION..............................................
ARTICLE XI REDEMPTION OF SECURITIES.........................................................
SECTION 11.1. APPLICABILITY OF THIS ARTICLE..............................................
SECTION 11.2. ELECTION TO REDEEM; NOTICE TO TRUSTEE......................................
SECTION 11.3. SELECTION OF SECURITIES TO BE REDEEMED.....................................
SECTION 11.4. NOTICE OF REDEMPTION.......................................................
SECTION 11.5. DEPOSIT OF REDEMPTION PRICE................................................
SECTION 11.6. PAYMENT OF SECURITIES CALLED FOR REDEMPTION................................
SECTION 11.7. RIGHT OF REDEMPTION OF SECURITIES INITIALLY ISSUED TO AN ISSUER TRUST......
ARTICLE XII SINKING FUNDS...................................................................
ARTICLE XIII SUBORDINATION OF SECURITIES....................................................
SECTION 13.1. SECURITIES SUBORDINATE TO SENIOR INDEBTEDNESS..............................
SECTION 13.2. NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT; PAYMENT OVER OF PROCEEDS
UPON DISSOLUTION, ETC.....................................................
SECTION 13.3. PAYMENT PERMITTED IF NO DEFAULT............................................
SECTION 13.4. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS....................
SECTION 13.5. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS................................
SECTION 13.6. TRUSTEE TO EFFECTUATE SUBORDINATION........................................
SECTION 13.7. NO WAIVER OF SUBORDINATION PROVISIONS......................................
SECTION 13.8. NOTICE TO TRUSTEE..........................................................
SECTION 13.9. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT.............
SECTION 13.10. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS.....................
SECTION 13.11. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS; PRESERVATION
OF TRUSTEE'S RIGHTS......................................................
SECTION 13.12. ARTICLE APPLICABLE TO PAYING AGENTS..........................................
SECTION 13.13. CERTAIN CONVERSIONS OR EXCHANGES DEEMED PAYMENT..............................
</TABLE>
<PAGE>
JUNIOR SUBORDINATED INDENTURE
THIS JUNIOR SUBORDINATED INDENTURE, dated as of ________, 1998, is
between FIDELITY BANCSHARES (N.C.), INC., a Delaware corporation (the
"Company"), having its principal office at 100 South Main Street, Fuquay-Varina,
North Carolina 27526, 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 from time to time of its unsecured
junior subordinated debt securities in series (hereinafter called 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 one or more business trusts (each an "ISSUER
TRUST") of undivided preferred beneficial interests in the assets of such Issuer
Trusts (the "CAPITAL SECURITIES") and common undivided interests in the assets
of such Issuer Trusts (the "COMMON SECURITIES" and, collectively with the
Capital 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:
<PAGE>
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:
(1) The terms defined in this Article have the meanings assigned to them
in this Article, and include the plural as well as the singular;
(2) All other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(3) The words "include", "includes" and "including" shall be deemed to
be followed by the phrase "without limitation";
(4) 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;
(5) Whenever the context may require, any gender shall be deemed to
include the other;
(6) 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
(7) 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.
"ACT" when used with respect to any Holder has the meaning specified in
Section 1.4(a).
"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 an Issuer Trust has become subject from time to
time as a result of a Tax Event.
"ADMINISTRATOR" means, in respect of any Issuer Trust, each Person
appointed in accordance with the related Trust Agreement, solely in such
Person's capacity as Administrator of such Issuer
-2-
<PAGE>
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 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 of one or more series.
"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 certified by the
Secretary or any Assistant Secretary of the Company to have been duly adopted 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 (i) a Saturday or Sunday, (ii) a
day on which banking institutions in the City of New York, New York, or the City
of Raleigh, North Carolina, are authorized or required by law or executive order
to remain closed, or (iii) a day on which the Corporate Trust Office of the
Trustee, or, with respect to the Securities of a series initially issued to an
Issuer Trust, the "Corporate Trust Office" (as defined in the related Trust
Agreement) of the Property Trustee or the Delaware Trustee under the related
Trust Agreement, is closed for business.
"CAPITAL SECURITIES" has the meaning specified in the first recital of
this Indenture.
"CAPITAL TREATMENT EVENT" means, in respect of any 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
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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
Capital Securities of such 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 of such Capital Securities as "Tier 1 Capital" (or the then
equivalent thereof) for purposes of the risk-based capital adequacy guidelines
of the Board of Governors of the Federal Reserve System, 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, $25.00 par value per share, of
the Company.
"COMPANY" means the Person named as the "COMPANY" in the first paragraph
of this instrument until a successor entity shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "COMPANY" shall mean
such successor entity.
"COMPANY REQUEST" and "COMPANY ORDER" mean, respectively, the written
request or order signed in the name of the Company by its Chairman of the Board
of Directors, any Vice Chairman of the Board of Directors, its President or a
Senior Vice President or Vice President, and by its Chief Financial Officer, its
Treasurer or an Assistant Treasurer, or its Secretary or an Assistant Secretary,
and delivered to the Trustee.
"CORPORATE TRUST OFFICE" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered.
"CREDITOR" has the meaning specified in Section 6.7(c).
"DEFAULTED INTEREST" has the meaning specified in Section 3.8.
"DELAWARE TRUSTEE" means, with respect to any Issuer Trust, the Person
identified as the "Delaware Trustee" in the related Trust Agreement, solely in
its capacity as Delaware Trustee of such Issuer Trust under such Trust Agreement
and not in its individual capacity, or its successor in interest in such
capacity, or any successor Delaware trustee appointed as therein provided.
"DEPOSITARY" means, with respect to the Securities of any series
issuable or issued in whole or in part in the form of one or more Global
Securities, the Person designated as Depositary by the Company pursuant to
Section 3.1 with respect to such series (or any successor thereto).
"DISCOUNT SECURITY" means any security that provides for an amount less
than the principal amount thereof to be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 5.2.
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"DOLLAR" or "$" 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," unless otherwise specified in the supplemental
indenture creating a series of Securities, has the meaning specified in Article
V.
"EXCHANGE ACT" means the Securities Exchange Act of 1934 and any statute
successor thereto, in each case as amended from time to time.
"EXPIRATION DATE" has the meaning specified in Section 1.4(f).
"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 a series of Securities, issued to the Depositary or
its nominee for such series, and registered in the name of such Depositary or
its nominee.
"GUARANTEE" means, with respect to any Issuer Trust, the Guarantee
Agreement executed by the Company for the benefit of the Holders of the Capital
Securities issued by such 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
and shall include the terms of each particular series of Securities established
as contemplated by Section 3.1.
"INTEREST PAYMENT DATE" means, as to each series of Securities, the
Stated Maturity of an installment of interest on such Securities.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940 and
any statute successor thereto, in each case as amended from time to time.
"INVESTMENT COMPANY EVENT" means the receipt by an Issuer Trust of an
Opinion of Counsel (as defined in the relevant Trust Agreement) 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 such 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 Capital Securities of such Issuer Trust.
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"ISSUER TRUST" has the meaning specified in the first recital of this
Indenture.
"LIQUIDATION AMOUNT" shall have the meaning assigned in the applicable
related 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(3).
"OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of
the Board of Directors, Vice Chairman of the Board of Directors , Chief
Executive Officer, the President or a Vice President, and by the Chief Financial
Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company, and delivered to the party provided herein. 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 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 Company or any Affiliate of the Company.
"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:
(i) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) 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
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(iii) Securities in substitution for or in lieu of which other
Securities 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 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
such 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, such
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, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"PLACE OF PAYMENT" means, with respect to the Securities of any series,
the place or places where the principal of (and premium, if any) and interest on
the Securities of such series 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.
"PRINCIPAL SUBSIDIARY BANK" means each of (i) The Fidelity Bank, a North
Carolina banking corporation, (ii) 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, (iii) 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 (iv) any subsidiary
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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 (i), (ii) or (iii), and in the case
of clause (i), (ii), (iii) or (iv), 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 (i), (ii) or (iii) or a subsidiary (in the case of clause
(iv)) of the Company.
"PROCEEDING" has the meaning specified in Section 13.2.
"PROPERTY TRUSTEE" means, with respect to any Issuer Trust, the Person
identified as the "Property Trustee" in the related Trust Agreement, solely in
its capacity as Property Trustee of such Issuer Trust under such 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 of a series means, unless otherwise provided
pursuant to Section 3.1 with respect to Securities of such series, the close of
business on the fifteenth day 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, vice president, principal, 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.
"RIGHTS PLAN" means any plan of the Company providing for the issuance
by the Company to all holders of its Common Stock, 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 (i) are deemed to be transferred with
such shares of such Common Stock, (ii) are not exercisable, and (iii) 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, as modified, amended
or supplemented from time to time.
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"SECURITIES REGISTER" and "SECURITIES REGISTRAR" have the respective
meanings specified in Section 3.6(a).
"SENIOR INDEBTEDNESS" means, whether recourse is to all or a portion of
the assets of the Company and whether or not contingent: (i) every obligation of
the Company for money borrowed; (ii) every obligation of the Company evidenced
by bonds, debentures, notes or other similar instruments, including obligations
incurred in connection with the acquisition of property, assets or businesses;
(iii) every reimbursement obligation of the Company with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account of the
Company; (iv) every obligation of the Company issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business); (v) every
capital lease obligation of the Company; (vi) 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 (vii)
every obligation of the type referred to in clauses (i) through (vi) of another
Person the payment of which, the Company has guaranteed or is responsible or
liable, directly or indirectly, as obligor or otherwise. "Senior Indebtedness"
shall not include (i) 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, (ii) any 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, (iii) any indebtedness of the Company to any of
its subsidiaries, (iv) indebtedness to any executive officer or director of the
Company, or (v) 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 Capital
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
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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 an Issuer Trust of an Opinion of
Counsel (as defined in the relevant Trust Agreement) 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 Capital Securities of such
Issuer Trust (including, without limitation, any of the foregoing arising with
respect to, or resulting from, any proposal, proceeding or other action
commencing on or before such date), there is more than an insubstantial risk
that (i) such 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 such Issuer Trust, (ii) interest payable by the Company on such
corresponding series of 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 (iii) such 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, with respect to any Issuer Trust, the trust
agreement or other governing instrument of such Issuer Trust.
"TRUSTEE" means the Person named as the "Trustee" in the first paragraph
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 of
any series shall mean the Trustee with respect to Securities of that series.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as
modified, amended or supplemented 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
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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.
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:
(1) 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;
(2) 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;
(3) 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
(4) 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.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to 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.
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Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions, or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.4. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given to 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 an "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.
(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 of any series 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 of such series, provided that the
Company may not set a record date for, and the provisions of this paragraph
shall not apply with
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respect to, the giving or making of any notice, declaration, request or
direction referred to in the next succeeding paragraph. If any record date is
set pursuant to this paragraph, the Holders of Outstanding Securities of the
relevant series 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 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 of such
series on such record date. Nothing in this paragraph shall be construed to
prevent the Company from setting a new record date for any action for which a
record date has previously been set pursuant to this paragraph (whereupon the
record date previously set shall automatically and with no action by any Person
be cancelled 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 of the relevant series on the date such action
is taken. Promptly after any record date is set pursuant to this paragraph, 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 of the relevant series in
the manner set forth in Section 1.6.
The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series 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(2), or (iv) any direction referred to in
Section 5.12, in each case with respect to Securities of such series. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of such series 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 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 of such series on such record date. Nothing in this paragraph 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
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be cancelled 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 of the relevant
series 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 of the relevant series in the manner set forth in Section 1.6.
With respect to any record date set pursuant to this Section, 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 of the relevant series 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
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to its right to change the Expiration Date as provided in this paragraph.
Notwithstanding the foregoing, no Expiration Date shall be later than the 180th
day after the applicable record date.
(g) 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.
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,
(1) the Trustee by any Holder, any holder of Capital 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
(2) the Company by the Trustee, any Holder or any holder of Capital
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 relevant 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 under such Act to be a part of and
govern this Indenture, the provision of the
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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.
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 Capital 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).
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ARTICLE II
SECURITY FORMS
SECTION 2.1. FORMS GENERALLY.
The Securities of each series and the Trustee's certificate of
authentication shall be in substantially the forms set forth in this Article, 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 of any series is established by action
taken pursuant to a Board Resolution, a copy of an appropriate record of such
action shall be certified by the Secretary or an Assistant Secretary 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.
The Trustee's certificates of authentication shall be substantially in
the form set forth in this Article.
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.
Securities distributed to holders of Global Capital Securities (as
defined in the applicable Trust Agreement) upon the dissolution of an 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 Capital Securities other than
Global Capital Securities upon the dissolution of an 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.
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SECTION 2.2. FORM OF FACE OF SECURITY.
FIDELITY BANCSHARES (N.C.), INC.
[Title of Security]
No. ________________ $________________
FIDELITY BANCSHARES (N.C.), INC., a Delaware 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 , or registered assigns, the principal sum of __________Dollars on , [IF THE
SECURITY IS A GLOBAL SECURITY, THEN INSERT, IF APPLICABLE--, 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 (i) shorten the Stated Maturity of the
principal of this Security to a date not earlier than , and (ii) extend the
Stated Maturity of the principal of this Security at any time on one or more
occasions, subject to certain conditions specified in Section 3.15 of the
Indenture, but in no event to a date later than ]. The Company further promises
to pay interest on said principal from , or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, [monthly]
[quarterly] [semi-annually] [IF APPLICABLE, INSERT--(subject to deferral as set
forth herein)] in arrears on [INSERT APPLICABLE INTEREST PAYMENT DATES] of each
year, commencing ______________ at the [variable rate equal to [INSERT
APPLICABLE INTEREST RATE FORMULA]] [rate of ____%] per annum, [if applicable
insert--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 [if applicable, insert--; provided that any overdue
principal, premium or Additional Sums and any overdue installment of interest
shall bear Additional Interest at the [variable rate equal to [INSERT APPLICABLE
INTEREST RATE FORMULA]] [rate of ____%] per annum (to the extent that the
payment of such interest shall be legally enforceable), compounded [monthly]
[quarterly] [semi-annually], 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 [twelve/four/two]. 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 [IF APPLICABLE, INSERT--,
which shall be the [_________ or _________] (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
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exchange on which the Securities of this series may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in said
Indenture.
[IF APPLICABLE, INSERT--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 consecutive [monthly] [quarterly] [semi-annual] interest
payment periods with respect to each deferral period (each an "Extension
Period") [IF APPLICABLE, INSERT--, 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 [IF STATED MATURITY CAN BE SHORTENED OR EXTENDED,
INSERT--, 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 (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 this Security (other than (a)
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 shareholder 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 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
Extension Period shall exceed _________ consecutive [monthly] [quarterly]
[semi-annual] 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 [variable rate equal to [INSERT APPLICABLE INTEREST
RATE FORMULA]] [rate of ____%] per annum, compounded [monthly] [quarterly]
[semi-annually] and calculated as set forth in the first paragraph of this
Security, from the date on which such amounts would otherwise have
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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 [IF APPLICABLE, INSERT--or so long as such securities are held
by [INSERT NAME OF APPLICABLE ISSUER TRUST], at least one Business Day prior to
the earlier of (i) the next succeeding date on which Distributions on the
Capital Securities of such Issuer Trust would be payable but for such deferral,
and (ii) the date on which the Property Trustee of such Issuer Trust is required
to give notice to holders of such Capital 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 [IF APPLICABLE, INSERT--; 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 Securities
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].
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, (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 signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
FIDELITY BANCSHARES (N.C.), INC.
By: ____________________________________
Name:
Title:
Attest:
________________________________
SECRETARY OR ASSISTANT SECRETARY
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 in one or more
series under the Junior Subordinated Indenture, dated as of _______, 1998
(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 [IF
APPLICABLE, INSERT--, limited in aggregate principal amount to $_________].
All terms used in this Security that are defined in the Indenture [IF
APPLICABLE, INSERT-- or in [insert name of trust agreement], dated as of
__________________ (as modified, amended or supplemented from time to time the
"TRUST AGREEMENT"), relating to [INSERT NAME OF ISSUER TRUST] [the ("ISSUER
TRUST") among the Company, as Depositor, the Trustees 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 [IF APPLICABLE, INSERT--or
the Trust Agreement, as the case may be].
[IF APPLICABLE, INSERT--The Company has the right to redeem this
Security (i) on or after 2003, in whole at any time or in part from time to
time, or (ii) 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 in the case of a redemption under (i) or (ii) in
the preceding paragraph shall equal the principal amount hereof (or portion
thereof to be redeemed in a partial redemption), together with accrued interest
to but excluding the date fixed for redemption.
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[IF THE SECURITY IS SUBJECT TO REDEMPTION OF ANY KIND, INSERT--In the
event of redemption of this Security in part only, a new Security or Securities
of this series 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 of each series to be affected by such supplemental indenture. The
Indenture also contains provisions permitting Holders of specified percentages
in principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all Securities of such series, 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 of this series 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 of this
series may declare the principal amount of all the Securities of this series to
be due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given by Holders) [if applicable, insert--, provided that, if
upon an Event of Default, the Trustee or such Holders fail to declare the
principal of all the Outstanding Securities of this series to be immediately due
and payable, the Holders of at least 25% in aggregate Liquidation Amount of the
Capital 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 of this series 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 of this series 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 of this
series may declare an amount of principal of the Securities of this series to be
due and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by Holders) [if applicable, insert--, provided that, if upon an
Event of Default, the Trustee or such Holders fail to declare such principal
amount of the Outstanding Securities of this series to be immediately due and
payable, the Holders of at least 25% in aggregate Liquidation Amount of the
Capital Securities then outstanding shall have the right
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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 of this series shall become immediately due and payable,
provided that the payment of such principal and interest (including any
Additional Interest) on all the Securities of this series shall remain
subordinated to the extent provided in Article XIII of the Indenture. Upon
payment (i) of the amount of principal so declared due and payable and (ii) 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.]
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 this series, of like tenor,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form
without coupons in integral multiples of $10.00. Securities may be exchanged for
other Securities of like tenor, of any authorized denominations, and of like
aggregate principal amount. Any transfer, exchange or other disposition of
Securities in contravention of Section 3.6(b)(iii) of the Indenture shall be
deemed to be void and of no legal effect whatsoever, any such transferee shall
be deemed not to be the Holder or owner of any beneficial interest in such
Securities for any purpose, including but not limited to the receipt of interest
payable on such Securities, and such transferee shall be deemed to have no
interest whatsoever in such Securities. As provided in the Indenture and subject
to certain limitations therein set forth, Securities of this series are
exchangeable for a like aggregate principal amount of Securities of this series
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.
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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.
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 of the series designated therein referred
to in the within-mentioned Indenture.
Dated:____________________ BANKERS TRUST COMPANY,
as Trustee
By: ____________________________
Authorized Signatory
ARTICLE III
THE SECURITIES
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SECTION 3.1. TITLE AND TERMS.
The aggregate principal amount of Securities that may be authenticated
and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution and, subject to Section 3.3,
set forth or determined in the manner provided, in an Officers' Certificate, or
established in one or more indentures supplemental hereto, prior to the issuance
of Securities as a series:
(a) the title of the securities of such series, which shall distinguish
the Securities of the series from all other Securities;
(b) the limit, if any, upon the aggregate principal amount of the
Securities of such series that may be authenticated and delivered under this
Indenture (except for Securities authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 3.4, 3.5, 3.6, 9.6 or 11.6 and except for any
Securities that, pursuant to Section 3.3, are deemed never to have been
authenticated and delivered hereunder); provided, however, that the authorized
aggregate principal amount of such series may be increased above such amount by
a Board Resolution to such effect;
(c) the Person to whom any interest on a Security of the series shall
be payable, if other than 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;
(d) the Stated Maturity or Maturities on which the principal of the
Securities of such series is payable or the method of determination thereof, and
any dates on which or circumstances under which, the Company shall have the
right to extend or shorten such Stated Maturity or Maturities;
(e) the rate or rates, if any, at which the Securities of such series
shall bear interest, if any, the rate or rates and extent to which Additional
Interest, if any, shall be payable with respect to any Securities of such
series, the date or dates from which any such interest or Additional Interest
shall accrue, the Interest Payment Dates on which such interest shall be
payable, the right, pursuant to Section 3.12 or as otherwise set forth therein,
of the Company to defer or extend an Interest Payment Date, and the Regular
Record Date for the interest payable on any Interest Payment Date or the method
by which any of the foregoing shall be determined;
(f) the place or places where the principal of (and premium, if any)
and interest or Additional Interest on the Securities of such series shall be
payable, the place or places where the Securities of such series may be
presented for registration of transfer or exchange, any restrictions that may be
applicable to any such transfer or exchange in addition to or in lieu of those
set forth herein and the place or places where notices and demands to or upon
the Company in respect of the Securities of such series may be made;
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(g) the period or periods within or the date or dates on which, if
any, the price or prices at which and the terms and conditions upon which the
Securities of such series may be redeemed, in whole or in part, at the option of
the Company, and if other than by a Board Resolution, the manner in which any
election by the Company to redeem such Securities shall be evidenced;
(h) the obligation or the right, if any, of the Company to redeem,
repay or purchase the Securities of such series pursuant to any sinking fund,
amortization or analogous provisions, or at the option of a Holder thereof, and
the period or periods within which, the price or prices at which, the currency
or currencies (including currency unit or units) in which and the other terms
and conditions upon which Securities of the series shall be redeemed, repaid or
purchased, in whole or in part, pursuant to such obligation;
(i) the denominations in which any Securities of such series shall be
issuable, if other than integral multiples of $10.00;
(j) if other than Dollars, the currency or currencies (including any
currency unit or units) in which the principal of (and premium, if any) and
interest and Additional Interest, if any, on the Securities of the series shall
be payable, or in which the Securities of the series shall be denominated and
the manner of determining the equivalent thereof in Dollars for purposes of the
definition of Outstanding;
(k) the additions, modifications or deletions, if any, in the Events
of Default or covenants of the Company set forth herein with respect to the
Securities of such series;
(l) if other than the principal amount thereof, the portion of the
principal amount of Securities of such series that shall be payable upon
declaration of acceleration of the Maturity thereof;
(m) if the principal amount payable at the Stated Maturity of any
Securities of the series will not be determinable as of any one or more dates
prior to the Stated Maturity, the amount which shall be deemed to be the
principal amount of such Securities as of any such date for any purpose
thereunder or hereunder, including the principal amount thereof which shall be
due and payable upon any Maturity other than the Stated Maturity or which shall
be deemed to be Outstanding as of any date prior to the Stated Maturity (or, in
any such case, the manner in which such amount deemed to be the principal amount
shall be determined);
(n) if applicable, that the Securities of the series, in whole or in
any specified part, shall be defeasible and, if other than by a Board
Resolution, the manner in which any election by the Company to defease such
Securities shall be evidenced;
(o) the additions or changes, if any, to this Indenture with respect
to the Securities of such series as shall be necessary to permit or facilitate
the issuance of the Securities of such series in bearer form, registrable or not
registrable as to principal, and with or without interest coupons;
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(p) any index or indices used to determine the amount of payments of
principal of and premium, if any, on the Securities of such series or the manner
in which such amounts will be determined;
(q) if applicable, that any Securities of the series shall be
issuable in whole or in part in the form of one or more Global Securities and,
in such case, the respective Depositaries for such Global Securities, the form
of any legend or legends that shall be borne by any such Global Security in
addition to or in lieu of that set forth in Section 2.4 and any circumstances in
addition to or in lieu of those set forth in Section 3.5 in which any such
Global Security may be exchanged in whole or in part for Securities registered,
and any transfer of such Global Security in whole or in part may be registered,
in the name or names of Persons other than the Depositary for such Global
Security or a nominee thereof;
(r) the appointment of any Paying Agent or agents for the Securities of
such series;
(s) the terms of any right to convert or exchange Securities of such
series into any other securities or property of the Company, and the additions
or changes, if any, to this Indenture with respect to the Securities of such
series to permit or facilitate such conversion or exchange;
(t) if such Securities are to be issued to an Issuer Trust, the form or
forms of the Trust Agreement and Guarantee relating thereto;
(u) if other than as set forth herein, the relative degree, if any,
to which the Securities or the series shall be senior to or be subordinated to
other series of Securities in right of payment, whether such other series of
Securities are Outstanding or not;
(v) any addition to or change in the Events of Default which applies
to any Securities of the series and any change in the right of the Trustee or
the requisite Holders of such Securities to declare the principal amount thereof
due and payable pursuant to Section 5.2;
(w) any addition to or change in the covenants set forth in Article X
which applies to Securities of the series; and
(x) any other terms of the Securities of such series (which terms
shall not be inconsistent with the provisions of this Indenture, except as
permitted by Section 9.1(3)).
All Securities of any one series shall be substantially identical except
as to denomination and except as may otherwise be provided herein or in or
pursuant to such Board Resolution and set forth, or determined in the manner
provided, in such Officers' Certificate or in any indenture supplemental hereto.
If any of the terms of the series are established by action taken
pursuant to a Board Resolution, a copy of an appropriate record of such action
shall be certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
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The securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article XIII.
SECTION 3.2. DENOMINATIONS.
The Securities of each series shall be in registered form without
coupons and shall be issuable in integral multiples of $10.00, unless otherwise
specified as contemplated by Section 3.1(i).
SECTION 3.3. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by its
Chairman of the Board of Directors, its Vice Chairman of the Board of Directors,
its President, its Chief Executive Officer or one of its Vice Presidents, under
its corporate seal reproduced or impressed thereon and attested by its Secretary
or one of its Assistant Secretaries. The signature of any of these officers on
the Securities may be manual or facsimile.
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 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 of any series 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 of the series 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,
(1) 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;
(2) 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
(3) 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.
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
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rights, duties or immunities under the Securities and this Indenture or
otherwise in a manner that is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 3.1 and the preceding
paragraph, if all Securities of a series 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 such preceding paragraph at or prior to the
authentication of each Security of such series if such documents are delivered
at or prior to the authentication upon original issuance of the first Security
of such series to be issued.
Each Security shall be dated the date of its authentication.
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 signature of one of its authorized
officers or signatories, and such certificate upon any Security shall be
conclusive evidence, and 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.
Pending the preparation of definitive Securities of any series, 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 authorized denomination,
substantially of the tenor of the definitive Securities of such series 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.
If temporary Securities of any series are issued, the Company will cause
definitive Securities of such series 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 the same series, 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 of any series shall in
all respects be entitled to the same benefits under this Indenture as definitive
Securities of such series.
SECTION 3.5. GLOBAL SECURITIES.
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(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, (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 or any event which after
notice or lapse of time or both would be an Event of Default.
(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 cancelled 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, subject to Section 3.6(b)(iii), or increased by an amount equal to the
portion thereof to be so exchanged or cancelled, 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
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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.
(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 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 the same
series 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 the same series in 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, register the transfer of or exchange
any Security of any series during a period beginning at the opening of business
15 days before the day of selection for redemption of Securities of that series
pursuant to Article XI and ending at the close of business on the day of mailing
of the
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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) 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).
(ii) 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.
(iii) Limitations Relating to Principal Amount.
Notwithstanding any other provision of this Indenture and unless
otherwise specified as permitted by Section 3.1; Securities or portions
thereof may be transferred or exchanged only in principal amounts of not
less than $10.00. Any transfer, exchange or other disposition of
Securities in contravention of this Section 3.6(b)(iii) shall be deemed
to be void and of no legal effect whatsoever, any such transferee shall
be deemed not to be the Holder or owner of any beneficial interest in
such Securities for any purpose, including but not limited to the
receipt of interest payable on such Securities, and such transferee
shall be deemed to have no interest whatsoever in such Securities.
SECTION 3.7. MUTILATED, LOST AND STOLEN SECURITIES.
If any mutilated Security 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 the same series,
of like tenor and aggregate principal amount, bearing the same legends, and
bearing a number not contemporaneously outstanding.
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, 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 the same series, 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.
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.
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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.
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 of such series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.8. PAYMENT OF INTEREST AND ADDITIONAL INTEREST; INTEREST
RIGHTS PRESERVED.
Interest and Additional Interest on any Security of any series 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 of such series, except
that, unless otherwise provided in the Securities of such series, 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 of any series 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 related
series of Securities.
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 of such
series (herein called "DEFAULTED INTEREST"), shall forthwith cease to be payable
to the registered Holder on the relevant Regular Record Date by virtue of having
been such Holder, and such Defaulted Interest may be paid by the Company, at its
election in each case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities of such series 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 at the same time the Company
shall deposit with the Trustee an amount of money equal to the aggregate
amount proposed to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to
be held in trust for the benefit of the Persons entitled to such
Defaulted Interest as in this clause provided. Thereupon, the Trustee
shall fix a Special Record Date for the payment of such Defaulted
Interest, which shall be not more than 15 days and not less than 10 days
prior to the date of the proposed
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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 of
such series 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, 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 of such series (or their respective Predecessor Securities)
are registered on such Special Record Date and shall no longer be
payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities of the series 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 (2), such payment shall be
deemed practicable by the Trustee.
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.
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 neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
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 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.
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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, 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.
Except as otherwise specified as contemplated by Section 3.1 for
Securities of any series, interest on the Securities of each series 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 of each series 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.
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If specified as contemplated by Section 2.1 or Section 3.1 with respect
to the Securities of a particular series, 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 such series, 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 quarterly, semi-annual or other periods that
equal five years with respect to each Extension Period, during which Extension
Periods the Company shall, if so specified as contemplated by Section 3.1, 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 of such series 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 of such
series; 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 of such series (other than (a) 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
shareholder 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 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 that 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 as and to the extent as may be specified
as contemplated by Section 3.1. The Company shall give the Holders of the
Securities of such series and the Trustee notice of its election to begin any
such Extension Period at least one
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Business Day prior to the next succeeding Interest Payment Date on which
interest on Securities of such series would be payable but for such deferral or,
with respect to any Securities of a series issued to an Issuer Trust, so long as
any such Securities are held by such Issuer Trust, at least one Business Day
prior to the earlier of (i) the next succeeding date on which Distributions on
the Capital Securities of such Issuer Trust would be payable but for such
deferral, and (ii) the date on which the Property Trustee of such Issuer Trust
is required to give notice to holders of such Capital 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.
The Trustee shall promptly give notice of the Company's election to
begin any such Extension Period to the Holders of the Outstanding Securities of
such series.
SECTION 3.13. RIGHT OF SET-OFF.
With respect to the Securities of a series initially issued to an 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, or is
concurrently on the date of such payment making, a payment under the Guarantee
relating to such Security or to a holder of Capital 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. SHORTENING OR EXTENSION OF STATED MATURITY.
If specified as contemplated by Section 2.1 or Section 3.1 with respect
to the Securities of a particular series, the Company shall have the right to
(i) shorten the Stated Maturity of the principal of the Securities of such
series at any time to any date and (ii) extend the Stated Maturity of the
principal of the Securities of such series at any time at its election for one
or more periods, provided that, if the Company elects to exercise its right to
extend the Stated Maturity of the principal of the Securities of such series
pursuant to clause (ii) above, at the time such election is made and at the time
of extension, such conditions as may be specified in such Securities shall have
been satisfied.
SECTION 3.16. 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
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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.
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
(1) either
(A) all Securities theretofore authenticated and delivered
(other than (i) Securities that have been destroyed, lost or
stolen and that have been replaced or paid as provided in Section
3.7 and (ii) 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
(B) all such Securities not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year of the date of deposit, or
(iii) are to be called for redemption within one
year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company,
and the Company, in the case of subclause (B)(i), (ii) or (iii) 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 of such series 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;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
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(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions
precedent herein provided 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 Trustee to any Authenticating Agent under Section
6.14 and, if money shall have been deposited with the Trustee pursuant
to subclause (B) of clause (1) of this Section, the obligations of the
Trustee under Section 4.2 and the last paragraph of Section 10.3 shall
survive.
Notwithstanding the foregoing, in any case where the Securities are not due and
payable and have not been called for redemption, such Securities shall remain
recourse obligations of the Company.
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 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
of any series, means any one of the following events (whatever the reason for
such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):
(1) default in the payment of any interest upon any Security of
that series, 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 any
Extension Period); or
(2) default in the payment of the principal of (or premium, if
any, on) any Security of that series at its Maturity; or
(3) 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 of that series or in this Indenture for a period of 90
days after the date on which written notice of such failure,
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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 of that series; or
(4) entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or (B) a decree or order
adjudging the Company a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company under any applicable federal
or state law, at appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company or of
substantially all of the property of the Company, or ordering the
winding-up or liquidation of its affairs, and the continuance of any
such decree of order for relief or any such other decree or order
unstayed and in effect for a period of 90 consecutive days; or
(5) (A) the commencement by the Company of a voluntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding
to be adjudicated a bankrupt or insolvent, or (B) the consent by the
Company or the entry of a decree of order for relief in respect of
itself in an involuntary case or proceeding under any applicable federal
or state bankruptcy, insolvency, reorganization or other similar law or
to the commencement of any bankruptcy or insolvency case or proceeding
against the Company, or (C) the filing by the Company of a petition or
answer or consent seeking reorganization or relief under any applicable
federal or state law or (D) the consent by the Company to the filing of
such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or of all or substantially all of
the property of the Company, or (E) the making by the Company of an
assignment for the benefit of creditors; or
(6) any other Event of Default provided with respect to
Securities of that series.
SECTION 5.2. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than an Event of Default specified in
Section 5.1(4) or 5.1(5)) with respect to Securities of any series 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 of that series may declare the principal amount (or, if
the Securities of that series are Discount Securities, such portion of the
principal amount as may be specified in the terms of that series) of all the
Securities of that series to be due and payable immediately, by a notice in
writing to the Company (and to the Trustee if given by Holders), PROVIDED that,
in the case of the Securities of a series issued to an Issuer Trust, if, upon an
Event of Default, the Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Securities of such series fail to declare the
principal of all the Outstanding Securities of such series to be immediately due
and payable, the holders of at least 25% in aggregate Liquidation Amount of the
related series of Capital Securities issued by such 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)
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on all the Securities of such series shall become immediately due and payable.
If an Event of Default specified in Section 5.1(4) or 5.1(5) with respect to
Securities of any series at the time Outstanding occurs, the principal amount of
all the Securities of such series (or, if the Securities of such series are
Discount Securities, such portion of the principal amount of such Securities as
may be specified by the terms of that series) 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.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in aggregate principal amount of the
Outstanding Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(A) all overdue installments of interest on all
Securities of such series;
(B) any accrued Additional Interest on all Securities of
such series;
(C) the principal of (and premium, if any, on) any
Securities of such series 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
(2) all Events of Default with respect to Securities of that
series, other than the non-payment of the principal of Securities of
that series that has become due solely by such acceleration, have been
cured or waived as provided in Section 5.13.
In the case of Securities of a series initially issued to an Issuer
Trust, if the Holders of such Securities fail to annul such declaration and
waive such default, the holders of a majority in aggregate Liquidation Amount of
the related series of Capital Securities issued by such 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 (1) and (2) above of
this section 5.2.
No such rescission shall affect any subsequent default or Event of Default or
impair any right consequent thereon.
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SECTION 5.3. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
The Company covenants that if:
(1) default is made in the payment of any installment of interest
(including any Additional Interest) on any Security of any series when
such interest becomes due and payable and such default continues for a
period of 30 days, or
(2) default is made in the payment of the principal of (and
premium, if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee, for
the benefit of the Holders of such Securities, the whole amount then due
and payable on such 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.
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.
If an Event of Default with respect to Securities of any series 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 of such series by
such appropriate judicial proceedings as the Trustee shall deem most effectual
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
SECTION 5.4. 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 of any series 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
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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 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 a series of Securities pursuant to this Article shall be applied in
the following order, at the date or dates fixed by the Trustee and, in case of
the distribution of such money or property on account of principal (or 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 of such series 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
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series of 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 of any series 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:
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to the Securities
of that series;
(2) the Holders of not less than 25% in aggregate principal
amount of the Outstanding Securities of that series shall have made
written request to the Trustee to institute proceedings in respect of
such Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in aggregate principal amount of the Outstanding Securities of
that series;
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 CAPITAL
SECURITIES.
Notwithstanding any other provision in this Indenture, the Holder of any
Security of any series 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 respective Stated Maturities expressed in such Security
(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. In the case of
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Securities of a series issued to an Issuer Trust, any registered holder of the
series of Capital Securities issued by such Issuer Trust shall have the right,
upon the occurrence of an Event of Default described in Section 5.1(1) or
5.1(2), to institute a suit directly against the Company for enforcement of
payment to such holder of principal of (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
of such Capital Securities held by such holder.
SECTION 5.9. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee, any Holder or any holder of Capital Securities issued by
any 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 Capital Securities, then, and in every such case, the Company, the
Trustee, such Holders and such holder of Capital 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 Capital 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 addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.11. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee, any Holder of any Security with
respect to the Securities of the related series or any holder of any Capital
Security to exercise any right or remedy accruing upon any Event of Default with
respect to the Securities of the related series shall impair any such right or
remedy or constitute a waiver of any such Event of Default or an acquiescence
therein.
Every right and remedy given by this Article or by law to the Trustee or
to the Holders and the right and remedy given to the holders of Capital
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 Capital
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 of any series 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 of such series, PROVIDED that:
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(1) such direction shall not be in conflict with any rule of law
or with this Indenture;
(2) the Trustee may take any other action deemed proper by the
Trustee that is not inconsistent with such direction; and
(3) 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.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Securities of any series affected thereby and, in the case of
any Securities of a series initially issued to an Issuer Trust, the holders of a
majority in aggregate Liquidation Amount of the Capital Securities issued by
such Issuer Trust may waive any past default hereunder and its consequences with
respect to such series except a default:
(1) in the payment of the principal of (or premium, if any) or
interest (including any Additional Interest) on any Security of such
series (unless such default has been cured and the Company has paid to
or deposited with the Trustee a sum sufficient to pay all matured
installments of interest (including Additional Interest) and all
principal of (and premium, if any, on) all Securities of that series due
otherwise than by acceleration); or
(2) 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 of such series affected.
Any such waiver shall be deemed to be on behalf of the Holders of all
the Securities of such series, or in the case of waiver by holders of Capital
Securities issued by such Issuer Trust, by all holders of Capital Securities
issued by such Issuer Trust.
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 Event of 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
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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 of any series, 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 respective
Stated Maturities expressed in such Security.
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.
ARTICLE VI
THE TRUSTEE
SECTION 6.1. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture, but in the case of any such certificates or opinions 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
(1) this subsection shall not be construed to limit the effect of
subsection (a) of this Section;
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(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of 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 of a
series.
(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 of any series, the Trustee shall transmit by mail to all Holders of
Securities of such series, 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 of such series, 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 of such series; and PROVIDED FURTHER,
that, in the case of any default of the character specified in Section 5.1(3),
no such notice to Holders of Securities of such series shall be given until at
least 30 days after the occurrence thereof. For the purpose of this Section, 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 Securities of such series.
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,
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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;
(d) the Trustee may consult with counsel 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;
(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. NOT RESPONSIBLE 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.
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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.
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 or bad faith.
(c) Since the Issuer Trust is being formed solely to facilitate an
investment in the Trust Securities, the Company, as Depositor of the Issuer
Trust under the Trust Agreement, hereby covenants to pay all debts and
obligations (other than with respect to the Capital Securities and the Common
Securities) and all reasonable costs and expenses of the Issuer Trust (including
without limitation all reasonable costs and expenses relating to the
organization of the Issuer Trust, the fees and expenses of the trustees and all
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 for, and hold it harmless
against, any loss, liability or expense (including the reasonable compensation
and the expenses and disbursements of
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its agents and counsel) incurred without negligence or bad faith, 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 and expenses
of defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. This
indemnification shall survive the termination of this Indenture or the
resignation or removal of the Trustee.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.1(4) or 5.1(5) 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 of any series issued hereunder shall be
subject to 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 hereunder which shall be:
(a) 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 exercise corporate trust powers and
subject to supervision or examination by Federal, state, territorial or District
of Columbia authority; or
(b) an entity or other Person 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 and
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, 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. 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 of any series issued hereunder.
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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
of one or more series 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 with respect to the Securities of such
series.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in aggregate
principal amount of the Outstanding Securities of such series, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) 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
(2) 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
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation;
then, in any such case, (i) the Company, acting pursuant to the authority of a
Board Resolution, may remove the Trustee with respect to the Securities of all
series issued hereunder, or (ii) 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 of
all series 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 of one or more series, the Company, by a Board
Resolution, shall promptly appoint a successor Trustee with respect to the
Securities of that or those series. If, within one year after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor
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Trustee with respect to the Securities of any series shall be appointed by Act
of the Holders of a majority in aggregate principal amount of the Outstanding
Securities of such series delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee with respect to the Securities of such
series and supersede the successor Trustee appointed by the Company. If no
successor Trustee with respect to the Securities of any series 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 of such series 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 of such series.
(f) The Company shall give notice of each resignation and each
removal of the Trustee with respect to the Securities of any series and each
appointment of a successor Trustee with respect to the Securities of any series
by mailing written notice of such event by first-class mail, postage prepaid, to
the Holders of Securities of such series 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 of such series 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.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor Trustee with respect to the Securities of
one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (1) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (2)
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(3) shall 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, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees or co-trustees of
the same trust and that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee; and upon the execution and delivery of such supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each removal of the retiring
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts, and duties
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of the retiring Trustee with respect to the Securities of that or those series
to which the appointment of such successor Trustee relates; but, on request of
the Company or any successor Trustee, such retiring Trustee shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all rights, powers and trusts referred to
in paragraph (a) or (b) of this Section, as the case may be.
(d) 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, 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 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.
The Trustee may appoint an Authenticating Agent or Agents with respect
to one or more series of Securities, which shall be authorized to act on behalf
of the Trustee to authenticate Securities of such series 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
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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,
such Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section.
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.
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
of the series with respect to which such Authenticating Agent will serve. 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.
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.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series 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.
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Dated: __________________ BANKERS TRUST COMPANY,
as Trustee
By: ____________________________
As Authenticating Agent
Name:
Title:
By: ____________________________
As Authenticating Agent
Name:
Title:
ARTICLE VII
HOLDER'S 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 the last day of February,
May, August and November in each year, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Holders as of the last day
of February, May, August and November, as applicable; 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.
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(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.
(b) Reports so required to be transmitted at stated intervals of not
more than 12 months shall be transmitted no later than January 31 in each
calendar year, commencing with the first January 31 after the first issuance of
Securities under this Indenture.
(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 are 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:
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(1) 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 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;
(2) 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
(3) 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 (1) 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.
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
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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.
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 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.
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 may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:
(1) to evidence the succession of another Person to the Company,
and the assumption by any such successor of the covenants of the Company
herein and in the Securities contained; or
(2) 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; or
(3) to establish the form or terms of Securities of any series as
permitted by Sections 2.1 or 3.1; or
(4) to facilitate the issuance of Securities of any series in
certificated or other definitive form; or
(5) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (and if such covenants are to
be for the benefit of less than all series of Securities, stating that
such covenants are expressly being included solely for the benefit of
the series specified) or to surrender any right or power herein
conferred upon the Company; or
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(6) to add any additional Events of Default for the benefit of
the Holders of all or any series of Securities (and if such additional
Events of Defaults are to be for the benefit of less than all series of
Securities, stating that such additional Events of Default are expressly
being included solely for the benefit of the series specified); or
(7) to change or eliminate any of the provisions of this
Indenture, provided that any such change or elimination shall (a) become
effective only when there is no Security Outstanding of any series
created prior to the execution of such supplemental indenture that is
entitled to the benefit of such provision or (b) not apply to any
Outstanding Securities; or
(8) 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 respect to matters or
questions arising under this Indenture, provided that such action
pursuant to this clause (8) shall not adversely affect the interest of
the Holders of Securities of any series in any material respect or, in
the case of the Securities of a series issued to an Issuer Trust and for
so long as any of the corresponding series of Capital Securities issued
by such Issuer Trust shall remain outstanding, the holders of such
Capital Securities; or
(9) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one
or more series 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
(10) 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 of each series 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 of such series under this Indenture; provided, however,
that no such supplemental indenture shall, without the consent of the Holder of
each Outstanding Security of each series affected thereby,
(1) 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 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
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or after the Stated Maturity thereof (or, in the case of redemption, on
or after the Redemption Date), or
(2) reduce the percentage in aggregate principal amount of the
Outstanding Securities of any series, the consent of whose Holders is
required for any such supplemental indenture, or the consent of whose
Holders is required for any waiver (of compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section, Section 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;
PROVIDED, FURTHER, that, in the case of the Securities of a series
issued to an Issuer Trust, so long as any of the corresponding series of
Capital Securities issued by such Issuer Trust remains outstanding, (i)
no such amendment shall be made that adversely affects the holders of
such Capital 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 of such Capital Securities 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, and (ii) no amendment shall be made to Section 5.8 of this
Indenture that would impair the rights of the holders of Capital
Securities issued by an Issuer Trust provided therein without the prior
consent of the holders of each such Capital 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.
A supplemental indenture that changes or eliminates any covenant or
other provision of this Indenture that has expressly been included solely for
the benefit of one or more particular series of Securities or any corresponding
series of Capital Securities of an Issuer Trust that holds the Securities of any
series, or that modifies the rights of the Holders of Securities of such series
or holders of such Capital Securities of such corresponding series with respect
to such covenant or other provision, shall be deemed not to affect the rights
under this Indenture of the Holders of Securities of any other series or holders
of Capital Securities of any other such corresponding series.
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 or the modifications thereby of
the trusts created by this Indenture, the
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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,
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 shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 9.6. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article 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 of any series 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 of such series.
ARTICLE X
COVENANTS
SECTION 10.1. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company covenants and agrees for the benefit of each series of
Securities that it will duly and punctually pay the principal of (and premium,
if any) and interest (including any Additional Interest) on the Securities of
that series in accordance with the terms of such Securities and this Indenture.
SECTION 10.2. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in each Place of Payment for any series of
Securities an office or agency where Securities of that series may be presented
or surrendered for payment, where Securities of that series may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Company in respect of the Securities of that series 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
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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.
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 of any series 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.
SECTION 10.3. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent with
respect to any series of 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 of such series, 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.
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.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest (including Additional Interest) on the Securities
of a series in trust for the benefit of the Persons entitled thereto until such
sums shall be paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other
obligor upon such Securities) in the making of any payment of principal (and
premium, if any) or interest (or Additional Interest) in respect of any Security
of any series;
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(3) at any time during the continuance of any default with respect to a
series of Securities, upon the written request of the Trustee, forthwith pay to
the Trustee all sums so held in trust by such Paying Agent with respect to such
series; and
(4) comply with the provisions of the Trust Indenture Act applicable to
it as a Paying Agent.
The Company may, at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same 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.
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 AS TO 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.
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SECTION 10.5. WAIVER OF CERTAIN COVENANTS.
Subject to the rights of holders of Capital 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 with respect to
the Securities of any series, if before or after the time for such compliance
the Holders of at least a majority in aggregate principal amount of the
Outstanding Securities of such series 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.
SECTION 10.6. ADDITIONAL SUMS.
In the case of the Securities of a series initially issued to an Issuer
Trust, 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 (i) an
Issuer Trust is the Holder of all of the Outstanding Securities of such series,
and (ii) a Tax Event has occurred and is continuing in respect of such Issuer
Trust, the Company shall pay to such Issuer Trust (and its permitted successors
or assigns under the related Trust Agreement) for so long as such Issuer Trust
(or its permitted successor or assignee) is the registered holder of the
Outstanding Securities of such series, such additional sums as may be necessary
in order that the amount of Distributions (including any Additional Amounts (as
defined in such Trust Agreement)) then due and payable by such Issuer Trust on
the related Capital 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 on 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 of each
series that it shall not (x) 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 (y) 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 of such series (other than (a) 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
shareholder stock purchase plan or in
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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, (b) as a result of 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) if at such time (i) there shall have occurred any event
(A) 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 of such series, and (B) which the Company shall not have taken
reasonable steps to cure, (ii) if the Securities of such series are held by an
Issuer Trust, the Company shall be in default with respect to its payment of any
obligations under the Guarantee relating to the Capital Securities issued by
such Issuer Trust, or (iii) the Company shall have given notice of its election
to begin an Extension Period with respect to the Securities of such series 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 of a series
issued to an Issuer Trust (i) to hold, directly or indirectly, 100% of the
Common Securities of such 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, (ii) as holder of such Common Securities, not to
voluntarily terminate, windup or liquidate such Issuer Trust, other than (a) in
connection with a distribution of the Securities of such series to the holders
of the related Capital Securities in liquidation of such Issuer Trust, or (b) in
connection with certain mergers, consolidations or amalgamations permitted by
the related Trust Agreement, and (iii) to use its reasonable efforts, consistent
with the terms and provisions of such Trust Agreement, to cause such Issuer
Trust to continue to be taxable as a grantor trust for United States Federal
income tax purposes.
SECTION 10.8. FURNISHING ANNUAL INFORMATION.
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 any original issue discount includable in income for each authorized
minimum denomination of principal amount at Stated Maturity of outstanding
Securities during such year.
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ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 11.1. APPLICABILITY OF THIS ARTICLE.
Redemption of Securities of any series 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, however, that, if any
provision of any such form of Security shall conflict with any provision of this
Article, 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 of a series held by
an Issuer Trust, the Property Trustee under the related Trust Agreement, of such
date and of the principal amount of Securities of the applicable series to be
redeemed and provide the additional information required to be included in the
notice or notices contemplated by Section 11.4; provided that, in the case of
any series of Securities initially issued to an Issuer Trust, for so long as
such Securities are held by such 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 related
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.
If less than all the Securities of any series 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 of
such series 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 of such series,
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.
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.
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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 of such series to be redeemed, each notice of
redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities of such particular series
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
a particular series of 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, and any accrued interest (including Additional Interest)
on, of all the Securities (or portions thereof) that are to be redeemed on that
date.
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SECTION 11.6. PAYMENT OF SECURITIES CALLED FOR REDEMPTION.
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 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, unless otherwise specified as contemplated by
Section 3.1, 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.
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 the same
series, 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.
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 AN
ISSUER TRUST.
In the case of the Securities of a series initially issued to an Issuer
Trust, except as otherwise specified as contemplated by Section 3.1, the
Company, at its option, may redeem such Securities (i) on or after the date
specified in such Security, 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.
If less than all the Securities of any such series 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 related to the Issuer Trust to which such Securities were
issued.
ARTICLE XII
SINKING FUNDS
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Except as may be provided in any supplemental or amended indenture, no
sinking fund shall be established or maintained for the retirement of Securities
of any series.
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 of each and every series 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.
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.
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 of
any of the Securities 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
of any series shall be paid or delivered directly to the holders of Senior
Indebtedness in accordance with the priorities then existing among such holders
until all
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Senior Indebtedness (including any interest thereon accruing after the
commencement of any Proceeding) shall have been paid in full.
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.
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.
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.
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.
SECTION 13.3. PAYMENT PERMITTED IF NO DEFAULT.
Nothing contained in this Article 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
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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 over
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 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 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; or (b) affect the relative rights against the Company of the
Holders of the 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 Capital 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 of
the holders of Senior Indebtedness to receive cash, property and securities
otherwise payable or deliverable to the Trustee or such Holder.
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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 and appoints the Trustee his or her attorney-in-fact for any and
all such purposes.
SECTION 13.7. NO WAIVER OF SUBORDINATION PROVISIONS.
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.
Without in any way limiting the generality of the immediately preceding
paragraph, 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 of any series, without incurring responsibility to such Holders of
the Securities and without impairing or releasing the subordination provided in
this Article 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 extent 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.
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 or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts that
would prohibit the making of any payment 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.
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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.
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 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.
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In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee.
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 of any series 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 of any series 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.
[Remainder of page left intentionally blank; signatures appear on
following page.]
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
FIDELITY BANCSHARES (N.C.), INC.
By: ____________________________
Attest: Name: __________________________
__________________ Title: _________________________
BANKERS TRUST COMPANY,
as Trustee, and not in its individual
capacity
By: ____________________________
Attest:
Name: __________________________
__________________
Title: _________________________
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EXHIBIT 5.1
[Letterhead of Ward and Smith, P.A.]
August 25, 1998
Fidelity BancShares (N.C.), Inc.
100 South Main Street
Fuquay-Varina, North Carolina 27526
RE: Our File 88-1308(D)
Ladies and Gentlemen:
We have acted as counsel to Fidelity BancShares (N.C.), Inc. ("BancShares") in
connection with the preparation of a Registration Statement on Form S-1,
including the form of Prospectus contained therein (the "Registration
Statement"), which has been filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act"), for purposes of
registering under the Act (i) BancShares' issuance and sale to FIDBANK Capital
Trust I (the "Issuer Trust") of up to $23,000,000 in ___% Junior Subordinated
Debentures (the "Junior Subordinated Debentures") pursuant to the terms of a
certain Junior Subordinated Indenture proposed to be entered into by and between
BancShares and Bankers Trust Company, as Trustee thereunder, in the form filed
as Exhibit 4.6 to the Registration Statement (the "Junior Subordinated
Indenture"), (ii) the issuance and sale by the Issuer Trust of up to $23,000,000
aggregate liquidation amount of ___% Capital Securities (the "Capital
Securities"), and (iii) the issuance by BancShares of its guarantee of the
Capital Securities pursuant to and to the extent provided in a certain Guarantee
Agreement proposed to be entered into by and between BancShares and Bankers
Trust Company, as Guarantee Trustee thereunder, in the form filed as Exhibit 4.5
to the Registration Statement (the "Guarantee Agreement").
In connection with rendering the opinions set forth in this letter, we have
examined or relied upon copies of the following documents:
1. the Registration Statement and the Prospectus contained therein;
2. the form of Junior Subordinated Indenture filed as Exhibit 4.6 to
the Registration Statement;
3. the form of Junior Subordinated Debentures contained as an exhibit
to the Junior Subordinated Indenture; and
4. the form of Guarantee Agreement filed as Exhibit 4.5 to the
Registration Statement.
In rendering the opinions set forth in this letter, we have also examined the
minutes of proceedings of BancShares' Board of Directors and such certificates
of public officials, records and other certificates and instruments as we have
deemed necessary for the purposes of the opinions expressed herein.
In delivering this letter, we have assumed (i) the authenticity of all documents
submitted to us as originals and the conformity to the original or certified
copies of all documents submitted to us as conformed or reproduction copies,
(ii) that the minutes of proceedings of BancShares Board of Directors are
accurate and complete and contain minutes of all actions pertaining to the
Junior Subordinated Indenture, the Junior Subordinated Debentures, the Guarantee
Agreement, and the transactions described therein, (iii) that the final,
executed versions of all relevant documents, including the Junior Subordinated
Indenture, the Junior Subordinated Debentures and the Guarantee Agreement, will
be identical in all material respects to the versions reviewed by us, and (iv)
that the Junior Subordinated Debentures will be issued and sold on the terms
described in the Junior Subordinated Indenture and the Registration Statement.
Based upon and subject to the foregoing, as well as the qualifications set forth
in subsequent portions of this letter, we are of the opinion as of this date
that, (i) when the Registration Statement has become effective, and upon
compliance with the pertinent provisions of the Act and the Trust Indenture Act
of 1939, as amended, and compliance with the securities or "blue sky" laws of
various jurisdictions in which the Capital Securities will be offered or sold,
(ii) when the Junior Subordinated Indenture and the Guarantee Agreement have
been properly executed and delivered by BancShares and by the Trustee and the
Guarantee Trustee, respectively, and (iii) when the Junior Subordinated
Debentures have been executed, authenticated and delivered in accordance with
the terms of the Junior Subordinated Indenture, then the Junior Subordinated
Debentures and the Guarantee Agreement will be valid, binding and legal
obligations of BancShares.
In rendering the opinions set forth above, we have assumed, without
independent verification, that
1. The parties to the Junior Subordinated Indenture, the Guarantee Agreement
and the Junior Subordinated Debentures have the corporate power and
authority to execute, deliver and perform their respective obligations
thereunder;
2. No event will take place subsequent to the date hereof that would cause
any action taken in connection with the Junior Subordinated Indenture, the
Junior Subordinated Debentures, the Guarantee Agreement, or the
transactions described therein to fail to comply with any law, rule,
regulation, order, judgment, decree or duty, or that would permit any
party to cancel, rescind, or otherwise avoid any act;
3. All certificates of public officials have been properly given and are
accurate and complete;
4. There has been no mutual mistake of fact, fraud, duress or undue influence
in connection with the Junior Subordinated Indenture, the Junior
Subordinated Debentures, the Guarantee Agreement, or the transactions
described therein, and the conduct of the parties to such documents has
complied with any requirement of good faith, fair dealing and
conscionability;
5. There are no agreements or understandings, or any usage of trade or course
of dealing, among the parties that, in any case, would define, supplement
or qualify the terms of the Junior Subordinated Indenture, the Junior
Subordinated Debentures, the Guarantee Agreement, or the transactions
described therein.
In addition, all opinions and statements set forth in this letter are expressly
limited and qualified as follows:
(1) The opinions expressed herein are limited to matters of North Carolina law
and the federal laws of the United States of America. We point out that
the Junior Subordinated Indenture, the Junior Subordinated Debentures and
the Guarantee Agreement are governed by New York law. We are not admitted
to practice in New York, and we have assumed for purposes of the opinions
expressed herein that the laws of such other jurisdiction conform to the
laws of North Carolina.
(2) Our opinions are limited to the matters expressly stated herein, and no
opinion may be inferred or implied beyond the matters expressly stated.
(3) The enforceability of all or various provisions of the Junior Subordinated
Indenture, the Junior Subordinated Debentures and the Guarantee Agreement
may be limited by (i) the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect
relating to or limiting the enforcement of creditors' rights generally,
(ii) general principles of equity and applicable laws or court decisions
limiting the availability of specific performance, injunctive relief and
other equitable remedies, and (iii) federal and/or state bank holding
company, commercial bank, savings bank, thrift institution and deposit
insurance laws and regulations, and the application of principles of
public policy underlying such laws and regulations.
(4) We express no opinion herein as to the enforceability of any choice of law
or indemnification provisions contained in the Junior Subordinated
Indenture, the Junior Subordinated Debentures or the Guarantee
Agreement.
(5) Except as otherwise expressly specified herein, the opinions herein are
limited to matters in existence as of the date hereof, and we undertake no
responsibility to revise or supplement this letter or the opinions herein
to reflect any change in the law or facts.
We consent to the filing of this opinion as an exhibit to the Registration
Statement. We also consent to the reference to Ward and Smith, P.A. under the
caption "Legal Matters" in the Registration Statement.
Yours truly,
/s/ WARD AND SMITH, P.A.
EXHIBIT 5.2
[Letterhead of Richards, Layton & Finger, P.A.]
August 24, 1998
FIDBANK Capital Trust I
c/o Fidelity BancShares (N.C.), Inc.
100 South Main Street
Fuquay-Varina, North Carolina 27526
Re: FIDBANK Capital Trust I
Ladies and Gentlemen:
We have acted as special Delaware counsel for Fidelity BancShares
(N.C.), Inc., a Delaware corporation (the "Company"), and FIDBANK Capital Trust
I, a Delaware business trust (the "Trust"), in connection with the matters set
forth herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust, dated July 14, 1998 (the
"Certificate"), as filed in the office of the Secretary of State of the State of
Delaware (the "Secretary of State") on July 14, 1998;
(b) The Trust Agreement of the Trust, dated as of July 14, 1998 (the
"Original Trust Agreement"), by and between the Company, as depositor, and the
trustee of the Trust named therein;
(c) Amendment No. 1 to the Original Trust Agreement, dated as of
July 21, 1998, by and between the Company, as depositor, and the trustee of the
Trust named therein;
(d) A form of Amended and Restated Trust Agreement of the Trust
(including Exhibits A, C and D thereto) (the "Trust Agreement"), to be entered
into among 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, attached as an
exhibit to the Registration Statement;
(e) The Registration Statement on Form S-1 (the "Registration
Statement"), including a preliminary prospectus (the "Prospectus"), relating to
the ___% Capital Securities of the Trust representing undivided beneficial
interests in the assets of the Trust (each, a "Capital Security" and
collectively, the "Capital Securities"), as proposed to be filed by the Company
and the Trust with the Securities and Exchange Commission on or about August 25,
1998; and
(f) A Certificate of Good Standing for the Trust, dated August 24,
1998, obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined
are used as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents
other than the documents listed in paragraphs (a) through (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 authentic originals, (ii)
the conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust
Agreement constitutes the entire agreement among the parties thereto with
respect to the subject matter thereof, including with respect to the creation,
operation and termination of the Trust, and that the Trust Agreement and the
Certificate are in full force and effect and have not been amended, (ii) except
to the extent provided in paragraph 1 below, the due creation or due
organization or due formation, as the case may be, and valid existence in good
standing of each party to the documents examined by us under the laws of the
jurisdiction governing its creation, organization or formation, (iii) the legal
capacity of natural persons who are parties to the documents examined by us,
(iv) that each of the parties to the documents examined by us has the power and
authority to execute and deliver, and to perform its obligations under, such
documents, (v) the due authorization, execution and delivery by all parties
thereto of all documents examined by us, (vi) the receipt by each Person to whom
a Capital Security is to be issued by the Trust (collectively, the "Capital
Security Holders") of a Capital Securities Certificate, in accordance with the
Trust Agreement, and as described in the Registration Statement, and (vii) that
the Capital Securities are issued to the Capital Security Holders in accordance
with the Trust Agreement, and as described in the Registration Statement. We
have not participated in the preparation of the Registration Statement and
assume no responsibility for its contents.
This opinion is limited to the laws of the State of Delaware
(excluding the securities laws of the State of Delaware), and we have not
considered and express no opinion on the laws of any other jurisdiction,
including federal laws and rules and regulations relating thereto. Our opinions
are rendered only with respect to Delaware laws and rules, regulations and
orders thereunder 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 Capital 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 Capital 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 Capital 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 "Legal Matters" 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.
[Letterhead of Hunton & Williams]
August 26,1998
Fidelity BancShares (N.C.), Inc.
100 South Main Street
Fuquay-Varina, North Carolina 27526
FIDBANK CAPITAL TRUST I
CERTAIN FEDERAL INCOME TAX MATTERS
----------------------------------
Ladies and Gentlemen:
We have acted as special tax counsel to Fidelity
BancShares (N.C.), Inc. (the "Company") in connection with the preparation of a
Registration Statement on Form S-1 (the "Registration Statement"), which has
been filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "Act"), for the registration under the Act of (1) up to
$23 million aggregate principal amount of Junior Subordinated Deferrable
Interest Debentures (the "Junior Subordinated Debentures") to be issued by the
Company to FIDBANK Capital Trust I, (2) up to 2,300,000 Capital Securities
(liquidation amount $10 per Capital Security) to be issued by FIDBANK Capital
Trust I, and (3) the Company's Guarantee of Capital Securities. The Junior
Subordinated Debentures will be issued pursuant to an indenture between the
Company and the trustee named therein, and the Capital Securities will be issued
pursuant to an amended and restated trust agreement between the Company and the
trustees named therein.
We have reviewed copies of (1) the Registration
Statement and the prospectus included therein (the "Prospectus") and (2) such
other documents as we have deemed necessary or appropriate as a basis for the
opinion set forth below. We have also relied upon, and assumed the accuracy of,
certain written representations made to us by the Company. We have further
assumed (i) that all documents submitted to us as originals are authentic, (ii)
with respect to all documents supplied to us as drafts, that the final, executed
versions of such documents are identical in all material respects to the
versions most recently supplied to us, (iii) that each such final version (when
executed) is valid and enforceable in accordance with its terms, and (iv) that
the Capital Securities will be sold at the offering price stated on the cover of
the Prospectus.
<PAGE>
Fidelity BancShares (N.C.), Inc.
August 26,1998
Page 2
Based on the foregoing, we confirm that the statements
of law and legal conclusions contained in the Prospectus under the caption
"Certain Federal Income Tax Consequences" constitute our opinion, subject to the
assumptions, conditions, and limitations described therein, and that the
discussion thereunder does not omit any material provision with respect to the
matters covered.
Our representation of the Company in connection with the
Capital Securities is limited solely to that of special tax counsel and,
except for our opinion as to certain federal income tax matters as set forth in
the preceding paragraph, we express no opinion on any tax or other legal matter.
This opinion is solely for your benefit and may not be distributed to or relied
upon by any other person without our prior written consent. We do not undertake
to advise you of any changes in our opinion expressed herein (or under the
heading "Certain Federal Income Tax Consequences" in the Prospectus) resulting
from matters that might hereafter arise or be brought to our attention.
We consent to the filing of this opinion as an exhibit
to the Registration Statement. We also consent to the reference to Hunton &
Williams under the captions "Certain Federal Income Tax Consequences" and "Legal
Matters" in the Prospectus. In giving this consent, we do not admit that we are
in the category of persons whose consent is required by Section 7 of the Act or
the rules and regulations promulgated thereunder by the Securities and Exchange
Commission.
Very truly yours,
/s/ HUNTON & WILLIAMS
EMPLOYEE DEATH BENEFIT AND POST-RETIREMENT NONCOMPETITION
AND CONSULTATION AGREEMENT
THIS AGREEMENT, made and entered into and effective as of the 10th
day of November, 1986, by and between THE FIDELITY BANK, a North Carolina
banking corporation with its principal office in Fuquay-Varina, Wake County,
North Carolina (hereinafter referred to as "Employer"); and BILLY T.
WOODARD (hereinafter referred to as "Employee");
W I T N E S S E T H:
WHEREAS, Employee has provided long-time guidance, leadership and
direction in the growth, management and development of Employer, during which
time Employee has learned trade secrets, confidential procedures and
information, and technical and sensitive plans of Employer; and,
WHEREAS, Employer values the efforts, abilities and accomplishments
of Employee as an important member of management and desires to continue to have
Employee's experience and knowledge available to it following Employee's
retirement from employment with Employer; and,
WHEREAS, Employer desires to limit Employee's availability to other
employers or entities which are in competition with Employer following
Employee's retirement from employment with Employer; and,
WHEREAS, Employer, as part of a plan adopted for a class of
employees of Employer, has offered to Employee a noncompetition arrangement
together with a limited, when-called, independent contractor consultation
service arrangement and a death benefit arrangement for Employee's designated
beneficiary or Estate, as applicable, and the parties hereto have reached an
agreement concerning the independent contractor consulting relationship, the
noncompetition arrangement, the death benefit arrangement and other matters
contained herein and desire to set forth the terms and conditions thereof.
<PAGE>
NOW, THEREFORE, for and in consideration of the mutual promises and
undertakings herein set forth, the parties hereto do agree as follows:
1. RETIREMENT DATE. The term "Retirement Date," as used herein,
shall be defined for purposes of this Agreement as the last day of the calendar
month in which Employee attains the age of sixty-five (65) or as such date prior
or subsequent thereto as shall be agreed upon between Employer and Employee.
Employer and Employee hereby acknowledge that compulsory retirement
before attaining age seventy (70) is not enforceable except as provided by law.
Employer and Employee further agree that no provision herein shall be construed
as requiring Employee's retirement before attaining age seventy (70) except as
may now or hereafter be permitted by law; however, Employee acknowledges
Employer's continuing policy, in an effort to provide opportunities and
continuity, to encourage retirement at age sixty-five (65) and to require
retirement at age sixty-five (65) where permissible by law.
2. DEATH BENEFITS. In the event Employee dies while employed by
Employer prior to Employee's Retirement Date, Employer will pay the sum of
Twenty-One Thousand Eight Hundred Twenty-Five and No/100 Dollars ($21,825.00)
per year, payable in monthly installments of One Thousand Eight Hundred Eighteen
and 75/100 Dollars ($1,818.75), for a period of ten (10) years, to such
individual or individuals as Employee shall have designated in writing filed
with Employer or, in the absence of such designation, to the Estate of Employee.
The first payment shall be made not later than two (2) months following
Employee's death. Payments hereunder shall be payable each month without
deductions and the recipient shall be solely responsible for the payment of all
income and other taxes and assessments applicable on said payments.
3. CONSULTATION PAYMENTS. In the event Employee retires from
employment on Employee's Retirement Date, Employee shall be paid by Employer the
sum of Four Hundred Fifty-Four and
2
<PAGE>
69/100 Dollars ($454.69) per month, beginning not later than two (2) months
after Employee's Retirement Date, for a period of ten (10) years following
Employee's Retirement Date or until death, whichever first occurs. Such monthly
payments shall be paid for and in consideration of Employee's Consultation
Services, as provided herein; such sum to be payable to Employee whether or not
Employee's Consultation Services have been utilized by Employer. Consultation
Payments hereunder shall be payable each month without deductions and Employee
agrees to be solely responsible for the payment of all income and other taxes
out of said funds and all Social Security, self-employment and any other taxes
or assessments, if any, applicable on said compensation.
For and in consideration of said monthly Consultation Payments to Employee,
Employee will provide support, sponsorship, advisory and Consultation Services
as an independent contractor to Employer, as and when Employer may request,
which services may be provided with respect to all phases of Employer's business
and particularly those phases in which Employee has particular expertise and
knowledge. Employee's services shall be limited to those of an independent
consultant, shall not be on a day-to-day regularly scheduled operational basis
and shall be provided only when Employee is reasonably available and willing.
Employer shall make available to Employee such office space and equipment as are
reasonably necessary for Employee to carry out the obligations under this
Agreement and shall reimburse Employee for any extraordinary expenses incurred
in carrying out the obligations hereunder.
Effective as of Employee's Retirement Date, Employee and Employer agree
that Employee shall be, under the terms of this Agreement, an independent
contractor, and Employee agrees that his rights and privileges and his
obligations are as provided in this Agreement as to matters covered herein.
If Employee should die during said ten (10) year period, payments
under this Paragraph shall terminate. Future payments, if
3
<PAGE>
any, to Employee's designated beneficiary or Employee's Estate shall be made
in accordance with the provisions of Paragraph 5 of this Agreement.
4. NONCOMPETITION PAYMENTS. In the event Employee retires from
employment on Employee's Retirement Date, Employee shall be paid by Employer the
sum of One Thousand Three Hundred Sixty-Four and 06/100 Dollars ($1,364.06) per
month, beginning not later than two (2) months after Employee's Retirement Date,
for a period of ten (10) years following Employee's Retirement Date or until
death, whichever first occurs. Such monthly payments shall be paid for and in
consideration of Employee's Covenant Not To Compete as provided herein. The
Noncompetition Payments hereunder shall be payable each month without deductions
and Employee agrees to be solely responsible for the payment of all income or
other taxes or assessments, if any, applicable on said payments.
For and in consideration of said monthly Noncompetition Payments to
Employee, Employee agrees that he will not become an officer or employee of,
provide any consultation to nor participate in any manner with any other entity
of any type or description involved in any major element of business which
Employer is performing at Employee's Retirement Date nor will Employee perform
or seek to perform any consultation or other type of work or service with any
other firm, person or entity, directly or indirectly, in any such business which
competes with Employer, whether done directly or indirectly, in ownership,
consultation, employment or otherwise. Employee agrees not to reveal to outside
sources, without the consent of Employer, any matters, the revealing of which
could, in any manner, adversely affect or disclose Employer's business or any
part thereof, unless required by law to do so. This Covenant Not To Compete by
Employee is limited to the geographic area of North Carolina, shall exist for
and during the term of all payments to be made under this Covenant Not To
Compete, whether made directly by Employer or as otherwise provided herein, plus
a term of twelve (12) months thereafter, and
4
<PAGE>
shall not prevent Employee from purchasing or acquiring, as an investor only, a
financial interest of less than five percent (5%) in a business or other entity
which is in competition with Employer.
Employee acknowledges that the remedy at law for breach of
Employee's Covenant Not To Compete will be inadequate and that Employer shall be
entitled to injunctive relief as to any violation thereof; however, nothing
herein shall be construed as prohibiting Employer from pursuing any other
remedies available to it, in addition to injunctive relief, whether at law or in
equity, including the recovery of damages. In the event Employee shall breach
any condition of Employee's Covenant Not To Compete, then Employee's right to
any of the payments becoming due under Paragraphs 3 and 4 of this Agreement
after the date of such breach shall be forever forfeited and Employee's
designated beneficiary's or Employee's Estate's right to any payments under this
Agreement shall likewise be forever forfeited. This forfeiture is in addition to
and not in lieu of any of the above-described remedies of Employer and shall be
in addition to any injunctive or other relief as described herein. Employee
further acknowledges that any breach of Employee's Covenant Not To Compete shall
be deemed a material breach of this Agreement.
If Employee should die during said ten (10) year period, payments
under this Paragraph shall terminate. Future payments, if any, to Employee's
designated beneficiary or Employee's Estate shall be made in accordance with the
provisions of Paragraph 5 of this Agreement.
5. CONTINUATION OF PAYMENTS. Upon Employee's death during said ten
(10) year period of payments hereunder, the sum of One Thousand Eight Hundred
Eighteen and 75/100 Dollars ($1,818.75) per month shall be paid to Employee's
designated beneficiary or Employee's Estate, as applicable, beginning the first
calendar month following the date of Employee's death and continuing thereafter
until the expiration of said ten (10) year period. Once
5
<PAGE>
the Consultation and/or Noncompetition Payments are begun, whether
paid by Employer or as otherwise provided herein, the maximum payment period
under this Agreement is ten (10) years. Payments hereunder shall be payable each
month without deductions and the recipient shall be solely responsible for all
income and other taxes and assessments applicable on said payments.
6. FORFEITURE OF BENEFITS. This Agreement is subject to termination
by Employer at any time and without stated cause. ln the event Employer shall
terminate this Agreement, Employee shall forfeit all rights to receive any
payment provided for herein. Likewise, in the event Employee does not retire
from employment on Employee's Retirement Date or Employee's employment is
terminated, either voluntarily or involuntarily, for reasons other than death or
retirement, Employee shall forfeit all rights to receive any payment provided
for herein. Employee acknowledges and agrees that any benefit provided for
herein is merely a contractual benefit and that nothing contained herein shall
be construed as conferring upon Employee any vested benefits or any vested
rights to receive any payment provided for herein and that any and all payments
provided for herein shall be subject to a substantial risk of forfeiture until
such time as said payments are actually made by Employer. Employee also
acknowledges that the contractual benefit provided for herein is specifically
conditioned upon Employee's retirement from employment on Employee's Retirement
Date.
7. CLAIMS PROCEDURE. If any benefits become payable under the
Agreement, Employee (or Employee's beneficiary in the case of Employee's death)
shall file a claim for benefits by notifying Employer orally or in writing. If
the claim is wholly or partially denied, Employer shall provide a written notice
within ninety (90) days specifying the reasons for the denial, any additional
material or information necessary to receive benefits, and the steps to be taken
if a review of the denial is desired.
6
<PAGE>
If a claim is denied and a review is desired, Employee (or
Employee's beneficiary in the case of Employee's death) shall notify Employer in
writing within sixty (60) days. In requesting a review, Employee or Employee's
beneficiary may submit any written issues and comments he or she feels are
appropriate. Employer shall then review the claim and provide a written decision
within sixty (60) days. This decision shall state the specific reasons for the
decision and shall include references to specific provisions on which the
decision is based.
8. ASSIGNMENT OF RIGHTS. Neither Employee nor any designated
beneficiary shall have any right to sell, assign, transfer or otherwise convey
the right to receive any payment hereunder.
9. PAYMENTS AND FUNDING. Any payments under this Agreement shall be
independent of, and in addition to, those under any other Plan, program or
agreement which may be in effect between the parties hereto, or any other
compensation payable to Employee or Employee's designee by Employer. This
Agreement shall not be construed as a contract of employment nor does it
restrict the right of Employer to discharge Employee at will or the right of
Employee to terminate employment at will.
Employer may, in its sole discretion, purchase an insurance policy
on the life of Employee to fund or assist in the funding of this Agreement.
Employee agrees to promptly supply to Employer and its selected or prospective
insurance carrier, upon request, any and all information requested, in order to
enable the insurance carrier to evaluate the risks involved in providing the
insurance requested by Employer. Any and all rights to any and all benefits
under such insurance policy on the life of Employee shall be solely the property
of Employer and all proceeds of such policy shall be payable by the insurer
solely to Employer, as owner of such policy. Employee specifically waives any
rights in any insurance policy on Employee's life owned by Employer pursuant to
this Agreement. Such policy shall not serve in any way as security
7
<PAGE>
to Employee for Employer's performance under this Agreement. The rights accruing
to Employee or any designee hereunder shall be solely those of an unsecured
creditor of Employer and shall be subordinate to the rights of the depositors of
Employer.
Employer may, in its sole discretion, discharge its liabilities under this
Agreement to Employee, Employee's designated beneficiary or Employee's Estate at
any time by the purchase of an annuity from a reputable insurance or similar
company authorized to do, and doing, business in North Carolina and the
assignment of the rights under said annuity to the benefit of Employee,
Employee's designated beneficiary or Employee's Estate. If this option is
exercised by Employer, all rights accruing to Employee, Employee's designated
beneficiary or Employee's Estate hereunder shall be governed solely by the
annuity contract and any election made under said annuity contract; and Employer
shall be fully discharged from any further liabilities to Employee, Employee's
designated beneficiary or Employee's Estate under this Agreement.
Employer may, in its sole discretion, discharge its liabilities under this
Agreement to Employee, Employee's designated beneficiary or Employee's Estate at
any time by determining the present value of the payments due hereunder, said
amount to be determined by the use of the U.S. Government bond rate for the
nearest year applicable to the time of the payments due hereunder for the
present value computation and once determined, by payment of said amount in a
lump sum to Employee, Employee's designated beneficiary or Employee's Estate, as
applicable.
10. SUICIDE. In the event Employee commits suicide within two (2) years of
the execution of this Agreement, all payments provided for herein to be
paid to Employee's designated beneficiary or Employee's Estate shall be
forfeited.
11. BINDING EFFECT. This Agreement shall be binding upon Employee, his
heirs, personal representatives and assigns and upon Employer, its successors
and assigns.
8
<PAGE>
12. AMENDMENT OF AGREEMENT. This Agreement may not be altered, amended
or revoked except by a written agreement signed by Employer and Employee.
13. INTERPRETATION. Where appropriate in this Agreement, words used in the
singular shall include the plural and words used in the masculine shall include
the feminine.
14. INVALID PROVISION. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were not contained herein.
15. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of North Carolina.
IN TESTIMONY WHEREOF, Employer has caused this Agreement to be executed in
its corporate name by its Executive Vice President, attested by its Secretary
and its corporate seal to be hereto affixed, all by the authority of its Board
of Directors duly given, and Employee has hereunto set his hand and adopted as
his seal the typewritten word "SEAL" appearing beside his name, as of the day
and year first above written.
THE FIDELITY BANK
By: /s/ Haywood A. Lane, Jr.
------------------------
Executive Vice President
ATTEST:
/s/ Arlene H. Yates
- -------------------
Secretary
/s/ Billy T. Woodard (SEAL)
--------------------
Billy T. Woodard
9
<PAGE>
DESIGNATION OF BENEFICIARY
Pursuant to the terms of the Employee Death Benefit and
Post-Retirement Noncompetition and Consultation Agreement, dated as of November
10, 1986, between myself and Employer, I hereby designate the following
beneficiary(ies) to receive any payments which may be due under such Agreement
after my death.
Mary Farlowe Woodard
--------------------
Primary Beneficiary
---------------------
Secondary Beneficiary
---------------------
Secondary Beneficiary
This designation hereby revokes any prior designation which may have
been in effect.
Date: November 10, 1986
/s/ Billy T. Woodard
--------------------
Billy T. Woodard
/s/ Nancy H. Pore
- -----------------
Witness
Acknowledged by:
/s/ Arlene H. Yates
-------------------
Assistant Vice President
10
STATE OF NORTH CAROLINA
COUNTY OF WAKE
FIRST AMENDMENT OF EMPLOYEE DEATH
BENEFIT AND POST-RETIREMENT
NONCOMPETITION AND CONSULTATION AGREEMENT
THIS FIRST AMENDMENT OF EMPLOYEE DEATH BENEFIT AND POST-RETIREMENT
NONCOMPETITION AND CONSULTATION AGREEMENT ("First Amendment"), made and entered
into and effective as of the 29th day of January, 1996, by and between THE
FIDELITY BANK, a North Carolina banking corporation with its principal place of
business in Fuquay-Varina, Wake County, North Carolina (hereinafter referred to
as "Employer"); and BILLY T. WOODARD (hereinafter referred to as "Employee");
W I T N E S S E T H:
WHEREAS, in recognition of Employee's contribution to the growth,
management and development of Employer and in order to limit Employee's
availability to other employers or entities in competition with Employer
following Employee's retirement from employment with Employer, Employer and
Employee entered into that certain Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement, dated as of the 10th day of November,
1986, which is incorporated herein by reference (hereinafter referred to as the
"Agreement"), which Agreement was executed pursuant to a benefit plan adopted by
Employer as of November 10, 1986, for the senior executive officers of Employer;
and,
WHEREAS, Employer now desires to enter into Phase II of such benefit
plan, as part of which Employer desires to increase the benefits payable to
Employee, as set forth in the Agreement, by amending said Agreement pursuant to
Paragraph 12 thereof, such increased benefits to be effective as of the date of
this First Amendment.
NOW, THEREFORE, for and in consideration of the mutual promises and
undertakings herein set forth, the parties hereto do agree as follows:
<PAGE>
1. Paragraph 2 of the Agreement hereby is deleted in its entirety
and the following replacement Paragraph 2 is inserted in lieu thereof:
"2. DEATH BENEFITS. In the event Employee dies while employed by
Employer prior to Employee's Retirement Date, Employer will pay the
sum of Sixty-Six Thousand Nine Hundred Ninety-Seven and 44/100
Dollars ($66,997.44) per year, payable in monthly installments of
Five Thousand Five Hundred Eighty-Three and 12/100 Dollars
($5,583.12) for a period of ten (10) years, to such individual or
individuals as Employee shall have designated in writing filed with
Employer or, in the absence of such designation, to the Estate of
Employee. The first payment shall be made not later than two (2)
months following Employee's death. Payments hereunder shall be
payable each month without deductions and the recipient shall be
solely responsible for the payment of all income and other taxes
and assessments applicable on said payments."
2. The first paragraph of Paragraph 3 of the Agreement hereby is
deleted in its entirety and the following replacement first paragraph of
Paragraph 3 is inserted in lieu thereof:
"3. CONSULTATION PAYMENTS. In the event Employee retires from
employment on Employee's Retirement Date, Employee shall be paid by
Employer the sum of One Thousand Three Hundred Ninety-Five and
78/100 Dollars ($1,395.78) per month, beginning not later than two
(2) months after Employee's Retirement Date, for a period of ten
(10) years following Employee's Retirement Date or until death,
whichever first occurs. Such monthly payments shall be paid for and
in consideration of Employee's Consultation Services, as provided
herein; such sum to be payable to Employee whether or not Employee's
Consultation Services have been utilized by Employer. Consultation
Payments hereunder shall be payable each month without deductions
and Employee agrees to be solely responsible for the payment of all
income and other taxes out of said funds and all Social Security,
self-employment and any other taxes or assessments, if any,
applicable on said compensation."
3. The first paragraph of Paragraph 4 of the Agreement hereby is
deleted in its entirety and the following replacement first paragraph of
Paragraph 4 is inserted in lieu thereof:
2
<PAGE>
"4. NONCOMPETITION PAYMENTS. In the event Employee retires from
employment on Employee's Retirement Date, Employee shall be paid by
Employer the sum of Four Thousand One Hundred Eighty-Seven and
34/100 Dollars ($4,187.34) per month, beginning not later than two
(2) months after Employee's Retirement Date, for a period of ten
(10) years following Employee's Retirement Date or until death,
whichever first occurs. Such monthly payments shall be paid for and
in consideration of Employee's Covenant Not To Compete as provided
herein. Noncompetition Payments hereunder shall be payable each
month without deductions and Employee agrees to be solely
responsible for the payment of all income or other taxes or
assessments, if any, applicable on said payments.
" 4. The nineteenth line of the second paragraph of Paragraph 4 of
the Agreement hereby is amended to delete the following phrase: "...plus a term
of twelve months thereafter,..."
5. Paragraph 5 of the Agreement hereby is deleted in its
entirety and the following replacement Paragraph 5 is inserted in lieu
thereof:
"5. CONTINUATION OF PAYMENTS. Upon Employee's death during said ten
(10) year period of payments hereunder, the sum of Five Thousand
Five Hundred Eighty-Three and 12/100 Dollars ($5,583.12) per month
shall be paid to Employee's designated beneficiary or Employee's
Estate, as applicable, beginning the first calendar month following
the date of Employee's death and continuing thereafter until the
expiration of said ten (10) year period. Once the Consultation
and/or Noncompetition Payments are begun, whether paid by Employer
or as otherwise provided herein, the maximum payment period under
this Agreement is ten (10) years. Payments hereunder shall be
payable each month without deductions and the recipient shall be
solely responsible for all income and other taxes and assessments
applicable on said payments."
6. All of the remaining terms and conditions of the Agreement which
are not expressly amended by this First Amendment shall remain in full force and
effect.
IN TESTIMONY WHEREOF, Employer has caused this First Amendment to be
executed in its corporate name by its Executive
3
<PAGE>
Vice President, attested by its Secretary/Assistant Secretary and its corporate
seal to be affixed hereto, all within the authority duly given by its Board of
Directors, and Employee has hereunto set his hand and adopted as his seal the
typewritten word "SEAL" appearing beside his name, as of the day and year first
above written.
THE FIDELITY BANK
By: /s/ Haywood A. Lane, Jr.
------------------------
Executive Vice President
Attest:
/s/ Nancy H. Pore
- -----------------------------
Secretary
/s/ Billy T. Woodard (SEAL)
---------------------------------
Billy T. Woodard
4
<PAGE>
DESIGNATION OF BENEFICIARY
Pursuant to the terms of the Employee Death Benefit and
Post-Retirement Noncompetition and Consultation Agreement, dated as of November
10, 1986, as amended effective January 29, 1996, between myself and Employer, I
hereby designate the following beneficiary(ies) to receive any payments which
may be due under such Agreement after my death.
Mary Farlowe Woodard
-----------------------------
Primary Beneficiary
------------------------------
Secondary Beneficiary
------------------------------
Secondary Beneficiary
------------------------------
Secondary Beneficiary
This designation hereby revokes any prior designation which may have
been in effect.
Date: January 29, 1996
----------------------------
/s/ Billy T. Woodard
---------------------------------
Billy T. Woodard
/s/ Betty K. Hedgepath
- -----------------------
Witness
Acknowledged by:
/s/ Amy L. Blalock
------------------------------
Title: Asst. Vice President
------------------------
Date: January 29, 1996
------------------------
5
EMPLOYEE DEATH BENEFIT AND POST-RETIREMENT NONCOMPETITION
AND CONSULTATION AGREEMENT
THIS AGREEMENT, made and entered into and effective as of the 10th
day of November, 1986, by and between THE FIDELITY BANK, a North Carolina
banking corporation with its principal office in Fuquay-Varina, Wake County,
North Carolina (hereinafter referred to as "Employer"); and HAYWOOD A. LANE, JR.
(hereinafter referred to as "Employee");
W I T N E S S E T H:
WHEREAS, Employee has provided long-time guidance, leadership and
direction in the growth, management and development of Employer, during which
time Employee has learned trade secrets, confidential procedures and
information, and technical and sensitive plans of Employer; and,
WHEREAS, Employer values the efforts, abilities and accomplishments
of Employee as an important member of management and desires to continue to have
Employee's experience and knowledge available to it following Employee's
retirement from employment with Employer; and,
WHEREAS, Employer desires to limit Employee's availability to other
employers or entities which are in competition with Employer following
Employee's retirement from employment with Employer; and,
WHEREAS, Employer, as part of a plan adopted for a class of
employees of Employer, has offered to Employee a noncompetition arrangement
together with a limited, when-called, independent contractor consultation
service arrangement and a death benefit arrangement for Employee's designated
beneficiary or Estate, as applicable, and the parties hereto have reached an
agreement concerning the independent contractor consulting relationship, the
noncompetition arrangement, the death benefit arrangement and other matters
contained herein and desire to set forth the terms and conditions thereof.
<PAGE>
NOW, THEREFORE, for and in consideration of the mutual promises and
undertakings herein set forth, the parties hereto do agree as follows:
1. RETIREMENT DATE. The term "Retirement Date," as used herein,
shall be defined for purposes of this Agreement as the last day of the calendar
month in which Employee attains the age of sixty-five (65) or as such date prior
or subsequent thereto as shall be agreed upon between Employer and Employee.
Employer and Employee hereby acknowledge that compulsory retirement
before attaining age seventy (70) is not enforceable except as provided by law.
Employer and Employee further agree that no provision herein shall be construed
as requiring Employee's retirement before attaining age seventy (70) except as
may now or hereafter be permitted by law; however, Employee acknowledges
Employer's continuing policy, in an effort to provide opportunities and
continuity, to encourage retirement at age sixty-five (65) and to require
retirement at age sixty-five (65) where permissible by law.
2. DEATH BENEFITS. In the event Employee dies while employed by
Employer prior to Employee's Retirement Date, Employer will pay the sum of
Sixteen Thousand Six Hundred Five and No/100 Dollars ($16,605.00) per year,
payable in monthly installments of One Thousand Three Hundred Eighty-Three and
75/100 Dollars ($1,383.75), for a period of ten (10) years, to such individual
or individuals as Employee shall have designated in writing filed with Employer
or, in the absence of such designation, to the Estate of Employee. The first
payment shall be made not later than two (2) months following Employee's death.
Payments hereunder shall be payable each month without deductions and the
recipient shall be solely responsible for the payment of all income and other
taxes and assessments applicable on said payments.
3. CONSULTATION PAYMENTS. In the event Employee retires from
employment on Employee's Retirement Date, Employee shall be paid by Employer the
sum of Three Hundred Forty-Five and
2
<PAGE>
94/100 Dollars ($345.94) per month, beginning not later than two (2) months
after Employee's Retirement Date, for a period of ten (10) years following
Employee's Retirement Date or until death, whichever first occurs. Such monthly
payments shall be paid for and in consideration of Employee's Consultation
Services, as provided herein; such sum to be payable to Employee whether or not
Employee's Consultation Services have been utilized by Employer. Consultation
Payments hereunder shall be payable each month without deductions and Employee
agrees to be solely responsible for the payment of all income and other taxes
out of said funds and all Social Security, self-employment and any other taxes
or assessments, if any, applicable on said compensation. For and in
consideration of said monthly Consultation Payments to Employee, Employee will
provide support, sponsorship, advisory and Consultation Services as an
independent contractor to Employer, as and when Employer may request, which
services may be provided with respect to all phases of Employer's business and
particularly those phases in which Employee has particular expertise and
knowledge. Employee's services shall be limited to those of an independent
consultant, shall not be on a day-to-day regularly scheduled operational basis
and shall be provided only when Employee is reasonably available and willing.
Employer shall make available to Employee such office space and equipment as are
reasonably necessary for Employee to carry out the obligations under this
Agreement and shall reimburse Employee for any extraordinary expenses incurred
in carrying out the obligations hereunder. Effective as of Employee's Retirement
Date, Employee and Employer agree that Employee shall be, under the terms of
this Agreement, an independent contractor, and Employee agrees that his rights
and privileges and his obligations are as provided in this Agreement as to
matters covered herein.
If Employee should die during said ten (10) year period, payments
under this Paragraph shall terminate. Future payments, if
3
<PAGE>
any, to Employee's designated beneficiary or Employee's Estate shall be made in
accordance with the provisions of Paragraph 5 of this Agreement.
4. NONCOMPETITION PAYMENTS. In the event Employee retires from employment on
Employee's Retirement Date, Employee shall be paid by Employer the sum of One
Thousand Thirty-Seven and 81/100 Dollars ($1,037.81) per month, beginning not
later than two (2) months after Employee's Retirement Date, for a period of ten
(10) years following Employee's Retirement Date or until death, whichever first
occurs. Such monthly payments shall be paid for and in consideration of
Employee's Covenant Not To Compete as provided herein. The Noncompetition
Payments hereunder shall be payable each month without deductions and Employee
agrees to be solely responsible for the payment of all income or other taxes or
assessments, if any, applicable on said payments. For and in consideration of
said monthly Noncompetition Payments to Employee, Employee agrees that he will
not become an officer or employee of, provide any consultation to nor
participate in any manner with any other entity of any type or description
involved in any major element of business which Employer is performing at
Employee's Retirement Date nor will Employee perform or seek to perform any
consultation or other type of work or service with any other firm, person or
entity, directly or indirectly, in any such business which competes with
Employer, whether done directly or indirectly, in ownership, consultation,
employment or otherwise. Employee agrees not to reveal to outside sources,
without the consent of Employer, any matters, the revealing of which could, in
any manner, adversely affect or disclose Employer's business or any part
thereof, unless required by law to do so. This Covenant Not To Compete by
Employee is limited to the geographic area of North Carolina, shall exist for
and during the term of all payments to be made under this Covenant Not To
Compete, whether made directly by Employer or as otherwise provided herein, plus
a term of twelve (12) months thereafter, and
4
<PAGE>
shall not prevent Employee from purchasing or acquiring, as an investor only, a
financial interest of less than five percent (5%) in a business or other entity
which is in competition with Employer.
Employee acknowledges that the remedy at law for breach of
Employee's Covenant Not To Compete will be inadequate and that Employer shall be
entitled to injunctive relief as to any violation thereof; however, nothing
herein shall be construed as prohibiting Employer from pursuing any other
remedies available to it, in addition to injunctive relief, whether at law or in
equity, including the recovery of damages. In the event Employee shall breach
any condition of Employee's Covenant Not To Compete, then Employee's right to
any of the payments becoming due under Paragraphs 3 and 4 of this Agreement
after the date of such breach shall be forever forfeited and Employee's
designated beneficiary's or Employee's Estate's right to any payments under this
Agreement shall likewise be forever forfeited. This forfeiture is in addition to
and not in lieu of any of the above-described remedies of Employer and shall be
in addition to any injunctive or other relief as described herein. Employee
further acknowledges that any breach of Employee's Covenant Not To Compete shall
be deemed a material breach of this Agreement.
If Employee should die during said ten (10) year period, payments
under this Paragraph shall terminate. Future payments, if any, to Employee's
designated beneficiary or Employee's Estate shall be made in accordance with the
provisions of Paragraph 5 of this Agreement.
5. CONTINUATION OF PAYMENTS. Upon Employee's death during said ten
(10) year period of payments hereunder, the sum of One Thousand Three Hundred
Eighty-Three and 75/100 Dollars ($1,383.75) per month shall be paid to
Employee's designated beneficiary or Employee's Estate, as applicable, beginning
the first calendar month following the date of Employee's death and continuing
thereafter until the expiration of said ten (10) year
5
<PAGE>
period. Once the Consultation and/or Noncompetition Payments are begun, whether
paid by Employer or as otherwise provided herein, the maximum payment period
under this Agreement is ten (10) years. Payments hereunder shall be payable each
month without deductions and the recipient shall be solely responsible for all
income and other taxes and assessments applicable on said payments.
6. FORFEITURE OF BENEFITS. This Agreement is subject to termination
by Employer at any time and without stated cause. ln the event Employer shall
terminate this Agreement, Employee shall forfeit all rights to receive any
payment provided for herein. Likewise, in the event Employee does not retire
from employment on Employee's Retirement Date or Employee's employment is
terminated, either voluntarily or involuntarily, for reasons other than death or
retirement, Employee shall forfeit all rights to receive any payment provided
for herein. Employee acknowledges and agrees that any benefit provided for
herein is merely a contractual benefit and that nothing contained herein shall
be construed as conferring upon Employee any vested benefits or any vested
rights to receive any payment provided for herein and that any and all payments
provided for herein shall be subject to a substantial risk of forfeiture until
such time as said payments are actually made by Employer. Employee also
acknowledges that the contractual benefit provided for herein is specifically
conditioned upon Employee's retirement from employment on Employee's Retirement
Date.
7. CLAIMS PROCEDURE. If any benefits become payable under the
Agreement, Employee (or Employee's beneficiary in the case of Employee's death)
shall file a claim for benefits by notifying Employer orally or in writing. If
the claim is wholly or partially denied, Employer shall provide a written notice
within ninety (90) days specifying the reasons for the denial, any additional
material or information necessary to receive benefits, and the steps to be taken
if a review of the denial is desired.
6
<PAGE>
If a claim is denied and a review is desired, Employee (or
Employee's beneficiary in the case of Employee's death) shall notify Employer in
writing within sixty (60) days. In requesting a review, Employee or Employee's
beneficiary may submit any written issues and comments he or she feels are
appropriate. Employer shall then review the claim and provide a written decision
within sixty (60) days. This decision shall state the specific reasons for the
decision and shall include references to specific provisions on which the
decision is based.
8. ASSIGNMENT OF RIGHTS. Neither Employee nor any designated
beneficiary shall have any right to sell, assign, transfer or otherwise convey
the right to receive any payment hereunder.
9. PAYMENTS AND FUNDING. Any payments under this Agreement shall be
independent of, and in addition to, those under any other Plan, program or
agreement which may be in effect between the parties hereto, or any other
compensation payable to Employee or Employee's designee by Employer. This
Agreement shall not be construed as a contract of employment nor does it
restrict the right of Employer to discharge Employee at will or the right of
Employee to terminate employment at will.
Employer may, in its sole discretion, purchase an insurance policy
on the life of Employee to fund or assist in the funding of this Agreement.
Employee agrees to promptly supply to Employer and its selected or prospective
insurance carrier, upon request, any and all information requested, in order to
enable the insurance carrier to evaluate the risks involved in providing the
insurance requested by Employer. Any and all rights to any and all benefits
under such insurance policy on the life of Employee shall be solely the property
of Employer and all proceeds of such policy shall be payable by the insurer
solely to Employer, as owner of such policy. Employee specifically waives any
rights in any insurance policy on Employee's life owned by Employer pursuant to
this Agreement. Such policy shall not serve in any way as security
7
<PAGE>
to Employee for Employer's performance under this Agreement. The rights accruing
to Employee or any designee hereunder shall be solely those of an unsecured
creditor of Employer and shall be subordinate to the rights of the depositors of
Employer.
Employer may, in its sole discretion, discharge its liabilities
under this Agreement to Employee, Employee's designated beneficiary or
Employee's Estate at any time by the purchase of an annuity from a reputable
insurance or similar company authorized to do, and doing, business in North
Carolina and the assignment of the rights under said annuity to the benefit of
Employee, Employee's designated beneficiary or Employee's Estate. If this option
is exercised by Employer, all rights accruing to Employee, Employee's designated
beneficiary or Employee's Estate hereunder shall be governed solely by the
annuity contract and any election made under said annuity contract; and Employer
shall be fully discharged from any further liabilities to Employee, Employee's
designated beneficiary or Employee's Estate under this Agreement.
Employer may, in its sole discretion, discharge its liabilities
under this Agreement to Employee, Employee's designated beneficiary or
Employee's Estate at any time by determining the present value of the payments
due hereunder, said amount to be determined by the use of the U.S. Government
bond rate for the nearest year applicable to the time of the payments due
hereunder for the present value computation and once determined, by payment of
said amount in a lump sum to Employee, Employee's designated beneficiary or
Employee's Estate, as applicable.
10. SUICIDE. In the event Employee commits suicide within two (2)
years of the execution of this Agreement, all payments provided for herein to be
paid to Employee's designated beneficiary or Employee's Estate shall be
forfeited.
11. BINDING EFFECT. This Agreement shall be binding upon Employee, his
heirs, personal representatives and assigns and upon Employer, its successors
and assigns.
8
<PAGE>
12. AMENDMENT OF AGREEMENT. This Agreement may not be altered, amended
or revoked except by a written agreement signed by Employer and Employee.
13. INTERPRETATION. Where appropriate in this Agreement, words
used in the singular shall include the plural and words used in the masculine
shall include the feminine.
14. INVALID PROVISION. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were not contained herein.
15. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of North Carolina.
IN TESTIMONY WHEREOF, Employer has caused this Agreement to be
executed in its corporate name by its President, attested by its Secretary and
its corporate seal to be hereto affixed, all by the authority of its Board of
Directors duly given, and Employee has hereunto set his hand and adopted as his
seal the typewritten word "SEAL" appearing beside his name, as of the day and
year first above written.
THE FIDELITY BANK
By: /s/ Billy T. Woodard
--------------------
President
ATTEST:
/s/ Arlene H. Yates
- -------------------
Secretary
/s/Haywood A. Lane, Jr. (SEAL)
-----------------------
Haywood A. Lane, Jr.
9
<PAGE>
DESIGNATION OF BENEFICIARY
Pursuant to the terms of the Employee Death Benefit and
Post-Retirement Noncompetition and Consultation Agreement, dated as of November
10, 1986, between myself and Employer, I hereby designate the following
beneficiary(ies) to receive any payments which may be due under such Agreement
after my death.
Janet C. Lane
----------------------------
Primary Beneficiary
------------------------------
Secondary Beneficiary
------------------------------
Secondary Beneficiary
This designation hereby revokes any prior designation which may have
been in effect.
Date: November 10, 1986
/s/ Haywood A. Lane, Jr.
------------------------
Haywood A. Lane, Jr.
/s/ Nancy H. Pore
- -----------------
Witness
Acknowledged by:
/s/ Arlene H. Yates
-------------------
Assistant Vice President
10
STATE OF NORTH CAROLINA
COUNTY OF WAKE
FIRST AMENDMENT OF EMPLOYEE DEATH
BENEFIT AND POST-RETIREMENT
NONCOMPETITION AND CONSULTATION AGREEMENT
THIS FIRST AMENDMENT OF EMPLOYEE DEATH BENEFIT AND POST-RETIREMENT
NONCOMPETITION AND CONSULTATION AGREEMENT ("First Amendment"), made and entered
into and effective as of the 29th day of January, 1996, by and between THE
FIDELITY BANK, a North Carolina banking corporation with its principal place of
business in Fuquay-Varina, Wake County, North Carolina (hereinafter referred to
as "Employer"); and HAYWOOD A. LANE, JR. (hereinafter referred to as
"Employee");
W I T N E S S E T H:
WHEREAS, in recognition of Employee's contribution to the growth,
management and development of Employer and in order to limit Employee's
availability to other employers or entities in competition with Employer
following Employee's retirement from employment with Employer, Employer and
Employee entered into that certain Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement, dated as of the 10th day of November,
1986, which is incorporated herein by reference (hereinafter referred to as the
"Agreement"), which Agreement was executed pursuant to a benefit plan adopted by
Employer as of November 10, 1986, for the senior executives of Employer; and,
WHEREAS, Employer now desires to enter into Phase II of such benefit
plan, as part of which Employer desires to increase the benefits payable to
Employee, as set forth in the Agreement, by amending said Agreement pursuant to
Paragraph 12 thereof, such increased benefits to be effective as of the date of
this First Amendment.
NOW, THEREFORE, for and in consideration of the mutual promises and
undertakings herein set forth, the parties hereto do agree as follows:
<PAGE>
1. Paragraph 2 of the Agreement hereby is deleted in its entirety
and the following replacement Paragraph 2 is inserted in lieu thereof:
"2. DEATH BENEFITS. In the event Employee dies while employed by
Employer prior to Employee's Retirement Date, Employer will pay the
sum of Forty-Nine Thousand Seven Hundred Fourteen and 44/100 Dollars
($49,714.44) per year, payable in monthly installments of Four
Thousand One Hundred Forty-Two and 87/100 Dollars ($4,142.87) for a
period of ten (10) years, to such individual or individuals as
Employee shall have designated in writing filed with Employer or, in
the absence of such designation, to the Estate of Employee. The
first payment shall be made not later than two (2) months following
Employee's death. Payments hereunder shall be payable each month
without deductions and the recipient shall be solely responsible for
the payment of all income and other taxes and assessments applicable
on said payments."
2. The first paragraph of Paragraph 3 of the Agreement hereby is
deleted in its entirety and the following replacement first paragraph of
Paragraph 3 is inserted in lieu thereof:
"3. CONSULTATION PAYMENTS. In the event Employee retires from
employment on Employee's Retirement Date, Employee shall be paid by
Employer the sum of One Thousand Thirty-Five and 72/100 Dollars
($1,035.72) per month, beginning not later than two (2) months after
Employee's Retirement Date, for a period of ten (10) years following
Employee's Retirement Date or until death, whichever first occurs.
Such monthly payments shall be paid for and in consideration of
Employee's Consultation Services, as provided herein; such sum to be
payable to Employee whether or not Employee's Consultation Services
have been utilized by Employer. Consultation Payments hereunder
shall be payable each month without deductions and Employee agrees
to be solely responsible for the payment of all income and other
taxes out of said funds and all Social Security, self-employment and
any other taxes or assessments, if any, applicable on said
compensation."
3. The first paragraph of Paragraph 4 of the Agreement hereby is
deleted in its entirety and the following replacement first paragraph of
Paragraph 4 is inserted in lieu thereof:
2
<PAGE>
"4. NONCOMPETITION PAYMENTS. In the event Employee retires from
employment on Employee's Retirement Date, Employee shall be paid by
Employer the sum of Three Thousand One Hundred Seven and 15/100
Dollars ($3,107.15) per month, beginning not later than two (2)
months after Employee's Retirement Date, for a period of ten (10)
years following Employee's Retirement Date or until death, whichever
first occurs. Such monthly payments shall be paid for and in
consideration of Employee's Covenant Not To Compete as provided
herein. Noncompetition Payments hereunder shall be payable each
month without deductions and Employee agrees to be solely
responsible for the payment of all income or other taxes or
assessments, if any, applicable on said payments.
" 4. The nineteenth line of the second paragraph of Paragraph 4 of
the Agreement hereby is amended to delete the following phrase: "...plus a term
of twelve months thereafter,...
" 5. Paragraph 5 of the Agreement hereby is deleted in its entirety
and the following replacement Paragraph 5 is inserted in lieu thereof:
"5. CONTINUATION OF PAYMENTS. Upon Employee's death during said ten
(10) year period of payments hereunder, the sum of Four Thousand
One Hundred Forty-Two and 87/100 Dollars ($4,142.87) per month shall
be paid to Employee's designated beneficiary or Employee's Estate,
as applicable, beginning the first calendar month following the date
of Employee's death and continuing thereafter until the expiration
of said ten (10) year period. Once the Consultation and/or
Noncompetition Payments are begun, whether paid by Employer or as
otherwise provided herein, the maximum payment period under this
Agreement is ten (10) years. Payments hereunder shall be payable
each month without deductions and the recipient shall be solely
responsible for all income and other taxes and assessments
applicable on said payments."
6. All of the remaining terms and conditions of the Agreement which
are not expressly amended by this First Amendment shall remain in full force and
effect.
IN TESTIMONY WHEREOF, Employer has caused this First Amendment to be
executed in its corporate name by its President,
3
<PAGE>
attested by its Secretary/Assistant Secretary and its corporate seal to be
affixed hereto, all within the authority duly given by its Board of Directors,
and Employee has hereunto set his hand and adopted as his seal the typewritten
word "SEAL" appearing beside his name, as of the day and year first above
written.
THE FIDELITY BANK
By: /s/ Billy T. Woodard
--------------------
President
Attest:
/s/ Nancy H. Pore
- -----------------------------
Secretary
/s/ Haywood A. Lane, Jr. (SEAL)
------------------------
Haywood A. Lane, Jr.
4
<PAGE>
DESIGNATION OF BENEFICIARY
Pursuant to the terms of the Employee Death Benefit and
Post-Retirement Noncompetition and Consultation Agreement, dated as of November
10, 1986, as amended effective as of January 29, 1996, between myself and
Employer, I hereby designate the following beneficiary(ies) to receive any
payments which may be due under such Agreement after my death.
Nancy Lee Marcom
-----------------------------
Primary Beneficiary
Haywood A. Lane III
------------------------------
Primary Beneficiary
------------------------------
Secondary Beneficiary
------------------------------
Secondary Beneficiary
This designation hereby revokes any prior designation which may have
been in effect.
Date: January 29, 1996
-------------------
/s/ Haywood A. Lane, Jr.
-------------------------
Haywood A. Lane, Jr.
/s/ Betty K. Hedgepath
- ----------------------
Witness
Acknowledged by:
/s/ Amy L. Blalock
-------------------------------
Title: Asst. Vice President
-------------------------
Date: January 29, 1996
-------------------------
5
FIDELITY BANCORP, INC.
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
<S> <C>
For the
six months
ended June 30
--------------
1998 1997 12/31/97 12/31/96 12/31/95
------------- ------------- ------------- ------------- -------------
NET INCOME BEFORE TAXES 6,795,964.00 5,816,750.00 11,969,459.00 9,790,311.00 9,261,231.00
============= ============= ============= ============= =============
FIXED CHARGES:
INTEREST EXPENSE ON DEPOSITS 9,494,947.00 9,176,481.00 18,692,963.00 15,957,942.00 12,335,539.00
INTEREST EXPENSE ON STB 191,747.00 146,186.00 323,548.00 287,329.00 280,473.00
------------- ------------- ------------- ------------- -------------
TOTAL 9,686,694.00 9,322,667.00 19,016,511.00 16,245,271.00 12,616,012.00
============= ============= ============= ============= =============
NET INCOME BEFORE TAXES AND FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS 16,482,658.00 15,139,417.00 30,985,970.00 26,035,582.00 21,877,243.00
============= ============= ============= ============= =============
EARNINGS TO FIXED CHARGES:
EXCLUDING INTEREST ON DEPOSITS 36.44 40.79 37.99 35.07 34.02
INCLUDING INTEREST ON DEPOSITS 1.70 1.62 1.63 1.60 1.73
<CAPTION>
12/31/94 12/31/93
------------- -------------
NET INCOME BEFORE TAXES 7,961,063.00 6,042,128.00
============= =============
FIXED CHARGES:
INTEREST EXPENSE ON DEPOSITS 8,150,960.00 7,435,535.00
INTEREST EXPENSE ON STB 285,960.00 163,076.00
------------- -------------
TOTAL 8,436,920.00 7,598,611.00
============= =============
NET INCOME BEFORE TAXES AND FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS 16,397,983.00 13,640,739.00
============= =============
EARNINGS TO FIXED CHARGES:
EXCLUDING INTEREST ON DEPOSITS 28.84 38.05
INCLUDING INTEREST ON DEPOSITS 1.94 1.80
</TABLE>
August 25, 1998
Securities and Exchange
Commission 450 5th Street, N.W.
Washington, D.C. 20549
Commissioners:
We have read the statements made by Fidelity BancShares (N.C.), Inc. (copy
attached), which we understand will be filed with the Commission, pursuant to
Regulation S-K Item 304 as part of the Company's Form S-1 registering Capital
Securities of FIDBANK Capital Trust I. We agree with the statements concerning
our Firm in such Form S-1.
Very truly yours,
/S/ PricewaterhouseCoopers LLP
List of Subsidiaries
The Fidelity Bank, a North Carolina State-chartered bank.
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Fidelity BancShares (N.C.), Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Raleigh, North Carolina
August 25, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation in this registration statement of Fidelity
BancShares (N.C.), Inc. and FIDBANK Capital Trust I on Form S-1 of our report
dated February 28, 1997 on our audits of the consolidated financial statements
of Fidelity BancShares (N.C.), Inc. as of December 31, 1996, and for each of the
years in the two year period ended December 31, 1996. We also consent to the
reference to our firm under the captions "Experts" and "Change in Accountants".
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
August 25, 1998
- --------------------------------------------------------------------------------
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)
---------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FIDELITY BANCSHARES (N.C.), INC. FIDBANK CAPITAL TRUST I
(Exact name of obligor as (Exact name of Co-Registrant as
specified in its charter) specified in its charter)
DELAWARE 56-1586543 DELAWARE APPLIED FOR
(State or other jurisdiction of (I.R.S. employer (State or other jurisdiction of (I.R.S. employer
Incorporation or organization) Identification no.) Incorporation or organization) Identification no.)
C/O FIDELITY BANCSHARES (N.C.), INC.
100 SOUTH MAIN STREET 100 SOUTH MAIN STREET
FUQUAY-VARINA, NORTH CAROLINA 27526 FUQUAY-VARINA, NORTH CAROLINA 27526
(Address, including zip code (Address, including zip code
of principal executive offices) of principal executive offices)
</TABLE>
CAPITAL SECURITIES OF FIDBANK CAPITAL TRUST I
JUNIOR SUBORDINATED DEBENTURES DUE ________, 2028 OF
FIDELITY BANCSHARES (N.C.), INC.
GUARANTEE OF CAPITAL SECURITIES BY FIDELITY BANCSHARES (N.C.), INC.
(Title of the indenture securities)
<PAGE>
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.
NAME ADDRESS
---- -------
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New York State Banking Department Albany, NY
(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 7, 1990, Certificate
of Amendment of the Organization Certificate of
Bankers Trust Company dated June 21, 1995 -
Incorporated herein by reference to Exhibit 1
filed with Form T-1 Statement, Registration No.
33-65171, Certificate of Amendment of the
Organization Certificate of Bankers Trust Company
dated March 20, 1996, incorporate by referenced
to Exhibit 1 filed with Form T-1 Statement,
Registration No. 333-25843 and Certificate of
Amendment of the Organization Certificate of
Bankers Trust Company dated June 19, 1997, copy
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 November 18, 1997. Copy attached.
-2-
<PAGE>
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 March 31, 1998. Copy
attached.
EXHIBIT 8 - Not Applicable.
EXHIBIT 9 - Not Applicable.
-3-
<PAGE>
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 the 16th day
of July, 1998.
BANKERS TRUST COMPANY
By: /s/ Sandra J. Shaffer
--------------------------
Sandra J. Shaffer
Assistant Vice President
-4-
<PAGE>
Exhibit 1
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 June 19, 1997, providing for an increase in
authorized capital stock from $1,601,666,670 consisting of 100,166,667 shares
with a par value of $10 each designated as Common Stock and 600 shares with a
par value of $1,000,000 each designated as Series Preferred Stock to
$2,001,666,670 consisting of 100,166,667 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.
WITNESS, MY HAND AND OFFICIAL SEAL OF THE BANKING DEPARTMENT AT THE
CITY OF NEW YORK, THIS 27TH DAY OF JUNE IN THE YEAR OF OUR LORD ONE THOUSAND
NINE HUNDRED AND NINETY-SEVEN.
/s/ Manuel Kursky
------------------------------
DEPUTY SUPERINTENDENT OF BANKS
<PAGE>
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 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 One Billion, Six Hundred and One Million, Six Hundred Sixty-Six
Thousand, Six Hundred Seventy Dollars ($1,601,666,670), divided into
One Hundred Million, One Hundred Sixty-Six Thousand, Six Hundred
Sixty-Seven (100,166,667) shares with a par value of $10 each
designated as Common Stock and 600 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 Two Billion One Million, Six Hundred Sixty-Six Thousand, Six
Hundred Seventy Dollars ($2,001,666,670), divided into One Hundred
Million, One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven
(100,166,667) 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."
<PAGE>
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
19th day of June, 1997.
/s/ James T. Byrne, Jr.
----------------------
James T. Byrne, Jr.
Managing Director
/s/ Lea Lahtinen
----------------------
Lea Lahtinen
Assistant Secretary
State of New York )
) ss:
County of New York )
Lea Lahtinen, being fully sworn, deposes and says that she is 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.
/s/ Lea Lahtinen
----------------------
Lea Lahtinen
Sworn to before me this 19th day
of June, 1997.
/s/ 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>
Exhibit 4
BY-LAWS
NOVEMBER 18, 1997
BANKERS TRUST COMPANY
NEW YORK
<PAGE>
BY-LAWS
OF
BANKERS TRUST COMPANY
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. The annual meeting of the stockholders of this Company shall be held
at the office of the Company in the Borough of Manhattan, City of New York, on
the third Tuesday in January of each year, for the election of directors and
such other business as may properly come before said meeting.
SECTION 2. Special meetings of stockholders other than those regulated by
statute may be called at any time by a majority of the directors. It shall be
the duty of the Chairman of the Board, the Chief Executive Officer or the
President to call such meetings whenever requested in writing to do so by
stockholders owning a majority of the capital stock.
SECTION 3. At all meetings of stockholders, there shall be present, either in
person or by proxy, stockholders owning a majority of the capital stock of the
Company, in order to constitute a quorum, except at special elections of
directors, as provided by law, but less than a quorum shall have power to
adjourn any meeting.
SECTION 4. The Chairman of the Board or, in his absence, the Chief Executive
Officer or, in his absence, the President or, in their absence, the senior
officer present, shall preside at meetings of the stockholders and shall direct
the proceedings and the order of business. The Secretary shall act as secretary
of such meetings and record the proceedings.
ARTICLE II
DIRECTORS
SECTION 1. The affairs of the Company shall be managed and its corporate powers
exercised by a Board of Directors consisting of such number of directors, but
not less than ten nor more than twenty-five, as may from time to time be fixed
by resolution adopted by a majority of the directors then in office, or by the
stockholders. In the event of any increase in the number of directors,
additional directors may be elected within the limitations so fixed, either by
the stockholders or within the limitations imposed by law, by a majority of
directors then in office. One-third of the number of directors, as fixed from
time to time, shall constitute a quorum. Any one or more members of the Board of
Directors or any Committee thereof may participate in a meeting of the Board of
Directors or 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.
All directors hereafter elected shall hold office until the next annual meeting
of the stockholders and until their successors are elected and have qualified.
No person who
<PAGE>
shall have attained age 72 shall be eligible to be elected or re-elected a
director. Such director may, however, remain a director of the Company until the
next annual meeting of the stockholders of Bankers Trust New York Corporation
(the Company's parent) so that such director's retirement will coincide with the
retirement date from Bankers Trust New York Corporation.
No Officer-Director who shall have attained age 65, or earlier relinquishes his
responsibilities and title, shall be eligible to serve as a director.
SECTION 2. Vacancies not exceeding one-third of the whole number of the Board of
Directors may be filled by the affirmative vote of a majority of the directors
then in office, and the directors so elected shall hold office for the balance
of the unexpired term.
SECTION 3. The Chairman of the Board shall preside at meetings of the Board of
Directors. In his absence, the Chief Executive Officer or, in his absence, such
other director as the Board of Directors from time to time may designate shall
preside at such meetings.
SECTION 4. The Board of Directors may adopt such Rules and Regulations for the
conduct of its meetings and the management of the affairs of the Company as it
may deem proper, not inconsistent with the laws of the State of New York, or
these By-Laws, and all officers and employees shall strictly adhere to, and be
bound by, such Rules and Regulations.
SECTION 5. Regular meetings of the Board of Directors shall be held from time to
time on the third Tuesday of the month. If the day appointed for holding such
regular meetings shall be a legal holiday, the regular meeting to be held on
such day shall be held on the next business day thereafter. Special meetings of
the Board of Directors may be called upon at least two day's notice whenever it
may be deemed proper by the Chairman of the Board or, the Chief Executive
Officer or, in their absence, by such other director as the Board of Directors
may have designated pursuant to Section 3 of this Article, and shall be called
upon like notice whenever any three of the directors so request in writing.
SECTION 6. The compensation of directors as such or as members of committees
shall be fixed from time to time by resolution of the Board of Directors.
<PAGE>
ARTICLE III
COMMITTEES
SECTION 1. There shall be an Executive Committee of the Board consisting of not
less than five directors who shall be appointed annually by the Board of
Directors. The Chairman of the Board shall preside at meetings of the Executive
Committee. In his absence, the Chief Executive Officer or, in his absence, such
other member of the Committee as the Committee from time to time may designate
shall preside at such meetings.
The Executive Committee shall possess and exercise to the extent permitted by
law all of the powers of the Board of Directors, except when the latter is in
session, and shall keep minutes of its proceedings, which shall be presented to
the Board of Directors at its next subsequent meeting. All acts done and powers
and authority conferred by the Executive Committee from time to time shall be
and be deemed to be, and may be certified as being, the act and under the
authority of the Board of Directors.
A majority of the Committee shall constitute a quorum, but the Committee may act
only by the concurrent vote of not less than one-third of its members, at least
one of whom must be a director other than an officer. Any one or more directors,
even though not members of the Executive Committee, may attend any meeting of
the Committee, and the member or members of the Committee present, even though
less than a quorum, may designate any one or more of such directors as a
substitute or substitutes for any absent member or members of the Committee, and
each such substitute or substitutes shall be counted for quorum, voting, and all
other purposes as a member or members of the Committee.
SECTION 2. There shall be an Audit Committee appointed annually by resolution
adopted by a majority of the entire Board of Directors which shall consist of
such number of directors, who are not also officers of the Company, as may from
time to time be fixed by resolution adopted by the Board of Directors. The
Chairman shall be designated by the Board of Directors, who shall also from time
to time fix a quorum for meetings of the Committee. Such Committee shall conduct
the annual directors' examinations of the Company as required by the New York
State Banking Law; shall review the reports of all examinations made of the
Company by public authorities and report thereon to the Board of Directors; and
shall report to the Board of Directors such other matters as it deems advisable
with respect to the Company, its various departments and the conduct of its
operations.
In the performance of its duties, the Audit Committee may employ or retain, from
time to time, expert assistants, independent of the officers or personnel of the
Company, to make studies of the Company's assets and liabilities as the
Committee may request and to make an examination of the accounting and auditing
methods of the Company and its system of internal protective controls to the
extent considered necessary or advisable in order to determine that the
operations of the Company, including its fiduciary departments, are being
audited by the General Auditor in such a manner as to provide prudent and
adequate protection. The Committee also may direct the General Auditor to make
such investigation as it deems necessary or advisable with respect to the
Company, its various departments and the conduct of its operations. The
Committee shall hold regular quarterly meetings and during the intervals thereof
shall meet at other times on call of the Chairman.
<PAGE>
SECTION 3. The Board of Directors shall have the power to appoint any other
Committees as may seem necessary, and from time to time to suspend or continue
the powers and duties of such Committees. Each Committee appointed pursuant to
this Article shall serve at the pleasure of the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 1. The Board of Directors shall elect from among their number a Chairman
of the Board and a Chief Executive Officer; and shall also elect a President,
and may also elect a Senior Vice Chairman, one or more Vice Chairmen, one or
more Executive Vice Presidents, one or more Senior Managing Directors, one or
more Managing Directors, one or more Senior Vice Presidents, one or more
Principals, one or more Vice Presidents, one or more General Managers, a
Secretary, a Controller, a Treasurer, a General Counsel, one or more Associate
General Counsels, a General Auditor, a General Credit Auditor, and one or more
Deputy Auditors, 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 2. The Board of Directors shall designate the Chief Executive Officer of
the Company who may also hold the additional title of Chairman of the Board,
President, Senior Vice Chairman or Vice Chairman and such person shall have,
subject to the supervision and direction of the Board of Directors or the
Executive Committee, all of the powers vested in such Chief Executive Officer by
law or by these By-Laws, or which usually attach or pertain to such office. The
other officers shall have, subject to the supervision and direction of the Board
of Directors or the Executive Committee or the Chairman of the Board or, the
Chief Executive Officer, the powers vested by law or by these By-Laws in them as
holders of their respective offices and, in addition, shall perform such other
duties as shall be assigned to them by the Board of Directors or the Executive
Committee or the Chairman of the Board or the Chief Executive Officer.
The General Auditor shall be responsible, through the Audit Committee, to the
Board of Directors for the determination of the program of the internal audit
function and the evaluation of the adequacy of the system of internal controls.
Subject to the Board of Directors, the General Auditor shall have and may
exercise all the powers and shall perform all the duties usual to such office
and shall have such other powers as may be prescribed or assigned to him from
time to time by the Board of Directors or vested in him by law or by these
By-Laws. He shall perform such other duties and shall make such investigations,
examinations and reports as may be prescribed or required by the Audit
Committee. The General Auditor shall have unrestricted access to all records and
premises of the Company and shall delegate such authority to his subordinates.
He shall have the duty to report to the Audit Committee on all matters
concerning the internal audit program and the adequacy of the system of internal
controls of the Company which he deems advisable or which the Audit Committee
may request. Additionally, the General
<PAGE>
Auditor shall have the duty of reporting independently of all officers of the
Company to the Audit Committee at least quarterly on any matters concerning the
internal audit program and the adequacy of the system of internal controls of
the Company that should be brought to the attention of the directors except
those matters responsibility for which has been vested in the General Credit
Auditor. Should the General Auditor deem any matter to be of special immediate
importance, he shall report thereon forthwith to the Audit Committee. The
General Auditor shall report to the Chief Financial Officer only for
administrative purposes.
The General Credit Auditor shall be responsible to the Chief Executive Officer
and, through the Audit Committee, to the Board of Directors for the systems of
internal credit audit, shall perform such other duties as the Chief Executive
Officer may prescribe, and shall make such examinations and reports as may be
required by the Audit Committee. The General Credit Auditor shall have
unrestricted access to all records and may delegate such authority to
subordinates.
SECTION 3. The compensation of all officers shall be fixed under such plan or
plans of position evaluation and salary administration as shall be approved from
time to time by resolution of the Board of Directors.
SECTION 4. The Board of Directors, the Executive Committee, the Chairman of the
Board, the Chief Executive Officer or any person authorized for this purpose by
the Chief Executive Officer, shall appoint or engage all other employees and
agents and fix their compensation. The employment of all such employees and
agents shall continue during the pleasure of the Board of Directors or the
Executive Committee or the Chairman of the Board or the Chief Executive Officer
or any such authorized person; and the Board of Directors, the Executive
Committee, the Chairman of the Board, the Chief Executive Officer or any such
authorized person may discharge any such employees and agents at will.
<PAGE>
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 1. The Company shall, to the fullest extent permitted by Section 7018 of
the New York Banking 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 Company 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 Company is servicing or served
in any capacity at the request of the Company by reason of the fact that he, his
testator or intestate, is or was a director or officer of the Company, 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 2. The Company may indemnify any other person to whom the Company 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 Banking Law or other rights created by (i) a resolution of
stockholders, (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 3. The Company shall, from time to time, reimburse or advance to any
person referred to in Section 1 the funds necessary for payment of expenses,
including attorneys' fees, incurred in connection with any action or proceeding
referred to in Section 1, 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 4. Any director or officer of the Company serving (i) another
corporation, of which a majority of the shares entitled to vote in the election
of its directors is held by the Company, or (ii) any employee benefit plan of
the Company or any corporation referred to in clause (i) in any capacity shall
be deemed to be doing so at the request of the Company. 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 Company, evidenced by
a written communication signed by the Chairman of the Board, the Chief Executive
Officer or the President, 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
<PAGE>
in the circumstances, such person shall be unable to obtain indemnification from
such other enterprise or its insurer.
SECTION 5. 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
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 6. The right to be indemnified or to the reimbursement or advancement of
expense 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 Company 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 7. If a request to be indemnified or for the reimbursement or
advancement of expenses pursuant hereto is not paid in full by the Company
within thirty days after a written claim has been received by the Company, the
claimant may at any time thereafter bring suit against the Company 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 Company (including its Board of Directors,
independent legal counsel, or its stockholders) 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
circumstance, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its stockholders) 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 8. 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 1 shall be entitled to indemnification only as provided in Sections 1
and 3, notwithstanding any provision of the New York Banking Law to the
contrary.
ARTICLE VI
SEAL
SECTION 1. The Board of Directors shall provide a seal for the Company, the
counterpart dies of which shall be in the charge of the Secretary of the Company
and such officers as the Chairman of the Board, the Chief Executive Officer or
the Secretary may from time to time direct in writing, to be affixed to
certificates of stock and other documents in accordance with the directions of
the Board of Directors or the Executive Committee.
SECTION 2. The Board of Directors may provide, in proper cases on a specified
occasion and for a specified transaction or transactions, for the use of a
printed or engraved facsimile seal of the Company.
<PAGE>
ARTICLE VII
CAPITAL STOCK
SECTION 1. Registration of transfer of shares shall only be made upon the books
of the Company by the registered holder in person, or by power of attorney, duly
executed, witnessed and filed with the Secretary or other proper officer of the
Company, on the surrender of the certificate or certificates of such shares
properly assigned for transfer.
ARTICLE VIII
CONSTRUCTION
SECTION 1. The masculine gender, when appearing in these By-Laws, shall be
deemed to include the feminine gender.
ARTICLE IX
AMENDMENTS
SECTION 1. These By-Laws may be altered, amended or added to by the Board of
Directors at any meeting, or by the stockholders at any annual or special
meeting, provided notice thereof has been given.
<PAGE>
I, Marc Parilla, Assistant Secretary 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.
/s/ Marc Parilla
--------------------------
ASSISTANT SECRETARY
DATED: June 9, 1998
<PAGE>
Exhibit 7
<TABLE>
<CAPTION>
<S><C>
Legal Title of Bank: Bankers Trust Company Call Date: 03/31/98 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-1
City, State ZIP: New York, NY 10006 11
FDIC Certificate No.: | 0 | 0 | 6 | 2 | 3
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise indicated,
reported the amount outstanding as of the last business day of the quarter.
SCHEDULE RC--BALANCE SHEET
---------------
| C400 |
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
ASSETS | ////////////////// |
1. Cash and balances due from depository institutions (from Schedule RC-A): | ////////////////// |
a. Noninterest-bearing balances and currency and coin (1) .............................. | 0081 1,458,000 |1.a.
b. Interest-bearing balances (2) ....................................................... | 0071 2,253,000 |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 6,444,000 |2.b.
3. Federal funds sold and securities purchased under agreements to resell.................... | 1350 30,836,000 |3.
4. Loans and lease financing receivables: | ////////////////// |
a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 19,993,000 | ////////////////// |4.a.
b. LESS: Allowance for loan and lease losses....................RCFD 3123 647,000 | ////////////////// |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 19,346,000 |4.d.
5. Trading Assets (from schedule RC-D) ..................................................... | 3545 45,690,000 |5.
6. Premises and fixed assets (including capitalized leases) ................................. | 2145 791,000 |6.
7. Other real estate owned (from Schedule RC-M) ............................................. | 2150 184,000 |7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) | 2130 104,000 |8.
9. Customers' liability to this bank on acceptances outstanding ............................. | 2155 542,000 |9.
10. Intangible assets (from Schedule RC-M) ................................................... | 2143 81,000 |10.
11. Other assets (from Schedule RC-F) ........................................................ | 2160 5,339,000 |11.
12. Total assets (sum of items 1 through 11) ................................................. | 2170 113,068,000 |12.
---------------------------------
</TABLE>
- --------------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
<TABLE>
<CAPTION>
<S><C>
Legal Title of Bank: Bankers Trust Company Call Date: 03/31/98 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-2
City, State Zip: New York, NY 10006 12
FDIC Certificate No.: | 0 | 0 | 6 | 2 | 3
SCHEDULE RC--CONTINUED ___________________________
Dollar Amounts in Thousands | //////// Bil Mil Thou |
- ------------------------------------------------------------------------------------------------- -----------------------
LIABILITIES | //////////////////////// |
13. Deposits: | /////////////////////// |
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) | RCON 2200 26,465,000 |13.a.
(1) Noninterest-bearing(1) ...........................RCON 6631 3,005,000...... | /////////////////////// |13.a.(1)
(2) Interest-bearing ..................................RCON 6636 23,460,000...... | /////////////////////// |13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E | /////////////////////// |
part II) | RCFN 2200 21,993,000 |13.b.
(1) Noninterest-bearing ..............................RCFN 6631 1,712,000 | /////////////////////// |13.b.(1)
(2) Interest-bearing .................................RCFN 6636 20,281,000 | /////////////////////// |13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase | RCFD 2800 12,125,000 |14.
15. a. Demand notes issued to the U.S. Treasury ........................................... | RCON 2840 0 |15.a.
b. Trading liabilities (from Schedule RC-D)............................................ | RCFD 3548 25,701,000 |15.b.
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases): | /////////////////////// |
a. With a remaining maturity of one year or less ...................................... | RCFD2332 6,773,000 |16.a.
b. With a remaining maturity of more than one year through three years................ | A547 3,754,000 |16.b.
c. With a remaining maturity of more than three years.................................. |A548 2,212,000 | 16.c
17. Not Applicable. | //////////////////////// |17.
18. Bank's liability on acceptances executed and outstanding ................................ | RCFD 2920 542,000 |18.
19. Subordinated notes and debentures (2).................................................... | RCFD 3200 1,308,000 |19.
20. Other liabilities (from Schedule RC-G) .................................................. | RCFD 2930 6,135,000 |20.
21. Total liabilities (sum of items 13 through 20) .......................................... | RCFD 2948 107,008,000 |21.
22. Not Applicable |/////////////////////// |
|///////////////////////// |22.
EQUITY CAPITAL |/////////////////////// |
23. Perpetual preferred stock and related surplus ........................................... | RCFD 3838 1,000,000 |23.
24. Common stock ............................................................................ | RCFD 3230 1,352,000 |24.
25. Surplus (exclude all surplus related to preferred stock) ................................ | RCFD 3839 544,000 |25.
26. a. Undivided profits and capital reserves ............................................. | RCFD 3632 3,583,000 |26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities ............. | RCFD 8434 ( 41,000) |26.b.
27. Cumulative foreign currency translation adjustments ..................................... | RCFD 3284 ( 378,000) |27.
28. Total equity capital (sum of items 23 through 27) ....................................... | RCFD 3210 6,060,000 |28.
29. Total liabilities and equity capital (sum of items 21 and 28)............................ | RCFD 3300 113,068,000 |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 Number
describes the most comprehensive level of auditing work performed for the -----------------
bank by independent external auditors as of any date during 1997 ............... | RCFD 6724 1 | M.1
-----------------------------------
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the consolidated holding
company (but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with
generally accepted auditing standards by a certified public accounting
firm (may be required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- ----------------------
(1) Including total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000825953
<NAME> FIDELITY BANCSHARES (N.C.), INC.
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<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
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<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 43,400,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,804,252
<INVESTMENTS-CARRYING> 102,052,076
<INVESTMENTS-MARKET> 102,125,862
<LOANS> 385,270,983
<ALLOWANCE> 3,708,958
<TOTAL-ASSETS> 597,723,090
<DEPOSITS> 515,937,028
<SHORT-TERM> 11,037,014
<LIABILITIES-OTHER> 8,207,066
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0
0
<COMMON> 6,961,424
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<INTEREST-LOAN> 17,970,223
<INTEREST-INVEST> 3,338,054
<INTEREST-OTHER> 1,126,085
<INTEREST-TOTAL> 22,434,362
<INTEREST-DEPOSIT> 9,494,947
<INTEREST-EXPENSE> 9,686,694
<INTEREST-INCOME-NET> 12,747,668
<LOAN-LOSSES> 179,819
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<EXPENSE-OTHER> 8,410,909
<INCOME-PRETAX> 6,795,964
<INCOME-PRE-EXTRAORDINARY> 6,795,964
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,209,480
<EPS-PRIMARY> 148.17
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<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000825953
<NAME> FIDELITY BANCSHARES (N.C.), INC.
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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<DEPOSITS> 505,237,070
<SHORT-TERM> 11,051,315
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0
0
<COMMON> 6,961,424
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<INTEREST-LOAN> 34,116,250
<INTEREST-INVEST> 8,671,493
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<INTEREST-DEPOSIT> 18,692,963
<INTEREST-EXPENSE> 19,016,511
<INTEREST-INCOME-NET> 24,232,666
<LOAN-LOSSES> 360,000
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<INCOME-PRETAX> 11,969,459
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